“With an abundance of capital, you need to differentiate yourself by more than just money and a few relationships. “
Douglas Monticciolo is the Chief Executive Officer, Chief Investment Officer & Co-Founder of Brevet Capital Management, a leader in helping government agencies to solve complex problems. Doug has now been leading Brevet for over 20 years.
“Our strategy isn’t the most aggressive, but it’s very constructive.” Brevet has a government-focused business model where they source deals on a government’s behalf. This ranges from rural community development to partnering with research arms of universities.
The COVID-19 pandemic has provided a significant opportunity for Brevet’s finance-as-a-service model. As a result of the CARES Act, Doug is partnering with research and development companies to manufacture potentially game-changing point-of-care tests.
LISTEN AND SUBSCRIBE
SPEAKER
Douglas Monticciolo
Founder & CEO
Brevet Capital Management
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darsie: (00:08)
Hello, everyone, welcome back to SALT Talks. My name is John Darsie, I'm the managing director of SALT, which is a global thought leadership forum at the intersection of finance, technology, and public policy. SALT Talks are a series of digital interviews we've been doing during the work-from-home period in leu of our global conference series, The SALT Conference, to provide our audience a window into the mind of subject matter experts and provide a platform of what we think are big world changing ideas and tremendous investment opportunities as well.
John Darsie: (00:37)
We're very excited today to welcome Doug Monticciolio to SALT Talks. Doug is the co-founder, the co-CEO, and the co-chief investment officer of Brevet Capital Management. He's an entrepreneur and an investment manager with deep data analytics and technology experience developed over three decades while providing credit financing and advisory services. And I think if Doug didn't found Brevet Capital and go into financial services, he might have been helping Elon Musk with SpaceX. We'll get into that a little bit later.
John Darsie: (01:06)
Doug founded Brevet Capital Management in 1998 and has established the firm as a leader in helping government agencies solve complex problems and drive positive social impact by creating innovative financing products and services. And I know Brevet's been very busy during this time of really high government spending in response to the COVID pandemic. Another item that we'll touch on during today's talk. This finance as a service approach provides direct lending and other financing to private middle market companies that enables them to effectively serve the government sector as contractors, and it creates a very low credit risk strategy when you have the Department of Justice as your enforcer of payments in this type of business model, and it has a highly competitive barriers to entry that Brevet has been able to crack.
John Darsie: (01:53)
Doug's years of experience working in startup environments as a software entrepreneur and with an asset back securities fixed income in investment banking helped him identify a gap in the market where traditional lenders failed to provide the innovative financing and forward looking advisory services needed for private government contractors to rely on and deliver services. Doug has a passion for technology and approaches investing and credit financing with a problem solving mindset. He began his career at Goldman Sachs in the financial institution's industry resource group where he specialized in investment banking and principle finance trading, and he helped create numerous service marked products and services to address the unmet needs of clients. He later spent time at Lehman Brothers and Deutsche Bank where he was the head of the proprietary fixed income group in the merchant banking and principle finance group.
John Darsie: (02:45)
Doug's a turn from academics to finance when he was studying at Columbia University and working at Fischer Black, which was the creator of the Black Skulls model on complex mathematical formulas. He was encouraged to apply his skills to financial problem solving instead of academia, and he decided to put aside his pursuit of a PhD to join Goldman Sachs. But Doug did receive a masters of engineering sciences degree in applied mathematics from Colombia University, and he graduated from the state university of New York at Stony Brook with an MS in applied mathematics and a BS in applied mathematics in computer science.
John Darsie: (03:21)
Doug is also a level three certified member of the National Association of Rocketry, and a member of the Randonneurs USA, which is a long distance road biking organization. We were talking before we went live about how we're riding our bikes to stay in shape during the COVID pandemic, so that's another interesting thing Doug is involved in. He also coaches robotics and innovation and has led teams to numerous regional awards in that field. He led one of his teams to a worldwide second place finish in the FLL Global Innovation Award Season sponsored by Edison Nation and the XPRIZE Foundation, which was in cooperation with the U.S. Patent and Trademark Office. He also currently serves on the board of directors of Hope for New York, and is a board member of the Young Presidents Organization, Gotham Chapter.
John Darsie: (04:07)
Reminder, if you have any questions for Doug during today's talk, you can enter them in the Q&A box at the bottom of your video screen. And conducting today's interview is going to be Anthony Scaramucci, who's the founder and managing partner of SkyBridge Capital, a global alternative investment firm, as well as the chairman of SALT. And with that, I'll turn it over to Anthony for today's interview.
Anthony Scaramucci: (04:28)
Well, John, thank you. Doug, it is always an honor to be with you, and we go back a long ways. And I got to ask you questions I could only ask a fellow Italian. Have you been successful or were you ever successful at explaining what you do to your parents?
