“We saw one of the quickest recessions we’ve ever seen and one of the quickest recoveries we’ve ever seen.“
Chris is a partner of a top NYC-based Private Wealth Management team managing ~$5 billion in client assets. Their clients include high net worth individuals, family offices, foundations and organizations, money management principals, institutional money managers, small cap banks and offshore investors.
We saw almost $3 trillion deployed through the four stimulus bills delivered by congress, almost equaling the normal tax receipts of the United States in any given year. Despite the inorganic nature of capital flow, markets should go higher.
With regard to tech stocks, “there’s a reason why tech companies have outperformed so dramatically.” They are changing how we do business and live our lives, all while maintaining pristine balance sheets. These businesses are here to stay, but they are comparatively expensive. Depending on the election, there may be sell-offs later on in the year to take advantage of potentially lower tax rates.
“I don’t think [interest] rates go back to normal, but I think they go higher.” Value trading will be driven by a cyclical rebound, improving financials and net interest margins, and projected economic growth coming to fruition.
LISTEN AND SUBSCRIBE
SPEAKER
Christopher Toomey
Managing Director & Founding Partner
Morgan Stanley Team Global
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darsie: (00:07)
Hello, everyone. Welcome back to SALT Talks. My name is John Darsi. I'm the managing director of SALT, which is a global thought leadership forum at the intersection of finance, technology and public policy. The SALT Talks are a digital interview series that we started during the work from home period, to replicate the type of experience that we provided our global SALT conference series. And what these are, are really conversations with leading investors, creators, and thinkers.
John Darsie: (00:33)
What we're really trying to do is provide our audience a window into the minds of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome Chris Toomey to SALT Talks. Chris is a partner of a top New York city-based private wealth management team. That's affiliated with Morgan Stanley and they manage around five billion in client assets.
John Darsie: (00:55)
Their clients include high-net-worth individuals, family offices, foundations and organizations, money management principles, institutional money managers, small cap banks and offshore investors. Chris began his career at JP Morgan's private bank and he was there until 1998 when he joined Lehman Brothers. He's held various positions throughout Morgan Stanley, transitioning from portfolio manager of the government credit portfolio to building out Lehman's third-party long only manager platform. As senior vice president, he was responsible for manager due diligence and often assisted in providing asset allocation and investment advice for private wealth clients. He joined Morgan Stanley Private Wealth in May of 2008.
John Darsie: (01:38)
Chris has earned various distinctions including membership in Morgan Stanley's president's club. He was recognized by the Financial Times as one of the top 400 advisors and by Forbes shook top wealth advisors. He's spoken at several conferences about alternative investments, including the SALT conference, Hedge World and the Investment Institute. He's also appeared on CNBC Squawk on the Street, Fox Businesses, Fox Business News FBN:am Show, as well as Wall Street Week, he's also appeared within Reuters as well.
John Darsie: (02:09)
A reminder, if you have any questions for Chris during today's talk, you can enter them in the Q&A box at the bottom of your video screen. And hosting today's talk is Anthony Scaramucci, who is the founder and managing partner of SkyBridge Capital, a global alternative investment firm. Anthony is also the chairman of SALT. And with that, I'll turn it over to Anthony for the interview.
Anthony Scaramucci: (02:28)
[inaudible 00:02:28] Unmute myself here. I'm sorry. I had myself muted because I've got my kids in the background here, Chris. Okay. I've got a great room Raider today, but I've also got kids outside shooting Nerf bullets at me while we're speaking. So I apologize for that. But let's go to your personal background for a second. You and I met probably 2005 or six, I think you were at Lehman at the time, if that's correct. Tell us your early start. What were you thinking about being when you grew up? As an example, John wanted to be a physicist and, of course, I wanted to be an astronaut. What did you want to be when you grow up and how the hell did you end up in this business?
Chris Toomey: (03:07)
Well thank you for having me. I appreciate it. It's a big difference from being at SALT in Las Vegas. And you're right, Anthony, we got to know each other very well during the integration between Neuberger and Lehman Brothers. At the time Lehman Brothers was growing out of their asset management from the spinoff from Shearson about four years before that. And we acquired a bunch of different asset management companies, the last being Neuberger Berman, which also proved to be the biggest and probably one of the best. And so it was great getting to know you and working on that integration.
