Peter Baker: “The Man Who Ran Washington” | SALT Talks #106

“The resentment towards Washington that fuels President Trump's rise is a resentment toward the establishment that Jim Baker was so much a part of.”

Peter Baker is the Chief White House Correspondent for the New York Times, political analyst for MSNBC, and author of Days of Fire and The Breach. Susan Glasser is a staff writer for the New Yorker and author of its weekly Letters from Trump's Washington, as well as a CNN global affairs analyst. Susan and Peter are married, and their first assignment as a married couple was as Moscow Bureau Chiefs for the Washington Post, after which they wrote Kremlin Rising.

Jim Baker sits relatively under-discussed considering the enormous influence he wielded from the end of Watergate to the end of the Cold War. Baker ran five different national presidential campaigns, served as Chief of Staff in both Ronald Reagan and George H.W. Bush’s White House, Treasury Secretary and ultimately Secretary of State from 1989 to 1992 during which time the Soviet Union collapsed. “Jim Baker as a subject turned out to be, I think, sort of oddly relevant to the moment… Donald Trump had yet to appear on the scene in terms of Washington politics at least… our interest was in a big subject about Washington and understanding ‘how had Washington become such a dysfunctional gridlocked place?’”

H.W. Bush urged Baker to get into politics and started Baker’s multi-decade political career that shaped Washington and how it’s operated in the decades that followed. One can trace the kind of deal-making politics, in which Baker played a major role creating, all the way to today’s climate that has seen a rejection of the status quo, exemplified by President Donald Trump’s ascendency.

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SPEAKER

David-Rubenstein.jpeg

Peter Baker

Chief White House Correspondent

The New York Times

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darsie: (00:08)
Hello everyone, and welcome back to SALT Talks. My name is John Darsie. I'm the Managing Director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology and public policy. SALT Talks are a digital interview series that we launched during the work from home period with leading investors, creators and thinkers. What we're trying to do during these talks is replicate the experience that we provide at our global conferences, the SALT Conference, which we host twice a year, once in the United States and once internationally, most recently in the UAE in 2019. What we're trying to do during these talks and at our conferences is provide a platform for subject matter experts, as well as to provide a platform for big ideas that we think are shaping the future.

John Darsie: (00:56)
We're very excited today to welcome Peter Baker and Susan Glasser to SALT Talks. Peter is the Chief White House Correspondent for the New York Times. He's a political analyst for MSNBC, and is the author of Days of Fire and The Breach. Susan Glasser is a staff writer for the New Yorker, and author of its weekly Letters from Trump's Washington, as well as a CNN global affairs analyst. Susan and Peter are married, and their first assignment as a married couple was as Moscow Bureau Chiefs for the Washington Post, after which they wrote Kremlin Rising. Peter and Susan today live in Washington, DC with their son. Just a reminder if you have any questions for Peter or Susan during today's SALT talk, you can enter them in the Q and A box at the bottom of your video screen on Zoom. Hosting today's talk is Anthony Scaramucci, the founder and Managing Partner of SkyBridge Capital, a global alternative investment firm. Anthony's also the chairman of SALT, and with that, I'll turn it over to Anthony for the interview.

Anthony Scaramucci: (01:53)
John, thank you. As I'm wont to do, holding up the book here. Congratulations, guys. It's a brilliant tour de force. A lot of post World War II history in this book, lots of discussion about how we got to where we are today, related to the Republican Party, so very highly recommended. I'd like to start with you, Susan. For those of us that are less familiar, I'm not, but a lot of people may be, with James Baker, who is he, what is his more signature accomplishments, and why did you guys choose to write a book about him right now?

Susan Glasser: (02:30)
Well, first of all thank you for having us in this nice, quiet period in our nation's politics. We can just sit back and talk history. You're right, that Jim Baker as a subject turned out to be, I think, sort of oddly relevant to the moment. That was not necessarily our intention when we began this seven years ago. Donald Trump had yet to appear on the scene in terms of Washington politics at least, but Jim Baker, I think already even then, our interest was in a big subject about Washington and understanding how had Washington become such a dysfunctional gridlocked place?

Susan Glasser: (03:08)
The period that Jim Baker helps us tell the story of our politics, really he was at the height of power from the end of Watergate to the end of the cold war. He has this incredible, unique portfolio where he is both a national political figure of extraordinary accomplishment. He actually ran five different national presidential campaigns, and he also rose to become a principal in his own right. That's Washington speak for big mocker who gets a seat at the table. He was not only Chief of Staff in Ronald Reagan's White House, and later in George H.W. Bush's, he's the only person ever to be Chief of Staff twice, but he also was Secretary of the Treasury when they negotiated and successfully made the 1986 Tax Reform Bill, and then he of course became Secretary of State at the end of the cold war, in this momentous period from 1989 to 1992.

Anthony Scaramucci: (04:08)
If he had a world view, Peter, what was his world view and what were his ideological goals, if there were any?

Peter Baker: (04:17)
It's a great question because we think of Baker, of course, as a pragmatist. Look, he was a Texas conservative, small C, but he didn't let ideology stand in the way of getting things done. I think that he had an ideology. His ideology was make things happen, get things done, move the ball down the field. If he had to compromise to do it, that was okay. That's why his story is so interesting today, because we don't see a lot of that in Washington today. Politics is so zero sum that if you're having a negotiation and you give anything away to the other side, somehow it means you sold out. Compromise is a dirty word. But for Baker, compromise was how you got things done. You could be a ruthless knife biter in election season, but when it was over, you sat down with the other side and you worked out deals on taxes, as Susan said, on social security, on the Contra war of the 1980s. He sat down with the Soviets, obviously, and the Germans and the Arabs and the Israelis. For Baker, while he was a conservative, I think the biggest ideology for him was what do you need to do to get things accomplished?

Anthony Scaramucci: (05:18)
You know, for me, when I was reading this book, it was reminiscent of Robert Moses' book, The Power Broker, which I think is ... Sorry, Robert Caro's book about Robert Moses, known as The Power Broker, because it was a tour de force on somebody that didn't have elected office but was really at the center of monumental decisions and policy. One of the things that struck me about James Baker is that he would recoil from speaking out against policy initiatives or decisions that didn't necessarily go the way he thought they should be, or they were more controversial. I'll give the biggest example. He called President Trump crazy in 2016, yet he went and voted for him. He also refused to break away from him in the 2020 election. What does this say to both of you about the allure of power of James Baker himself, but just what Washington's all about?

Susan Glasser: (06:13)
Well, you're right to point that out. That was an interesting counterpoint to our historical research for this book was also the rise of Trump is happening in real time and definitely Jim Baker saw this as a hostile takeover of the Republican party that he felt that he had given his life to building. In so many ways, he's the un-Trump, in terms of both a sense of personal integrity but also just in terms of ideologically. He's still a very committed internationalist who believed in alliances, a free trader, an enemy of deficits, and in favor of telling it like it is. That's the thing about a pragmatist. You have to have a reality-based view of the world if you're going to be a practitioner of realpolitik as opposed to a non reality-based view of the world.

Susan Glasser: (07:08)
Yet he wasn't able, as you said, to fully renounce Donald Trump. For us, I think that's why the book is a study of power and it's not a celebration of it. It's a way of understanding that for someone like Jim Baker, maintaining your access, that really there's no point in pissing on the outside that you really don't get anything done by simply being a critic. It wasn't just Donald Trump. That was his view of the Iraq war when his best friend's son, George W. Bush, was president. Jim Baker was absolutely against that war. He thought it was a terrible idea, but somehow managed to make his concerns and opposition known but without blowing up his bridges to George W. Bush. I think that's another example of how he thought Washington operated.

Anthony Scaramucci: (08:01)
Well, I guess the thing that struck me about the book, you started writing it during the Obama administration. Then the Trump administration starts to unfold on us. I'm wondering, maybe this is for you, Peter, how do you think Baker's style in politics, did it lead us to Trumpism?

Peter Baker: (08:21)
Yeah, that's a really interesting question because there are ... we talked a little about this before going on air. The resentment toward Washington that fuels President Trump's rise is a resentment toward the establishment that Jim Baker was so much a part of. Now, did he do something specifically to lead to Trumpism? No, he's anti Trump in so many different ways, but I think that there is this backlash toward the elites, a backlash toward a Washington that seemed very comfortable and entitled and part of a ruling class that didn't really understand what it was like to live in so much of the country. In that sense, Trump represented a rejection of not just the Democrats, but ultimately the Republicans of the previous era in that sense. I think that people might not have bought what they thought they were buying in voting for President Trump, but there's no question, I think, that a lot of people were motivated by a sense that Washington had gotten away from them.

Peter Baker: (09:19)
What they lost, though, what they didn't see, I think, is that Washington did actually work in a way that it hasn't in the last four years, and the paralysis of the last four years hasn't made anything better for a lot of people out there who resented what had come before. I think Baker is a fascinating figure in that sense of representing what you say, part of the rejection of Washington.

Anthony Scaramucci: (09:43)
I want to take you back to one of the more fascinating stories in the book. James Baker is the campaign manager, effectively, for George Herbert Walker Bush in 1980. Then win the Iowa caucus, but they go on to lose the nomination. Ronald Reagan ascends in New Hampshire and they get to the convention. Tell us about the selection of George Herbert Walker Bush as Vice President, and then the eventual selection by Ronald Reagan of James Baker to be his Chief of Staff. They were adversaries six, eight months prior to that.

Susan Glasser: (10:20)
Well, that's right. It is one of the most amazing chapters really, because of course, without that-

Anthony Scaramucci: (10:25)
Love that chapter, by the way. Just editorializing right here. Just a fascinating human story. Please, I'm sorry I didn't mean to interrupt.

Susan Glasser: (10:31)
Yeah, no, you're right. Absolutely, because Baker actually wouldn't have become Baker without that incredible period of time. He and George Herbert Walker Bush were best friends from the country club of tennis courts in Houston. Baker had gone into politics really at Bush's urging. He turned out to be great at it. He runs this 1980 campaign and he takes Bush from an asterisk in the polls, literally an asterisk, to be Reagan's main rival for the Republican nomination. But they're not going to beat Reagan, ultimately. Baker, here, I think shows this canniness that he later became known for. He understands that the goal at that point is not winning the nomination that they're not going to win, but in a way his campaign is on now to get Bush that vice presidential nomination.

Susan Glasser: (11:24)
There's a real dance they have to do later in the primaries where Bush is out there, he wants to win. Very competitive guy, just like Baker. He's running against Reagan. He uses the phrase voodoo economics, which was one of the most memorable attack lines on Ronald Reagan that there was. Baker's actually mad at him. He's worried that he's going too far in attacking Reagan, and that ultimately that might doom his chances. In the end actually it was Baker and not Bush, who really forced Bush to pull the plug on his primary campaign. Bush and his family weren't ready to do so. They were resentful of Baker for saying now's the time to get out if you still want to keep your hopes alive. They did it. Bruised feelings, and yet Baker ultimately was correct in many ways, you could say, because they had just left it open.

Susan Glasser: (12:14)
Amazingly, at the 1980 convention, the big talk was that somehow Reagan might actually pick Gerry Ford, the former president. That had the entire convention in an uproar, and it actually faltered at the very last minute on these negotiations. What would it be like to have a former president as the vice president? Who would really be in charge? Ford over-reached, essentially, by asking for too much stature, too much authority, and Reagan just couldn't go there. There was nobody left to call but George Bush, who didn't think he would get it, by the way, interestingly, when the call finally came.

Anthony Scaramucci: (12:52)
Yeah. It's an amazing story. I don't want to give up the intrigue in this story, but it's a human story. It's power politics. It's the practicality of the campaign, what they need to do to beat a sitting president, and as we all know, there's only been three sitting presidents that have lost re-election since World War II, Jimmy Carter being among them. Baker was best friends with George Herbert Walker Bush, but they had a very complicated relationship. What was that relationship? How would you define that connectivity between the two of them?

Peter Baker: (13:25)
Yeah. We interviewed President Bush before he passed away. Obviously we interviewed Jim Baker an awful lot for this book, and both of them used the phrase siblings to describe it, that they were like brothers. If you think about it, brothers of course sometimes fight. Sometimes they have a rivalry, sibling rivalry. They're competitive. They want to prove something to each other at times.

Anthony Scaramucci: (13:43)
I'm so mad at my brother for incidents that took place in 1971. I just want to make sure everybody knows that.

Peter Baker: (13:50)
Exactly, but you love him to death, right? He is your brother. He will always be your brother, and I think that was the case of Baker and Bush. They had moments of friction, like what Susan described when they were upset at Baker for pushing them in 1980 to drop out. In 1992, when Baker was reluctant to come back to the White House to help Bush's flagging campaign for re-election, there was some sourness there. When Bush picks Quayle to be his running mate, arguably without telling Baker, that's kind of an act of rebellion against Baker. Why do I always have to listen to him? I know what I'm doing. I'm the President. In fact, when Baker would get on Bush's nerves, what Bush would say to him is if you're so smart, how come you're not President? There was this kind of sibling push and pull.

Peter Baker: (14:32)
The thing that really tells you why this is such a profound friendship that supersedes all that is the last day of George Bush's life, and that was just two years ago. The person who comes to his house three times that day in Houston is Jim Baker, checking in on his friend. The last few moments of Bush's life, he's by his bedside, literally rubbing Bush's feet in the final moments of his life. That's a friendship that goes beyond politics. As Susan said, it preceded politics. Because they were tennis partners and friends, family pals, their families got together in Houston, they had a relationship unlike any President and a Secretary of State, I think, in American history. I think that gave Baker power, by the way, as Secretary of State, but it's also a very human story, as you say.

Anthony Scaramucci: (15:17)
Look, it's an amazing story. It makes you feel proud to be American when you think about the character of both of those men. Baker recognized something about Washington, that there was a perception to power as much as there was real power. You guys addressed it in the book. He also had a knack for playing the media a certain way. I was wondering if you guys could explain that as well.

Susan Glasser: (15:40)
Yeah, no. Image management was definitely one of his super powers. I'm sure as a fellow practitioner, I'm sure you can appreciate some of these skills which really transfer, even though the media world has fragmented into-

Anthony Scaramucci: (15:53)
I'm not that great at image management, Sue. What you see is what you get, okay? I don't have three sticks next to my last name. Go ahead. Keep going.

Susan Glasser: (16:03)
He was a natural at it, from a purely absolutely selfish journalist point of view. You've got to appreciate a man whose motto was never lie to the press. Now, he might spin them aggressively, and he certainly did so, but Baker's skill was actually in managing the press rather than being at war with them. He took that away from his very first assignment on the national stage in 1976 when he became literally in one year, amazing rise, he went from an obscure position at the Commerce Department to running Gerry Ford's campaign. At the convention in 1976, the last disputed convention, here he is, this novice in politics. He's up against Ronald Reagan. John Sears, the campaign manager for Reagan, basically was a BSer, and he was telling the reporters all sorts of inflated vote counts that turned out to not hold up, whereas Baker was much more cautious and earned this enormous credibility with the national press corps. He carried that lesson with him.

Susan Glasser: (17:05)
In the Reagan White House, famously back-biting, one of Baker's great skills that I think enabled him to consolidate power was not only his mastery of the bureaucratic politics of a White House controlling the paper flow to Ronald Reagan, but it also was ... he would have these Friday briefings with the reporters for Time Magazine and Newsweek, and that mattered still back then. They would do these reconstructions of the big dramatic events of the week, and somehow, of course, Baker, as their background source, would always be in the middle of the event as they were portrayed in this first draft of history.

Anthony Scaramucci: (17:43)
It's an interesting segue to this question, because I was thinking about this this morning. He was a ruthless fighter. He gave it his all during the campaigns, but then he reeled it back and became this pragmatic deal maker. I guess what I'm wondering, as we look at President-Elect Biden today, how do you think he's going to handle the progressive wing of his party? Is he going to be this pragmatist like a James Baker? Will he manage things similarly with his team? Where do you think things are going, and what would Vice-President-Elect Biden, excuse me, President-Elect Biden take from a book like this about James Baker to help him manage the government in its current state?

Peter Baker: (18:26)
We should send him a copy. I do think that Biden is instinctively like Baker in the sense that he wants to cut deals. He wants to work across the aisle. That is his natural instinct, and he's from that era, to some extent. He obviously is an institutionalist, I think, like Baker is. He believes in Washington, he believes in Congress, he believes in working together. Whether this environment allows or not, is a different question. This environment is obviously different than it was when Baker was at the height of his power. You're right, I think that Biden will come under enormous pressure from the left within his own party to be much more sweeping or ambitious than maybe his natural inclination would be, and certainly than the Republican-led Senate, if it stays in Republican hands, as it looks like it probably will, would allow him to be.

Peter Baker: (19:10)
I think Biden would like to be a Baker, I just don't know whether he either has the capacity at this particular moment, given the environment, to be, but I think he'll try. I think he'll try. He and Mitch McConnell do have a relationship together. I do think they may not believe on big, sweeping plans on climate change or health care, but I do think that they will avoid the kind of train wrecks we've seen in the last number of years on government shutdowns and debt ceiling crises. That kind of thing, I imagine that McConnell and Biden could probably work their way through.

Anthony Scaramucci: (19:40)
When you think about 2000 and the stress on the country as we were waiting for the results in Florida, and it has been reported, and you guys can tell me if it's true or not, that the White House reached out to James Baker related to the current electoral outcome. How is it different from today, and if that is true, why do you think somebody like James Baker did not accept the appointment that he accepted from the Bush's in 2000?

Susan Glasser: (20:09)
Well, it's interesting. We did speak with Secretary Baker the other day, and we asked him about this because it was reported that Jared Kushner, Trump's son-in-law, he was in search of not Baker himself, I should say, but a James Baker like figure. Actually Baker told us they did not reach out to him directly, but clearly he's much invoked, and the reason is pretty simple. Because he's perceived as somebody who would both have the enormous stature and credibility that was needed to reassure the country at a time like that disputed 2000 election, but also the knife fighter chops to figure out one way or another a legal strategy that would put them in the right. That was what was interesting about Baker the pragmatist back in 2000 in Florida.

Susan Glasser: (20:56)
Many Republican lawyers felt that, as a matter of principle, that they were believers in states' rights, that matters like state recounts belonged in state courts. Baker, essentially from day one, looked at the situation in Florida and he said we're going to federal court. He had a very my job here is to win perspective on that, and he thought that the Florida Supreme Court was all Democratic appointees and it didn't look good for them. He wasn't sure of the outcome in the Supreme Court, but he felt that that was a better course, and he essentially won the argument over those Republican lawyers, even on his own team who were not so sure about it.

Susan Glasser: (21:38)
Look, the bottom line is that was a really different situation than today. Number one, most important thing, as Baker said to us when we talked to him, we never said don't count the votes. What an absurd thing to say. You can't really make that argument in the United States. The votes had already been counted, and in fact there had already been the automatic recount in Florida. The question was what additional recounting should go on, what to do with questionable ballots with the hanging chads and everything. That was very different. Then the other thing, of course, is that you had two candidates in George W. Bush and Al Gore who both believed in the American system, and in fact their main concern for both of them was how do we get to an outcome that everyone can accept, and how do we make sure that we haven't undermined American democracy in this? Of course, we now have the exact opposite situation, where the President himself is the underminer.

Anthony Scaramucci: (22:33)
What do you think happens?

Peter Baker: (22:41)
Now?

Anthony Scaramucci: (22:41)
Yeah.

Peter Baker: (22:42)
Well, look, I think we're going to see still a potentially volatile 70 day period. The President is still president until January 20th. We've just seen today he's fired the Defense Secretary. There's very likely to be more firings, we think, in the days to come. That could lead to a period of uncertainty and instability. I don't think there's any chance, it doesn't seem like, of overturning the election, just to make everybody understand that. The challenges he's put in court, first of all, haven't gone anywhere. Judges haven't been all that open to him. Second of all, even if he won, there's no actual allegation of any specific fraud that would create so many votes that it would overturn his election. They're literally just flailing at this point by arguing about whether the observers should have been six feet away or 20 feet away, things that don't really change the outcome. I think that he just wants to create enough noise out there so that he can explain that he didn't actually lose. It was stolen from him, and on and on. Will he concede? I don't know. You obviously know him better than I do. I'd love your opinion. Will he actually leave gracefully on January 20th? It's a good question, but he will be, I think, not President at noon on January 20th, whatever he decides to do.

Anthony Scaramucci: (23:53)
Well, let me put it to you this way. Since Scaramucci's now an 11 day time period, he will have been President for 132.78 Scaramuccis, and unfortunately right now for the country, we have six and a half more Scaramuccis to go. I think the last six are going to be really tough on the country because the guy's basically a sore loser and a big time baby, so we'll have to see. Some people have told me, that are very close to him, he's going to take a powder in Mar-a-Lago in December not to be seen again in Washington. That is a real crybaby pants. That is just like in elementary school when some kid had the football and was taking the football and taking it home with him. I hope he doesn't do that, but everything he's going right now is providing more evidence to the American people about why people like myself who worked for him said, okay, you can't have this guy be President. He's just not fit to be in that job. I was a little surprised by James Baker, and I want to ask this one last question because when I've met Secretary Baker in the past, he always struck me as a guy that had this centered, principled nature to himself. Yes, pragmatist, but sensible, principled nature. Were you guys surprised at his support for the President here prior to the election?

Susan Glasser: (25:18)
You know, look, we struggled with this really for four years. In a way, eventually it was less surprising to us in the sense that we asked him the same question over and over again and he never gave a different answer. At a certain point, if somebody tells you who they are, you have to listen. For whatever reason, Jim Baker chose, at the age of 90, the identity of a partisan, choosing his party. When we asked him this multiple times this year, that's what he fell back on, is this idea that, well, there are some terrible possible consequences. The left is going to pull the country too far away. It didn't seem very convincing to us, but again, it was a conscious choice on his part, so that told me both about what his views of his power, and that right now we live in such a partisan moment that you basically have to pick an identity and stick with it.

Susan Glasser: (26:16)
The other thing is, look, we talk a lot about his accomplishments in the book as a statesman, as a negotiator, as Secretary of State dealing with the Soviets, but he was a very hard-edged political player and partisan. You look at the 1988 presidential campaign, and you can see a through line from that campaign to the scorched earth politics of today. Baker and Bush, they didn't govern like that kind of partisan because Washington was different then, but they ran a politics where they took Michael Dukakis, essentially a mild-mannered technocratic governor of Massachusetts, and they turned him into a flag-burning, pledge of allegiance hating, criminal coddling enemy of the state. They understood, in very crass terms, that that was actually the only way for George Bush to win when he was 17 points down coming out of the conventions. You can look at that aspect of Jim Baker's record too, the Willie Horton ads.

Anthony Scaramucci: (27:21)
Lee Atwater, James Baker.

Susan Glasser: (27:22)
That's right. He always had this duality to him, and I think that's what we explored in the book.

Anthony Scaramucci: (27:28)
Okay. Well, it's a fabulous tour de force. There's some great history in this book as well. I love the book. My last question before I turn it over to audience participation, is what did James Baker think of the book?

Susan Glasser: (27:44)
Well, he's still talking to us. That's good.

Peter Baker: (27:45)
He is talking to us. Look, he wrote two memoirs of his own, so he had a chance to say what he wanted to say about his own life. I think he cooperated with us the way he did because he realized if you're going to be a figure in history, somebody else has to write a biography about you. He had already written two of his own books. He gave us all the time in the world, he gave us complete access to his archives at Princeton and Rice University, we interviewed all eight of his children, his wife, his cousin, his nanny, who's 107 years old and still around, as well as all the poobahs, the presidents and vice-presidents and so forth. I think it was because he wanted somebody to tell his story who was independent and had credibility beyond his own circle. There are things in the book he doesn't like. His joke is I told them it could be warts and all and I wouldn't object to that. I didn't mean all the warts. That's the joke. But I think overall he thinks it's a fair and accurate presentation. He's told people that we've talked to that he learned things from the book that he didn't know because we interviewed so many other people, I think. If it's a revelation to him, maybe it could be a revelation to other readers too.