Doug Monticciolo: (04:47)
Good question. No. Fortunately, my dad was a butcher, my mom was an Avon lady. They did understand entrepreneurial business, but finance probably wasn't the core.
Anthony Scaramucci: (04:59)
Yeah, so I'm still trying to figure that out, that I cannot explain to my parents what I do. But I just thought I would throw that in there. More than 20 years you've been at Brevet, amazing success story. Why did you name it Brevet? That's one of my questions. And then what was the idea for the business model, where did the spark come from?
Doug Monticciolo: (05:24)
Sure. Brevet, everybody notes that it's not Brevet, but it is Brevet because ... You heard John talk about Randonneurs, which is a very old French long distance cycling organization, it precedes the Tour De France, and in order to be a member of Randonneurs, you need to take these qualifying tests. They're self driven benchmarks that are challenges that you have to pass very long distance rides without any support, and they're called brevets. And so, Brevet as a business was exactly that, it's our challenge to self-achieve, to push ourselves further than you normally would, and given that some of these rides are 1,200 kilometers, I think that's a good reflection of Brevet.
Doug Monticciolo: (06:13)
And our business, we're an all credit fund, and everybody asks what does that mean? That means we're a credit fund, that means predominantly we are collateralized, not just generally but very specifically, and we're [inaudible 00:06:26] in almost all cases. And what drove me to do this was I had the opportunity, right, to be very young and was at a startup right out of high school doing well in the software industry, and I got to Goldman and learned these great skills. And I wanted to create a business that was, I felt at least, a little more responsible in its investing than just providing financial products or out of the box solutions. And I believed that by doing that I could generate higher returns.
Doug Monticciolo: (06:52)
And so, we as a firm are very well known for not being super aggressive, but more importantly, being very constructive. And so, we take all these skills that I've learned over my career and my team, and we bring valuated solutions to create a better outcome. I as at Deutsche and I basically had the benefit of the [inaudible 00:07:13] which is why JP Morgan created was we wanted to bring more than just the money to bear. And so, our finance as a service, as you heard John say, really is our benchmark, right? We're not just bringing money, we're bringing a solution and our skills, and we're government focused. And that's maybe a place where you need the most help could be brought. They're not very commercial, they're definitely not very efficient.
Doug Monticciolo: (07:36)
And so, if I was to sort of be true to my responsible investing ethos, the government's a great place to do it. The flip side of it is that fact that if you help the government do things, you're helping citizens, not just in the U.S., we do this around the world, and the outcomes are great. Good returns, good outcomes was a recipe I couldn't pass up. Harder work, but the outcomes are worth it.
Anthony Scaramucci: (08:00)
Let's dive into that, because I think it's important to give a specific example so that it totally crystallizes for people what your business exactly is. If I need money from you, what am I typically doing? I have a contract with the government, the government's going to pay me, but I go to you to get a lending facility in waiting for that payment? Is that more or less your business strategy?
Doug Monticciolo: (08:27)
Our business ... And that's the traditional credit approach, which is borrow goes to lender, we actually turn the model around. Our clients are the government, and so, we go to the government and say, "What's not working?" Obviously, we're a very trusted party and around 20 years been able to do this, but they tell us, "We're having problems getting this program that we hold this money for to create jobs saying we're all in America" or "We're having problems inducing certain types of research and development" or "We're trying to get money out to the right businesses in a pandemic."
Doug Monticciolo: (09:01)
And so, we sit with them and say, "Well, here's our capabilities. We got a lot of resources, we got a lot of skills, we got a lot of relationships, give us a feeling for where you want it to go." And we'll then work with them to say, "You just make sure that as this plays out, we're going to do the following, you the government pay us back or we'll go and make sure that the money gets to where it needs to go." And so, if you're a borrower and we knock on your door, it likely means you're going to get something that you didn't think that you're going to get, which is typically free or low cost government opportunity that you didn't really think was going to come your way, or you couldn't figure out exactly how to get it. And so, we do that finance as a service. Yeah, it's finance, but the service is both to government and to the company, and we get paid for that. And that's basically how we do what we do.
Anthony Scaramucci: (09:49)
How as the business changed, Doug, during the COVID-19 environment? Seems like there's a proliferation of governmental financing out there and funding. Has that helped you guys or hurt you guys or indifferent?
Doug Monticciolo: (10:01)
Well, that's a good question, right, because COVID, the pandemic, is not something we could have predicted. We don't chase crises, but in this case, it's a clear demonstration of why the model works, which is in what other industry in this economic environment is somebody trying to put out $2 trillion dollars, and where are major other sovereigns trying to do the same thing? Where we focus on this and what the opportunity for us is, we were called in March right at the pandemic was breaking, because they were calling entrusted parties to try to help solve problems.