Chris Toomey: (03:43)
But to answer your original question, I went to a small liberal arts school in upstate New York. I was an English major. I took my LSATs and I think like you, I was thinking about going into the law. But before I went to law school, I figured I would intern in New York at one of these white-shoe law firms. And so I was doing interviews and a bunch of my friends who I had econ classes with told me, "If you're going to go down to New York, you might as well start interviewing with some of these banks." And at the time it was the 90s where everybody was working hard and there's lots of money to be made. And I said, you know what, maybe I'll go work for an investment bank and see where that takes me. And if I want to go to law school, I'll go to law school.
Chris Toomey: (04:33)
I got an opportunity to work at JP Morgan, learning about managing wealth for ultra high-net-worth families. It was a very exciting time in the 90s, as you remember. And from there, I got an opportunity in 98 to go over to Lehman Brothers who, as I mentioned before, were starting to build out an asset management business. And so at the time it was 150 year old firm, but it was really feeling like a startup. I was employee number 11 of what became Lehman Brothers Asset Management. And I guess the rest is history.
Anthony Scaramucci: (05:08)
Well, what I love about the story is that it was a weird arc to your career path, but you love what you do, obviously, because you're so good at it. So let's get into it. Stock market is at an all time high, having a good day today, it was down more than 30% in March, which we both know. Is the snapback justified given the state of the economy? And if so, why and where do we go from here, Chris?
Chris Toomey: (05:38)
Yeah, I think that's a good point. We saw probably one of the quickest recessions we've ever seen with one of the quickest recoveries we've ever seen. If you look at the numbers, the market did bottom in March 23rd. Initial claims peaked at the end of March at about seven million. We also saw the unemployment peak around April. Retail sales bottomed in April. ISM bottom in April. So we had that natural bottoming process that you would normally see with the recession. It just happened very quickly. And the flip side to that is while we had a very, very difficult to store GDP number in the second quarter, our expectations is that we'll get a very good one in the third quarter. And so what is it? It's all basically about stimulus, right?
Chris Toomey: (06:32)
If you look at 2019 federal tax receipts were about $3.4 trillion, if you take the four different stimulus bills combined they equal about $3 trillion. So in that stimulus, we basically almost equal all of the federal tax receipts that we normally take in, in one year. And all that money was used to prop up the economy, keep people from going into work and spreading the virus, and it stimulated the economy and it stimulated the markets. And so I think, putting money to work when the market was at 2200 was a little bit easier than putting to work at 3,500, but we think it's definitely justified and we think the market's going to continue to go higher.
Anthony Scaramucci: (07:16)
Let's talk about equities for a second because you and I watched this stuff very carefully. The tech side of things, like 10 to 15 names, Chris have dramatically outperformed in the recent rally, will that continue? Is value investing dead? Is passive investing ruling for the next decade? What do you make of what's going on? And where do you see things in terms of the trends?
Chris Toomey: (07:44)
I think there's a reason why these tech companies about perform so dramatically. One, they're breaking paradigms, they're growing at astronomical rates and they're changing the way that we do business. And as opposed to the period that I entered the market, when everybody was chasing technology companies that weren't profitable, these companies are making tons of money, they've got pristine balance sheets, and there's a reason why people are looking at them and saying, "Are these monopolies really good for the economy?" They've got impenetrable balance sheets. They're growing at astronomical rates and a period where there's some real concern about what's going to happen because of COVID, it's become a safe harbor trade. So if you look at it, I think 25% of the return in the S&P 500 is driven by these names.
Chris Toomey: (08:34)
I think it's about 50% with regards to the NASDAQ. Yeah. I think if you look at what Mike Wilson saying in our global investment committee is saying, "These businesses are here to stay, but they're probably a little expensive here." And so I think it wouldn't be a shock to me if I saw a bunch of these names starting to sell off for a variety of reasons. One, depending on what your view is of the election, there is a high likelihood that we could see tax rates go higher. And so for that reason, you could see some investors taking some tax loss selling between now and the end of the year. And a lot of these investors have huge gains in these names. So you could see that providing some downward pressure.