Anthony Scaramucci: (28:49)
Well, it's a great book. Thank you guys for writing it. I learned a tremendous amount from it, and I appreciate you joining us. We have our audience. We have pretty vigorous audience participation, so I'm going to turn it over to John Darsie.

Peter Baker: (29:02)
That's great.

Susan Glasser: (29:03)
Thank you so much.

Peter Baker: (29:04)
Thank you, Anthony, appreciate it.

Anthony Scaramucci: (29:05)
My pleasure.

John Darsie: (29:06)
Thank you guys again for your time. It's great to have you on, especially in this moment when everything you're writing about and talking about is so relevant. One thing that struck me in reading the book and in thinking about the Trump era is Trump is a wannabe dictator in a lot of ways, and he has some dictatorial instincts, but he's not particularly competent about Washington. He doesn't understand how things work. He wasn't able to navigate the political establishment, despite some world views that were potentially dangerous for the country. What do you think the example that Trump set within the Republican party about how to be successful, if we got a combination of James Baker and Donald Trump in the White House. Is that something that scares you, and how do you think that would play out if we get somebody who's more astute in terms of understanding how Washington works, that has these instincts that are more illiberal than any leader that we've had as a country?

Susan Glasser: (30:02)
Yeah. I think you're right, that that is one of the very scary scenarios that we just avoided here. Now, other people have asked us a version of this question, like could Jim Baker have made Donald Trump's White House work if he was White House Chief of Staff? My answer to that actually is a pretty unequivocal no, in the sense that someone like Jim Baker wouldn't have taken the job because you couldn't succeed at it, and that really nobody could have been an effective chief of staff, in my view, for Trump because you look at the history of him, both in office and also just him before that, as a businessman, it's clear that his personality, it's just impossible for somebody to have the independence and stature and authority to really do things in a professional way around Trump. That's just anathema to who he is in any job description.

Susan Glasser: (30:58)
That being said, look at history. A lot of the descriptions of ... not all, but many authoritarians or wannabe dictators, they have some similarities in terms of personality type to Trump. Many of them were described as buffoonish or not very successful in terms of organizing things. What's remarkable is that over time, people can learn to adapt. I do think that in a second term, had Trump managed to pull it out, he would have accomplished more and more of what his agenda was and the agenda of people around him. So I do think that was a very, very, very close call and that someone else could be successful with that kind of politics.

John Darsie: (31:49)
Our next question is about foreign policy. James Baker is known as a diplomat, both at home and abroad. He believed very firmly in the power of diplomacy. The Obama administration, in a lot of ways, developed a similar tack. They tried to engage in diplomacy even with some of the countries, like North Korea, like Iran, that others believed we should institute maximum pressure campaigns, which the Trump campaign then did in Iran. If James Baker was Secretary of State today, do you think he would follow the more Republican doctrine today of maximum pressure, more stand offish foreign policy, or do you think that it would look more like an Obama emphasize diplomacy type of presidency, Peter?

Peter Baker: (32:28)
That's a great question. I think it would be a mix in some ways. He would be strategic about the way he thought about it. It wouldn't be a one size fits all solution. There are instances in the world where he would have been in favor of maximum pressure. I suspect he thinks that negotiating with North Korea wouldn't be a fruitful prospect because they weren't going to come up with a deal that would be acceptable, and therefore maybe maximum pressure might make sense, economic sense. But he would be pushing to talk with Iran, for instance.

Peter Baker: (32:56)
In the late George W. Bush presidency, one of the things he did with the Iraq study group was really push both push and Condi Rice to re-open diplomatic avenues with Iran, with Syria, and to try working on the Israeli-Palestinian issue in a way that they were not, because he does believe in diplomacy. Now, I don't think the Iran deal that Obama came up with was actually good enough. He's criticized that, but he does like the idea of a deal, and he thinks had it been done better, that that would have been a better situation for the country than the confrontation that we're in right now.

John Darsie: (33:31)
We have a question that pertains to Russia, and I'm going to turn it into a two part question. The question specifically is that Putin claimed that during the break up of the Soviet Union, assurances were given to Putin and leadership there that NATO would not expand into the former Soviet Union, and he cites assurances that were given by diplomats that included James Baker. Is this true, and do you think the Bush team was the best to handle that era of foreign policy? What now do you think happens between the relationship with the United States and Russia, given that Russia, it's a bipartisan consensus at this point, that they helped Donald Trump get elected. How do you think they pivot their relations and their approach to dealing with the United States, Susan?

Susan Glasser: (34:15)
Yeah. Those are both really great questions. Just quickly on that Baker and his negotiations with Gorbachev. He did use, at one point, this phrase not one inch to the east language. I think the context has often been misrepresented. It's become one of Vladimir Putin's talking points. That's why you hear it a lot now. The context at the time was a question of what was going to happen to East Germany. They were talking about unification of Germany, and there were several hundred thousands Soviet troops in East Germany. They were going to be withdrawn, and the question was if the reunified Germany was going to join NATO, what would that mean in terms of this? Remember, at the time both the Soviet Union still existed, and the Warsaw pact still existed, so it was a very, very different conversation than the modern context in which its often sort of misquoted. Even then, Baker was straying from his official talking points, and it was seen as a mistake. He quickly backed away from that. He never repeated that again.

Susan Glasser: (35:22)
When they actually did sign the deal for German reunification, there was no such language evolved. This has been a little bit of a canard, right? Nobody was talking about NATO expansion beyond Germany at that point in time because, again, the Warsaw Pact still existed. What it tells you is the question of what kind of a victory did the U.S. win in the cold war? That's essentially what it's about, and Vladimir Putin has always held the idea that we imposed some kind of a harsh victor's peace on the Russians, and that he's trying to revise that. The truth is that NATO expansion came much later, in two rounds that began with Bush's successor, Bill Clinton. Interestingly, when we had a conversation recently with Secretary Baker about this, he said that he thought you could make the argument that maybe we had expanded NATO too much or had not really thought through what the implications of that were. That was actually a subsequent era's political fight that he and Bush did not shape the outcome of. That's number one.

Susan Glasser: (36:33)
Just quickly on Russia going forward, I would say this. You haven't heard Vladimir Putin congratulating President-Elect Joe Biden yet, even though most other world leaders, even those close to Trump, like Benjamin Netanyahu, have done so. There's a reason for that. Biden, when he was Vice-President and Chairman of the Senate Foreign Relations Committee, was always very skeptical of Putin and Russian power. In fact, he was kind of the designated envoy during the Obama years to people like Ukraine and Georgia, who were pushing back against revisionist Russian power in the region. I do think you're going to see a kind of renewed partnership with our European allies on the question of how to hold the line against the Russians, what can happen to challenge Putin's view. Putin, with Trump, has taken this triumphalist view that somehow the decadent West has actually been defeated and that his form of illiberalism has won.

John Darsie: (37:44)
Peter, I'll turn to you on this one. You wrote an article in the New York Times recently about the split within the Republican party about what do we do right now? How can we convince President Trump to concede, or do we throw our weight behind him with these frivolous lawsuits attempting to ... they don't even really seem like wholehearted attempts to overturn the results, but just to undermine the results and try to maintain some grip on power. Do you think there's any leadership in the Republican party or anyone close to Trump that is going to be able to intervene and cause him to concede the election, or do you think we're going to continue all the way through until January with Trump claiming that he's the rightful victor and we're going to have a sort of muddled transition of power in a way that we've never seen?

Peter Baker: (38:27)
Yeah. I'd go for muddled. Look, you've seen some leading Republican figures come out and congratulate President-Elect Biden, including former President George W. Bush, including Senator Mitt Romney and so forth, and you've seen some Republicans say to the President in effect, look, you don't seem to have anything there. Stop saying stuff like this, including Governor Christie, who has been an advisor of his over the years. Most of the Republican office holders these days are trying to straddle this uncomfortable line between saying more or less, well, if he has anything, he has every right to challenge anything he wants to challenge, take it to court, but they're not embracing the conspiracy theory. They're trying somewhere between acknowledging the result and crossing the President.

Peter Baker: (39:14)
I think that the President is just ... he has said over and over again, he does not like losing. For him, the idea of being tagged as a loser is unacceptable, and if there's anything he can do, even if he leaves office peacefully and on time, to avoid that tag by saying this is a stolen election, it's not a legitimate election, I think he's going to continue to do that. He said the 2016 election that elected him was crooked, and that he actually won the popular vote somehow.

John Darsie: (39:42)
He's had to recycle. He's recycling the narrative that he had ready to go when Hillary potentially was going to be the winner, and he's recycling it now in 2020.

Peter Baker: (39:50)
Exactly, and I think for him the danger, though, is looking more and more feckless as people just begin to tune him out and ignore him, which is maybe why he fires the Defense Secretary or does things like that to refocus attention on himself as everybody else is trying to turn back to Biden at this point.

John Darsie: (40:07)
Yeah. He's trying to look presidential, and the best way to do that is to show that you still have the power to fire people.

Peter Baker: (40:12)
Yeah.

John Darsie: (40:13)
I'm sure he's tossing and turning today as the news of the vaccine, positive early results of the vaccine get released a few days after the election, I'm sure that will be another point of conspiracy for him. We'll leave it right there. Peter and Susan, thank you so much for joining us. Anthony, do you have a final word for Peter and Susan before we let them go?

Anthony Scaramucci: (40:33)
No, listen, I thought it was a terrific book. I'm going to hold it up again. You guys know that I'm not that promotional, as you guys know about me. I'm going to hold it up again and say thank you very, very much. It's a phenomenal tour de force in literally the last 40 years in American politics, and I greatly enjoyed it. I think this is going to be something that people are going to be reading 10 or 15 years from now. This book has legacy the same way the Caro book, in my opinion, did about Robert Moses. God bless you guys. Best of luck with the book, and thank you for joining SALT Talks.

Susan Glasser: (41:07)
Thank you so much.

Peter Baker: (41:07)
Thank you, John. Thank you guys so much. It's a lot of fun. This is great.

Anthony Scaramucci: (41:11)
Okay. Wish you the best.

Susan Glasser: (41:13)
Thank you.

Peter Baker: (41:13)
Have a great day.

Pandemic Venture Investment Series - Episode 2 | SALT Talks #105

“This crisis has presented an opportunity because it gives the power back to policy makers to change the status quo for their city streets, specifically around transportation.”

This second installment of the SALT Talks: Pandemic Venture Investment Series, presented in partnership with OurCrowd, includes a look at the mobility sector in the current COVID-climate, how top entrepreneurs and their mobility start-ups are navigating the unprecedented business challenges and opportunities in our era, and what we can expect for the future mobility revolution. Moderated by Yakir Machluf, Mobility Lead, OurCrowd.

The pandemic has brought to light many of the unrealistic timelines associated with the adoption and rollout of autonomous vehicles. We’re seeing more companies readjust their business plans to reflect this reality and implement more incremental technologies like advanced driver-assistance (ADA) systems. Growth has instead been seen around other sectors like micro-mobility. Open-air intra-city movement patterns have increased as a result of the pandemic with bikes and scooters seeing a particular jump. “A lot of the usage we see on our vehicles, specifically e-scooters are a mile-and-a-half to two miles. This is a 50 to 100% increase from pre-pandemic.”

With the increased implementation of technology within vehicles, the need for vehicle cybersecurity has become essential. It’s an industry that has long relied on in-person demonstrations and onboarding. The pandemic has increased the adoption of remote training and virtual demonstrations that work in tandem with clients’ on-site systems, a more digital approach that will drive down costs long-term.

LISTEN AND SUBSCRIBE

SPEAKERS

Michael Dick.jpeg

Michael Dick

Chief Executive Officer

C2A

Graham Gullans.jpeg

Graham Gullans

Vice President, Business & Corporate Development

Superpedestrian

Adi Pinhas.jpeg

Adi Pinhas

Chief Executive Officer

Brodmann17

EPISODE TRANSCRIPT

Joe Eletto: (00:13)
Hello everyone, welcome back to SALT Talks. My name is Joe Elleto, and I'm the production manager of SALT, which is a global thought leadership program and networking platform encompassing finance, technology, and geopolitics. SALT Talk is a series of digital interviews with the world's foremost investors, creators and thinkers, and just as we do at our global SALT conferences, we aim to both empower big important ideas, and provide our audience into a window into the minds of subject matter experts. And thank you for joining us if you're in joining us in the United States, a day after the election which is still ongoing.

Joe Eletto: (00:49)
This will be obviously something that continues throughout the week, but we appreciate you waking up early and joining us. We're thrilled to welcome you to the second installment of our pandemic venture investment series, where top entrepreneurs, investors, and business leaders dive deep into the challenges and opportunities arising from the pandemic crisis, and discuss breakthrough technologies, address issues from the coronavirus prevention and cure, to social distancing and food supply. This series is presented in partnership with OurCrowd, which is a leading global venture investment platform.

Joe Eletto: (01:24)
Today's episode, Next-Generation Mobility in a Post-Pandemic World features Michael Dick, chief executive officer of C2A, Graham Gullans, vice president of Business and Corporate Development of Superpedestrian, and Adi Pinhas, chief executive officer of Brodmann17. Moderated by OurCrowds mobility lead Yakir Machluf. If you have any questions during today's talk, please enter them at the Q&A box at the bottom of your video screen. And now I will turn it over to Yakir to conduct today's interview.

Yakir Machluf: (01:55)
Thank you, Joe. And thank you for that kind intro, and I of course, thankfull for the opportunity to be part of SALT Talks. To our audience today, just reiterating what Joe mentioned, welcome to our discussion today about Next-Generation Mobility in a Post-Pandemic World. This is of course a part of a complete series of SALT, in partnership with OurCrowd. So the mobility sector is among the hardest hit due to COVID-19, with automotive manufacturing ground to a halt, ride hailing down 75%, and public transportation usage rates down, sorry, seeing one of the greatest declines in history with a very slow recovery rate.

Yakir Machluf: (02:37)
We have three great speakers joining us today to discuss the challenges and opportunities that the pandemic brought to the mobility sectors. Our first speaker as Joe mentioned, is Adi Pinhas, co-founder and CEO of Brodmann17. Brodmann17 is actually Adi's third company founded by him, in the computer vision space. Preceded by Vigilant Technologies in '98, JustVisual in 2006, and Brodmann17 founded in 2016. Adi, thank you for joining us today. Can you share a few words to our audience about Brodmann17?

Adi Pinhas: (03:10)
All right. Thank you very much for inviting us today. In Brodmann17, we're developing advanced driving assistance systems for vehicles. So features like automatic emergency brake, adaptive cruise control, self-parking vehicles, and so on. This is the functions and technology that we're developing with the mission of taking these advanced technologies from the premium vehicles, from the premium models to the mass market, in order to improve safety, comfort, and so on.

Yakir Machluf: (03:47)
Thank you Adi. Our second speaker is Graham Gullans. Graham is the VP of business and corporate development at Superpedestrian. Graham has built and invested in multimodal transportation companies for the past five years, and he sits on the board at Zoomcar, India's largest shared car rental company. Previously, he was also the co-founder and COO of LiftMetrix that was sold to Hootsuite. Graham, great having you on board with us today. Maybe a few words about Superpedestrian to our audience.

Graham Gullans: (04:15)
Sure. Thanks, Yakir. Nice to meet everyone. Superpedestrian is first and foremost, a technology and engineering company. The company got its start having spun out of MIT seven years ago, and we're based in Boston. We focused on the core technology that we call vehicle intelligence, which is an autonomous maintenance system that lives inside micro-electric vehicles. So anything that touches the electronics or mechanical system of small vehicles, such as e-bikes and e-scooters, our technology allows the system to measure, detect, prevent the most common challenges from happening. In the context of mobility that improves the safety of these vehicles and lowers the costs operating. So specifically, we find ourself in the micromobility space where those are the two biggest challenges in the industry, addressing the core safety needs for cities and riders in micromobility, addressing the core cost side and challenges of making this business sustainable into the future.

Yakir Machluf: (05:17)
Sorry, thanks, Graham. We'll definitely touch upon some of those points later on in the discussion. Last but not least we have Michael Dick joining us. Michael is the co-founder and CEO of C2A. Michael has 25 years of senior level leadership experience, previously co-founding NDS, which was acquired by Cisco for $5 billion back at 2012. Michael served as the VP of service delivery for five years, and is regarded as a pioneer in embedded network and content security. He has global experience working on large scale systems that protected billions of dollars of content for customers including BSkyB, Foxtel, Star TV, Sky Italia, Direct TV and others. Michael, thanks for joining today. Can you briefly introduce our audience to C2A and what is it that you do?

Micheal Dick: (06:02)
Thanks Yakir. Nice to be here. So C2A does in-vehicle cyber security. And as the previous speakers have described, vehicles are becoming more and more connected, and are offering all types of autonomous services, whether it's a desk type systems or automatic parking, et cetera. So imagine on the one hand, you have computers in the vehicle that are controlling the safety systems like the steering wheel and the brakes. And on the other hand, you have these cars that are connected to the internet, offering all types of services, online services, vehicle-to-vehicle, vehicle-to-infrastructure, et cetera.

Micheal Dick: (06:47)
So you can imagine that the threat of outsider attack into these vehicles is very high. And that's what C2A is here to try and prevent. From the various different attack surfaces in the vehicle, we have developed products to be able to protect those vehicles against attack, and not only prevent attacks but also to monitor and to manage the in-vehicle cyber security lifecycle, over the 10 to 15 years that the car has to be on the road, on an ongoing basis. So that's basically in a nutshell what we do.

Yakir Machluf: (07:29)
Thanks for that, Michael. So with no further ado, let's get right into it and talk about mobility and COVID-19. Starting with when we're usually thinking about the future of mobility autonomous cars come to mind, and the past 12 to 16 months have really not been easy for AV development worldwide to say the least. We've seen AV timelines and launch dates being pushed back by several years, less capital directed towards the development of new AVs and an overall conservative tone sounded from Car manufacturers in regards to AV deployment. Adi, I'll start with you. As I know you had more than a few discussions about this topic with OEMs and Tier Ones. Can you take us through what goes on behind the scenes of AV development, and how did COVID-19 play a role in that?

Adi Pinhas: (08:15)
So I think in the case of the autonomous vehicles what happened is that, like in many other cases, COVID accelerated decisions that should have been made a lot before. For couple of years the industry understood that autonomous vehicle is going to be a huge challenge bigger than initially anticipated. It's going to be more expensive than originally budget. And we saw that even Waymo by Google raised a capital in order to make happen. They also realized that it's very complex and we saw for a long time, every other week, two companies announcing on a new alliance in order to work together and be able to do that, impossible alliances in some cases.

Adi Pinhas: (09:14)
But then COVID happened, and it forced everyone to look into reality and see that we need to push the timelines. We need to think about it again, and today what we see more, I think, solid plans. Even from a business plan perspective, you will see that most of the thinking in the work today is about trucks, where you have very clear ROI, less about robotaxi, definitely less about passenger vehicles. And so, everyone or many are regrouping, creating better more solid plans, and we'll continue with that work.

Yakir Machluf: (09:56)
Thanks for that Adi. Now I'm sure for a startup working in the space much like Brodmann17, that could prove challenging. Can you elaborate on some of the challenges from a startup perspective, and possibly share even some of the opportunities that you recognized during this period?

Adi Pinhas: (10:13)
Yeah. So earlier this year, of course, COVID created, the outbreak created a big confusion in the market, especially for some of the OEMs and the Tier One suppliers. They had bigger issues in front of them from a supply chains to sales, manufacturing challenges, and so on. But then exactly as we said, because of autonomous vehicle is going to be delayed, now they are focusing again on the ADA's, on the advanced driving-assistant systems. What we are frequently calling the level one to level three systems. So now that they are not going to be anytime soon autonomous vehicle, they realized that we need to take care of the driver. To create systems that are going to make the car more efficient, more comfortable, safer of course. And that's not only in the integrated solutions, this is beyond integrated solutions.

Adi Pinhas: (11:12)
What we see now is that a fleet management are looking to add these technologies as an aftermarket or after sale by adding these type of technologies to monitor professional drivers. Some insurance companies are talking about regular, a passenger, a driver, but definitely for the professional drivers, adding these systems to monitor the drivers, and to create better training plans, to create better safety scores for insurance purposes. So few of the OEMs and the Tier Ones, actually realized that they put aside for too long this ADA's technologies then now they have a gap to close. So they are working with us to start and deploying the level one to level three solutions, until the level four, level five will eventually reach perhaps in a decade or so.

Yakir Machluf: (12:13)
Got it. Thank you, Adi. Of course, not only autonomous cars have been affected by COVID-19 and as people were forced to either stay at home or follow strict social distancing limitations, the entire way in which people and goods move around has changed. Some would say that they changed for good. Graham, moving on to you, can you share some thoughts on these changes and how will urban mobility change in the coming years?

Graham Gullans: (12:43)
Sure, thanks Yakir. There's an adage that you never want to let a crisis go wasted. So with cities and public policy, things are typically difficult to change, they take time. But this crisis has presented an opportunity because it gives the power back to policy makers to change the status quo for their city streets, specifically around transportation. And that's starting to happen quite rapidly now. So there's really two major impacts from a city policy perspective that is been accelerated by COVID. Number one, the ability to change the policy, right? Typically, it's been hard to change policy, the time it takes to influence it can be years. But now, we're specifically seeing cities accelerate those timelines on how they allocate street space and manage traffic. So across the US and Europe, primarily there's a real willingness to change streets. Some examples are, there's a lot more open air dining and retailers moving into the streets.

Graham Gullans: (13:41)
New York is a good example of this, cities and retailers are given space now on the streets replacing either lanes or car parking. In the UK, there's been a huge appetite for infrastructure spending on bike lanes. They're committing to invest £250 million on bike lanes to support micro mobility. And then when there was temporary bike lanes put up in place for the pandemic, they're now becoming permanent. People are seeing the revalue, and cities are appreciating that long-term stability. And then one more soundbite is Paris actually is taking an aggressive stance. They're taking back half of the parking spaces from cars in the city, which is around 70,000 spaces. So it's an incredible amount of city land that's being dedicated back to better mobility options than the car and other transportation options. And this appears to be sticking because policy is pushing towards making those permanent changes, and that's the accelerating factor that COVID has had on mobility.

Graham Gullans: (14:43)
The second of the two major ways in which it's having impact is travel patterns has changed. You alluded to it in your introduction Yakir, but everyone knows public transit is down massively. And they're having to cut budgets because of the shortfalls even more so than they can. So cities need to promote other alternative options. Ride hailing is unfortunately not necessarily the solution because there's still that other person in the car with you, and we've seen that down as well.

Graham Gullans: (15:15)
The two best mobility options in a pandemic world are driving your own personal car because it's perceived to be safer. However, cars have been in a 10-year fight against personal cars because of the traffic and safety reasons. And so cities are really promoting more options for mobility, specifically micromobility because micromobility is preferable when you're in the open air environment and you don't face the public health challenges of public transit with people being close to each other, and then driving of course is pollution. So micromobility specifically, immobility has been accelerated by way of the... by COVID.

Yakir Machluf: (15:54)
So you just alluded to micro mobility and challenges. So I would like to ask you about specific challenges for micromobility due to COVID. What did you experience during that period?

Graham Gullans: (16:10)
Sure. Well, there's always short-term challenges, but also open opportunities. So I'll talk about kind of what immediately happened following COVID, and it presented, well, opportunities and challenges and then we'll look at kind of what challenges exist long-term. When COVID forced folks to a lockdown, it actually caused people who had not experienced bikes in a long time or scooters for the first time to try those new options. So specifically medical professionals were used to taking the bus, train or driving and carpooling, we're now experiencing the efficiencies and advantages of micromobility. But that same constituency now also saw the dangers of car dominated streets.