Doug Monticciolo: (10:38)
In short, yes, it's been tremendously helpful to our business, not just in the big volume increase, which we see every time there's a new program, but more in the trusting of the relationship and the reiterating ... Regardless of the administration now, it's sort of proving out that they call us when they need help and we're there with our money and our ideas. And for just our ideas, it's free, but most of the time we're bringing a solution. Been quite a bit and we haven't slept much in the last couple of months, but it's been there trying to hopefully bridge some of the gaps, which is a lot of what we do.
Anthony Scaramucci: (11:15)
I just want to get a little more definition here, because I'm getting a couple of text messages that "Let Doug elaborate on an example of capital." Government come to you says, "We're trying to push this out," you go to somebody and say, "Okay, listen, I can lend you money, you'll get the money from the government," and a result of which you're getting a return off on that connection. Is that fair to say?
Doug Monticciolo: (11:39)
It's similar to that. Let's take one of the programs, economic development program, where particularly now they're trying to ... Governments are trying to get capital out to companies doing research and development in various areas that could potentially be additive to solving the COVID crisis, detection, early warning, other types of things. And so, governments are good, but they really don't know how to find those companies, and believe it or not, most of the times, they give that money through the IRS or through treasury, which is not necessarily a very friendly place.
Doug Monticciolo: (12:13)
What we do is we understand, work with the government to make sure we know exactly what they want, and then we turn around and say, "Okay, we'll go and find those companies for you." We'll actually help them apply, we'll work through the entire process, and we'll go give them money in two days knowing that we've already confirmed with the government that the process we're going to pursue is going to get the repayment or the government to pay for that, and in these cases they actually pay us. We'll help a company be able to get the government money, in this case ... In one case, actually, it's helping R&D on a product that can help early detection for COVID, and they needed the capital, were afraid to apply, we simplified it, made it easy for them, gave them the money backed by the fact that we knew the government was going to pay us. We turn the transaction around, we lend to the borrowers and get paid by governments. Not your traditional model, but great credit risk and great opportunity.
Anthony Scaramucci: (13:08)
That's an excellent description of what you're doing, and it fits so nicely into the world of alternatives because it's a niche that can't be replicated in ETF, it can't be bought on an exchange, it can't be ... It's got to be esoterically designed by you guys in source, and that's where all the value that Brevet is adding to the clients.
Anthony Scaramucci: (13:31)
If you step back over the 22 years of Brevet and your interaction with the government ... And I'm going to editorialize her a little bit, Doug, the government has a bad rap of just being totally candid, a lot of people are not in love with the government, the cumbersomeness of it, the bureaucracy, what do you say about the government? Do you still have faith in it, especially given this period of turbulence that we're all experiencing?
Doug Monticciolo: (13:56)
Well, it's a good question. Having faith. I think we all know the answer to that, right, everybody knows there's two things in certainty, death and taxes. If you believe that that's true, you just basically bought the business model of the federal government, which is you live there, you bought their product, you pay your taxes. The hard part and where the frustration comes from is two things, what your expectations are. If your expectation is, "I'm going to build a bridge building company, and I'm going to hope that the government gives me contracts," and you're going to potentially wind up in disappointment because government parties may change.
Doug Monticciolo: (14:30)
But if you're in a business like ours where you listen to where the government would like you to go and you basically sit on their side of the table, you don't get that disappointment. Matter of fact, the biggest challenge we face is we're disappointing them because they're ask sometimes is so great, solving problems that we're not exactly sure we can solve, but a lot of times ... Like those R&D companies, you really think some part of the government, commerce or somebody, in any country, by the way, to go out and find incubating companies backed by big companies or not, and figure out how to convince them that they should go take this government money, and that they should accelerate their research.
Doug Monticciolo: (15:06)
And so, I still have a lot of faith in the government. Obviously, there's going to be challenges, we don't rally go down to the municipal or state level. We'll do some things at state, normally backed by the federal government with the Cares Act, is putting in a tremendous amount of money, very specific. We always look to something simple here, which is we're looking at how we're going to get repaid, right? Going to the government and saying, "If you're good for this, then let's confirm that and I'll go get it for you. You just got to repay me."
Doug Monticciolo: (15:35)
I have faith in it, I expect volatility. I do expect a bunch of challenges, but I think right now, if anything, there's still taxes, maybe a little distorted, but prioritization has changed. And I think that's the advantage because it's much clearer as to where the government wants to put its money, and so, there's $2 trillion dollars sitting out there as an opportunity, and there's going to be more, being in front of that and helping them do it is a great opportunity.
Anthony Scaramucci: (16:01)
Well, the other thing, when you hear the word government in the context of your business, there's an implied level of safety there, so let's talk to perspective investors of Brevet Capital. What are the risks of investing in Brevet Capital? What are the opportunities? Have you balanced that over the 22 years?