Chris Toomey: (09:15)
I also think you could probably see with the proliferation of some of these new technology companies coming into market, where you've got a lower market cap, you've got higher growth rates, investors taking some money away from their winners and looking to get into next year's or next decades where it's. I think the question with regards to value stocks, I think you've got to look at what's driving those returns. When you think of value, you think of defensive names, but large majority of these indexes are basically financials driven. And as you know, coming out of the credit crisis, there was a tremendous amount of regulatory pressure put on banks. And so what you saw was while banks they got much better and more efficient with regards to using capital, they took their leverage down dramatically.
Chris Toomey: (10:06)
So the return on equity has come down dramatically from prior to the credit crisis. And so that's been a drain with regards to financials ability to outperform and keep up with technology companies. Now, if we do get a normal V-shaped recovery, and from a cycle standpoint, we see a regular cyclical type rally, which we're anticipating, part of that might include a situation where interest rates start going higher, and I think we're in a situation where interest rates we're at about 50 basis points, they were going towards 80 basis points and everybody was having a heart attack that rates were going higher.
Chris Toomey: (10:46)
I don't necessarily think rates go back to normal, but I think they do go higher. So I think there's a couple of things that would drive the value trade. One is, do we get a cyclical rebound? Two, do financials start to see improvement with regards to net interest margins? And three, do we continue to see the economic growth that we've been expecting to see?
Anthony Scaramucci: (11:14)
Is there a scenario where the bottom part of the S&P... So right now it feels like it's the S&P 10 or the S&P 15, and then the S&P 45, but really the bottom part of the S&P that sort of S&P 250 to 500 has really underperformed Chris, is there a scenario where it rotates and that starts to outperform? And if there is what would be the catalyst?
Chris Toomey: (11:43)
I think a catalyst would be that traditional V-shaped recovery, so that you typically see the names that have underperformed, like financials, energy materials, consumer discretionary outside of a couple of tech focus, consumer discretionary names, really starting to do well. And I think that is going to be basically driven by two things. One, we're getting a lot of results with regards to a vaccine and treatments over the next four to eight weeks with regards to treating COVID. Secondly, is continued stimulus with regards to fiscal stimulus. Now we're in a situation right now, between the Democrats and Republicans, where originally we were thinking there would be some sort of compromise going into the election, anticipating maybe another stimulus bill of about a trillion dollars.
Chris Toomey: (12:33)
The Democrats are pushing for over $2 trillion. And you're seeing everyone starting to ratchet down their estimates with regards to getting some sort of fiscal stimulus between now and the election. Our view is, we're probably more leaning towards no stimulus before the election than stimulus was before the election. But our view is that, shortly after the election, we'll see some sort of stimulus between one and $2 trillion. I think that type of stimulus will continue to power us through, and continue to increase GDP. And we'll start to see some of those other sectors start to participate.
Anthony Scaramucci: (13:14)
We're talking about a V-shaped recovery, but we've already had a lot of time be expended. We've got six months of time that's been expended, somebody who likes talking about it's a K-shape meaning, some of us are doing well and some of us are doing less well. Why are you still confident in a 'V-shape recovery'?
Chris Toomey: (13:37)
I think it's because if you look at the data, the data is telling you that it's V-shaped, if you look at retail sales, we're seeing consistent growth in retail sales. If you look at personal savings, the consumer's actually in great shape going into COVID and their balance sheets have actually improved during COVID just with regards to the stimulus checks that they're getting. If you look at the manufacturing, you're seeing manufacturing continue to pick up. And if you look at places like Asia and particularly in China, you've seen that they've actually recovered to pre-COVID levels.