Graham Gullans: (16:53)
So what you're seeing is the pandemic has caused new people to experience it, promote it and then that's also suggesting a path away from car dominated streets. Within micro mobility in the short-term, there's a lot of positives and then I'll express the challenges as well. Positives, number one, there's longer trips. Meaning a lot of the usage we see on our vehicles specifically e-scooters are a mile and a half to two miles. This is a 50 to 100% increase than pre-pandemic. Number two is that people are using them for a broader array of purposes. It's not just recreation or tourism, they're using it in their day-to-day. Again, away from the public transportation. And there's a much more diverse set of demographics and trip purposes being used.

Graham Gullans: (17:41)
So that's the tailwinds that the pandemic has provided micromobility. The challenges for micromobility, specifically, are to making sure these changes stick. So building resiliency into transportation, so we don't go back to the monoculture of cars. So that's number one, cities do need to work on their public policy. But they're getting the support of businesses and restaurants who see the advantages of people riding bikes to a restaurant. So in New York, actually, restaurants used to not like bike racks in front of the restaurants, they'd prefer car spots.

Graham Gullans: (18:18)
Now they actually promote bike racks because it will bring more people in then [inaudible 00:18:22] parking spots. So we had to make sure these changes stick. Another challenge is that we need to make sure these transportation options serve a broader diversity of travelers. Scooters and e-bikes fit a large audience, but not all audiences. There will be transportation options into the future that I think will stick long-term, that we've not seen on the road today. And that's what we need to focus on.

Yakir Machluf: (18:45)
Thank you, Graham. Michael, moving on to you. Automotive cybersecurity and COVID-19, tell us what's the connection? Michael, oh, perfect.

Micheal Dick: (19:01)
Yeah. Sorry. Yeah. So even earlier on this year before COVID, February timeline. ISO published the 21434 specifications with regard to in-vehicle cybersecurity and also lifecycle management. And so, also the UNECE WP.29 was published and is going to become legislated at the end of the year for those countries that belong to that organization. Which means that if somebody wants type approval for a vehicle in the country, they're going to have to be compliant with the UNECE WP.29 specification. Now, this all happened before COVID, and the fact of the matter is that that's continuing. In other words, whatever happens after COVID, any car that is manufactured from 2020 to 2023 is going to have to be compliant with these specifications.

Micheal Dick: (20:04)
Which means that the car manufacturers and the Tier Ones all in the whole industry has to move towards cybersecurity and lifecycle management. So I think there was a bit of a panic in the beginning of COVID, how are we going to do this with COVID? But we found that especially with C2A seeing that most of our systems that supply solutions to cybersecurity and lifecycle management are cloud-based, we can offer it as a service to our customers. And they've learned now over time that they can be completely independent and they can implement whatever they need to implement on a remote basis. Whereas in the past, this used to use up a lot of manpower, you need a lot of services to do these investigations, et cetera.

Micheal Dick: (21:06)
We can now do it automatically on through a system that is cloud-based for them. So for us it's been interesting because it hasn't really affected the investigation of the Tier Ones and the OEMs into these new technologies and doing proof of concepts or something like that. We can continue doing that remotely. We don't have to be, yeah, and they don't have to be actually... They can do it remotely as well. So from that perspective it's been easier for us. It is difficult working without meeting people for the first time sometimes over Zoom, et cetera. But I think the world is getting used to it and-

Yakir Machluf: (21:54)
Yeah. I think we all need to get used to this new normal. Yeah. So I think actually, this was actually very insightful thought to think that most of us usually think that due to COVID the entire automotive industry stopped, but actually understanding that cybersecurity and the cyber threats are still eminent and are progressing although the majority of the industry kind of put to a halt, it's an interesting thought and just makes it that much more imminent in comparison to maybe autonomous cars and all of that. Now can you tell us more about the new regulation and what do they actually mean from an automotive manufacturer perspective?

Micheal Dick: (22:40)
... So it's actually quite interesting, if you speak to a car manufacturer today, and you say to them let's say, "There's been a vulnerability published." Does that vulnerability affect you in any of the models that you have on the road? And if it does affect you, what can you do about it and which models are affected, et cetera. All the OEMs, car manufacturers, they don't really know the answer to that question. When a vulnerability becomes available they have to go do research, they have to investigate. They have to try and find all the development teams around the world, all their suppliers. It's a very complicated supply chain, Tier Ones, Tier Twos, Tier Threes all supplying into the same vehicle.

Micheal Dick: (23:35)
And it takes them weeks actually, to know if they are affected or not. We actually... we had a market survey about six weeks ago that came up with this, that it takes them weeks. We spoke to many OEMs and Tier Ones. It takes them weeks to actually do that investigation, which is obviously not acceptable. Especially as you get more connected and there's more software in the vehicle. There's going to be dozens of vulnerabilities on an ongoing basis. And this is for the 10 to 15 years that the car is on the road. And it's now become compulsory for the car manufacturers to actually run that in-vehicle cybersecurity lifecycle management in an organized and automated way.

Micheal Dick: (24:23)
And because of the complication of the number of partners involved and how they all communicate with each other, et cetera. So this becomes a difficult thing to implement. And in our survey that we ran, our market research, one of the complaints was also that there're no tools available to allow them to be able to do this type of lifecycle management. And so that's what we... Luckily, we've been investing the last three years in trying to develop this product, that is now become compulsory for[inaudible 00:25:01]. So we're seeing a lot of traction and a lot of interest on an ongoing basis since we launched this a few weeks ago. And as I mentioned before, they won't able to get a car manufacturer from 2022 in some countries and 2023 in others. Will not be able to get type approval unless they can show that they're compliant with these regulations.

Yakir Machluf: (25:27)
So you've actually alluded to several interesting points here. And I think the most interesting one is your ability to actually cut the need for resources, cut times, actually make manufacturers and the suppliers more independent. So this actually brings me maybe to the next point, and I would love to open up the discussion at this point. And talk about more about cost efficiency and open up the discussion to Adi and Graham as well. Can you maybe kind of talk us a bit about cost effectiveness aspects in your verticals? Adi, how is Brodmman17 solution could address maybe cost effectiveness solution in fleets and Graham for micromobility. I would love to hear your thoughts on that.

Adi Pinhas: (26:16)
Yeah, cost is a big issue. Most of the features that I mentioned, they are not hard to sell. A self-parking vehicle, of course, everyone want's it. The big issue is the gap between how much it cost and how much people are willing to pay for it, same for the insights from the fleets. Cost is not only the amount of dollar, it's also the power consumption of these systems, the heat that they generate, the size, and so on. So we are trying to work on all these dimensions. Other forces are also important here. So regulation, for example, the moment that regulator decided in Europe and then in Japan, that all new models needs to have automatic emergency brake. So now the automakers once that is a regulation, they need to find a mass market pricing for that, it's no longer an advance, a premium feature.

Adi Pinhas: (27:27)
So we have the drivers that like the features very much, we have the regulations as another strong force that is driving the market forward. And the third one is ANCAP, ANCAP are publishing new safety standards every year. So if an automaker would like to maintain his four, five safety stars, and ANCAP are now stating that automatic emergency brake as a part of the reverse camera is a must. Then again, they need to find solutions, they need to find cost effective solutions in order to implement it. So here, in order to achieve that, we are taking a completely new approach into this system. Taking a softer approach, working with commodity hardware, creating [AJI 00:28:25] architectures in order to create a bottom line, a system that is complying with the regulation in ANCAP, but still has a fraction of the cost of what it is today.

Yakir Machluf: (28:43)
Thanks, Adi, Graham.

Graham Gullans: (28:45)
Sure. So micromobility, specifically costs is very important. But actually, there's two groups of micromobility, and it's more important in the shared case. So micromobility as a personal consumer vehicle type has been around for 100 plus years with the bike, and then Kick scooters, which you see a lot of kids on these days. So micromobility on the personal side has not been impacted by costs in the last decades, a couple decades, because the cost of owning a bike is relatively low, the cost of maintaining a bike is relatively low. And that has not been a challenge because the cost of keeping that vehicle on road is internalized by user and the consumer itself.

Graham Gullans: (29:27)
When shared mobility, specifically in micromobility became such a hot trend. With the introduction of bike sharing across the world, but also electrification of e-scooters and e-bikes costs became everything, right? And the industry is still at its infancy, where it could be a make or break for the industry. If you don't figure out the cost side of running a micromobility fleet, then micromobility is going to be more challenging to have long term sustainable life unless it's subsidized. Which is not the goal of Cities necessarily. And the reason why shared micromobility is so different than personal bike or scooter ownership is because those costs now borne by the shared fleet. And you now have significant costs for labor, you have higher use and abuse of vehicle, so the cost of the vehicle lifetime becomes challenged.

Graham Gullans: (30:20)
And so, when you can't internalize those costs to a single consumer, and they get spread out over fleet, it makes the business hard to run. And so that's what we focused on for the seven years that Superpedestrian has been in business, which is lowering the cost side of running fleets, specifically to micromobility. If you think about the two biggest costs, it's labor of keeping your fleets on road, service maintained and generating revenue, and two is vehicle lifetime. Those are the two things that have challenged the industry. So that's what our core system has been developed to address, which is to lower the cost of labor for keeping the vehicles on road, and safe, and repaired and maintained. You should address that through technology, right?

Graham Gullans: (31:02)
Technology is scalable, the technology is inside the vehicle as well. And so, the vehicle is able to do things that a human would otherwise do. Inspect whether or not the brakes are safe to ride on, make sure the core electronics in the system will overheat or fry, because they've been left out in the rain or been going up and down hills. If technology can do that. Now the costs of running your fleet get lowered because labor is now cut in half or more. So you don't need to staff up teams to go in and visually inspect. Plus technology can do a better job than a human can do, because they can look inside the hood without a human going in with a scope.

Graham Gullans: (31:39)
And so, technology addresses the labor costs of running micromobility fleets. And it also is able to extend the lifetime of vehicles because it's able to detect when failures can happen in the first place. It knows when... That you may run into the end of a life, or a battery pack, or a motor, it can autonomously, our autonomous maintenance layer can alert us to that before it happens in the first place. Again, going back to safety and cost side of things. So technology addresses the core costs of running micromobility. And we're at the forefront of that for a relatively new industry that's trying to navigate being a sustainable option for citizens in cities.

Yakir Machluf: (32:18)
Maybe you can expand on that because I think that we have a lot of investors or potential investors in micromobility and mobility as a whole tuning in. And they're probably all familiar with Bird and Lime. And since their inception, we've seen a lot of venture capital money flowing into those companies. Now they have initially maybe worked with off the shelf scooters, but they have since evolved to introducing new models, where would be... So they're also claiming for cost efficiency and of course, enhanced operational optimization. So maybe you could contribute your thoughts on that. In regards to Superpedestrian, where is the actual value coming from?

Graham Gullans: (33:02)
Sure. So the space is super exciting from an investment perspective, and from a city perspective, because of the demand for micromobility. When vehicles were electrified, specifically e-scooter and now we're seeing more e-bikes on the fleet side, the demand was a multiples higher than bike sharing schemes. Once you lost the dock, and once you powered these vehicles with electronics, the demand was much higher. So the shared scooter has been one of the vehicles of choice, you're seeing cities across the globe, there's two to five trips for that single vehicle type, which is pretty impressive in terms of demand and revenue generation relative to the asset value. The asset value is hundreds of dollars, not thousands of dollars, again, cheaper than e-bike, which also makes it more sustainable. That's why the venture investors poured money into the spaces because the demand was like this faster adoption than ride hailing. The revenue growth was off the charts. You put scooters on the road, you'll get rides that day. And you'll be at full demand within a couple of weeks.

Graham Gullans: (34:07)
So it was an incredible promise. But the cost side challenges of running the business lagged the revenue growth, and that's where we've been for the last year or year and a half, which is all micromobility operators need to focus on the cost side because you've proved that this business can be sustainable before you can keep growing top line. The land grab strategy doesn't necessarily work unless you're running a business model that's sustainable. Specific to Superpedestrian, while the industry was scaling, going to land grab as strategy, we spent our time focusing on a vehicle that could operate at 50% or lower costs than what all our other fleets. Is taking our core embedded patented technology and stick it into the vehicle type of this shared scooter. So we emerged as a second mover with better technology and the advantages are safety which you know helps us win city permits and partner with cities, but also lower costs of operations, right? And that is the fundamental difference.

Graham Gullans: (35:04)
When you can lower your costs by that amount or more, as we've done across our deployments, your market and the promise becomes so much bigger for micromobility. What it really started at was thousands of cities around the world down to even towns will have micromobility. Where it's been constrained to is only large cities can support micromobility because large cities have the demand, but small cities can't support it. We've now proven that our cost side of the fleet can operate in a much bigger [team 00:35:33] because you can go into markets with less demand and less density, you can go more distributed population. You're still serving the needs of micromobility, but you're now serving thousands of cities rather than the top 25 cities of the world which have that high demand. So that's the difference in lowering costs.

Yakir Machluf: (35:52)
Thank you, Graham. I want to again maybe kind of allude back to a point that we made before. So we have here three leaders of three different startups. Two of you based in Israel, one in Boston, how did COVID-19 and the outbreak and all the lockdowns and the ban on flights and all of that affect your ongoing and your relationships with clients abroad? Open style, everyone, as you went there, Michael, Adi, Graham, take it away.

Graham Gullans: (36:21)
I'll jump in real quick. I'll answer a slightly different like you Yakir, which is the biggest difference I've seen is that are hiring folks, so our company is doubled in size in terms of headcount. I think we're closer to 100 now, in the last six months. So the pandemic accelerated our ability to hire. The interesting point here is that we've not specifically required people to be located in Boston. And prior to COVID, we were much more focused on that finance teams, Ops teams, HQ, centralized in Boston. Now, when we've gone out and hired from the industry and other talent, we ask people where they live, but it's not necessarily a requirement. So it means the talent pool for us is much larger, right? We can go international, we can go East Coast, West Coast, Central. And so, it's now an afterthought, into the third conversation you have in hiring of where you're located. And we don't necessarily ask people to move into where we are. So I think that's been great because it opens up the talent pool.

Yakir Machluf: (37:22)
Amazing. Adi, if you want to tackle both, either relationship, or operational point of the effects of COVID.

Adi Pinhas: (37:30)
I think, was something that helped us very much to scale is the ability to do remote demos. So before COVID, it was unheard of that if the customer wants to see a demo, you need to go to the customer and show how it works. After all, it's a very large OEM, or Tier One. But now they can't meet us, even if you will go there a cooperate regulations are not allowing them. So what we worked back in March and April is to create a bulletproof DIY demos and showcases. So today, every other week, we are sending a demo kit to New Zealand, to Australia, to Korea, the customer on the other side is assembling it and it works. And so from that perspective, a lot easier to scale now.

Graham Gullans: (38:29)
Just to comment briefly on that, I think it's fascinating you use the word bulletproof because demos naturally go wrong, right? They go wrong, not when you're testing it in your office, but when it's in someone else's hands. So I think that's super important. I like that.

Adi Pinhas: (38:43)
It's a lot more convincing also to the customer, because it's not like a magic show. If he puts the assembly by himself driving, then it works, then it's creating even better confidence toward the demo.

Yakir Machluf: (38:57)
Michael, your thoughts on that?

Micheal Dick: (38:59)
Yeah. So with us, when we do a demo, for example, remote demo, it's not really a demo. It's not like a demo kit, it's the real thing. We are actually have an instance of AutoSec, which is the... in vehicle lifecycle management system. And the customer actually sees a live implementation of the system. This is what he's going to get. It's not a demo, it's the real thing. And we keep on updating that on an ongoing basis. So he sees the latest and greatest, and he can play with it, and he can see all the features by himself. And he can very soon... Until now, until COVID, it's been common in automotive industry, for many companies all over the world to offer services.

Micheal Dick: (39:53)
They said they'll put a whole lot of people on site and you'll be able to [inaudible 00:39:56] investigations, to do integration [inaudible 00:40:00], for example, in cybersecurity, the most two important things are visibility and traceability. So you know what you have and the [chief 00:40:09], if something is published, you can trace it to see where it affects you, where it doesn't affect you. This has been offered traditionally to the market by having lots of people doing this work for the car manufacturers, which is not relevant anymore. It's not practical anymore, because you can't be flying around the world anymore. And everyone's trying to save money, you can't have these loads of people trying to, do these investigations, et cetera.

Micheal Dick: (40:38)
So once you can have a real life system on remotely, or on cloud, or on premise that they can use. So they see, firstly, that they can be independent, and they don't have to be dependent on multiple companies to give them the visibility and traceability. So it's practical, and also saving them money. So let's say it's an interesting development.

Yakir Machluf: (41:05)
Thank you for that. So maybe as an ending note, before we move on to the Q&A questions, and I see that we have a few. What is the biggest trend that our audience and investors in the space generally should be aware of in regards to your vertical? Michael, let's start from you.

Micheal Dick: (41:22)
Yeah. So as I mentioned before, I think that 2020 is the year of cybersecurity for automotive. There's been a lot of talk for many years already, maybe 10 years, people have been talking about cybersecurity for automotive, from the hacking, there were hacks demonstrated, how important it is, and everyone said how important it is, et cetera. But there haven't been any implementations of advanced cyber security on the production lines. And the market was getting a little bit nervous. Everyone's talking about it, why is it not happening? So finally, we've arrived at the time where it started to happen, and that's the year of 2020. And that's because of legislation. Number one, because the timing is now with both ISO and the UNECE publications, which are now going to become compulsory for the OEMs, and Tier Ones for the industry to implement. So that's the first thing.

Micheal Dick: (42:24)
And the second thing is that issue of the way that we approached, the different approach that is going to be, that is different now, in the sense that, now it's more important to be able to work remotely, to be able to work independently, and to be able to save money. So I think that we start, we're actually starting to see it happen. Many of the OEMs that are putting out requests for quotes, for new systems, for new vehicles, with new production. Start of production in the next couple of years, are now including, large quantities of cyber security requirements as part of that RFQ. And we're seeing them coming out now one after another. RFQs that include all the cybersecurity requirements, and lifecycle management requirements. So there's a big change, 2020 is the going vehicle cybersecurity.

Yakir Machluf: (43:30)
Thank you for those insights. Adi, can you contribute a trend for our audience?

Adi Pinhas: (43:36)
I think, earlier this year, I met a few worried people that asked me if this is the end of [inaudible 00:43:43]. This is the end of software in vehicle and so on, and they couldn't be more wrong. There is no way back, vehicles are becoming a software platform. And especially the automakers, they are looking on the great product that Tesla are developing. And they're writing their own software. And in most of their cases, they are getting the software from companies like us for the Tier Ones, which means they get it in three years delay, and they understand the gap. They are starting to think about the vehicle as a software platform to see how they can work with companies like us that are developing AI and software and improve their products significantly from what they are today. So there is no way back, vehicles are going to become smarter and better.

Yakir Machluf: (44:33)
Thanks, Adi. Graham, a trend in micromobility?

Graham Gullans: (44:37)
Perfect transition because 2021 is all about the year of software for micromobility. So firmware on the vehicle, on the boards itself, and then cloud maintenance, right? The software that doesn't have to happen in real time on the vehicle but can be a little bit more persistent on the cloud. That's not something that has ever been part of micromobility. That's been... Micromobility is vehicles that are left on the street and need human maintenance and touch and care. The time to lower the cost is now, the land grab strategy was going away at the end of 2019. And the impact from COVID accelerated that transition away from scale at all costs down to lower cost of operations. And the way you do that is through software and connected smart vehicles.

Yakir Machluf: (45:26)
Thank you. So I do see here a question. And I do urge our audience, if you want to have your questions answered live, please do submit them in the QA box. But I'll address one of those. We have a question here. Will the cost of the pandemic make it harder for countries to fund major mobility project? And if yes, how will this affect VC mobility plays? Open mic.

Adi Pinhas: (45:57)
So I think what we see that especially the Big Five, Japan, Korea, China, the automakers countries, Germany, US, they consider the automotive industry to be a national treasure. And they protect them very much, there is a lot of knowledge, a lot of money over there. And they are going to protect it, they are going to find ways. They monitor very closely this industry, and they are going to make it work for them.

Micheal Dick: (46:30)
Yeah, that's true. It's also... We're getting into, as Adi mentioned, there is no way back. I mean, this is, in order to compete, the car manufacturers are going to have to put in their investment in the tier Ones are going to have to put in that investment in order to be able to compete, otherwise, someone else will eat their lunch. So I think from that perspective, it's going to become even more important for them in order to be able to compete and keep up their... They've been through a serious knock for last few months, in order to be able to recover, they need [inaudible 00:47:09] I know this is going to be their... this is the only way forward for them.

Graham Gullans: (47:13)
Lastly, I'll add that in my micromobility, it's much more set by the specific city rather than the country. So what you're seeing is the city's budgets for mobility is constrained. And typically, there's not an ability to fund projects such as micromobility. So from an investor's perspective, and from a micromobility operators perspective, it's again, allowing private companies to be sustainable so that it's... Can be on streets long term rather than necessarily tapping public funding.

Yakir Machluf: (47:47)
Great, thanks for those really insightful replies. And I think we've discussed some really interesting nuanced points today. And I want to thank again, our three speakers from Brodband17, Superpedestrian and C2A. Make sure to join us for the next installment of pandemic venture investment series by SALT, in partnership with OurCrowd, taking place next Thursday. Today, we heard from just three of over 200 companies in our portfolio. I welcome you all, to log on to ourcrowd.com, that's O-U-R-C-R-O-W-D .com, where you can see more technology startups and investment opportunities in both mobility and many other sectors. I want to thank again to our partners from SALT.

Philip Bagdasarianz: How to Evaluate Investment Decisions | SALT Talks #104

“Many short-term decisions… are not primarily driven by numbers. It's not a mathematical science. It's a social science.”

For over 18 years Philip Bagdasarianz has been working with wealthy families from Central and Eastern Europe, the Middle East and Asia. This year he joined PWA Private Wealth Advisors AG, a swiss multi-family office boutique as a managing partner.

Our identities play a central role in our personality and it ultimately has a huge effect on how we work and interact professionally and personally. Identity can be categorized into three pillars: DNA, culture and upbringing, and our purpose. Understanding different identities and how they manifest themselves is important to consider when evaluating investment decisions. For example, western societies place more emphasis on individualism. “They are generally the individualists are generally what we call overconfident. Meaning they have the illusion of being in control of what they're doing in the markets.”

LISTEN AND SUBSCRIBE

SPEAKER

Philip Bagdasarianz.jpeg

Philip Bagdasarianz

Managing Partner

Private Wealth Advisors (PWA)

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

Rachel Pether: (00:08)
Hi, everyone, and welcome back to SALT Talks. My name is Rachel Pether and I'm a senior advisor to SkyBridge Capital based in Abu Dhabi, as well as being the MC for SALT a thought leadership forum and networking platform that encompasses business technology and politics. SALT Talks as many of you know, is a series of digital interviews with some of the world's foremost investors, creators, and thinkers. And just as we do at our global SALT conference series, we aim to provide our audience a window into the mind of subject matter experts.

Rachel Pether: (00:41)
Now the focus of today's talk is going to be on how a healthy identity leads to better and more sustainable investment decision making. And I'm very excited to be speaking to a dear friend of mine, Philip Bagdasarianz, the Managing Partner at Private Wealth Advisors, a Swiss multifamily office boutique. Philip is a true global citizen. He's lived in Africa, the US and now calls Switzerland home. For over 18 years, he's been working with wealthy families from Central and Eastern Europe, the Middle East and Asia. He's a certified international wealth manager and an expert in financial advisory, and he received his MA in educational science from the University of Zurich. For the last 10 years he's also been on the faculty of the University of St. Gallen's executive MBL program, the sustainable investment decisions.