Doug Monticciolo: (16:21)
Sure. There's always risk investing even if it's government even if we were great, there's always things that happen and we're not immune to them in general. In investing, there's structure, product structure, risk, we have an open end fund with liquidity, we have closed end fund that's permanent and closed, there's always those structure risks. But when you think about where the challenges come from in governments is if you do just one thing. One of the things that Brevet has achieved, and this took a long time and a lot of money, was to be not focused on one thing.
Doug Monticciolo: (16:56)
We're in five different countries. Why are we in five different countries? People say, "Don't spread yourself too thin," The flip side of that is I know that if someone changes their mind in some agency in the federal government in the U.S., that same person doesn't change their mind in Canada or Ottawa. It's a completely different unrelated basis. It gives me diversity, it gives me protection. Is it perfect? No, there's things that can change always working with governments, you have to stay light on your feet, but our business is based on providing solutions, right?
Doug Monticciolo: (17:26)
Finance as a service means service is the way we get our returns, and service is the way we get our opportunities. As long as I build this suite of services, I could apply them to the opportunity du jour, you might say, but in reality, I'm applying them consistently across areas, education, infrastructure, healthcare, rural communities and rural community development. A lot of what we do is just jobs and job retention is a very big part of the programs that we're involved in, simply because there's so many of them I the federal government, largest part of the GDP. Yeah, there's pros and cons of the federal government, but I think you'd always find the pro as long as you're willing to look for it.
Anthony Scaramucci: (18:08)
Well, your shop is a little smaller relative to say an Apollo or a Carlisle, and the business depends on accessing a lot of this expertise and knowledge, so tell us about your methodology and how do you provide such a deep bench given your size and nimbleness.
Doug Monticciolo: (18:29)
That's a good question, because we're just 100 people, five countries. How do you we staff that and how do we manage it, and more importantly, how do we actually provide the solution, the service, when it's got to take a ton of people to just be operational in all these countries? And the answer is we started this way back in the beginning of the firm, 20-plus years ago, where we started venturing and partnering with universities, and we started working with research organizations. We work with AI and big data institutions, firms, not for profits, and the reason we do that is because we need to not just be on the leading edge, but we need to be aware of what the tools are to solve problems and to be better at getting some of this done.
Doug Monticciolo: (19:13)
While we may be just 100 people, I can pretty much assure you, we're the only credit group that actually has an R&D shop, our own research and development team that's purely creating and innovating, and always introspecting on our own transactions to make sure they're better. And that's part of the way that we actually provide ... We've had a 9% net long term return on our fund, and we're on levered through all these cycles, and a lot of it is the fact that we're constantly trying to stay ahead of what's going on and what is available to governments, because we're getting paid for bringing in value proposition.
Doug Monticciolo: (19:50)
This is like me being a child on the Long Island where I was told we need to make some money so we could have better family vacations. I had a paper route, I would cut wood with a bow saw and an ax and my brother and I would start these businesses and be very entrepreneurial. And we'd pour truckloads and sell them at church on Sundays. And the reason we did that is entrepreneurial skills is about value proposition, and so, with an abundance of capital, the things you have to do is differentiate yourself by something more than just money and maybe a few relationships.
Doug Monticciolo: (20:25)
We leverage our team by world renowned parties. I was on the phone this morning with the CEO of one of the leading AI firms, and the reason being is we're using it to solve a problem for a sovereign. And so, that's a lot of how we do it, long develop and actually ... As you can tell, I have a lot of energy, excitement about this because we're solving problems that people haven't solved before. It's quite exciting.
John Darsie: (20:47)
Doug, you talked a little bit in the open about how Brevet uses a lot of data, and I suspect that one of the answers to that question os how you replicate the expertise of these massive shops, like a Carlisle, with a smaller bench is that you do a lot of data analytics. And you talked about how you work with AI companies to solve problems with sovereigns, but you also do a lot of data analytics internally. Talk about that process and how your background helps Brevet use data analytics in a way that maybe some other alternative investment shops don't.
Doug Monticciolo: (21:19)
Sure. We do use data quite a bit. We use it in different ways, right, we use it to make sure that the basic premises of the solutions that we're providing make sense. And so, what does that mean? In order to get that transaction I mentioned, which is the government's going to make a payment for some research and development, they want to give them a grant, but the company is too challenged to try to figure out how to fill out this massive document that the government has asked them to fill out. It's like your taxes squared.
Doug Monticciolo: (21:52)
Well, the answers are pretty easy. What did H&R Block do? H&R Block partnered with IBM's Watson, right, AI, big data system. We essentially did the same thing. We used the data of our own information along with industry information, and put it into systems that help make that process of how do you fill that form out better? And we do it in a way where it's not just easier for the borrower, but we also now can report back to the government and say, "Hey, by the way, we're going to give you a perspective on this industry that's broader. It's our perspective of experience, but it's also all this research brought into a common platform, and we're going to be able to show you where we're looking, how we're doing it, and how the money you just put out relates to that." And that does two things. One is it gets them a lot of comfort that they can trust us and they know where it's going, but two is they turn to us at times and say, "What else should we be doing or how else should we be doing it?"