Chris Toomey: (14:11)
So our anticipation is we get to pre-COVID levels of GDP, probably sometime in the second half of 2021. And as such, that should be anticipated by the market and continue with the follow-through. So while our base case right now on the S&P 500, doesn't provide a tremendous amount of upside on the S&P in general, our view is, is that there's going to be opportunities to go well above our bull case. If you look at different areas to take advantage of.
Anthony Scaramucci: (14:43)
When you were growing up in the business, as was I, we talked about asset allocation being 55/45, 60/40 depending on the person's age, 50/50, et cetera. But do you think the 60/40 model, the portfolio model of 60/40 is viable today, given where interest rates are?
Chris Toomey: (15:05)
No, I think that's the crux of, I think, asset allocation right now. Historically, it was always about that base of fixed income, where you were collecting a certain amount of cash flow and maturity was always going to provide you your principal back in return. And then you took risk on the equity side of your allocation. Right now, if you look at the global debt market about 85% of it yields less than 2%. So if you're a foundation, you're an endowment, you're an individual family that's looking to live off of your retirement assets, and you're only making two and less percent on your fixed income. There's no way that you're going to be able to meet those goals.
Chris Toomey: (15:45)
And so I think what you're seeing is whether it's from a regulatory standpoint, where regulators are saying, you know what, we need to provide high-net-worth investors and retail investors with options besides fixed income to provide that stability, to provide that cash flow, to offset the volatility of the equity market, or it's just the natural progression with regards to where people are putting assets. In our view, the traditional asset allocation has become very outdated and you need to start thinking differently.
Anthony Scaramucci: (16:19)
Let's stay on this for a second, [inaudible 00:16:21] huge low rate environment, obviously stocks have gone up in that environment, hedge funds have typically underperformed, just pockets of them done okay. But really since 2012, hedge funds have really not performed well. What role do you think hedge funds play in portfolios going forward?
Chris Toomey: (16:44)
Yeah, look, I think there's a reason why hedge funds have underperformed since 2012. You saw a situation where a lot of money was flowing into the space, and the pendulum swung too hard. And you had a lot of people managing money that probably shouldn't have been managing money and the amounts of money that they were managing. And so it was only natural that you'd start to see those opportunities dry up and hedge funds underperform. What I would say is, is what we saw in 2008, 2009, during the global financial crisis, and what we saw coming through the COVID crisis was that our hedge funds for by and large did exceptionally well this periods.
Chris Toomey: (17:25)
When you looked at macro, whether you looked at equity long short, whether you looked at multi-strat, with these periods of uncertainty and this periods of volatility, and really a dispersion between great companies and not so great companies, there was a real good opportunity to generate alpha. And in our view, we think that that's going to continue and that you'll to see continued amounts of capital flowing into the hedge fund space.
Anthony Scaramucci: (17:56)
One part of that market though, and the hedge fund side structured credit did not do well during the crisis. So, what happened there? What do you think happens there? And what do you say to your clients about that?
Chris Toomey: (18:09)
Yeah, look, I think it was a very scary time, very similar to the global financial crisis. When you're at dinner and you're receiving calls from friends on desks, friends at hedge funds, hearing rumors about this hedge funds going under, that hedge funds going under, these hedge funds over levered. And then when the banks came in and changed the margin requirements on a lot of this paper, we knew that there was going to be a bloodbath. And I think you notice this as well as I did when the treasury secretary is doing a press conference and talking about, on the run treasuries versus off the run treasuries, you knew they were looking exactly at where the heart of this problem was, which was overlevered players and structured credit. And what I'll tell you is, is it's the old adage, you could be right, but with the leverage, you might not be around long enough to see being right.
Chris Toomey: (19:06)
And so a big part of this I think is, was leveraging the space. I think a big part of this was players that shouldn't have been in the space, and the space had to have a shakeout. And so we saw that shake out, and it was painful for a lot of those players, but that pain provides opportunity for us going forward. And so in our minds, if you've got exposure to a structured credit, if you're looking to get exposure to structured credit, it's probably one of the few places in the bond market that is still attractive. And what I would say though, is I would be very selective with regards to how you play it, really looking at diversifying into managers and funds that have a long extensive history of being able to manage in that space, understand what the risks are.