Rachel Pether: (01:34)
As always, if you have any questions for Philip during today's talk, please just enter them in the Q&A section of your screen. Philip, welcome to SALT Talks.

Philip Bagdasarianz: (01:45)
Thank you, Rachel. Very glad to be on board today.

Rachel Pether: (01:49)
No, we're super excited to have you. And the focus of today's talk is how a healthy identity leads to better and more sustainable investment decisions. So I guess we should start with identity. But before we go into that, and without sounding too psychoanalytical, tell me about you. Who are you really and what's your identity?

Philip Bagdasarianz: (02:13)
Yeah. Well, Rachel, I'm a bit like six feet tall and about 70 kilos, a bit more than 70. Well, no problem, quite a bit more than 70 of course at the moment. But that again, you read my bio and that just tells a bit where I was, what I've done. I told you a little bit of my outside. But that's mainly not enough to say who I really I'm as you said.

Philip Bagdasarianz: (02:43)
My name says a bit more about my background. I'd like to just give you a short overview of where my life story came from, or how that developed, because I think that will give us an idea of the pieces and the complexity that I think is behind each and every person's identity. So born in Switzerland, we left the country to go to Africa just a few weeks after I was born, my father was a medical doctor there, together with my mother, who's American. And unfortunately after already two years that we were in Africa, she was diagnosed with cancer just after my brother's birth. So we went back to the US to her family for treatment. But tragically, she didn't survive for very long. And when I was three and a half, she passed away.

Philip Bagdasarianz: (03:38)
So, grew up with my grandparents, my father, and I'm very lucky that my dad found a wonderful second wife just a couple years later. And after that, when I was seven, we moved to Switzerland for actually the rest of my formal educational life. But you see, I was uprooted in Africa, planted in the US, uprooted again brought to Switzerland. Didn't speak a single word of German, the local language here. And so in the remote mountain village that we landed in, the kids, they didn't, some of them didn't want to be friends with me just because I was different. I wasn't familiar to them. So that was difficult for me to understand why would that be? I played with African kids, I played with Americans. I was the American boy and suddenly in Switzerland, with an Armenian name, which was Russia. So you see I carried the cold war within me during that time.

Philip Bagdasarianz: (04:46)
And that obviously got me thinking about identity. The other thing is now how was it on a relational level? Was I an orphan or not? I never luckily never felt like one. But those are things that do influence personality. But identity is probably even a bit more. As a kid you don't think too much about that. You just cope and try to survive. Maybe remember when we first met Rachel, how I looked. Right?

Rachel Pether: (05:23)
I do remember. Yes. And I was actually very impressed that you still took the meeting because you had just had a bike accident and your lip was so swollen you could barely talk, but I was very impressed at maybe that's the German side of the Swiss. You stick to all your appointments, I was very grateful and happy that you did take the meeting that day. And you bought me Swiss chocolate at the end of it. So I remember-

Philip Bagdasarianz: (05:52)
Correct. So that's again, you see in my very short period of my life, that happens. Sometimes you fall flat on your face. Now with the biker it was my doing. I just was not careful enough would be too fast. But I think many of us, they have their origin, they have their heritage where they come from, which forms a great part of their identity, especially as kids. And we all have bruises. I'm lucky, this healed more or less quite by itself. So our body is a great example that, yes, we do get bruises, but let's get to work. Let's heal it. And so I think I'm really happy to say that many of the scars that I might have taken along from those difficult moments, they did heal. They did heal.

Philip Bagdasarianz: (06:44)
So, the next thing that happened to me was that we were in Switzerland, formal education, and all that. And of course, the older you get, the more your choices start defining more about who you are. It's not just what happens to you. It's also how when you actively choose which direction you want to go for work, how much effort you want to put to your studies and all that. So that's when I think the given identity from the outside becomes a bit more influenced by what we do and see. Yes, please.

Rachel Pether: (07:28)
Sorry, just jump in there. And I want to dive further into the choices and the personality aspects. But I know that one of your passions is you work for a not-for-profit organization that equips leaders, equips decision makers, through identity based leadership. So how do you actually define identity? What are the components that make that up?

Philip Bagdasarianz: (07:53)
Yeah. Well, the components that I try to bring it down to, let's say, three aspects, which makes it a bit easier for everybody to understand. This is an area I'm still exploring myself. So this is not scientifically totally based or anything. But I try to bring this, my passion for the identity or the different personalities that I meet also in my business life and in the organization. And mix it also to understand what's going on on the markets. How do I react? How do my clients react to all these things. So, identity Actually, I believe, has three sides.

Philip Bagdasarianz: (08:39)
One is what's called the inside, which is our DNA as humans, our look. our gender can be different, or it influenced our decision making. Our abilities, our disabilities, our feelings, passions, and I was saying, the coping mechanisms that we develop in life and reactions and reactions. Now, the good thing, what I think is, we do see the inside part of identity shows we have a need for uniqueness, we have a need for control, for decision making it all, for happiness, and generally some inner peace. So, just that's it.

Philip Bagdasarianz: (09:30)
A second side would be towards the out the outside. That is what probably is very strong when we're small kids, the circumstances, our culture, our tribe, and then later on relationships that we choose or that we just have family again. Language as I said can be a very quite defining who you are or even the social status, people define you by the language you speak. American accent or Australian, whatever. And then your life story. And what feeds into there is the need of each of us to belong to a group which gives us security. So those two basic needs are actually rooted in that part of my identity.

Philip Bagdasarianz: (10:16)
And the third side would be the upside. And the upside is, what is my purpose? What is the larger thing that I believe in, or that I aim for? It can be the authorities, truth, things that are outside of me, that I can just manipulate left and right, they're above me. Or, as I said, they can be goals. Businesses would call them the values, their mission statement, things like that. So with those three, I think we can more or less see how complex it is, identity. But also I do want to say that we need all three for healthy identity. And they have to be in balance. So you can't leave anyone out and you can't just overemphasize one or just take one away. I think it really is like a tripod. A tripod always stands straight if the legs are the same strength and same length. So that's a bit how I would see that. Yeah.

Rachel Pether: (11:31)
So I know you just said that you can't take one of those pieces away. But I do actually just want to focus on the last one you mentioned which was the upside. And given your experience and living and working in so many different countries and cultures, obviously, they have very different attitudes politically, philosophically, spiritually, whether it's dictatorships or religious states democracies. What are some of your key learnings from the different cultures that you've worked across in terms of that upside? And then maybe we can talk about how that plays into investing as well.

Philip Bagdasarianz: (12:10)
Right. Well, it's actually quite interesting to see that different cultures, cultures have an identity of their own. I know we know that. That's what we call culture. But when it comes to comparing that with the identity of individuals, it does look very similar. Of course, there are individuals within each of these cultures and societies which are totally different. But in general, there are, let's say, the typical Western investor. Or there is generally a bit more the typical South Asian investor. And they differ. They differ strongly.

Philip Bagdasarianz: (12:53)
And so, also thinking about our talk, I did try to see what defines those cultures? Which of those three elements is maybe overemphasized and which is weathering a bit? So yeah. And it does actually fit into my experience with clients of all these different cultures. You were just saying, one, without being just seeing that everybody would act the same way but if you look at for example, Russia, which actually defined per se, that they did not want to have an up. In the 1920s they said, "We do not want to have anything above the communistic regime." So they expelled religion and anything like that.

Philip Bagdasarianz: (13:48)
What happened, they became a police state and everybody was controlling each other. They tried to replace the up by the community. That's why they're probably called communism. Many, many good ideas for equality, but they missed something. And what happens is many people of that country still now, they are very... It takes them a long time to trust. They don't generally trust because they grew up in a society where you can't trust anything. There's no governing body, you don't know what the decision makers will do. So they're always ready to grab their stuff and run. They always want to... That's just what they are.

Philip Bagdasarianz: (14:34)
And the Westerners, for example, us Westerners, we have a very strong in focus. So that's why we're individualistic society. So of course we have some strengths. The strength of a strong in his creativity. We have invention, diversity, quality, excellence, things like that. But if you miss out on purpose which is an up component or belonging, which is one of those out components, it leads to loneliness. And we have one of the most lonely cultures we've ever had is the West. You have cultural divisions. Short termism. We'll maybe speak about that shortly, as well. And often some emotion based decisions which don't always turn out to be the most sustainable.

Philip Bagdasarianz: (15:29)
So looking at the investor type, they are generally, the individualists are generally what we call overconfident. Meaning they have the illusion of being in control of what they're doing and the markets. And then emotionally driven pride and greed can be very strong drivers. But on the other hand, the Russian for example, if they say I'm going into a very risky asset, that would be a corporate bond. Right? That's really risky. And if you take a Western or let's say the US client, for them a... I mean, the really conservative investment would be a stock one of the S&P 500. So that shows you, this is true. You can generalize it a bit for society and that has to do with their identity. Yeah.

Rachel Pether: (16:26)
So yesterday, we had a really interesting SALT Talk as well. And we were talking a little bit about the anxiety of learning a language and something that's very prevalent in Middle East and parts of Asia and the culture there is this fear of failure or of this desire to save face. So in your experience across these cultures, how do you see that playing out when it comes to investing?

Philip Bagdasarianz: (16:56)
Well, yes. There are probably two groups of what we call shame cultures. I don't know if it's a nice word. But generally, exactly as you described. I think the far East which over emphasize the community, the out. What you do see there, they have lots of strengths again. The unity that they have. They have a very strong output. They have commitment, collaboration, they're very efficient. The Kaizen principle, that everyone from the CEO to the cleaner have the same rights to bring in their ideas to make a process efficient. So, huge, huge benefits and quite stable. You would have a sense of belonging. But if you do miss uniqueness, the person that can be individual or different or purpose, then you start to have uniformity, which is the downside of such a community or can become. You see workaholics that work 24/7 just to reach the bigger goal there they have. Or then rebellion, fight flight patterns, things like that.

Philip Bagdasarianz: (18:20)
And from the investment perspective, what I see in let's say, the far East what we have is, you have some herding patterns. Herding means you just have to follow the crowd and what we call the home of bias. So whatever is familiar with your surroundings, that's where you invest. You find what is familiar to be less risky, and what is not familiar to yourself. So, these are things we all can fall for, but I think I do see a bit more in such community. And South Asia, the GCC where I also do have clients, I think, they are probably I would call it a societies or states that have an emphasize on the up. They have a common goal, Often these are religious states. So they have a common sense of values, a common set of how we do things. So, again, they have a unity which many other countries lack.

Philip Bagdasarianz: (19:34)
Quick decisions can be made. If you have a single leader, for example, a leadership that is lean, quick decision making, you can focus. Many of these countries are very resilient. But on the other hand, if it's overemphasized, you do see suppression of others, you see power struggles, corruption and detachment, double living. They, unfortunately some people, they go abroad to live the life they actually want to live and come back and have to play a game. So you do see things like that happen when the out isn't in balance with the other two. And predominately the investor would be a bit more fear driven. And yes, what we also talk about is they fall for the anchoring bias. So what they hear first, what is putting their mind since kids, that's what they stick with and they tend to diversify less.

Rachel Pether: (20:48)
Yeah. No, we certainly see that playing out in the Middle East with regards to home buyers and things that you're familiar with, like a lot of people are quite over allocated to real estate, for example. But back to your point on, living here at least we are often very grateful we live in a benevolent meritocracy. It definitely has its upside and certain sensors. And when you were speaking about these different cultures, I guess it also ties into the question of, well, what is wealth? Because in some of the cultures you spoke about, wealth and health and so many other things, that's actually part of the community, like you'd be willing to give up your personal wealth for the benefit of the community. So how have you seen that playing out between East and West as well?

Philip Bagdasarianz: (21:42)
Yeah, just to give an example, the Western culture is, again, very individualistic and very focused on ownership. So the banks here, they will always ask, "Who do the assets belong to?" And in the Western culture it's clear, it's my wife's, or it's mine, maybe it's both. But that's as far as it goes. If you go to South Asia, the GCC and they comes at wealth, it's family money. The Western banks, they don't have a concept for that. They just don't know how to handle that. So they say, "Okay, well, is it your money?" "Well, no, it's my uncle's but he gave it to me to..." Well, you have to... Is it the uncle's account? So these concepts sometimes don't fit.

Philip Bagdasarianz: (22:31)
And on the other hand, I mean, this is just the concept of shared wealth. And I think there's a benefit, a huge benefit for shared wealth, I must say, because I think what it helps us understand that maybe I'm not just always an owner of things, but I'm a steward. I'm a steward of the family assets. Even if they're in my name, but I might have kids, I might have a business to run, the family reputation, whatever. And it's not just mine, mine, mine. So I do think that we can learn from the Eastern cultures what it means to be stewards of a larger good that I could share with others. And I think we're starting to understand that, that it's maybe not only just a owning society, but a sharing society, things like that are coming into play just also because they make more sense. They make more sense.

Rachel Pether: (23:33)
Yeah. And when you're looking with all the work that you've done in identity, perhaps you can tie that into, what is the real driver or real drivers behind investment decision making?

Philip Bagdasarianz: (23:50)
So I'll tell you what I learned at school, or what I found to be true in life. Because there is a bit of-

Rachel Pether: (23:58)
Let's go with the truth. We'll, all go with the truth.

Philip Bagdasarianz: (24:00)
Well, I think we all would like to believe that investing is a numbers game. And if we just get the figures right then we have the right decision made. So you'll see number crunching up and down, big data, whatever. The problem is that the more data we get and the more research we do on that data, the more we understand that it's not about the figures. I mean, not only. Long term, yes. Probably. But many short term decision making and prices, which is let's say, the intersection of all the decision makers, the market where you have the buyers and the sellers, that is not primarily driven by numbers. It's not a mathematical science. It's a social science.

Philip Bagdasarianz: (24:58)
So I had to unlearn some of the beliefs that we had and say, "Well, if you just get the figures right then investment decision will be right." And having learned a bit more, I think can help you learn about yourself, and why would I be tending to make a decision in this direction, and someone else would be making exactly the opposite decision. And to balance the decision because in the end I have a bias and I have to make sure that I don't fall for that side. And the social sciences do help to understand the investment decision, which is much more driven by emotions. And behind emotions, obviously, is the way I see the world, the way, am I fear driven? is the next big bang just around the corner? Am I doing profit? Or do I always just see, well, mankind can overcome anything? Everything's rosy. And both exist.

Philip Bagdasarianz: (26:09)
And because both exists, there is a market. If we all would know exactly where the price would be, there'll be no buying or selling of anything. We just all stick with it. So I do see that the identity is not only who we are but also how we view things. So it's become our glasses of how we view the world, how we interpret what's going on in the markets as well.

Rachel Pether: (26:34)
Yeah, I think that's really interesting, especially when you look at, I'm a fan of Tesla, for example, but there are certain people that just have almost godlike status. So people, I'm sure there are a lot of investors in Tesla that don't really know about the financials of Tesla at all but they like and they trust and they've heard of Elon Musk. So they're happy to invest in them, even though maybe sales aren't doing as well, or missing projections or whatever. But we're very driven as well by perceptions of things only.

Philip Bagdasarianz: (27:11)
Perceptions and hope, of course, and sometimes greed. Yeah, it can be. So fear and greed, they do tend to make the markets overreact. But on the other hand, I think it's expectations. Lots of expectations. Where do we think the next big thing will be? We've seen that. Bitcoin is another issue. What is the price of Bitcoin? Nobody can tell. That's just nothing you can put out on a sheet of paper, but still you could have made lots of money with it, or lost lots of money. So there are things and I do believe we're understanding more and more how identity. Which is a bit more than just personality, I think. But identity is a driver for our decisions as well as our investment decisions. Yep.

Rachel Pether: (28:13)
And I've heard you say before that sustainability is the highest possible long term value for all stakeholders. So with this in mind, what are some tips for making highly sustainable investment decisions?

Philip Bagdasarianz: (28:32)
Yes. I think what you said is, the value for all. And, of course, we have to define what that all is. And in the past, I think the definition of all was just cash. A figure. What was the money? And I think that we're coming to a point where we do understand, well, there's more than just the value. You can't count value in money only, it has to be wider than that. So let's say the trend, especially now from Europe, of course, driven by Europe maybe, the trend towards ESG. I am totally committed to personally because I believe it includes more values than just financial values in the evaluation of a company. Because I believe that in the long term, if you do add more valuations to a company or look at it from different perspectives and the company does the same because they do want to please their investors, obviously, the value for a wider range of people will be seen, and that is sustainable.

Philip Bagdasarianz: (29:50)
And sustainable means, what is good for my future. What is good for my future, my future kids. So just having said that, sustainability is clearly a long term goal. It's not bias towards immediate gratification. It's not asking the question, do I feel like doing this right now? It's more like, how will I feel after doing this? Or another question, will my future me or my future self thank me for this? Will my kids thank me? Will the next generation thank me for my decisions now? I think, of course, you can say that's very hypothetical. But if we make our managers focus on the next quarter only, and we pay him for that, no wonder they'll do exactly what we pay him for.

Philip Bagdasarianz: (30:53)
So I like ESG, we generally like family owned businesses because they tend to have the longer term view. Then manager or purely manager driven businesses. And that helps strongly, in my view, yeah.

Rachel Pether: (31:13)
We've actually had a follow up audience question come in related to ESG specifically, and they've asked your team service is a wide constituency of high net worth clients, and individuals. Is ESG a trend you're seeing, particularly when it comes to maybe the next gen wealth transfer and the younger generation? And then maybe from there you could talk a bit more about the differences you see managing money from the younger generation than the older generation?

Philip Bagdasarianz: (31:48)
Yes, there is a difference. I think the older generation, they always tended to be more philanthropic. So they put money out for the good and more gave it away. But their investments were not ESG related per se. They didn't check that. It was... yeah. So they built the hospitals, or the schools or things like that. The younger generation is looking, where's my money coming from? Where's my food coming from? Is it grown healthy? Is there child labor behind it or not? They want to know that. And I think that's something that is really the younger generation is asking those questions. And I think it's right to ask those questions. It's, where we put our money does have an impact. And many of the ESG managers, they don't just exclude companies that are doing bad things, but they try to influence those companies to improve their governance, their social values and so on. So the younger generation, they do focus strongly on that, as I see. Yes.

Rachel Pether: (33:10)
And just before I ask this question, I just want to wonder if any questions are off limits, I.e politics.

Philip Bagdasarianz: (33:21)
No [crosstalk 00:33:22] limits. Forgive me if I'm not... don't say what they really like to hear.

Rachel Pether: (33:30)
So we've had a question come in, looking from where you are in Switzerland towards the USA, what words, this is a two part question. What words would describe how the Swiss have experienced Trump and Trumpism?

Philip Bagdasarianz: (33:47)
Well, I'm going to twist it a bit and bring it back to identity. But let me go around quickly. If you were a business and you need to hire people, do you hire competence or character? And the old way generally was, you hire competence, you go for the best graduate, go for the top schools, whatever, and then you take them on board, you put them in leadership, it doesn't really work often, because they were trained in competence. And then you put them into workshops that should start training their leadership skills or in the end their character. And it doesn't work. So it was interesting for me to, I was at the vet in divorce, that was now two years ago, and to speak to some of their top educational institutions and they say businesses are changing and we need to change our education as well. Businesses are hiring competence. Sorry, they're hiring character and developing competence.

Philip Bagdasarianz: (35:05)
And looking from an outside to America, I think, unfortunately the US with the last president, they hired neither or. They didn't hire a politically competent person. They didn't hire a person of character that would value all three parts that I think needs to be valued. But let me say this, it's not predominantly exactly what Mr. Trump did. In many regards I think he did clean up things that were not correct. That were not in the interests of the US, and it's okay to take care of that. But he did it in a way that he broke down more out, I mean more of the throwning than he really built. There are a few things that he built, especially in the past couple of months as well. But looking at him, I personally couldn't vote for someone whose character is so far away from what I think would be needed for true leadership. Yeah.

Rachel Pether: (36:17)
I think that's a great answer. So thank you so much for sharing those views. Just a few more questions and then I've actually had an invitation come to you from the audience as well. But maybe you could speak a bit about some of the issues that arise when we don't have a very strong sense of identity.

Philip Bagdasarianz: (36:38)
Well, I think we all have a strong sense of identity but the question is, how healthy is? Of course, we might be confused and it's not about self worth only. Self worth is the value that I give myself, or how I see myself. Am I okay with myself? And the problem is, maybe first on that. If we derive our self worth from what others think of me, my appearance, if I derive my wealth, and maybe my self worth or my identity or my possessions or my positions, the problem is that is too dependent on others, or what they think. Now the dilemma is, I can't just derive my self worth from myself alone either. It doesn't work. I can't just say, I'm the greatest. Well, what will smack me in the face is truth. I'm not. It doesn't work that way that I can just talk myself into a healthy identity. I do need to develop it. And that's why, as I said, I think we need to develop all three in the same way.

Philip Bagdasarianz: (37:52)
We have to have a purpose. And the purpose has to guide our decision making strongly. And that can be in the small purpose or a larger purpose. We need to take care of ourselves as an individual. We can take care of our uniqueness. The culture has to take care of uniqueness. You have to be allowed to make mistakes. You have to give yourself the grace to make mistakes, and use them as stepping stones for learning. And we've heard this before, I know, but anyone who's been successful has been unsuccessful 10 times more often than has been successful. But he used that to learn. So I think it's the grace that we need to give ourselves. And in the end, the identity has to be also given from other people to us. This is not something you can construct. It's not a Facebook identity you can just put in whatever you want and that's me. No, it's not. It's not completely me.

Philip Bagdasarianz: (38:55)
And if I may, I just want to share, I have just one example of how someone else can give, put speak identity or call identity out into. Because I think one way would be to surround yourself with people who do exactly that. You give them the authority to speak an identity into you, a uniqueness. And this is a birthday card I got from my daughter. And you see it's a bicycle. So a bit cynical. A few days later, I fell smacking my face. But she said, "Daddy, thank you for the encourager, builder supporter, networker, connector, advisor you are. Thank you for your loving and strong arms dear and thoughtful mind you have. You're certainly the very best that we could wish for. So amazing to see you happy, active and passionate. We're so glad you were born."

Philip Bagdasarianz: (39:56)
Of course that touches the daddy's heart. Unbelievable. And this is only my sunny side. I do have other sides, which are part of my identity. But I really love to see that this is somebody that loves you that speaks identity into you. And I think that's what we owe each other as well. Gather two, three persons that you say, okay, what... They like you the way you are but they don't like you to stay exactly where you are. They love you too much to just leave you there. So if you take two or three people that help you on this throughout, I think that is probably the best step forward because you can't do it alone.

Rachel Pether: (40:42)
That's amazing. Thank you so much for sharing the personal message from inside the card as well. We have time for one more question. I'm actually going to take a question from the audience because I wish I had asked it. But it says, as someone who relocated several times in your formative years, have you found yourself without the need to belong to a group or the opposite? And how has this played into your ability to develop with, say, Westerners versus Russians?

Philip Bagdasarianz: (41:12)
Well, yes, being uprooted I had to learn my roots were very weak. I did have an issue to learn to belong or to be part of, to be recognized as a kid anyway. So I'm really happy that I did have family. And my dad always said, "Stick to us no matter what." So that was important. I developed very good and strong wings. So the roots and wings, which should be in balance, we're not very in balance, I can easily move here and there and adapt and go skiing one day and play at the beach the next. But also in the culture. But yes, that I had to develop and I had to sometimes forced myself to just sit still and contemplate and take time, me time, solitude, silence. And those are traits I learned to love and admire. I couldn't do that my formative years. I was always restless.