Doug Monticciolo: (22:48)
The big data which, by the way, these systems in AI, if you got your head around the numbers, we're working with a system which is read and translated every patent filed around the world, okay, just one of the datasets. Why is that important? Because it really helps with is that truly R&D or not? Those things are important for a government to know. And so, with our access to things like that, it helps us to fill our value proposition. On the one hand we've got a client, it's the government, which we have to be absolute integrity with, and the other hand we got a company who's counting on us to bring that money to them. And to investors, obviously, are benefiting from this whole process on the fact that we're putting out that money and knowing that we're getting repaid by the government.
Doug Monticciolo: (23:31)
And so, it's all intertwined. My background, getting my PhD at Colombia in applied math and, obviously, my systems backgrounds in databases and technology really helps quite a bit in being able to see this, but my team is also extremely happy in these areas.
John Darsie: (23:48)
One of the first things I asked you when we first spoke about your investment strategies, I said this sounds really attractive, it's almost completely uncorrelated, you almost have no losing trades in terms of the transactions that you make, maybe you can touch on that as well in this answer, but I said, "Why aren't more people doing this?" And you explained why there's a lot of barriers to entry into what you do. Could you talk about that a little bit and why what you do at Brevet is so unique?
Doug Monticciolo: (24:15)
Sure. First, I always give credit to Goldman Sachs on this, which coming right out of being a tech, math person, I thought that 22 cash on cash percent return annually was the natural benchmark, so I've always had that as the mantra of if I'm not doing 22, then I must not be doing well. Kudos to them and for showing me hoe to do it, right? And I think that is a big part of the value proposition. But what we are doing is we do approach investing not as a bunch of trades that we give investors to pick and choose from, but a strategy that is holistic. Like I said, I'm diversifying the portfolio.
Doug Monticciolo: (24:51)
I could easily just take one of these transaction, with Canada, per se, and offer a fund just for that, but my personal belief is I'm truly going to be a responsible manager, I think that's irresponsible to do that for an investor because I'm not giving them the ability to have a more diversified trade. I can show them that same trade across several sovereigns and I could give that same opportunity in a more risk reduced fashion. What do I give up? I give up the ability to deliver a 40% cash on cash return, right? Some of my stuff [inaudible 00:25:21] always been up in those ranges. Well, by diversifying, I'm spending a lot more time and money in developing each of these opportunities simultaneously.
Doug Monticciolo: (25:30)
And if anybody wonders what does it take? It costs a lot more money for the very first assets that we do in any of these spaces. We don't really rush into anything. You got to be willing to invest in your business ... And keep in mind, I didn't do this because I came from a trading desk and said, "I'm going to take my strategy and move it into a fund and just repeat it," I came from a business building perspective. Brevet is a long term win for sure, because its invested the money, the time, the resources into people, into infrastructure, technology costs are substantially higher than anybody else in the industry, and that's because they're built to do tens of billions not a couple hundred million, they're built to be global, they're built to have things like AI interfaces, and a lot of this in credit is if you don't put it in upfront and you don't make sure that you're actually tested to make sure that you did it right, then all you're doing is taking the risk that you were wrong.
Doug Monticciolo: (26:25)
And my view is I'm a money manager, and I got to keep the money in order to managing it, right? Our investors are public pensions, they're firemen, they're teachers, they're state employees, I think we take that responsibility very seriously, and I believe it is the right strategy to do. It's a big barrier to entry in terms of relationships, investment, and patience.
John Darsie: (26:46)
Anthony asked you earlier about whether you still have faith in government, and I want to ask you a little bit different question as it relates to government. Obviously, Brevet provides a very important resource for the government, you help the government operate more efficiently. How do we construct more public/private partnerships that helps us do more of that without growing the size of government in a tremendous way? How do we leverage the wherewithal and the efficiency of the private sector to help drive more efficient government and make improvements in society as a result?
Doug Monticciolo: (27:20)
It's a good question. The challenge is, actually, it has to come from the manager and it has to come from the manager's perspective, right? I have one advantage that I did extremely well right out of high school. My drive and motivation is not to ... With the biggest bank account, which is obviously a great thing to do because you can do great things with that, but it's to do the best things and actually have the best outcomes, and sometimes that means that the manager will make less. And that being said, you have to be willing to sit down with a governor or the head of an agency, and this is what we do, is show them everything.