Chris Toomey: (19:56)
Many of these pieces of paper are very esoteric and you really need to know what you own. And then they also have to have the wherewithal and the ability to withstand a potential pullback. We still haven't seen the stimulus come through that, we're expecting at some point, there's going to be a talk with regards to a double dip recession. If the economy continues to kind of mull along, we don't have a vaccine and we don't have stimulus. And so in that type of situation, you really want to make sure you've got a manager that's not necessarily selling into those markets, but taking advantage of that weakness.
Anthony Scaramucci: (20:38)
We both do it as a long time. This is my 32nd year doing this. I find that high net worth individuals, which I have been managing money for high net worth individuals for 32 years. And we have, Morgan has Alon who talked about the psychology of money. I find that people get very emotional with their money and justifiably. So I'm not saying otherwise, but it seems the best strategy is to be unemotional. And so when sharp selloffs take place, if the fundamentals are okay, it makes sense either to add money there or to stay patient. So have you found that to be the case with your clients? And if you have, what psychological things do you do to help your clients through those things? Or do you think about these things in a contrarian way?
Chris Toomey: (21:31)
Yeah, look, I think it's the crux of what we do, which is providing our clients with the right advice at the right time. And while you've been in the business a little bit longer than I have, we've been seeing one crisis after another-
Anthony Scaramucci: (21:45)
Don't rub it into me. The conversation was going great up until that moment, all of a sudden the conversation got a little disturbing, don't rub it in.
Chris Toomey: (21:55)
In fairness, we've seen quite a few crisis over our time in the market. And in each of those we've come out of them. And we've seen the guys that have been able to take advantage of those pullbacks. And in many cases, it's all about having a plan and being disciplined. So when you're talking to your clients and you're talking about what you're trying to achieve, in certain situations, when markets are elevated, when things are going along as they should, there isn't a whole lot to do. But when you do see those periods where the market sells off 30%, that's why we're here. That's why we've got cash. This is why we want to rebalance our portfolio.
Chris Toomey: (22:34)
You want to have something that's doing well when the market's selling off. So you have some dry powder to put into these markets that have become cheap and that you want to get exposure to. And so the good news is we left Lehman Brothers about 120 days before the bankruptcy. We brought in a lot of new business during the global financial crisis, and we did exceptionally well for a lot of these clients. And when COVID hit and the markets sold off about 30%, we were ready. We went back to the same playbook in 08, 09, and our clients were prepared for it. And so they were holding their noses like we were in some situations because, you don't know when you're going to pick the bottom, but you know, that the probability is that those times that you're going to get a really good return by doing the right thing.
Anthony Scaramucci: (23:26)
Well, let's talk about that because you had a pandemic, 1918 pandemic, 100 plus years go by, we have another pandemic. You did have the financial crisis seems like a dress rehearsal, frankly, for the pandemic, but your portfolio construction ideas and your view of risk management have been changed by the pandemic, or are you unchanged? Like what does the pandemic say to you about where you need to be from a risk management perspective? Or does it not say anything and just say it chalk it up to it being a meteor strike?
Chris Toomey: (24:05)
No, look, I think it's one of those things, what we have to be prepared for. We have to be prepared for the known unknown. And this is a situation where, who knew we were going to have this crisis coming? And so you need to make sure that you build portfolios that can withstand some of these pullbacks and that you're going to have the capital and the wherewithal with regards to take advantage of those cheaper prices and take advantage of that opportunity. So I think what it did was it just reinforced the fact that you need to stick to your knitting. You still need to have a plan in place, because these things are going to occur. They've been incurring probably every seven to eight years. And if you're not prepared, and know what you should be doing, you're going to miss them, or you're going to make a mistake.
Chris Toomey: (24:54)
I'd say the difference with regards to COVID versus GFC is the fact that interest rates now are so low and just having kind of a 60/40 portfolio, or having some long duration fixed income in your portfolio, was really going to be helpful in each of these situations. But now that rates are so low, you're not necessarily getting that reward that you used to get when the market sold off. And so you really have to start thinking differently. And so what it did is, it really is accelerating our asset allocation decisions in investing in other things like hedge funds and private credit and private equity, and in places like real estate. And so, getting some real stability on the other side of your portfolio with those types of asset classes, I think is really necessary just given the lack of opportunity on the fixed income front.