Philip Bagdasarianz: (42:22)
So finding that and just making myself and getting into a rhythm of activity, maybe even hyperactivity sometimes, but then also rest and complete, silence and solitude. That helped me balance. But I do think that also helps me understand different cultures and where people come from building some trust that I think they appreciate in our relationship.

Rachel Pether: (42:52)
Excellent. Thank you so much for that. It's been such a pleasure speaking to you today. But before I round things off, I do want to mention that you've actually had an invitation to speak at the 2021 Aspen Ideas Festival from Steven Keenan. So if that is something you'd be willing to do, I will put you in touch and thank you for the invite, Steve, as well.

Philip Bagdasarianz: (43:13)
Well, thank you so much. Yes. It's an honor.

Dr. Taghreed Al-Saraj: The Anxious Language Learner | SALT Talks #103

“I always had the love of explaining to make things simpler in order for everybody to understand.”

Dr. Taghreed M. Al-Saraj is currently working as a Post Doctorate fellow at University of California, Berkeley. She is the first Saudi female Post Doctorate in the history of UC Berkeley. Dr. Al-Saraj earned both a Bachelor and a Masters in Teaching English as a Foreign Language (TEFL) from the University of Miami, Florida. She earned her Ph.D. from UCL Institute of Education, University of London.

Learning a language creates its own type of anxiety in students. Something that should be seen as a positive opportunity, it often fills students with dread and shame. In fact, foreign language anxiety is a real condition that exists in the same way as math or public speaking anxiety. Students described the full range of anxiety symptoms experienced when they walked into the foreign language class. “I learned a third language, and that's when I started connecting my experience with what I heard the students were saying.“

Upskillable was created to match a person’s cognitive personality and skills with jobs. Resumes often do not accurately depict a candidate, reducing the likelihood of success in a role. By taking a personality assessment, candidates are offered more effective assessments of their skillsets and even how to improve in certain areas.

LISTEN AND SUBSCRIBE

SPEAKER

Dr. Taghreed Al Saraj.jpg

Taghreed Al-Saraj

Chief Executive Officer & Co-Founder

upskillable

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

Rachel Pether: (00:08)
Hi everyone. And welcome back to SALT Talks. My name is Rachel Pether and I'm a senior advisor to SkyBridge Capsule based in Abu Dhabi, as well as being the MC for SALT. A thought leadership forum and networking platform that encompasses business, technology and politics. Now SALT Talks as many of you know, is a series of digital interviews with some of the world's foremost investors, creators and thinkers. And just as we do at our global SALT conference series, we aim to provide our audience a window into the mind of subject matter experts. Today's focus is going to be on language and culture in the Arab world. And I cannot think of anyone better to speak to then Dr. Taghreed Al-Saraj. The first Saudi female post-doctorate in the history of UC Berkeley. Taghreed is the CEO and co-founder of Upskillable, which with no doubt, learn more about later. She is considered one of the most important Saudi researchers focusing on language education in the Arab culture. And she's also the author of The Anxious Language Learner: A Saudi Woman's Story.

Rachel Pether: (01:17)
Taghreed has presented on the topic of foreign language anxiety at international conferences around the world. She's a certified woman leadership coach, international public speaker, and an educational consultant. As always, if you have any questions for Taghreed throughout today's talk, just enter them in the Q and A section on your screen. Taghreed, welcome to SALT Talks.

Dr. Taghreed Al Saraj: (01:40)
Thank you for having me.

Rachel Pether: (01:42)
So firstly, completely by default, I must admit rather than by design, you actually launched a new magazine today as well. So congratulations on that achievement.

Dr. Taghreed Al Saraj: (01:53)
Thank you.

Rachel Pether: (01:54)
You have such an interesting background and we've had a few conversations now and I want to dive deeper into this intersection between education and language, but first tell me a bit more about your love of education and where that stem from.

Dr. Taghreed Al Saraj: (02:11)
Love of education, I think since I was little, I was always helping other colleagues of mine or students explaining to them how did we get to either math or sciences. Those are my strongest subjects. And so I always had the love of explaining and specifically to make things simpler in order for everybody to understand. And that's one of the things to be a good teacher, let's say, is the ability to simplify the material. And so I was always that if one of my friends came to me for that. So I think it was in my genes since little, it just grew.

Rachel Pether: (03:03)
I'd love to also maybe touch upon how that simplification piece builds into what you're doing now with Upskillable. But one thing that you've studied as the anxiety that comes with learning a language and as I mentioned to the audience, you've also written a book called The Anxious Language Learner: A Saudi Woman's Story. What started your interest in language specifically?

Dr. Taghreed Al Saraj: (03:28)
Here's the book. This is the book.

Rachel Pether: (03:33)
Beautiful. We all expect free copies.

Dr. Taghreed Al Saraj: (03:35)
Yes. I will send you. The whole inspiration of the book, I never intended to write the book. I was doing it for a research paper, but it was so much information that it ended up to be a book and not an article in a journal. So what was the inspiration is that my PhD was on how language anxiety can affect language learners and specifically in the middle East and Saudi and the Gulf area because how culture interacts with our way of learning and how we have the saving phase. All of these things that we grew up and the ideology that we had and you cannot fail, it's very shameful. And so that's how I started thinking is like, why is learning languages, something supposed to be very enjoyable, something that you would love to learn and to use became such a thing that people were fearing and running away from.

Dr. Taghreed Al Saraj: (04:52)
When I was teaching, before I was doing my PhD, I saw the students, when I had my masters and I was a lecturer at the time in one of the Saudi's universities here, I saw how students either dropped out of my classes and changed majors altogether, just because they couldn't have the learning language. And every time I was asking them, "So what's going on? Why aren't you putting more effort?" And they say, "We're excellent students, top grades in Arabic, but when it comes to English, I just don't know what's wrong with me. I think it's something..." They don't know what's going on and so they think maybe it's a black eye or that somebody has cursed on me is that I can't do languages, and it was so silly to think that. For me at the time, I didn't know anything existed, such called language anxiety.

Dr. Taghreed Al Saraj: (05:49)
When I did my PhD, so that gave me the motivation to look into what was hindering these students from learning a language. And when I got accepted to do my PhD at UCL Institute of Education, University of London, the more I researched this area, I found that something is called foreign language anxiety. It's the same as math anxiety, public speaking anxiety. And I was inspired by, "Could it be the things that I thought the students were not putting effort? Are they anxious students?" And that's what I was so surprised that, yes, all the symptoms that they were telling me they had was the anxiety they were feeling when it came to learning the language.

Dr. Taghreed Al Saraj: (06:39)
Some students said to me, the minute I come into the class, I start getting headaches, stomach pains and palpitation, sweaty palms. And it was like, "What?" I didn't know the symptoms. I didn't know. But the more, when I researched, I found out that there is such something and it's called foreign language anxiety, and those were the symptoms. So then at the end, it's not enough to know the problem, you now have to cure it. And so we learned the techniques to calm the students down in order to show them that languages is something you should enjoy, it's not something you should be feared from. And the minute you start changing the mindset then comes the enjoyability of learning that language, whichever language it is, but in our case was English at the time.

Dr. Taghreed Al Saraj: (07:33)
And so when I did my PhD, I did it in a way as if it was a story. So when I was in my viva, the professor, the examiners, when they came in and they said, we love reading this book, and it's a viva. When you write your viva usually you put it in there after you finished the examination and you get your degree, they put it in the library barely anybody looks at it again, unless they're doing research. But what's the most enjoyable compliment I got was, "We really loved reading this book." And it was like a story because the whole thing was stories after story of what the students were going through, but with statistics and everything scientific. Then I started teaching there and I learned from what the students were giving me even more now being a researcher expert in the field. I thought, "You know what? It's not enough to hear from other people to get their experience. How about me? If I learn a language, would I go through all the things that these students were going through?" And that's what I did.

Dr. Taghreed Al Saraj: (08:46)
So I went and I learned a third language, and that's when I started connecting my experience with what I heard the students were saying. And that's when I thought it was going to be an article in a journal and it turns out to be getting bigger and bigger and we ended up with this book. And it was an enjoyable experience writing it, going through the things and analyzing it even in more details and reflecting on my own self and how I learned English and how I learned my third language, which was Turkish. And so it was an eye opener, even for me as an even language expert in the field in applied linguistics.

Dr. Taghreed Al Saraj: (09:35)
That was, I think one of the things that people, the reviews that I guide, and it was so good is that people connected. A lot of people had the same symptoms, but they didn't know what they had. So they just thought, I'm not good at languages and they just left it. But when they saw and they read the experience I went through, the students went through, they were like, "I felt that too." So again, why don't I give it another try, but this time with a new eye and a new mentality and a lot of comments were really good.

Rachel Pether: (10:13)
And so when you were learning Turkish, did you go through the same symptoms learning that language as your students had also gone through and that you found in your research?

Dr. Taghreed Al Saraj: (10:24)
Yeah, that was the most interesting part is that I thought I was an experienced researcher so that I would know what's going to happen and I can control it. Apparently, we're humans. We say we could do, but the reality and the fact is that, yes, you can tell your brain this is the best way to do it, but unless your subconscious is ready, it's not going to happen. So the most important aspect is our subconscious is that controls our conscious, but we think it's the conscious that controls the subconscious. So without going too deep into this, is that yeah, and we're all humans at the end and we feel these experiences and these feelings and emotions that come out and that's the journey that I took the readers in, is that how I learned it.

Dr. Taghreed Al Saraj: (11:27)
And I specifically chose Turkish at the time and explain in the book why I chose that is that I didn't want anybody around me to speak that language. And I was at London and London at the time, [inaudible 00:11:45] University of London and I wanted nobody around me to help me or to practice. I wanted it to be like a foreign language and that's how... When I went to UC Berkeley, I continued and that's where I actually finished writing the book. It was in 2015.

Rachel Pether: (12:05)
And so when you're looking at language and I want to move on to the work you're doing in Upskillable and other places shortly, but when you're learning a language, what is it about that specifically that makes people anxious is it because of... So I guess, public facing and outward facing, and it's this interaction, like, if you make a mistake, it's very prevalent and obvious. What are some of the reasons associated to language?

Dr. Taghreed Al Saraj: (12:32)
So when you're young, very little, you're a year or two years old, you make so much mistakes, but your parents fix those mistakes, right? You don't get embarrassed because you don't know what embarrassment is. So it's okay if you don't pronounce things right. It's okay if you make a mistake, nobody is going to take it seriously. But now you're older, you're mature, you want to save face, you don't want anybody to laugh at you. So there's a lot of things that come in this area, the emotions that come out that you want to protect yourself.

Dr. Taghreed Al Saraj: (13:12)
So that's when it makes it much harder to learn a language while you're older than when you're younger. That's one. How you're being taught that language is also very important. If there's somebody that motivates you and is very understanding, very simplifying. That's why the simplification is very important. If you're just being forced to memorize things and you are like, "I have to do it." There's a difference and that's where my coaching comes in is that there's a difference between what you have to do and what you want to do. And so those are the things that can make a difference in learning the languages.

Rachel Pether: (14:03)
And you mentioned saving face, obviously someone that's lived in this region for 12 years. I know that's a very prevalent disposition, I guess. Are there other cultures where you've seen this in practice [inaudible 00:14:17] failure?

Dr. Taghreed Al Saraj: (14:20)
Yes. And I was fortunate enough to be chosen by the Japanese ministry of education to come into to lecture at Waseda University in Japan, in Tokyo. And so when I went there, at the time they thought I was British because I came from University of London and there was a lot of students that were trying to do research and couldn't find any resources on language anxiety. And so when I went there, gave lectures, they took me to classes to see how in schools they taught English. Now, I went into thinking that I am going to see in Japan, all the students were with iPads and the high technology going on here, learning these languages. And then when I was in there, I was like, "Hey, this is how we teach in the Arab world."

Dr. Taghreed Al Saraj: (15:23)
And that's not a bad thing, it's just basically focused on memorization and what I had in mind how they were teaching is totally different from what I saw. And it came to me that the cultures are the same. They rarely speak or volunteer to speak because they don't want to make a mistake. They want to save face and they don't want to do that. And it's the same thing with the Arab culture. In the Western culture, even in America, we also say, if you can't succeed once, try and again. But in the Arab culture, in the Asian culture is like, you want to say it right the first time round because you don't want anybody laughing at you.

Dr. Taghreed Al Saraj: (16:16)
But in a way if you want to learn languages, you got to accept you're going to make mistakes, people will laugh. So what? You laugh with them, it's not at you, it's with you. As always I tell my students, if we make a mistake, we're laughing together. We're not laughing at each other. And so you got to have that mentality that to be humorous it's okay. So what? It's all in the sake of learning the language, so let's make mistakes together. And so there weren't accepting that. And that's how I found that Asian culture is very similar to the Arab culture as well.

Rachel Pether: (16:57)
What you just said, the "let's make mistakes together." That's a beautiful segue into entrepreneurship. Obviously you have multiple failures along the way to success. So you did make the switch from academia to entrepreneurship. What drove that switch?

Dr. Taghreed Al Saraj: (17:15)
Well, when I was at UC Berkeley, I got headhunted by Mackenzie and so at the end we were... [inaudible 00:17:27] older interviews and we came to the last stage. Then they found out I was Saudi and they was thinking... Somehow I got back to Saudi because at that point when I was finishing UC Berkeley, I wanted to go back to London. But through McKenzie, when they was headhunting me, my CV was sent to two ministries in Saudi, and I got offers from both. I chose the ministry of human resources and I was heading the department for online training. It's a national platform. So I love that, is that I created the department with them and we saw how the training and development was, but it wasn't enough with that is that, I was telling, "Okay, so we're doing all this training on this platform, but how does the students know what to be trained on?" So how do I know what I'm lacking and how do I know what I have a strength in?

Dr. Taghreed Al Saraj: (18:42)
So with that, me and my colleague started talking and we came up with an idea of, wouldn't it be really nice to map the things that I lack and connect it to what training programs I need to have, so I can be in the right job and so with that, me and my colleague talks came up with an idea and from that it grew and we developed Upskillable and I have two other co-founders. The third one came on board. So I'm the Saudi, we have an American and we have a British. So the three of us put our heads together. We have expertise from different areas and we completed each other and we came up with what Upskillable is now.

Dr. Taghreed Al Saraj: (19:39)
And so if we talk about Upskillable, Upskillable is a platform that can assess people on their cognitive behavior and... Sorry, cognitive personality and skills. So our aim was to get the right people connected with the job description. So we wanted the right people in the right place for them instead of hiring somebody based on their CV. And we know from research shows 54% of people, what they write on their CVS is lies and that's the reality. And it's not only in Saudi, it's all over the world, this statistics. And so we wanted to do it scientifically. And how are we going to get these people without looking at their CVs? We wanted to see, do they have the capability to perform the job that they're going to be hired for before they get into that position?

Dr. Taghreed Al Saraj: (20:44)
And so that was it and then that's how we started and now we're also mapping it out. So now we have a platform when the candidates take these assessments, we now know their strengths and their weaknesses. And from there, we can map what they need to take in order to become better and target those weaknesses and make them much better for further development from themselves. And the platform is so much interesting is that we also can help companies restructure their company, because we know the strength and weaknesses of all the employees when they take our assessment. So they know who should go where. If you're downgrading, we also know who the important people to be there in the company. So there's a lot of usage for upskillable for companies.

Dr. Taghreed Al Saraj: (21:46)
And now on November 16th, and we're very excited with that is that we're launching a campaign to help in the IT sector to handle employment in the IT sector. So we're opening our platform for free assessment for all candidates in the technology field to take our assessments and the companies can come and see who's the highest rated in that field and they can recruit them. So we're doing that all to support the Saudiasation of the IT sector. So a new initiative in Saudi is to Saudilize 25% of the IT sector jobs. So with this, we're trying to help, not only Saudis, but all over. So we're opening the platform and because we're an international company anybody in the IT sector can come and take our assessment, and then we can map them. And when companies come and see their abilities, who's strong in what, we even give percentages for each person and we can compare candidates. So I can compare my abilities with you and companies can see who's strong in what. So the capability of Upskillable is just endless.

Rachel Pether: (23:10)
That's fantastic. And then, I'm assuming all this is virtual now, and if it wasn't in the pre COVID-

Dr. Taghreed Al Saraj: (23:22)
Yeah, it is. It was always virtual.

Rachel Pether: (23:22)
Excellent. And when you do identify the gaps and the weaknesses, are you then providing support in terms of how they can improve these weaknesses? I think you mentioned that you could map them to courses and things like that as well.

Dr. Taghreed Al Saraj: (23:36)
Exactly. Yes. So they know what they lack in, and so they can start training and search. And even for HR, the companies, when they ask us to assess their employees, we can tell them that, your employees lack so-and-so and so. They can start doing training programs for their employees specifically in certain areas. And so this is beneficial for the employees, as well as the companies.

Rachel Pether: (24:10)
Excellent. And we've actually had an audience question come in, which is spot on and relevant to what you've just been discussing. So thank you for your question, Steven. He's asked, how can the USA education and immigration systems help make attending school for Arabic students more enjoyable and therefore attract more students?

Dr. Taghreed Al Saraj: (24:31)
Okay. Repeat that again. I didn't get that [inaudible 00:24:41].

Rachel Pether: (24:40)
So how could the USA both education and immigration systems attract more Arabic students and make it more enjoyable for them attending school in the US.

Dr. Taghreed Al Saraj: (24:53)
Oh, attending school in the US? Well, anything to be enjoyable, and that's the key word. I like that word, enjoyable because education should be enjoyable is that we have to have gamification elements in it especially if it's online. Face-to-face, I have both systems. I have three systems that I have studied there, at the US and I spent so many years of my life. I'm a graduate of University of Miami as well and as well as the British system and the Saudi system. Always to make anything in education, you have to make it enjoyable if you want the students to continue learning, to get them on board, but the education also has to be very relevant because when the students graduate from the university, the job market is totally different. It's not completely, but there's a gap always between what we teach and what the job market needs.

Dr. Taghreed Al Saraj: (26:04)
Making the education very relevant is getting what the job market actually is asking for and adding that in the curriculum before they graduate and that's the most important, that's how we can make the education more important and relevant. And if you tell these students, because I always look at the motivation factor, anxiety, and motivation is what my focus is always on is that if I tell the students that this is what the job market needs, but it's and you should focus on that. Of course, these students don't go to universities thinking I'm just going to study there. Everybody goes to the universities, the end result is to get a job and to get a really good job. So if you're telling them in advance, your education is relevant, we've added elements of what the job market needs and making it for the time now, of course, they're going to put more effort, it's going to be more enjoyable and they there'll be more motivated to learn.

Rachel Pether: (27:04)
And when you talk about those gaps, are you mainly focused on the soft skills or the hard skills or it's a combination of both?

Dr. Taghreed Al Saraj: (27:11)
Well, it depends on what's the major. So soft skills were for sure all the different departments or any anything that you're studying, you're going to have to have, because that is just a must. But it depends on what if you're engineer or medicine, it's different according to the major that you are in.

Rachel Pether: (27:33)
And you also mentioned about the Saudiaization, the 25% and the IT sector with unemployment being quite high in Saudi Arabia. And this isn't just a Saudi problem, globally. with unemployment rising, how do you think this affects fresh graduates or people and highlighting, how does this affect them psychologically when they go in and also when they come out of study?

Dr. Taghreed Al Saraj: (28:06)
So, because there's a 25% Saudiaization, it gives them a lot of motivation into learning because they have a better chance into getting into the IT sector. So that's a very good thing for them for fresh graduates. But the second thing is that, you can't rely on anybody. I tell my students in the US and the UK, you cannot rely on what you learn at the university only. A fresh graduates, still as a fresh graduate. you can't come out of the university with just a one page of CV. You need to start either on the summer programs, go into volunteer. You need to start filling that CV while you're still in the university. I don't want to see any graduates coming into the end of it and graduating and saying, I don't have no experience. Where have you been in those four years?

Dr. Taghreed Al Saraj: (29:06)
Okay, let it go the first year. How about the other three years? What did you do in those three years? You have summer, what are you doing in the summer? Are you volunteering? If you are a business major, go into the business world. If you are in the IT, volunteer in any company that is on IT and learn how things are being done. And then when you come to class, the education you get becomes relevant because you've connected the theory with the actual work, a physical thing that you saw and that's when become more employable, because you're going to put that in your CV. I volunteered for this, I learned this which puts you at the top or at edge. It gives you an edge to other fresh graduates that didn't do anything.

Rachel Pether: (29:59)
Absolutely. And we take on interns all the time as well. And it's also great for the company because they're just so refreshing and that's so interesting to get involved, right? So it definitely goes both ways in terms of advantages. And I'm also interested, you mentioned because companies are so used to just looking at CVs, going through CVs, matching it to profile. It's always been the very standard way of doing things. Are you also seeing uptake from the companies themselves? They appreciate that you need more than just to box tick a CV to actually hire someone. How have you seen that evolution since you [inaudible 00:30:41]?

Dr. Taghreed Al Saraj: (30:41)
Yeah. And this is the newest technology. So why even look at CVs and waste time looking at CVs now because, and this is When we're now, let's say we are demoing because it's this new concept in, especially in the Gulf area, with Upskillable, when you're demoing it to the clients, they're looking like, "So we don't, we don't look at CVs anymore?" And we're saying, okay, now at the beginning, you don't look at any of the CVs. We assess them the results we can give you the top three or the top five, and you don't waste your time with the 500 that applied for this position. You want to be very efficient. You don't want to leave your HR to do the most important things. And that's comes after when they got assessed. You got the top five or the top three, they look at those people's CV, that's it. And from there, you get to either interview them and and see their personality actually goes with the company profile, the people that you want or the community of the company that you want. So that's what we are looking for.

Rachel Pether: (32:00)
Yeah, certainly I think we've probably all been in jobs where you appreciate that it's much easier to hire someone than it is to get rid of someone. So you'd better be super sure when you hire someone that is the right fit within the organization. We have some more audience questions that have come in some specifically related to language and some Upskillable. So I'll start with the Upskillable one first. Do you have a plan to market an API for vocational or higher education organizations so that you can have other partners feeding into from their own online platforms or at the moment is it all just your proprietary assessment tools?

Dr. Taghreed Al Saraj: (32:43)
So we have our own assessment tools, but you're saying that you want... I'm not understanding the full question.

Rachel Pether: (32:55)
So you obviously have a number of higher organizations and other training facilities that would have online courses to offer. Is this something that you are incorporating or you will look to incorporate [inaudible 00:33:09]?

Dr. Taghreed Al Saraj: (33:08)
Yes. We are looking and we are trying to get connection with other universities, other training centers that can provide so we can match the skills needed for specific jobs and for specific sectors. So, yes, please do get in touch with us.

Rachel Pether: (33:29)
Perfect. And thank you so much for your question. We have another question from Sebastian and thank you for being such a great supporter always, Sebastian. He has said, how critical is the learning of grammar to learning a language? He is fluent in three languages yet he's never mastered grammar. Am I missing something in speaking these languages?

Dr. Taghreed Al Saraj: (33:54)
No, you're not. As long as you speak the languages and people understand you, that's it. You're way ahead. So don't be caught into the little details. Hearing the language so much and I always tell the students, whatever language you want to learn, start hearing it a lot. The words become very familiar. Structure of sentences become easy. Then when you actually say it, you might have not learned formal grammar structure, but you've listened and you heard it and your ears just picked it up and structuring it becomes easy because they become engraved in your memory. That's how the sentence is. But this is at the beginning. This is chunking it up like that. But as you go along, you are able, and that's how there's a difference between learning language when you're smaller and when you're older. When you're older, you have transferable skills that whatever you've learned in the first language, you can understand how to learn it in the second language.