Doug Monticciolo: (27:57)
We have opened up that we will have actually all the way down to my personal financial statements and tax returns to show that we can form a partnership where there's an integrity and an honesty, and I think that's important because ... And by the way, I think it's coming because of the challenges in the market, is that everybody's got to reprioritize, infrastructure needs to be fixed, pension funds need to be resolved and get better returns. And so, there's this balance that needs to be done that I think a challenge like the pandemic may actually bring people back to slightly different priorities of realizing that maybe their mission in life may change a little, we don't mind investing our money in what we believe, and maybe deferring some benefits or profits down the road if we're going to do the right thing.
Doug Monticciolo: (28:47)
And out of my business, one of the things we have to do is a large part of our business is pro bono, because we can't be sure whether or not when we're working with the government something we do is going to involve our capital. And so, we have to be willing to do that. That makes running the business a little more sophisticated, but I think in the end, public/private partnerships need to have the same basis where we got to get people sitting on the same side of the table together, right? Another thing I learned on the street, right, which was the most successful business opportunities are the ones where you sit on the same side as your client and help them solve their problems, right? And I think everybody's sort of moving in that direction, hopefully, we could be a little bit of an example of that. I think there is a bit of, now, pressure on everything, particularly economics, that maybe forces people to have to maybe compromise a little and sit on the same side of the table together.
Anthony Scaramucci: (29:39)
Doug, can you talk a little bit about your macro view in the context of your business, but also your general life experience as a fixed income investor, and the psychology tied to money. We sit here today, and I'll make this stipulation, the world is probably not configured the way we thought it was going to be 25 years ago, and so, tell us a little bit about that. Tell us about your insight there and tell us what you say to investors.
Doug Monticciolo: (30:10)
Sure. Well, the first thing I would say is I'm a mathematician, not an economist, so sometimes I get in trouble for being predictive base don what we see. Remember, I was also trained by Fischer Black, which is can't forget the basics of options, which is the past is a very bad predictor of the future. But I am a big believer in behavior and sort of rational outcomes, and when I look forward and I look in this market, I see a couple things. I see it's going to put a lot more pressure on economics. Economics is a basic level of where do you spend your money, where do companies spend their money, it will ferret out weakness models from strong business models, it will create stronger business models or new models. I'm very optimistic long term from that perspective, because I am a big believer, I did study chaos theory, that you do need a reset every now and then to sort of strip things down and rebuild them. Like a forest fire, sometimes that's necessary to build it back stronger, so I think that is necessary.
Doug Monticciolo: (31:13)
I think we're in interesting times. The world and the world economies had challenges with each other, there are challenges with the pandemic and now they're challenged on top of that with trade and other issues. From my view, what I see is that as long as the next six months plays out and there's a vaccine, and maybe it takes 12 months, and we come to some point this time next year everybody figures out how to get back to work and figures out what those new models are, I'm actually pretty optimistic two or three years out, because it si going to change priorities.
Doug Monticciolo: (31:46)
I think governments will change priorities, and if they are, right, they're cutting some programs that maybe were a little fluff and focusing we need better hospitals, we need better roads, and maybe they're also changing some of their perspectives on what investing means and where they're putting their money, and maybe not concentrating it so much and just following the overall trend, but maybe putting money behind things that actually help them move their goals forward. And we're actually hearing that and seeing that from the sovereigns and say pensions, etc. I'm very optimistic. In the short term, unfortunately, very pessimistic because I don't think we're done. Hopefully, this is a relatively quick path out, just a vaccine, and we get through that, I think we're going to come out as a global economy stronger and better.
Anthony Scaramucci: (32:32)
Do you worry about deficits, Doug?
Doug Monticciolo: (32:36)
You have to be right? If you look at states where you got pretty big holes in pensions, we already have pretty big needs in infrastructure, it's clear that moneys can be spent in better ways in just running some activities. And so, yeah, deficits are a problem. There's two solutions. One is getting more efficient with whatever you have, and you have to figure out what can you do to sort of offset that long term negative effect of maybe an out of control spending situation. Right now, it's always hard to say whether or not putting $2 or $3 trillion dollars on a pandemic is a good thing or a bad thing, but it's what you do afterwards.
Doug Monticciolo: (33:25)
We have a mantra at Brevet which is we never follow the rescue, we only follow the recovery. Which is the rescue is always where the uncertainty, right, so human behavior response of doing what you got to do to solve a problem. But where we believe the most important effort needs to be made is in the recovery of what do you do next? We're doing that with the government now. It's kind of exciting that they actually did call us and we're pretty heavily involved, because I do think the long term recovery is what we're focusing on, cutting those deficits and getting ourselves back in a strong place, but I think if we let a little bit of the knife fall where it's going to fall, it might actually bring us back stronger like it did in the late to mid-90s.
John Darsie: (34:09)
Doug, we have a few audience questions that I want to get into in our last sort of 8 to 10 minutes of the talk. How do you deal with sort of counterparty risk and the risk of government deciding not to pay you back? I know it seems like a low risk thing but we have a couple audience members who are curious about how you grapple with this.