Anthony Scaramucci: (25:50)
All right, I'm going to turn it over to Darsi. He's been dying to ask you a few questions. You got a lot of questions in the queue and you got tremendous amount of participation today, Christopher. So I'm impressed with that. And let's start it over to John Darsi, who's going to try to out shine you and me now. So we get ready to me, get ready.
John Darsie: (26:09)
Of course. I want to build on, you've alluded to this a couple of times, and you just mentioned that again, the idea of trying to drive returns outside of the traditional core fixed income part of your portfolio. And even now with equities, having rallied back to highs, trying to drive returns elsewhere, we have a question about private equity, whether it's direct co-investment or indirect, and the need to have private equity in your portfolio to try to juice returns a little bit in this low interest rate environment, how much private equity is typical today, or should be typical in a balanced portfolio? And what sort of a max percentage of a portfolio that you would recommend the average client? Obviously, every client is different and I want to paint it with two broad strokes, but within a high net worth individuals portfolio, let's say what's the max percentage of private equity? And what's the role in the portfolio of that private equity allocation?
Chris Toomey: (27:00)
No, I think that's a very good question. And as I think you hit on every client's different and every client situation is different. And so when we're talking to our clients, we've got a general consensus within our investment committee with regards to, if we had a clean slate and we had no variables to worry about what would that model portfolio look like? And variably though, our clients don't have a clean slate. They own businesses, they have their own direct investments, they have their own return and risk parameters. And for that reason, we have to take those things into consideration when we're looking at how we build a portfolio for them, and making sure that we don't have outsized risks within one area of the portfolio, and not providing the type of balance that you need.
Chris Toomey: (27:51)
I think when you think about private equity, I think you need to think about it as a commitment. Because it takes a long time to put that money to work. It takes a long time for that money to get harvested. And you want to diversify against what we call vintage year risk. And so there's certain vintages, where there were great opportunities and you got great returns and there are certain years or certain vintages where the opportunities were not as great. And so what I would say is, is that broad-based private equity right now, is not an area that we think is very attractive. There's about a $2.2 trillion of cash sitting on private equity balance sheets, waiting to get put to work. And the market is still, if you look at it from a valuation standpoint, pretty highly valued.
Chris Toomey: (28:44)
Now we've got the flip side of that, of interest rates being relatively low. So financing these deals becomes a little bit more attractive. In addition to that, as Anthony mentioned before, a lot of this performance has been concentrated into a couple of areas in the tech space. But if you look at the S&P right now about the average stock, I think is down about eight to 10%, so there are opportunities out there. And so what I would say is, is within this kind of period, we would say the opportunity in private equity is probably below average. And so we wouldn't necessarily be aggressively allocating broadly to private equity funds. But we would maintain that commitment. And so that can be anywhere from 5% of a liquid portfolio to as much as in some cases, 30 or 40%.
Chris Toomey: (29:39)
If you take into some of clients who have direct businesses, where they own a private business, that can be North of 50%. And so what I would say is, is it's all about making the right blend and taking advantage of the opportunities that are there. What I would say is actually a place that we think is actually even more interesting is owning a publicly listed alternative managers. So if you look at that, those alternative managers have the benefit of sitting on $2.2 trillion worth of cash. We're in a period which might be one of the greatest opportunities that we've seen in distressed investing in alcohol time. Many of these companies are growing at over 15% and have a dividend yield more than the S&P 500. So, what we would probably be doing is investing in less private equity funds and probably investing alongside them and owning their own stock.
John Darsie: (30:39)
That's an interesting way to look at it. Pivoting to real estate for a moment. A lot of what we've talked about with COVID is that it's accelerated trends that were already in place in terms of digital work, things of that nature, but there's also been some situations where it's reverse trends that were in place in particular with urban real estate and especially urban commercial real estate. What's your view on the real estate market? What are areas that you think are beaten down that might be a good place for opportunistic asset allocation? In general, how do you teach clients to access the real estate market? And what's your view of this space as a whole, in terms of what segments of the market are attractive and unattractive?