Dr. Taghreed Al Saraj: (35:06)
You can transfer the skills and say, "Oh, you're older. So you can analyze the language." And you can say, "Every time I say this, this comes with it." And so they're always joined. And so it becomes easier as an adult to pick up that grammar or structure of the languages. I'm not saying you don't do grammar. Of course, you have to, but at the beginning, you get chunks of languages and you learn that. And then you start saying, they're adjusting the language. Why is it always a disposition that this word comes in? And that's how you understand. And that's when grammar comes and becomes important.

Rachel Pether: (35:52)
No, that's an excellent advice. And when I think of language as someone that has studied badly, I might add. And you see that they are science part and I guess the spoken form is often the art form a grammatical part is slightly more scientific and structure focused. We do just have time for one more question. I know you've answered a number of really difficult questions. So I'd like to end on a slightly easier one, but what would be your advice? You have this experience in academia, you have this experience in entrepreneurship, you have such a global perspective. What would be your advice for a fresh graduate that's about to enter the so-called real world?

Dr. Taghreed Al Saraj: (36:46)
I mean, I always say, please do not come to the end of the university or the degree that you're taking and you don't have any job experience. It's a shame. In all universities, there is a career center. Please, make use of it. Go see what they have. They will have a lot of training going on there at the career centers. They review CVs for you. They help you with that. So you do utilize it. And I've seen that people don't go and utilize the career centers until their last year or the last semester. And that's wrong. Year one, the minute your foot is in college, you got to have... That career center should be your friend. That's the go-to place. You go to, and you start seeing what schedule they have, what courses they have. I

Dr. Taghreed Al Saraj: (37:45)
t's non-academic, and it's fun to go to there an hour or so, but it is good to have that knowledge, especially if you're, let's say, engineering, it's very specific. Go get something in a different field just to give you, so when you come out of it, you have a different perspective. It's not only very focused on one thing. And this is where I wrote an article in Arab news. And I said that the world needs more multipotentialite and this is the key word. I like to underline this very strongly, bold multipotentialite. There are people that are specialists, generalist.

Dr. Taghreed Al Saraj: (38:35)
So they have knowledge in so many different fields. You put those people with very specific consultant or very specialized consultants, they can do magic and wonders for a company, because they bring so much background experience in different fields. And this person that is very specialized in one thing, they can see the world in another direction. They just know this is how it's done. This is how it's always been done. But when they pair them with a multipotentialite, this person has a different idea and he's done some work here, he's done some work there. And from that knowledge, he transferred that knowledge and then they would tell, "So what if we do it this way? How can you try to make it done this way?" So to push them to think outside the box, and that is fantastic.

Dr. Taghreed Al Saraj: (39:31)
And that's what the job market now needs. A lot of people in HR might not agree with me and they say, "No, we need people that are specialized in this field." And I'm like, "Fine, get one, but get three, four multipotentialite that have a different perspective from different fields." Because that's what's going to make you... You want them to think outside the box and you need these people to help you, think outside of the box.

Rachel Pether: (40:00)
I absolutely love that. I'm going to take that and pretend it's mine. If you don't mind me.

Dr. Taghreed Al Saraj: (40:07)
I already wrote about it. So yes, take it.

Rachel Pether: (40:11)
Do you know I've always refer a closing, maybe comment from you is that I've always found it weird from such a young age, people are always saying what do you want to be when you grow up. And from age four you're supposed to have a one word answer. Like I want to be an astronaut. I want to be an engineer. I want to be a doctor. And yet, so many of us, I'm still waiting to grow up. I'm still not entirely sure. [inaudible 00:40:35] thing we have to do one thing that we have to do one thing, but in reality, there are a lot of multipotentialite.

Dr. Taghreed Al Saraj: (40:43)
Exactly. So why limit yourself? And there's so much out there to be experienced. Don't limit yourself, ever. Go with the flow. And this is my new article. Actually, I just submitted it yesterday in Arab news. It's called go with the flow, but I ended with a word or the sentence go with the flow, but in the right direction. So yeah, why not. Don't limit yourself.

Rachel Pether: (41:10)
Don't go against the flow.

Dr. Taghreed Al Saraj: (41:13)
Yeah.

Rachel Pether: (41:14)
So Dr. Taghreed, it has been an absolute pleasure. We have had a number of people actually say, how can they contact you? So what's the best way for people to get in touch if they have further questions for you or for about Upskillable?

Dr. Taghreed Al Saraj: (41:29)
Upskillable, yes. So if you go to the website of upskillable.com, you'll have contact us and that's how we can get in touch with that. But also my social media accounts, you have my Twitter account. T-AlSaraj, A-L-S-A-R-A-J. So, yeah, and you can do a search on my name and you'll see articles, but the best way is to go to a Upskillable.com and you'll see the contact as we'll get the messages, especially if it's for Upskillable. But please do if the people that are listening to me, not only Saudis all over the world, we're opening this platform on November 16th for everybody to go on and assess their skills in IT sector. And they will have a report to show them what they're strong in and what their weaknesses so they can learn and take that on board and go and develop themselves. Completely free.

Rachel Pether: (42:32)
That's an excellent initiative. And it's great to end on a positive, optimistic note. So from my side, thank you so much for your time, Taghreed. It's been an absolute pleasure. So thank you for joining us.

Dr. Taghreed Al Saraj: (42:44)
Thank you for having me. Bye.

Raoul Pal of Real Vision Finance: ​Is Bitcoin a Hedge Against Inflation? | SALT Talks #102

“I always live in the future, so I'm always aiming for something. You don't know which path you could take, but it increases your probability of getting there.”

A former hedge fund manager who retired at 36, Raoul Pal is a co-founder of Real Vision, a financial media company offering in-depth video interviews and research publications from the world’s best investors.

Bitcoin appeals to three different types of people: Libertarians like its decentralized and anonymous nature; technologists see its potential as an engineering solution to the financial system; early adopter investors identify its value as an uninflatable store of value. Bitcoin serves as hedge against inflation caused by fiat currency. “What's clever is this money can't be devalued. You can't create more of it. There's only 21 million Bitcoins.”

Bitcoin basically amounts to a mathematical formula that guarantees there will never be more than 21 million Bitcoins. The decentralized structure, run on about 10,000 different nodes and recorded on the blockchain, ensures it can never be changed. Bitcoin is the only asset with a completely knowable supply.

LISTEN AND SUBSCRIBE

SPEAKER

Raoul Pal.jpeg

Raoul Pal

Co-Founder

Real Vision

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darsie: (00:07)
Hello, everyone, and 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 ... Excuse you, Anthony. SALT Talks are a digital interview series that we launched during this work from home period with leading investors, creators, and thinkers. What we're trying to do on these SALT Talks is replicate the experience that we provide at our global conferences, the SALT Conference, which we host annually in the United States and then an annual event internationally as well, most recently in Abu Dhabi in December of 2019. What we do at those conferences and what we do on these talks is try to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future.

John Darsie: (00:55)
Today's talk is going to focus on one of those big ideas largely and also, in the context of discussing that big idea, bitcoin and cryptocurrency, talk about some more of the interesting economic and worldviews of our guest today, who is Raoul Pal. He's a former hedge fund manager who retired at the age of 36, and Raoul's the co-founder of Real Vision, which is a financial media company offering in-depth video interviews and research publications from the world's best investors. He ran a successful global macro hedge fund, co-managed Goldman Sachs' Hedge Funds Sales Business and Equities and Equity Derivatives in Europe, and helped design the BBC TV program Million Dollar Traders, which trained participants in investment and risk management strategies.

John Darsie: (01:40)
Raoul retired from managing client money and now lives in the Cayman Islands. He's currently in Little Cayman, which I think he's figured things out. The rest of us need to follow suit with him. I don't know what we're thinking sitting here in New York as it gets cold. But from the Cayman Islands, he manages Real Vision and he writes his newsletter, the Global Macro Investor, which is a very highly regarded original research service for hedge funds, family offices, sovereign wealth funds, and other elite investors. Just a reminder for anyone on today's talk, if you have any questions for Raoul during today's talk, enter then in the Q&A box at the bottom of your video screen on Zoom. Hosting today's talk is Anthony Scaramucci, the founder and managing partner of SkyBridge Capital, a global alternative investment firm. Anthony's also the chairman of SALT. With that, I'll turn it over to Anthony for the interview.

Anthony Scaramucci: (02:29)
Well, it's great to have you on, Raoul. I got to tell you, our careers did overlap for a little while, so I know [Noam 00:02:36], I know Jonathan Green, I know Pierre, all those guys.

Raoul Pal: (02:40)
All the old gang.

Anthony Scaramucci: (02:41)
I know the whole gang. In fact, I'll make you laugh before I get started. Noam taught me how to flip underwritings. I don't know if you remember that whole thing that was going on in the 1990s, but that was a big career move for me. It was quite profitable. We don't have to get into that right now. But I want to go to you for a second and your personal journey, which is extremely impressive. You're growing up where? What did your parents do? How did you end up getting into the business that you ended up in? How did you realize that this was going to be the career journey that you were taking?

Raoul Pal: (03:16)
I grew up in England, but my father was a first generation Indian immigrant. My mother was Dutch. They met on a blind date in Birmingham. So I grew up in England, just outside of London. I grew up in the '80s, and the '80s was all about Porsches, stripey shirts, red braces, champagne.

Anthony Scaramucci: (03:39)
Camden Palace. You said North London, Camden ... I was hanging out at Camden Palace. You and I probably overlapped.

Raoul Pal: (03:45)
And so-

Anthony Scaramucci: (03:46)
I was probably trying to cut your rug in stepping in front of those girls.

Raoul Pal: (03:50)
Exactly.

Anthony Scaramucci: (03:51)
You look like you're a little bit taller than me, so I could've kneed you properly. Okay, so you grew up in the '80s. Go ahead. We're talking Boy George, Camden Palace.

Raoul Pal: (03:59)
Yeah, Boy George and Wham!. I was a big Wham! boy at that point.

Anthony Scaramucci: (04:05)
Of course.

Raoul Pal: (04:10)
But what was at that time, I was at university and I went to a pretty crappy university, the only one that would accept me because I'd discovered girls and cars and pubs. So I got into university, and I was graduating and speaking to a friend of my father. My father was in marketing. He then ran a management consulting firm. But he was international marketing director of Xerox based out of Europe. He wanted me to go into marketing. I saw this flashy world of finance. I had written my dissertation about junk bonds, basically copying the Drexel Burnham Lambert booklet about it.

Raoul Pal: (04:41)
Somebody said to me, a friend of my father's said, "So what do you want to do," and I said, "Well, it's kind of marketing or finance." He said, "Let me give you a bit of advice. You can go and work for Mars in marketing, and they're amazing, and they'll give you free Mars Bars, or you can go work for a bank and get free money." I was like, "Okay, that's what I need to do." It took me a while to get there because I graduated in the recession of 1990. I went to a terrible university, got a decent degree in economics and law but from a bad university. So I hustled my way through and eventually got into a UK prestigious brokering firm called James Capel, part of HSBC.

Anthony Scaramucci: (05:19)
Sure, I remember.

Raoul Pal: (05:19)
I landed on the stock index derivatives desk, knew nothing about futures and options. My baptism by fire was my boss left off six months and I was head of the desk, and that was my career started.

Anthony Scaramucci: (05:30)
I got to ask you this question because I always have to ask myself this question, and so since you're cheaper than my therapist, maybe you can provide some insight here. You're not an establishment guy, I don't think, when I look at your life, your career, the Gas Monkey t-shirt. Yet you're going to Goldman Sachs and places like NatWest, and so what attracted you to them? By the way, I don't see myself as an establishment guy either, so this is why I'm asking. Then how do you go from there to where you are now?

Raoul Pal: (06:01)
Because [crosstalk 00:06:02]-

Anthony Scaramucci: (06:01)
Was that a transitory step and you always had in your mind you were going to do what you're doing? Tell us.

Raoul Pal: (06:07)
Yeah, I always live in the future, so I'm always aiming for something. I have a very clear plan because that's how you get there. You don't know which path you could take, but it increases your probability of getting there. What I identified quickly is that if you go to someone like Goldman Sachs, it's full of the same people wearing the same clothes, who went to the same universities with the same friends, who all worked in investment banks every summer, and that's all they know. So if you come in with character and somebody who's traveled the world or you have a passion for something different, then you stand out. Even my name, right?

Raoul Pal: (06:43)
So I would call up people like Paul Tudor Jones and just call him up, and you'd get to his assistant and you say, "Is Paul there?" They say, "Who's speaking?" You say, "Raoul," because you can't say Raoul Pal because it's a bloody mouthful, so you just say Raoul. She's going to say, "Hey, Paul, it's Raoul on the phone." He thinks he's your best friend already. So all of these little things means that to be an anti-establishment figure within the establishment increases your chance of success.

Anthony Scaramucci: (07:04)
So you make this big, bold move. You discover something called bitcoin. When do you discover bitcoin, and when do you realize that bitcoin is something that you need to make a big part of your life?

Raoul Pal: (07:20)
Yeah, fascinating. I was in Europe in 2012 and 2009. I was living in Spain. In 2012, we almost lost our banking system. We had riots in the streets.

Anthony Scaramucci: (07:30)
Yes, I remember.

Raoul Pal: (07:30)
The whole thing was a mess. I was writing about it for Global Macro Investor. I kind of knew it was going on. We had a round table in Spain with a bunch of Global Macro Investor clients, and one of my clients came along and presented his trade idea, which was bitcoin. It was that moment I was going around with some people that you will know trying to set up the world's safest bank, realizing we had a problem in the financial system and it hadn't been solved. The moment I saw bitcoin by another ex-Goldman guy who ran a hedge fund, I realized that this might be the answer to a lot of the fragilities in the banking system and the store of value and that kind of thing. I was very early into it. I think by 2012, I'd written the first Macro article about how to value bitcoin and basically just brought a load of people with me on that journey of discover because like everybody who comes into the space, you think it understand it, then you realize you know nothing, and then eventually on the other side, you have an understanding of how big this really is.

Anthony Scaramucci: (08:33)
So let's talk about how big it really is. Let's say that I'm a bitcoin skeptic. I'm not, by the way. I see its destiny. Peter Thiel said something to me that I'll share with you. I'd love to get your reaction to it. He said, "While bitcoin is libertarian, bitcoin is freedom and decentralization, AI could be used to track to social norms and to start grading people's lifestyles, and that's more authoritarianism and more centralization of government. But bitcoin is the full expression of political and financial freedom." So, one, I would like to get your reaction to that statement, and then, number two, I'd like you to address bitcoin skeptics, if you don't mind. What don't they see about bitcoin that you do?

Raoul Pal: (09:26)
So there are three kinds of ... Going back to Peter Thiel, there's three kinds of people that make up the bitcoin crowd. Libertarians, because of its decentralized nature and its pseudo-anonymity. It's not totally anonymous, so it's not this drug currency, but what it gives you is some freedom to move around the world because it's owned by nobody, there's no CEO to throw into prison. There's nothing you can do about it. It just exists. The other side were the technologists. They looked at this and, using engineering minds, saw what had happened in 2008 and said, "Maybe we can engineer something to create a better financial system," and they loved the maths behind it. Then there's a bunch of people like me and the early adopters like Dan Morehead, John Burbank, all of these guys from the hedge fund world, who realized that it was the answer to a lot of the problems we had. I think Peter Thiel's right, but that's only part of the story.

Raoul Pal: (10:28)
Why it's so big is because we live in a digital world. Whether we like it or not, everything we do now is pretty much digital. You and I are now talking digitally. This was something that didn't exist five years ago, but we're doing it now. The Internet has never had an ability to have a money layer embedded into it that works in the same function. We have to go via our bank and use a credit card and all of this stuff. Bitcoin gets rid of all of that, as does the whole cryptocurrency revolution. It allows the instant transfer of money. But what's also clever about it is this money can't be devalued. You can't create more of it. There's only 21 million bitcoins.

Anthony Scaramucci: (11:08)
Okay, let me stop you right there, Raoul. Why? Because a lot of people are fearful of that, they don't understand it.

Raoul Pal: (11:14)
Sure.

Anthony Scaramucci: (11:14)
I know the explanation, but you want you to explain in your language why can't Mr. Satoshi or Mrs. Satoshi just say, "I got you all hooked into this thing, here's another 21 million coins?"

Raoul Pal: (11:26)
Yes. So the premise of bitcoin is basically a mathematical formula, a cryptographic formula that is sold by computers. It takes a lot of computing power, and so cleverly, that formula gets more difficult over time. Every time you solve it, you get rewarded, so it's like behavioral economics. You get rewarded a mining token, a bitcoin. The number of those bitcoins are restricted by the formula, which can never be changed. Why can it never be changed? Because it's not centralized, so it can't be Anthony saying, "Well, we're going to change the number today." It's actually run on about 10,000 different nodes and all of these miners, and it's all recorded on this thing called a blockchain. So nobody can change anything. It's set in stone. It's impossible to change the number of coins or the algorithm, and that's what makes it interesting.

Raoul Pal: (12:20)
Unlike gold, for example, where you can get what we've just seen in Russia, this huge find, so suddenly there's a new supply of gold. That's what blew up Spain when they discovered the Americas. They brought all the gold back, they thought they were rich, but they devalued everything because there was an excess supply of gold. You can't do it with bitcoin. It's the only asset where it's completely knowable. We live in a world, you and I, of supply and demand. That's what we understand. Well, there is no change in supply. You've got a fixed supply commodity. It never changes, which is the same with art, and a lot of people watching this will understand, there is only one Monet Lilies or whatever it is, and so that's why they trade at huge premiums. So bitcoin is this. It's like having a Monet that's fractional, so it goes down to eight decimal places, and instantly transferrable and storable. That starts to sound like very interesting money.

Anthony Scaramucci: (13:20)
Okay, so you're a big bull. I listen to your podcast, and so you see this going to a million dollars a coin. Is that fair of me to say that? I don't want to-

Raoul Pal: (13:32)
Yes. No, I mean-

Anthony Scaramucci: (13:34)
... [crosstalk 00:13:34] exaggerate, so-

Raoul Pal: (13:35)
Yes, so, again, let's look at it in the terms of institutional investors. It's currently a 200 billion dollar market cap. It's basically a mid-sized S&P company at this stage. So it's meaningless, really. But if you look at the distribution of price returns and how skewed it's been to the upside, the ability for this to go up 50X is normal. Every time we have the big bull cycles, which are driven by a reduction in supply that's mathematically derived in advance, what we find is bitcoin goes up a lot because the demand remains steady or it goes up and supply falls. So to get to a million dollars, that's pretty straightforward, and you're at about a trillion dollar market cap then or, sorry, 10 trillion dollar market cap. 10 trillion dollar market cap in terms of an asset, that's a reasonable size. It's not huge. Gold alone is an 11 trillion dollar market cap.

Raoul Pal: (14:35)
So if it's a real asset, it's still in price discovery mode. We haven't actually got to what's its real market cap. That's what gives it this ridiculous skewed upside. In addition to it, it also operates on a Metcalfe's Law. Because it's a distributed platform, essentially, the more participants that become in it, the more its worth. It looks like technology and money combined. These kind of things, we've never seen before. We've never dealt with an asset like this, which is why it's been the best performing asset of all time, the best performing asset in 10 years and five years.

Anthony Scaramucci: (15:12)
Well, you had a spill. I think you traded at 20,000 and 3000 in a five-year period of time, and now it's back to 15, I guess, or-

Raoul Pal: (15:22)
Yeah.

Anthony Scaramucci: (15:23)
... [crosstalk 00:15:23]. So what do you think caused that spell?

Raoul Pal: (15:27)
Well, the spill, again, its actually very cyclical. Like all commodities, we understand that commodities tend to be cyclical. So what happens is it's driven by the mathematical formula called the halving, where they halve the mining supply to make it more difficult. As you start getting closer to the 21 million coins, they make it more and more difficult over time for these computers to talk.

Anthony Scaramucci: (15:49)
Where are we right now in terms of mining, the number of coins that have been mined?

Raoul Pal: (15:52)
I'm not sure exactly where we are, but I think we've mined about 19 million. There's very little left, so it becomes incredibly hard to mine the rest. So you need more technology to do it. As we do that, you get this period where you get speculative boom because demand starts bringing more people in. Then, after a while, the demand ... The people turn to sellers, and it's just a cyclical phenomena, and it usually crashes significantly, 90%. You have to have-

Anthony Scaramucci: (16:27)
You think you're going to see another crash, 15 to 3000?

Raoul Pal: (16:30)
No, I don't. I think how the price will evolve this time, we're in the next wave up. The halving happened in May. The chances are we probably hit something like 100 to 200,000 on this wave, which will be probably by the end of 2021, 2022. Then we'll correct somewhat, but there's a difference coming now. Don't forget, this was driven by retail. This is the only asset that's been driven by retail from the ground up, by its very distributed nature. But the next time around, the institutions are going to be in, the investment banks, the asset managers, the RIAs, the hedge funds, and that's going to give much more price stability, so the volatility of bitcoin itself is going to collapse. So we won't get a 90% drawdown. Maybe we'll get a 50%. Well, that's normal in terms of most asset prices when they have a cyclical bear market.

Anthony Scaramucci: (17:20)
So let's talk about something that's conjoined in my mind to bitcoin and perhaps it is in your mind, is massive deficit spending by governments, and concomitant to that massive deficit spending is monetary easing and the expansion of monetary supply and all of that other stuff. So let's overlay that going on at the same time that you have this bitcoin development, and tell me your thoughts on those two subjects.

Raoul Pal: (17:51)
Well, to put it in the simplest form, the central banks are undertaking quantitative easing at an extreme level, as we all know. I'm not telling anybody anything new. Bitcoin is programmed to quantitatively tighten. So you've got two divergent paths. If you want to look at ... We're all used to using gold as an offset to central bank printing and maybe equities as well. So how are they done against the central bank balance sheet? I've looked at this. I took the four largest central bank balance sheets, the ECB, the Fed, the PBOC, and the BOJ. You put those four together and create an index and then divide assets by them. Gold did a pretty good job, but it's basically underperformed by 50%, so the amount of money in supply has outperformed what gold should've done. The equity market has done a bit better but not perfectly. But bitcoin, well, it's massively outperforming central bank balance sheets as well.

Raoul Pal: (18:59)
The reason behind that, it's a store of value but it's also a call option on a future financial system. That's the important function that bitcoin has. It has two roles. If it was just a store of value, it'd look more like gold. But it doesn't because every week they can build on top of it and it's creating a whole ecosystem around it, including the central banks with their central bank digital currencies. So, yes, the point being is the only answer for this massive debt bubble that we've got is more printing, and the only outcome is bitcoin goes higher. It will significantly outperform gold because of the fact that, a., it hasn't achieved its full market cap by it's still in price discovery mode and it's also a very disruptive technology. Gold can't create a payment platform or a store of value or a trusted source of storing things on the blockchain. It can't do any of these, but bitcoin can.

Anthony Scaramucci: (19:50)
Okay, it's fascinating. So we are now in a situation where you had bitcoin, you have this phenomena taking place. Literally, we keep dipping into quantitative easing. I have my own thoughts about it. I mean, I think Haynes is right in so many ways, but when you do all this deficit spending, you weaken the middle class and you weaken the lower class. That's the reason why you're having this systemic rise in populism, because my dad was a crane operator, Raoul. He had an hourly wage, and if you have inflation, guess what happens to that hourly wage? Your real purchasing power goes down.

Anthony Scaramucci: (20:25)
If you have this type of inflation, it's asset inflation. So if I'm a wealthy person, I have a big building, and the dollar amount of the building goes up, I still have that asset. But if you're working a wage, the money in your bank account is going like this, and that is pain in our system. It's causing your old country to Brexit. It's causing this upheaval in my country. So my question to you, which I don't necessarily have the answer to, what happens to equity markets in an environment like this?