Doug Monticciolo: (34:27)
Sure. In our history, there are two types of transactions you have to worry about with the government, those types of transactions where it's purely discretionary and those types of transactions where it is purely good or service provided for you. And as you mentioned, TOJ so you can check, there are press releases about Brevet partnering with the Department of Justice. That's true, we do do it, and the federal attorney general's office knows of our activities. And we are very clear that we have to be careful about the law. And so, there are places where the government is not going to pay you back, you're going to fight. We've had lawsuits to clarify things etc., but the cases where the government's just not going to pay you at will, they have to realize that in the places where that happens, it's something that wasn't a critical need. It's probably something that maybe the manager or the money behind it was maybe getting outside its returns.
Doug Monticciolo: (35:20)
I will say, we have never had it happen. We've had a situation where they disputed the payments to one of our counterparties, that type of transaction we actually don't do anymore, but we'll win that as well. And as a matter of fact, it will come out a win for the state and for us. Because one of the things about Brevet's that's interesting is we try to be constructive, not aggressive or destructive, and so, when those cases occur, we turn to remind them that whether we help them by some inner city clinic to help serve some homeless people, we provide the money for that 100% within their preapproval and their guidance, we remind them that we're not here just to do that one, we're here to do the other 50. We've been larger than some states, entire programs of the state, providing these type of services.
Doug Monticciolo: (36:07)
And normally what happens is if you truly are bringing your value proposition, our experience shows us it doesn't happen, it doesn't mean that you don't have paths that you didn't expect to follow, but it doesn't mean that you're actually wind up in a situation where they actually don't pay you. It is just a communication process that you have to do or it's expensive, but that's the process.
John Darsie: (36:22)
Yeah, it goes back to barriers to entry. The answer to my question about barriers to entry is building that trust and relationship with all your counterparties in government to be able to do these transactions in a repeatable way.
Doug Monticciolo: (36:39)
Yeah. And one of the things that we do is ... Remember, we start with the government, we don't start by saying ... We see this program then we go find a company that's doing it, because by then you're almost always an adversary of the government. We start by working with the government. And some people say, "Well, that may be crazy, because that could take three to five years," and we could say, "Absolutely. We've been involved in changing some laws, helping them find some programs, giving some language for things that we're planning to do."
Doug Monticciolo: (37:06)
And that's important because we're only doing it if our true intentions are to make the government's program better, and we have to be willing to open the kimono, you might say, and prove that you are. And sometimes I got to take Brevet's Capital's [inaudible 00:37:19] companies money and prove to them that we actually are doing something that's in their best interest. And when you do that, regardless of administration changes or not, you become the guys that get the phone call in March that says, "We need some help, and we're going to need you to step up," and we got each other's backs. And that's kind of how the conversation goes. But in that case, it was a matter of life or death, it was also a matter of necessity.
Doug Monticciolo: (37:44)
And so, you have to be in the right place, right time. One thing Brevet does not do is ever be a contractor or counterparty signer to the government, because if that ever has a dispute, we would never want to be seen as the adversary, so we're always on their side of the table. And that's by design and that is a conscious decision, which is almost the opposite of what most managed funds do, there's almost always on the receiving side.
John Darsie: (38:08)
That's a good segue to the next question from audiences. Do you have concerns about the current political climate, partially as it relates to how you run your business? I know we've had conversations in the past where I asked you about do you have concerns if someone like an Elizabeth Warren, who's viewed as an adversarial type of person to Wall Street, became the Secretary of Treasury, would that impact your ability to do business? I think I know the answer to that question, but the question from the audience is do you worry about the political climate and sort of the deaminization of Wall Street that exists out there?
Doug Monticciolo: (38:42)
The answer is yes. You have to be aware of the market that you're operating in, right? If you're in the tech space and suddenly everybody says they don't like Apple, you're going to have problems, right? One of the nice things is we're in five countries, we easily can do as much volume in these other countries as we can here. We're in there, we're established, we're domiciled in those places, so we're not just being a passport player on it. They are real, they're real businesses. And I do that just because I can't predict the future, and so, it's very hard for new administrations ... You'll see Brevet does very little business in the first six months of a new administration, because there's this trust transfer that takes quite a while. And so, there always has to be that time period for them to understand who can we trust and who can't, and you have to respect the fact that they have to be nervous, they have to be concerned as to who they're working with, because it is a pretty tumultuous environment in politics, particularly in the United States these days. You can't blame them. Whether it be a governor or it be someone in Washington, right, that always happens.