Chris Toomey: (31:21)
Yeah, we think real estate is actually a very attractive place to be invested right now. Outside of what you read about constantly in the press about, the issues that New York is having in San Francisco and some of the other large money center areas, that were probably expensive going into COVID. And then as you mentioned, are now dealing with some of these new trends with versus to work from home and remote working. But I think if we look at it right now, right now we're building less homes on an annualized basis than the 1950s, and the population's increased about 62%.
Chris Toomey: (32:00)
We're in a situation where, three month inventory is increased over six months. It's the highest level since 1963. So there's no inventory, we're not building as many houses and you're in a situation where millennials are leaving the home and looking to move into a new house or new apartment and mortgage rates are at all time lows. So it's a very attractive opportunity for multifamily housing. We also, we're seeing migration of people from the North and to the South, and aren't enough office buildings in those locations. And so what we're typically also seeing is some real opportunity in office in the right locations. Now broadly speaking office is going to have some issues, particularly, in the Northeast and in some areas of California.
Chris Toomey: (32:57)
But we also see some opportunities in office particularly in the South. We also like triple net lease opportunities. And so there are a variety of opportunities outside of your own home, outside of owning a publicly traded REIT, where you can get diversified exposure into some of those markets in a thoughtful way. Where you're in a situation where even with COVID, rental collections and lease collections are at average or above average collections. And so you've got high quality assets, you've got good cash flows. In many cases, you also might have a situation where you also have certain tax benefits built into that. So we're not accountants, we're not tax experts, but there are some benefits for taxable investors owning real estate and depending on what type of vehicle you owe.
John Darsie: (33:55)
So your team services are wide constituency of high net worth clients, individuals, institutions, what are some new trends that you're seeing among potentially next generation, high net worth investors in terms of what they're looking for from their investments? So the question I believe is leading towards it. Do you see more of a tilt towards things like ESG and impact? And how do you quantify those when you're building a portfolio for an investor?
Chris Toomey: (34:23)
Yeah, look, I think ESG has been around for decades. I just think people probably haven't talked about it. And I think, the millennials have really made it a key point with regards to how they invest that it's not just about profits, it's about what these companies are doing to make the world a better place. And what you're seeing is, is I think with COVID and people be more thoughtful with regards to how their money's being managed, it again, is accelerating these trends. And what we're also seeing is more and more opportunities to take advantage of these ESG mandates.
Chris Toomey: (34:59)
And I don't know for a fact that this is true, but if you look at value indexes, they've been underperforming, growth indexes for some time, there is a larger proportion of energy and materials and value indexes, and there is not a lot of value in material investments in ESG mandates. And so, that could be one of the reasons why you're seeing a little bit more of a divergence between growth and value.
John Darsie: (35:30)
Yes, the chicken and the egg. Which one is it? Is it the fact that demand fell off a cliff while supply, obviously with the OPEX situation deteriorated for markets? Or is it what you're talking about?
Chris Toomey: (35:41)
And it very well could be both. It could be a situation where, we came out of the global financial crisis where markets have done well, it's been probably one of the weakest economic recoveries out of a big pullback, like we've seen. So you don't have that tremendous amount of demand for energy that you had going into it. And you're not in a situation where you're having a hard time finding supply. And so that's definitely got to be a weight with regards to energy companies, but I think ESG is also going to have an effect on that, on the energy and materials side, but also on the industrial side. And just in general companies broadly speaking. I think it also is seen with reverts to a real focus in, on some of these newer growth companies.
Chris Toomey: (36:29)
You're seeing what we call the next Fang. We put out a report a couple months ago, about 25 names, about $155 billion worth of market cap growing at over 10% peg ratios, less than two. And since the markets bottom, we're actually the next fangs are actually outperforming the fangs. And I think part of this is the fact that there's more opportunity there. A lot of these technologies, a lot of these opportunities are getting pulled forward, and people are looking to take advantage of that.