Raoul Pal: (21:01)
Well, actually, just before we get into that, really interesting because I'm actually writing a whole article about this with Global Macro Investor breaking the entire medium income down, comparing it to asset pricing, and looking at what happened. Basically, between Bretton Woods, the Baby Boomers entering the labor force all at the same time, so competing for jobs, plus the WTO, plus China entering WTO, and then quantitative easing have basically destroyed wages. They've all deflated except anybody who earned over $200,000 a year. Everybody else has seen wage deflation. So it's a killer, and so you're dead right.

Raoul Pal: (21:40)
Equities in this, the problem is, a., these people don't have much money, so if we're trying to look at the little guy, they don't have savings to invest in equities, and with equities at all-time high valuations, what is the upside? Well, maybe it offsets quantitative easing, but maybe it doesn't. Maybe the economic cycle catches up with equities. So the future expected returns that most people look at for equities, whether it's Grantham, Mayo, or any of these guys, are kind of negative for the next 10 years. That's why crypto has become so powerful amongst retail investors because they see for once they were ahead of the institutions and they have a real chance of actually offsetting some of the losses elsewhere. It has a passionate amount of supporters because of this. They realize it's a chance for them, and that's great.

Anthony Scaramucci: (22:34)
I like it. I think it's very interesting. So it's also tied into my next question, then. John Darsie, who's a ... I don't know if he's a Millennial, a Quintennial, I don't know what the hell he's doing, but he thinks he's a lot better than us because he's in a different generation, Raoul, so we'll get to him in a moment. But he's got a ton of questions because all these guys know more about bitcoin than me, so they like giving it to me, as you ... But before I get to him, the 60/40 portfolio, is that dead?

Raoul Pal: (23:09)
Look, bonds just act like cash. I'm still bullish bonds, and I think they actually had a negative interest rate. I think the US will follow the rest of the world because of the structural issues going on, whether it's demographics, deflation, debt, a number of things. But regardless of that, the real juice in that trade is gone. So, therefore, what offsets volatility? Now, it works like cash, so it does help somewhat, but it doesn't add to the balance sheet when things go wrong. So it is somewhat dead, and people are looking for answers. Gold is one of them, and I think a lot of people are starting to think, "Okay, should I increase my allocation to gold to give me some of that cushion within my portfolio," and others have looked at bitcoin.

Raoul Pal: (23:51)
Adding a 1% allocation to bitcoin makes a dramatically different reward profile for almost any portfolio because it's so uncorrelated. And uncorrelated returns, as you know, not easy in this world. That's why equity longshore hedge funds have had such a tough time. Even macro guys have had such a tough time. Everything's correlated. But this whole world, not only of bitcoin but tokens and other cryptocurrencies, genuinely less correlated, and that means it's higher alpha. That's really interesting. That's why it's attracting so many of the really smart guys from our industry who move across to the crypto industry, because alpha exists.

Anthony Scaramucci: (24:30)
All right, Mr. Darsie, I know you're dying to ask questions, and-

John Darsie: (24:35)
You actually did a decent job today, Anthony.

Anthony Scaramucci: (24:37)
Raoul, I got to just tell you something. Raoul. Raoul, I got to just tell you something. I am so happy that you have a full head of hair because usually we get these bald old guys on this show, and Darsie really tries to go all Rico Suave on them, you know what I'm saying? So just to let you know that. Okay, but go ahead, Darsie, go ahead.

John Darsie: (24:51)
Well, I appreciate it, Anthony. Further to Anthony's question about the 60/40 portfolio, which I think we can all agree is outdated at the very least, I know you're not here to give constructing portfolios. How should they think about building a modern portfolio? Let's say the average investor with about a million dollar in savings, do you think they should be overweight bitcoin in a significant way, or do you think it fits in as just a small part of an asset [crosstalk 00:25:17]-

Raoul Pal: (25:17)
Well, it depends on the age group. If it's you, John, then-

John Darsie: (25:20)
Yeah. How about me?

Raoul Pal: (25:21)
Well, listen, and I've talked a lot about this, and this is really serious, your opportunity to put your money in your 401(k) and buy equities at all-time record valuations is not a good bet. For you to buy property for price gains is not a good bet. Versus your income and versus what's happening to prices, it's very expensive. Now, if you want to buy a house, which I recommend to live in, because lifestyle is the ultimate token that we work for, but outside of that, if we're just talking about investment, your house is not an investment. Property's too expensive. Credit yield, all-time low, yields, all-time low. Okay, what the hell do you do to generate wealth? Sure, you earn income, but how can you compound your income?

Raoul Pal: (26:08)
I can only find crypto. I think VC investing as well, but most young people can't do it. So building a business is one of the most important things I think people should do if they can do it because you can take risk when you're young and hence why you can take bitcoin as a risk when you're young. If you think of the opportunities that the Baby Boomers got given in 1980, 1982 when the bulk of them joined the labor force and started peak earnings, they started hitting their 30s, they got equities at a P of 6, bond deals at 18%, and property had been destroyed after the inflation of the '70s, and there was no debt. They had four aces given to them.

Raoul Pal: (26:53)
You've got all four aces, but they're in the crypto space. That's where you've got 50X [inaudible 00:26:59], bigger than the Baby Boomers ever had because you're getting the nexus of not only an underpriced asset class, but you're also getting the future of technology combined with it. Those things never happen. It's like investing in VC at the same time as buying Russian equities in 1990 when everybody hated them. The magnitude of this is enormous. So that's why I think you should be aggressive as you could be, because maybe I'm wrong, maybe Raoul's a total idiot, and you lose 50% of your savings. It doesn't matter because you've got an income and you've got a future ahead of you. But if you're 70 years old, well, I wouldn't do it.

John Darsie: (27:40)
Like Anthony.

Anthony Scaramucci: (27:43)
Hey, let me tell you something, Raoul. I'm actually 105 years old, and I think I look fantastic, okay, so-

Raoul Pal: (27:49)
I think you don't look a day over 100.

Anthony Scaramucci: (27:51)
I'm taking that as a compliment, okay? Keep going, Darsie.

John Darsie: (27:56)
Yeah, well-

Anthony Scaramucci: (27:56)
Keep going.

John Darsie: (27:56)
Absolutely. And I want to talk to about-

Anthony Scaramucci: (27:58)
And, Raoul, just so you know, we pay his bonus in dollars, okay, and they're cheapening every second of this podcast, so keep going, Darsie, go ahead.

John Darsie: (28:06)
I might start demanding my bonus in bitcoin at this rate.

Raoul Pal: (28:09)
You should, though.

John Darsie: (28:11)
But I want to talk about-

Anthony Scaramucci: (28:11)
Me, too. Me, too.

John Darsie: (28:11)
... bitcoin as a currency. So you talk a lot about fiat currencies and the inherent risks of fiat currencies and how they really historically have a short shelf life. Could you talk a little bit about historically how long fiat currencies generally last and what the future of the US dollar is in your mind?

Raoul Pal: (28:28)
I can't remember the exact numbers, but, essentially, most fiat currency regimes don't last 100 years, many 50, many less. If you look at Brazil, in my lifetime, about three or four of them. What happens is banks and governments are incentivized to destroy their own currency to pay their own debts. Right? That's what quantitative easing is. So they're always incentivized to do it. This perverse incentive means that they always go away. Everybody ends up with too much debt, tries to print their way out of it, and then the currency, eventually people lose faith in it. That's why gold has been around so long, because you can't do that with it. Bitcoin, as I've talked about to Anthony before, you can't do that. So it stops anybody screwing around with it.

Anthony Scaramucci: (29:16)
I got to interrupt for one second. Is there another currency that could hop over bitcoin? Is the bitcoin the Yahoo and there's another currency that could be the Google?

Raoul Pal: (29:23)
Yeah, so looking at the network adoption effects, it's highly unlikely. It is a theorem. Could it become bigger in market cap as people build out a whole financial system, define stuff? Potentially. But as pristine collateral, which bitcoin is, as the reserve asset, I don't think it's going to be displaced. But there are other massive opportunities in this space regardless.

John Darsie: (29:47)
So I want to talk about that a little bit. We had a very interesting guy, Marty Chavez, who you may know, who spent-

Raoul Pal: (29:53)
I know Marty from Goldman.

John Darsie: (29:54)
... many years at Goldman. He was the chief information officer when he left. He's on the board of a few crypto organizations. He offered such a balanced view of the space that I thought it was very fascinating. He talked about the idea of central bank digital currencies and digital currencies that are backed by governments. I thought it was interesting, the way he framed it, talking about, let's say, a stimulus package that the US government wants to pass out to its citizens. Today, they're having to wire money into bank accounts via the IRS, they're mailing checks, there's a lot of waste inherent in that. One, do you think we'll see central bank digital currencies? What do you think the potential is for that? How will they work, and what impact, also, do you think that would have on bitcoin if you had government-backed digital currencies?

Raoul Pal: (30:41)
I've been following this for a long time. The Bank of England, the BIS, the IMF, the ECB, the Fed, the PBOC, the BOJ, Australia, Singapore have all written white papers on it. It's happening, and it's coming, and I think China's just launching as we speak. I think Sweden's got a pilot scheme going. I think Singapore's about to launch. Bermuda's just launched. Look, this is happening, fact. The question is, is how it happens. What does it mean? Well, it's really interesting. Firstly, the IMF two weeks ago had this big debate, Jay Powell was there, everybody's there. They're talking about the new Bretton Woods. So what are you saying?

Raoul Pal: (31:29)
What they're actually saying is that they understand we're in unprecedented times and everybody needs to fiscally stimulate and nobody's got the money to do it. Their proposal, hidden beneath their wording, is, "Okay, let's move to central bank digital currencies, make an agreement amongst all nations, and allow us, let's say, all to print another 50% because then there's no one currency versus another." The idea is you're devaluing everything at the same time, but it doesn't show. Okay, so that's what they're thinking of.

Raoul Pal: (32:02)
But then the bigger revolution, and many of these guys ... Benoir Coeure from the ECB who's now the BIS spends a lot talking about this. Some central banks will just have a digital currency that'll be a means a payment. So I can just flip you a dollar, straightforward, nothing else attached. But the incentive schemes for the government, much like printing money, the actual incentive scheme is to create programmable money. So programmable money gets around the problem of monetary policy, which has now stopped. We've got monetary printing or interest rates negative. That's all we've got left, and neither of them are really working. So monetary and fiscal policy, if you listen to Jay Powell and the ECB, they're screaming every day, "We need fiscal, we need fiscal."

Raoul Pal: (32:52)
Well, this way, it puts fiscal in the hands of the central bank or the central bank in the hands of the government because they can give you a different stimulus to me. They can say, "Raoul, you're an older saver. We're going to penalize you with negative interest rates. But we want to help John out, and we're going to give him a cash payment so he can pay his student loan," both at the same time. So we can use behavioral economics to run economies, which is game-changing. Now, if you understand how behavioral economics has changed the Internet, we all use Google or Facebook or whatever or even Twitter, it's all behavioral economics. So it's all about incentive systems. You can define incentive systems to different people. We're going to see a completely wholesale change in how we run monetary policy, fiscal policy, and the relationship between central banks and governments.

Raoul Pal: (33:45)
All of that fits in with bitcoin because bitcoin is ... As Anthony said at the beginning, it's this libertarian thing. It's the life raft. If you don't agree with your government, you've got somewhere to go, much like people use gold for now. If you're in Brazil and they're printing too much money or they're going to lose control because of the budget deficit, oh, well, I'll buy some gold. But bitcoin links in so perfectly with digital currencies because it's all instantaneous. So in the digital world, they're called on-ramps and off-ramps. This is incredibly constructive. All of the white papers acknowledge bitcoin, how this whole fintech revolution, cryptocurrency revolution, DeFi revolution is all part of where they have to go. So there's no chance of them banning it. They actually want to integrate with it.

John Darsie: (34:35)
Well, that's a good segue to my next question about the risks associated with bitcoin. You talked about, and we talked about before the call went live, about how asymmetric this opportunity set is for people buying bitcoin today. Could it maybe go to zero in certain scenarios? Yes, but it doesn't seem likely. What are the risks or the elements of security that people were concerned about after the Mt. Gox hack and things of that nature? Are those still risks of buying bitcoin, and what do you see as the biggest risk to cryptocurrencies?

Raoul Pal: (35:07)
So if you understand that bitcoin is the network effect in money form, it's extraordinary. But that's what it is. It's Metcalfe's Law in money. So what is that built on? It's built on one thing only, which bitcoin excels at better than any other instrument ever invented. That's trust. Because of its distributed nature, I don't need to take your word from it and we don't need a notary because we've got 10,000 nodes all confirming it. What we know is that anything that's on the blockchain is now 100% trusted.

Raoul Pal: (35:43)
So the trust element takes away the risk of something that is a network effect because, usually, it's because either it doesn't give you a benefit, i.e., the price doesn't go up, or if it's Facebook, you don't find your friends on it, whatever it may be doesn't work. But once you get to a certain point where people trust it, it's very difficult to get rid of it. That's why even after it had these big cycles, because it was still a relatively thin market, it goes down 90%, the trust never went. People still knew it's this pristine asset, this incredible asset that can't be screwed around with. So it just drives trust again, and the more people adopt it, more trust. I don't think there's any risk of zero.

Raoul Pal: (36:25)
The arguments go quantum computing. If they figure out quantum computing, they could break the cryptographic keys. Well, there's too much money in this space, and people are already aware of this, so there's all anti-quantum layers being built, there's a bunch of other stuff. So that's not going to be an issue. The other really weak argument is, well, if they shut down the electricity, there's no bitcoin. Well, we've got other problem if the entire world's Internet or electricity goes down, so I'm not worried about that one. By the way, you can still store it on a piece of paper, your crypto-key. You actually don't need a computer. So that's okay, too.

Raoul Pal: (37:04)
The last one is governments will ban it. Well, first up, explain that the IMF, the BIS, the ECB, the Bank of England, the Fed have all regulated it and said in their white papers, "This is part of the future, this is where it's going." So there is no noise of that coming, but maybe one day, it's a 10 trillion dollar asset class. They're not going to ban a 200 million dollar asset class, not even a trillion dollar asset class. It's still smaller than Google at that point, and Google is much more nefarious than bitcoin is. They own all the world's data. So let's say it gets to 10 trillion dollars, my million dollar price target. How are they going to ban it?

Raoul Pal: (37:44)
Let's go through that, and this is really crucial. So the IMF say, "We don't want to have this currency, it's destabilizing to central bank currencies," and everyone goes, "Okay, fine." They say, "Anybody owning it will be banned. You can't have a wallet." Problem is, is we live in a globalized world and this is on the Internet. There's no borders. There's no gold in a vault. This is borderless, semi-anonymous, and instantaneous. So all it takes is for Brazil ... And we've seen this in healthcare when it came to genetic testing. Brazil and Israel said, "We'll allow it." Guess what? A bunch of scientists go over there, they do it from there. Game theory always suggests that somebody will go against that ban because they can make all the money because we're actually dealing with money here. So it's incredibly lucrative to capture that market share.

Raoul Pal: (38:41)
The other part of this is as the central bank digital currencies come, there are going to be ... And my guess is that in the next two years, we'll see one of the small Latin American nations, maybe one of the Caribbean nations, put bitcoin into their reserves because they're so fed up with having [crosstalk 00:38:58] currency-

John Darsie: (38:57)
Yeah, like MicroStrategy.

Raoul Pal: (38:57)
Like what?

John Darsie: (38:59)
Yeah, like MicroStrategy did, Michael Saylor did with their reserves.

Raoul Pal: (39:03)
That's right. And then one of them will say, "You know what? We're just going to use bitcoin as our currency," as opposed to having a currency board with the dollar like we have in Cayman. They're totally fungible here here, so it's not a peg, so it can't break. But if it was the vagary of the dollar being expensive or weak that they have to deal with, what if you just say, "Okay, bitcoin is the currency we want to peg ourselves against?" You're away from that whole currency system and [crosstalk 00:39:31].

John Darsie: (39:31)
Yeah, I think China's journey as it relates to bitcoin and cryptocurrencies is an interesting and informative one, is that early on in the rise of bitcoin, the way I understand it is that Chinese that were evading capital controls and pulling money out of the country accounted for a significant portion of the trading volume of bitcoin. The Chinese made some noise about wanting to regulate it, but then they realized the power of that type of technology if it's leveraged by the state. So they obviously haven't banned it and are working on their own digital currency.

Raoul Pal: (40:03)
Russia did the same, and we've seen similar things elsewhere, and they looked at banning it and then realized it didn't make sense, and they've all walked away from it. I think the probability of it being banned on a global basis is low. Will Turkey try and ban it? Of course they will because their currency keeps collapsing every day, like they banned gold. But does it work? It's never worked. Capital controls have never, ever worked. India tried to ban it as well. Guess what? It's coming back. India's integrating it with their banking system now. So it's not going away. It's only going to get bigger.

John Darsie: (40:48)
In your view, and you might talk about how you own it and how you store it, what's the best way for a retail investor or an institution to buy, own, and store securely cryptocurrencies and bitcoin today?

Raoul Pal: (41:00)
Yeah, so here's one of the truisms in life. Anything that's slightly hard to do usually has better rewards. Emerging market investing, the more frontier you get, the higher the rewards are. So crypto right now, to do it perfectly, you need to open a brokerage account with an exchange, do your KYC. Well, we're all kind of used to that. Then you go on and buy it. There are some brokers who will do it. So if you're an institution, you're a hedge fund, you can get somebody to do it for you, so that's pretty straightforward. The problem is the custody because it's a bearer asset and we gave up bearer. We used to have bearer bonds and bearer equities. There's a few left. I think Nestle have still got some bearer equities and bearer bonds left, and a few companies do, but there aren't many.

Raoul Pal: (41:44)
So now you're like, "Okay, do I leave it on the exchange?" Well, we've all heard [inaudible 00:41:50]. People can hack exchanges like they can hack banks. So you're like, "Okay, so I need to store it somewhere safe." You can buy a cold wallet or a hard wallet, and that basically is a little unit that has your keys on it. It doesn't actually store your currency. It's not like a USB. But it's basically your codes to unlock it. So to do that, that's a safe way, and then you can put it in a safe. I store mine in a gold vault, in a proper secure gold vault. Then it's safe, I don't have to worry about it, nobody can come to my house and try and get it. I don't have it. But it's as simple as that. You can still check your balances online. It's not like you can't see it. You own it. It's all in your name.

Raoul Pal: (42:38)
Now, let's say you're an institution and you don't want to go to a family office. Well, Fidelity have just set up a whole custody business, so if you don't trust Fidelity, well, you might as well give up. The US have just approved it as a custody asset for a whole group of banks. What does custody asset mean? So any hedge funds listening to this, what that means is prime broking. Prime broking's coming, and it'll be here, my guess, early next year. So prime broking bitcoin, that's coming, too. The whole custody issue goes away. It's actually harder for individuals because you have trust one of the wallet providers, et cetera. But that whole space is getting better and better. You can also buy insurance against it. So all of these things that were hard in the beginning are now actually relatively straightforward.

John Darsie: (43:27)
All right. It's something at SkyBridge and with SALT, we have a growing interest in the space given some of the adoption we're seeing, so we look forward to being in touch with you and other leaders in the space as we figure out exactly how we're going to get involved. But, Raoul, we're going to leave it there. We could probably have a 10-part series and not cover all the interesting topics that we could talk about. We really encourage you to sign up for Real Vision. It's the media entity that Raoul launched that has tons of fascinating things on macroeconomics, financial markets, and bitcoin. So we would definitely encourage all of our community to sign up for Real Vision, and, Raoul, we really appreciate your time.

Raoul Pal: (44:00)
Good talk. Really enjoyed it.

Anthony Scaramucci: (44:02)
Raoul, I just want you to know, I have a mechanism in my computer that's slowing down his Internet service so that he sounds like Godzilla at the end of this thing, okay? It's just something I do to him once in a while, just to be cheeky.

Raoul Pal: (44:14)
Just to bring him down a peg, right?

Anthony Scaramucci: (44:16)
Yeah, I got to bring him down a peg, and-

Raoul Pal: (44:18)
I get it.

Anthony Scaramucci: (44:18)
... just to use a British word I love from Thomas the Tank Engine, just to be a little cheeky, you know what I'm saying? But thank you so much. We really, really enjoyed it. I'd love to get together with you at that bar behind you. I hear you mix one hell of a gin and tonic, so I want to sit at the bar with you someday when the world is safe.

Raoul Pal: (44:38)
I look forward to it, my friend. Take care.

Anthony Scaramucci: (44:40)
Great to see you. Thank you for joining SALT Talks.

Raoul Pal: (44:42)
Really appreciate it.

Ruston Smith: How the Pandemic Impacted Pension Funds | SALT Talks #101

“When I look at governments and the amount of spend right now, I see them sort of investing to survive as opposed to the investment that they put in in 2008 and beyond for growth.”

Ruston Smith is the Chair of the Tesco Pension Fund (DB and DC) and Tesco Pension Investment Ltd, Non-Exec Chair of JP Morgan Asset Management (EMEA), Non-Exec Chair of Smart Pension Ltd, Non-Exec Chair of PTL Ltd, Independent Trustee and Chair of the Funding and Investment Committee for the BAE Pension Fund, Governor of the PPI and Chair of GroceryAid (charity for the grocery industry).

Due to the pandemic, pension funds in the UK and Europe were hurt, but are set to return much of their strength as we return to normal. The relative strength of pension plans is due in part to strategic de-risking that started back in 2006. This has involved a significant reduction in equity holdings and an increase in bonds. “The Pensions Regulator is really keen that UK pension funds have a very clear journey plan, which basically is a plan to de-risk so you get to a point of funding where essentially you can have just a low dependency on the employer that supports that pension fund.”

As we approach the end of the pandemic and the vaccine rollouts are near completion, there will be opportunity for a more sustainable recovery. This necessitate investments in areas like infrastructure and job training, important to jumpstart the economy.

LISTEN AND SUBSCRIBE

SPEAKER

Ruston Smith.jpeg

Ruston Smith

Non-Executive Chairman

Tesco Pension Trustees Limited

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

Rachel Pether: (00:08)
Hi everyone, and welcome back to SALT Talks. I'm Rachel Pether and I'm a senior advisor to SkyBridge based here in Abu Dhabi.

Rachel Pether: (00:17)
Now, SALT Talks is a series of digital interviews with some of the world's foremost investors, creators and thinkers. And just as we do at our global SALT Conference series, we aim to empower really big important ideas and provide our audience a window into the mind of subject matter experts.

Rachel Pether: (00:36)
The focus of today's talk will be on pension funds and their approach to ESG investor. And who better to discuss this with than Ruston Smith, the chairman of the Tesco Pension Fund and Tesco Pension Investment, the largest corporate pensioner scheme in the UK with over 350,000 members. Now, Ruston wears a number of hats: he's the non-exec chair of JP Morgan Asset Management, EMEA, a non-exec chair of Smart Pension in PTL, an independent trustee and chair of the Funding and Investment Committee; the BAE Pension Fund, governor of the PPI, and chair of GroceryAid, and he's also a former chair of the Pensions and Lifetime Saving Association.

Rachel Pether: (01:20)
I've had the pleasure of knowing Ruston for a few years now and he's an incredibly humble person, but I do want to embarrass him and point out that he recently won Pension Personality of the Year. And it was noted that he is a pension superstar and one of the nicest people in the industry.

Rachel Pether: (01:37)
As always, if you have any questions for Ruston, please just enter them in the Q&A box on your Zoom screen.

Rachel Pether: (01:44)
Ruston, you pension superstar, welcome to SALT Talks.