Doug Monticciolo: (39:49)
Our view is you just got to be wary, you got to keep your eyes open, and I think the one thing that we always do is we put our best foot forward, and we will take the step ... I will put my firm at a bit of risk to say, "I wouldn't do this if it wasn't for trust," right? And we will take that step. And that's what you have to do. People say, "Why aren't they in the space?" I'm not sure every manager really wants to go and do that. I think some do, but do they really do it? It's a hard step because it means that you'll make less, or you may make less, right? Or you're going to put yourself out there, but I believe it's the right thing to do. I got all these great skills, I got this great team, we've got great opportunities, we believe this is the way they should be used, and I think that penetrates. We just realize that it's not quite instantaneous. We've been doing this 20 years, right, no matte what it is, I can't expect a new governor or head of an agency or even elected official to turn around and say, "We love you just because someone else did."
John Darsie: (40:53)
Right.
Doug Monticciolo: (40:53)
And that's part of the business.
John Darsie: (40:55)
I got one more question, it's for both Anthony and Doug. And we have a question from our audience about ... There's a young man named Bob Castrignano, aka "The Coach," who has mentored thousands of young men and women who have come through the Goldman Sachs training program, he also post-9/11 helped revive Sandler O'Neill, was recently merged with Piper Jaffray and a great success story post-9/11. But what has the coach meant to you? We'll start with you, Doug, and then to Anthony, the fact that he mentored you both and the differences in your personality is sort of astounding to me, but I'll start with you, Doug, what has the coach meant to you as a mentor?
Doug Monticciolo: (41:36)
Coach is a living example of what we try to be, right? 9/11 happened, I was a fig person, Sandler O'Neills, in banking, I thought about should I stop what we were doing, and we were starting this business, should I walk in and help out Sandler? I knew the well, respected them tremendously, but should I drop everything and take a seat on that desk? And I hesitated and I sort of put my priorities first. Coach didn't, coach stepped up and went there and basically said, "I'm here to help."
Doug Monticciolo: (42:07)
That's a role model I think all of us should look to follow, which is to do the right thing. Plus, he said ... I think he's seen the Pope or met with the Pope several times, I can't even get one meeting, so I think he's got me there as well. But he follows a lot of what we like to follow at Brevet which is ... Our motto is "We do what we say we do." And being true and having integrity, it's the backbone of our business, right, and it's why we're able to do what we do, and so, I think coach has given us lots of support and guidance and confirmation that you got to do the right thing, because in the end, I do think you win.
Anthony Scaramucci: (42:46)
First of all, Doug, Darsie was putting out a little bit of fake news, as you know, because Castrignano is old enough to be your grandfather and my great grandfather. Okay, so I just want everybody to know that he's not a young guy, we're talking about an ancient fossil, okay, who ... You're laughing because you know it's true. No, but in all seriousness-
Doug Monticciolo: (43:08)
I'll never admit it.
Anthony Scaramucci: (43:10)
In all seriousness about Bob, because now that we're bringing him up, I feel like Bob is the Kevin Bacon of all Goldman Sachs entrepreneurs, we are all one, two, three, four, in some cases six degrees separated from Bob, and Bob is also the decoder ring. To me, if someone's friends with Bob or knows Bob, it's like definitionally they're a good guy, whether it's you or [inaudible 00:43:38] or Dr. [inaudible 00:43:39], I could think of hundreds of people I've met along the way through Bobby, who I know happens to be a terrific guy. But he's a terrible dresser ... I mean, let's just get it all out on the table while we're here, okay? He's an absolutely terrible dresser, okay, he does not have a face for radio or television, but he has a face for morse code. That's how bad it is. And the last thing is I know he's tried to buy your hairpiece from you. Do not sell him your hairpiece, because I think my hairpiece is more valuable than your hairpiece and I'm looking for him to buy mine. I just want to leave it there, okay, but we all love Castrignano and he is one of the real saints in our business, he's a true legend in many different ways.
Doug Monticciolo: (44:25)
Yeah, I completely agree with you on that.
John Darsie: (44:27)
All right. Well, we'll leave it there with some great words on the coach.
Anthony Scaramucci: (44:30)
See that, Darsie, I was picking on Bobby Cas, I didn't get a chance to throw a few shots at you and-
John Darsie: (44:34)
I know, that's why I did it. That's why I did it.
Anthony Scaramucci: (44:34)
-the fake George Washington portrait and the faux books and all this other stuff.
John Darsie: (44:41)
I like Bob because he's nice to me.
Anthony Scaramucci: (44:43)
Hey, Doug, if your mother or your Nana saw this set up from Darsie, I mean please, pass the barf bag, okay? She'd hit him with a wooden spoon, Dougie. Go ahead, Darsie.
John Darsie: (44:53)
All right. Well, I want to let everybody go. And thank you, Doug, for joining us, you have a fascinating investment strategy, and the constructive way that you work with the government, I think people maybe never heard of Brevet Capital or haven't heard of you, but you provide tremendous value to the U.S. government, U.S. society, and the American people in general with what you do, so thank you for that.