John Darsie: (37:07)
Last question, before we let you go, you're affiliated with Morgan Stanley, a great firm, and I know we have a lot of high net worth individuals within the SALT community who tuned into these talks. If somebody was a free agent out there right now, a high net worth individual or an institution, and they're shopping around for a financial advisor, why would they want to work with a group affiliated with a firm like Morgan Stanley with its resources and its depth of knowledge, make your pitch to a perspective client?
Chris Toomey: (37:35)
Well, thank you. This is what I do every day. [crosstalk 00:37:39]
John Darsie: (37:39)
You're pretty good at.
Chris Toomey: (37:41)
We're a $7 billion, wealth management team. We basically could do whatever we want. We could go independent, we could go work for another bank. We've made a conscious decision to do what's the best thing for our clients, which is work at Morgan Stanley. From a technology spend around cybersecurity and just making things easier for our clients, to the amount of a scale that we have built into our business, to our partnerships, with reverts, to third-party asset management companies, the product that's available to us. And most importantly, just being able to do the business that we do and provide the advice that we provide. During the COVID crisis, operating from 30,000 feet was not going to work.
Chris Toomey: (38:31)
You really needed to look at what was going on at ground level from things as nuanced is, on the run treasuries versus off the run treasuries to what's going on in the securitized credit market, to what's going on with reverse to margin loans and margin reserve requirements. And so being a part of an investment bank that has a strong capital markets influence, is providing us information with reverse to what's going on, on the ground level, and then having the deep relationships with some of the greatest investors, the world is known, provides us kind of that top down and bottom up information flow that really provides customized solutions for our clients.
John Darsie: (39:16)
Well, I'm sold, but I want to leave you a final word before-
Anthony Scaramucci: (39:20)
That was a ridiculously easy question. What you should ask them is who's going to win the next election? That's what you should ask. Okay. That was a ridiculously easy question, but you don't have to answer that to me. I'm sure there's Morgan Stanley compliance that would be putting you in a bad spot. We appreciate you coming on-
Chris Toomey: (39:38)
I [crosstalk 00:39:39] question for you Antony.
Anthony Scaramucci: (39:40)
You go ahead.
Chris Toomey: (39:42)
All right. So this all conference takes place in Las Vegas, Nevada in May, will there be a SALT conference in May of this coming year?
Anthony Scaramucci: (39:59)
No, probably not unfortunately. I don't see how we could do that given the guidelines and what we know from the World Economic Forum and the Milken Institute and so forth. Could we have an event in September? I think so. I think that's possible. I'll turn it back to John Darsi and he could be more declarative about it. The number one thing for us Chris, is we want to make sure everybody's safe and healthy. And so that's a priori. I don't think we can get that done by May. If I thought we could, we certainly would have it in May. John, do you want to add anything to that?
John Darsie: (40:35)
Yeah, just reiterating what Anthony said, the public health guidance that we've gotten is that the first half of 2021 is going to be challenging for large in-person gatherings. And we love doing the SALT Talks series, has been great to stretch the content out over the course of several months, as opposed to jamming it into three days in Las Vegas, even though Las Vegas might be a little bit more fun than Anthony is sitting at home in his cargo shorts and his blazer.
John Darsie: (40:57)
But we're anticipating doing another in-person gathering, likely in the second half of 2021, we have a few tricks up our sleeve and we'll make that announcement probably in the next couple of months about what that event is going to look like. But for the time being, we're engaged in the virtual events and content the way everybody else is. And it's been a learning experience for everybody and we've really enjoyed all the conversations we've been able to have, including with you.
Chris Toomey: (41:23)
I appreciate the opportunity. I look forward to seeing you guys in Vegas sooner rather than later.
John Darsie: (41:29)
Absolutely.
Anthony Scaramucci: (41:30)
You well Chris. See you soon.
Chris Toomey: (41:32)
Thank you [crosstalk 00:41:32].
Anthony Scaramucci: (41:32)
Great job. All right, all the best.