Ruston Smith: (01:48)
Thanks very much Rachel. By the way, I hear you had a trauma this morning. How's your finger?

Rachel Pether: (01:55)
I did. I cut myself. My nickname when I was growing up was Calamity Rachel. So, no surprises there.

Rachel Pether: (02:03)
But before we begin, obviously we want to do a deep dive today into pensions and ESG investing, but maybe you can tell me a bit about your personal background?

Ruston Smith: (02:14)
Well I am that old, I've been in pension investment now for about 35 years. So, time flies when you're having fun. I've spent 15 of those years as the group pension's director at Tesco. And alongside that, I was also CO of Tesco Pension Investment, which is the in-house STA approved investment firm that we set up in 2012. And I also had some people responsibilities, and I was head of insurer risk as well. And I had a few other jobs along the way, I happened to be a CoSec of a FTSE firm, a FTSE 250. Although I'm not a lawyer, I was also head of legal as well. As you said, I was chair of the Pension and Lifetime Savers Association, and I co-chaired the governments 2017 review of automatic enrollment and led a few other initiatives as well. So it's been great fun, Rachel.

Rachel Pether: (03:08)
Excellent. No, you've obviously got a number of years experience, and I'm not saying that because you look old or anything like that at all. But we've had people on SALT Talks before and talking about some of the funding gaps in the US pension market. So, given your perspective and your expertise in the UK and European pension market, can you talk us through the status of funds there? Does it show a similar level of underfunding that the US does?

Ruston Smith: (03:37)
Yeah. So what I'd say Rachel, is that certainly in the last few years, the funding gaps across Europe have narrowed. We've had some good investment returns in fact over the last five years. As you know the FTSE world has returned around about 12% a year. Interest rates have reduced so that means that gilt yields have gone down, which naturally increases the cost of pensions. But generally, funding positions have improved.

Ruston Smith: (04:06)
However, at the beginning of 2020 of course, with COVID, it was quite a challenging time. So what we did find is that assets fold back a little bit and those funding gaps opened a little bit wider. But to be honest, having spoken to a number of consultants across the UK just over the last week, I think the view is that actually they will come back. So, we're probably now back in the position that we were last year, so that's a great position to be in.

Ruston Smith: (04:35)
Of course, you'll hear accounting deficit information from CFO's when they announce their results. A kind of similar story Rachel, they sort of had a difficult first couple of months this year because simply yields fell down. Implied inflation went up and assets fell at the same time, so those international accounting standards gaps increased. But again, they've come up. Credit spreads have widened a little bit now and they're really pretty much back to where they were before. However, as always, there's a caveat: it depends on the investment strategy, the extent of hedging and all that kind of stuff. So those funds that are a better hedged, very good diversification across their assets, will be in a better position than perhaps those that are less well funded and not so well hedged as well.

Ruston Smith: (05:29)
But probably one point to call out, just particularly in the UK market, is that we have been on a program of de-risking. So, that basically means that we've been moving from return-seeking assets like equities into what we call matching assets. They're assets typically like government bonds, so where the yields are sort of matching the discount rates of the underlying pension liabilities.

Ruston Smith: (05:55)
And just going back to 2006, there's been a surprising change since then in the allocation to equities when, at that time, we were around about on average 61%, and the allocation has now reduced down to 24%. And a similar reverse story for bonds. So at that time in 2006, it was around about a 28% average holding, that's now increased up to 63%.

Ruston Smith: (06:22)
So you can see that there's been quite a significant amount of de-risking across the UK. And the Pensions Regulator is really keen that UK pension funds have a very clear journey plan, which basically is a plan to de-risk so you get to a point of funding where essentially you can have just a low dependency on the employer that supports that pension fund.

Rachel Pether: (06:48)
Yeah, I'd love to go into a bit more detail about that de-risking side of things shortly. But you mentioned the 63% allocation to bonds, and I also want to go more into the areas of lower growth and lower interest rates. But just taking a step back and looking at some of the macro recovery plans that we're seeing post-COVID, what are some of the implications here?

Ruston Smith: (07:16)
So I think, first of all, just to call out the obvious, where we haven't really got the pandemic under control, we're still waiting for a vaccine. And I'm sure that when that happens we'll see sustainable rises in the market. It's really a very different challenge, I think, to the one in 2008, the financial crisis. And when I look at governments and the amount of spend right now, I see them sort of investing to survive as opposed to the investment that they put in in 2008 and beyond for growth.

Ruston Smith: (07:50)
The IMF estimated, more recently, that countries across the globe are probably invested for COVID something like $11.7 trillion. Put into context, that's around about 12% of global GDP. If we go back to the financial crisis, the G20 countries, their stimulus package was equivalent to more like 2%. So you can see already the level of spending that we've had.

Ruston Smith: (08:20)
I mean, in terms of the recovery plan and where we might go when we start to see some light at the end of the tunnel, again, comparing it back to the last financial crisis, I think from my perspective and listening to people like John Allan in the UK who's leading the sort of COVID recovery plan, getting business leaders together across the UK, I think we're looking for a much more sustainable recovery and also looking at opportunities to almost leapfrog where we are to where we need to be. So investment, for example, in the likes of infrastructure, training in particular ... because I think people will need new skills in the new world ... digital and also technology.

Ruston Smith: (09:01)
But of course there's still huge uncertainty. And if we look at the sort of macroeconomic data at the moment, China's just come out and said that they've had growth of 4.9%. Now, that's compared to the same time last year and that's been driven by industrial growth. On the other hand, you look at the UK and we are struggling. We've got growth month on month and quarter on quarter, but it's still behind where we expected it to be.

Ruston Smith: (09:31)
And I think that when we look at 2020, we look back, the IMF is expecting that the globe in total will probably have net negative growth and something similar to the great depression, the 1930s. So this is really quite a significant event. And probably we'll find that China's the only major economy that will have any year on year growth when we get to the end of this year. So, a few challenges ahead.

Rachel Pether: (09:59)
No, thanks Ruston. And also want to pick up a bit more broadly on some of the income generation points that you mentioned. We have had an audience question come in from Ken [Lustock 00:10:10], which relates directly to what you were just talking about. And he said, "So in this environment of potentially lower interest rates of the longer-term and the significant de-risking that you speak about, it'd be great to hear your perspective on how pension funds anticipate generating sufficient returns and being able to keep funding the pension obligations."

Ruston Smith: (10:30)
So, that's a really valid point. Looking across Europe at the moment, there are some nominal rates, some nominal yields which are actually negative. But then when you throw into the mix inflation, you can actually see that yields, real yields, are negative pretty much everywhere. So, for example, in the UK, if you look at 15 year index-linked yields, their yield at the moment is -2.8%.

Ruston Smith: (10:59)
So, when you stand back as a rational investor, the question is: why would you invest there? The reason that pensions funds do, of course, is because the value of their liabilities, the cost of the pensions that they pay, are pegged to a discount rate that's linked to gilts, gilt yields. And therefore, it does make a lot of sense for pension funds to be investing in gilts, because what happens is as the cost of your pensions go up so does the value of your assets if you're purely matched.

Ruston Smith: (11:30)
However, coming back to the value argument. Obviously there's a cost, because if your returns aren't high somebody has to pick up the cost of funding the scheme, which is typically the employer. So some of the larger pension funds in particular, have been looking at what we call income generating assets. So it's kind of in the private market, the alt bucket, and typically they have long-term contractual cash flows, total returns up to around about 6%. And what they are is a kind of proxy faux yields, clearly they are not gilts, they carry more risk in a number of different ways. But they allow pension funds to invest in a different kind of asset class to try and have a proxy towards matching those liabilities and in doing that.

Ruston Smith: (12:18)
So I think I see more of those private markets investment from pension funds, but particularly at the larger end. If you're at the smaller end, you're probably going to buyout at some point. And typically they like a bunch of gilts, so it's quite likely that lots of pension schemes will continue to buy the gilts that they need.

Rachel Pether: (12:38)
So when you're talking about an income in the private market, would some examples of that be infrastructure assets? Or what would be some tangible examples there?

Ruston Smith: (12:48)
Yeah, I think that's right Rachel, sort of. Infrastructure, long-leased property, although obviously would have to look at the property market to make sure it's a sustainable kind of investment. But something that is long-ish term, so that's 10 to 20 years, if you can get that. Something that's got a good income yield, so that you can also cash flow match as well as matching your liabilities. And then have something that generates a reasonable return.

Rachel Pether: (13:17)
So with so many different variables to think about [inaudible 00:13:21] Tesco Pension as a global investor, how do you think about some of the key trends in the global markets?

Ruston Smith: (13:31)
So I think just going back to the point earlier Rachel, when we get to more stability, when we've got positive news about a vaccine, I think we'll see greater stability of markets and also hopefully a pick up in those. PE ratios, I think, for the rest of this year, will be lower, inevitably. We've had earnings which have been stressed through lockdown in different countries. But also, I think that where we've had sectors that have been particularly affected, unfortunately, I think that M&A activity will pick up. So I think there's an opportunity there for that M&A activity, which might also have an impact on the number of stocks that we see on the stock markets.

Rachel Pether: (14:17)
Yeah, that's actually a great point and I would love to pick up on that, because I guess it ties into your de-risking piece. With fewer and fewer public equities available, are investors walking into some sort of concentration risk there? Or how are you looking at the public equity markets?

Ruston Smith: (14:37)
So, I think it would be a bit unfortunate if they walked into a concentration risk, I think it's got good diversification. However, I think that inevitably, if we go back to the 1980s and you look today, the number of stocks that are actually quoted on stock markets, particularly in more developed markets, has reduced quite significantly. So I think in the US, for example, US stocks that are quoted have dropped from something like 7,000 down to around about 3,000 to 3,500 at the moment. So, that's quite significant.

Ruston Smith: (15:13)
I guess the other consequence of that actually though, is the concentration risk of larger companies. So, for example, you've got the FAANGs in the States. And sort of six of the largest companies in the States, I believe, represents something like 50% or just less than 50% of the US stock market. And equally, across Europe we've got large stocks called the GRANOLAS, I think they were named by Goldman's at some point. Always reminds me of breakfast, it's quite nice. But they represent something like 25% of the market cap of the European indices as well.

Ruston Smith: (15:50)
So that's a watch out, because interestingly if you've got a relative performance target against a benchmark, whether you hold or you don't hold those stocks has a really big impact on your performance. So it's another kind of concentration risk and an implication, I think, of the changing dynamics in markets.

Rachel Pether: (16:13)
Yeah, I think that that question around how to benchmark when you have such a varied portfolio always comes up as a sort of point of discussion and debate.

Rachel Pether: (16:24)
What does GRANOLA stand for actually? What are the key stocks there? Is it mainly tech-driven as well, similar to the US?

Ruston Smith: (16:31)
Yeah, I thought you might ask me that question. So I think it's ... you've got Glaxo for the G, Roche for the R ... and then I'm going to have to check ... AMSL for the A, and then you've got Nestle, and I can't remember the rest. But that's not a bad shot at GRANOLA. So it's basically the first letter of the names of each of the largest companies on the indices in Europe at a point in time inevitably. As I say, named by Goldman's I think.

Rachel Pether: (17:03)
Sorry, I wasn't ready to give you such an on the spot test there.

Rachel Pether: (17:07)
But I just wanted to ask one more question on the sort of private assets right before we move into ESG. If you're looking at a greater exposure to the private markets, how might this align with domestic government investment policy?

Ruston Smith: (17:26)
So that's a really interesting question, as we start looking forward at how domestic investment by governments is made. I mean, essentially, they need to invest in the underlying economy, they need to create jobs. And as I said before, it's going to be in the likes of infrastructure, training, digital and technology. Now, clearly, there'll be a lot of investment in quoted businesses to leapfrog where we are today. But I guess and a lot will be invested in infrastructure, whether that's digital infrastructure or whether that's the physical infrastructure of different countries. And I think that through that, there will be many opportunities through private markets, to invest in opportunities for the future.

Ruston Smith: (18:12)
And in fact, even in the UK, the UK government have been encouraging defined contribution schemes where people pay in contributions alongside the employer. Because they're relatively immature and we've got people been paying in for decades, there's the perfect opportunity where you don't need the daily price in liquidity that you might do in other areas. So it's a good opportunity to invest in the underlying economy and to support start-ups in other areas and build the country. But of course, like anything, a good diversification's really important. So not just between private markets, but also across public markets as well. So I think there'll always be a need for both.

Rachel Pether: (18:59)
Yeah, that's interesting. On the sovereign wealth fund side as well, we're certainly seeing that in the Middle East, that your point about investing in physical infrastructure in the region but also digital infrastructure through the venture capitals. So certainly seeing that on a global perspective.

Rachel Pether: (19:16)
When you're looking at the infrastructure efforts, what sort of returns are you looking for there?

Ruston Smith: (19:22)
Well, and I think when we think of infrastructure, we think of two different things. One is income-generating assets, another is ... people might call them secure income assets, that's another name for them. So, for there, you might be looking at a total return of 6%. Because, again, you're looking at something that is a proxy to gilts, which at the moment are sort of sub-1%, and in some cases negative even in nominal terms.

Ruston Smith: (19:48)
When you're looking at an alternative's allocation, then you'd be looking at double digit ideally. But also you're carrying a lot more risk, and duration is probably just not as important as income-generating assets because they're there to do a very different job.

Rachel Pether: (20:05)
And when you look at the concentrational or market consolidation, do you think that this will open room for more record growth of innovative start-ups? And thank you for your question, Phillip.

Ruston Smith: (20:20)
I think we'd need to encourage that. I think that we've seen a lot of start-ups in the last few years as the economy really got going. And there are so many amazing, creative people. I think the key thing for me, is making sure that we provide the right capital at the right time to the business that can make that difference. But I think that the appeal today, perhaps, would be for entrepreneurs to go down the private markets route and then perhaps IPO at the end of it. Rather than going into a quoted listed company, which of course has huge governance requirements and reporting requirements on quite a regular basis.

Ruston Smith: (21:01)
And in fact, you've seen some entrepreneurs like Richard Branson for example, who was quoted at one point and has sort of de-listed. And again, it's to take a longer-term view and to manage businesses in a slightly different way, but without all those very short-term reporting requirements.

Rachel Pether: (21:20)
Yeah, their companies are certainly staying private longer. I mean look at SpaceX, raised its Series N funding round recently. And historically it sort of went up to like Series B or C, and now we're getting into the latter half of the alphabet already.

Rachel Pether: (21:35)
I do want to shift slightly into ESG. And obviously pension funds with a long-term view can make some long-term investments. How was the Tesco Pension Fund looking at ESG? And maybe you could talk about balancing that out with the fiduciary duty as well?

Ruston Smith: (21:59)
So, I'll first of all differentiate between the Defined Benefits Pension Scheme at Tesco, which is closed, and where ESG is embedded into the investment process. And that includes right across private markets not just quoted equities, for example. What we've got is a retirement savings plan, which others might call defined contribution or DC. But in Tesco, if I say DC, colleagues there think I'm talking about a distribution center so I have to make sure that I'm very, very clear. So we apply responsible investment to both, but they're applied differently. So they say on defined benefit, it's physically integrated into the investment process right across all asset classes.

Ruston Smith: (22:46)
Interestingly, on the Tesco Retirement Savings Plan, the defined contribution scheme, that's quite young actually Rachel. It's been set up in the back end of 2015, worth around about £2 billion today. And what we're trying to do is look at how we can apply responsible investment right across the asset base, 75% at the moment of which is passive, passively managed as opposed to active management. We have spoken to our members, to ask them what matters most to them around responsible investment. We've also captured the language that they use, because the other point that we're very conscious of is there's a huge amount or jargon in the industry, and actually in communications when we try and talk to members across the UK. And what we want to do is to make sure that we capture the language that they use, and then we can talk to them in the words that they use rather than the jargon that the industry uses.

Ruston Smith: (23:50)
As part of that, understanding what mattered most, we're looking at how we apply responsible investment right across the investment strategy, but at the same time emphasizing the areas that mattered most to them. So we're going through a process at the moment where we're looking at how we can leverage that through all the different asset classes. How we can also align that through our stewardship, so that as we are investing and as we are influencing companies and entities at which we invest, we can make sure that we've got a very focused approach to what we're trying to deliver in the long-term. And as part of that of course, we're also making sure that we've good, clear communication with our people.

Rachel Pether: (24:40)
That's great. There's so many points within that I want to pick up on, particularly when you talk about the heavy allocation that you have to passive strategies, but also some of the private market points I think would be quite interesting to go into.

Rachel Pether: (24:55)
So, how do you think about ESG when you're looking at the passive funds that you govern?

Ruston Smith: (25:02)
So, I think the way we look at it is first of all to apply it right across the portfolio, all the savings we've got. What I'm seeing in the UK at the moment is a huge effort to focus on ESG and do the right thing, but it tends to be led by an allocation into an ESG product. So you might have a 20% allocation to a product but then the other 80% is just essentially the rest.

Ruston Smith: (25:32)
What we're going to try and do is make sure it's applied uniformly right across the whole asset strategy, and that will mean probably a greater mix of active management compared to where we are today. But also just making sure the remainder of the passive is responsibly invested. And then, as I say, because we understand what matters most to our people, we're going to look at, for example, three themes are protecting people's rights, so that was part of it, including things like fair treatment of people, fair pay, human rights. Working towards a better society, so caring for the elderly, health, education, future opportunities for all. And then protecting the planet, reducing plastic waste, renewable energy and renewable waste.

Ruston Smith: (26:14)
So we would look at opportunities to invest, where they emphasize the areas that matter most. And, as I say, then align that with the stewardship strategy that we have so that we're influencing in a very consistent way.

Rachel Pether: (26:27)
And so, just taking that and applying that to the private markets there. If you were investing in, say, health care asset like a senior person's home, or something that fitted within one of those desires from your fiduciaries, would you take an active role in the management of that as well? Would you try and influence the company in certain ways or would it be more of a passive private market investment approach?

Ruston Smith: (26:59)
Well, I suppose it depends on how we've got exposure to that company. Whether it's parts of an overall product through an investment manager, a provider, or whether we've done it directly. If it was direct investment, and assuming that it was a sizeable investment, you would hope to have that direct contact with them and influence them in the way that you could best. If it's through the fiduciary, like a manager, then essentially you would have to monitor the manager and how they're doing that.

Ruston Smith: (27:31)
It's an area that I think is quite challenging. And so, it's an area that we're thinking about and sort of asking lots of questions globally, to look at the leading edge way of managing those relationships.

Rachel Pether: (27:46)
And we've actually had a question coming in from the audience, thanks very much Mark, who said, "What's the most efficient way for a manager to create an ESG commingled fund, given that ..." and I guess we haven't really touched on this point yet in depth but ... "Given that ESG means different things to different allocators? Should the manager plant a flag in the ground and say in effect, 'This is what we believe,' and then let the allocators decide whether or not they want to invest based on that?"

Ruston Smith: (28:16)
So I think inevitably, Rachel, that ESG will be generalized. I think one of the challenges we've got at the moment is that we all understand and know what we've got to do through ESG. I think what we're all still grappling on is a consistency around what does good practice actually look like? And then also, how do you measure that? So for example, one of the things that I'm considering at the moment ... and again, talking to global partners ... is what are the most appropriate metrics to use to measure companies and entities in which you are invested?

Ruston Smith: (28:56)
Now, one of the challenges here is you could go to a company ... in fact, you could have 500 or 600 pension schemes going to the same company, all with different metrics and saying, "We think you should use those. And we think you should measure yourselves against those and disclose them." The challenge obviously, is they're not going to do that. So what I'm quite keen on is looking for some global consistency, and I know there are entities out there trying to drive this through, to look at what are the metrics that matter most? Which then, coming back to your question, provides the greatest future influence of change, delivers the future expected returns as well ... because obviously that's important ... but then builds a product which actually delivers on both. So it's a product then, which essentially drives the returns for the customer but also, at the same time, truly hand on heart is going to deliver the most positive influence in the future.

Rachel Pether: (29:57)
So when you're looking at, say, commingled funds, I guess that ties nicely into: what are asset owners doing collectively about ESG? I know there've been a lot of groups formed and discussions have been started. So you've got the One Planet working group, for example, where six of the worlds largest health and wealth funds came together to invest in assets that could tackle climate change.

Rachel Pether: (30:25)
What are you seeing in terms of collaboration between some of the larger asset owners? And do you think more needs to be done in this regard?

Ruston Smith: (30:34)
First of all, I think more needs to be done, it would be better if we could have a much more collaborative approach. But some of the largest pension funds in the UK have been getting together, for example, to look at climate risk, climate change, and look at what is the best approach that we could all take. And then obviously, we benefit from the scale that we create.

Ruston Smith: (30:56)
And just going back to really a question on being the commingled funds. It's about looking at what is the change we want to see? What are the things that matter most to members, which are then the ultimate customers of pension funds? And creating that proposition that really delivers for the customer.

Ruston Smith: (31:16)
So I think that there are opportunities here, but I think it's about listening, it's about identifying the right forward-looking metrics that will make the most difference in the future. And then building product around collaborating together, so that the sum of our parts optimize the opportunities set in the most efficient way for corporates. So, what are the smallest number of metrics that will make the biggest impact? And we can measure them and we can work and get behind them.

Rachel Pether: (31:49)
And are you seeing any negative unintended consequences of the ESG investing? There's been a lot of corporations being accused of greenwashing. What do you see as some of the downsides associated with this?

Ruston Smith: (32:06)
So I think sadly, inevitably, there will be some greenwashing, there is some greenwashing. I think the point that I'm more reflective of is whether or not, with all good intentions, collectively pension funds rush to be net zero on emissions in carbon. And if they do that really quickly ... As I look at the whole global corporate environment, all the companies around the world, you're inevitably going to have sectors that are able to lead, you'll have companies which perhaps are not in the right place to be able to be part of that leading pack. And I guess the concern I've got is, could we be in a position whereby we put all our money behind the companies that will naturally be the leaders? And then, what's the consequence for those who have all good intentions but are starved of capital and are unable to catch up?

Ruston Smith: (33:03)
In the ESG, my mind is around the S, what happens to people in jobs and communities and environments if we just focus on the leaders globally in this space? I'm hoping that won't happen, but I can just see potentially where pension funds want to be doing the right thing and get down to net zero and do it as fast as possible. I do question: what about the rest? And where will they get their capital from and will they be sustainable entities in the long run?

Rachel Pether: (33:35)
Yeah, I guess that's a really interesting point about the intent of the companies, right? If they have an intent to focus on the E and the S and the G and it doesn't quite come to fruition, then whose responsibility is that debt? But I guess as long as the intent and the [inaudible 00:33:54] [inaudible 00:33:55] [inaudible 00:33:55], where there's a will there a way.

Rachel Pether: (33:58)
We have another few questions that have come in from the audience, some are specific and some are broader. So I'm just going to ask a couple of the specific questions first. When you're looking at some of the concentration risk within the GRANOLA stocks that you talked about before, how are you seeing the pension funds balancing outside of these risks? Are they doing that with more hedging? Or it's more just through diversification of other parts of their portfolios, for example?

Ruston Smith: (34:30)
So I think that in the defined contribution world there's a lot of passive investments, so they just hold everything. So that, in a way, that doesn't really matter. I think when you go to active management, one of the challenges is: how do you avoid it? I think when you look at regional equity allocation, in other words you are trying to perform against the benchmark for a particular country, that then becomes quite challenging. Because if you've got some dominating stocks of six, there's a real consequence as to whether you hold or don't hold those stocks. Equally, to be honest, even on a global basis. But what I see more of now, moving away from a more traditional model, is that equity mandates are more global and therefore you've got wider choice and it dilutes the impact of those larger businesses.

Ruston Smith: (35:21)
Having said that, we know that ... I think it's the top five stocks in the US are worth something like $4 trillion. So even globally, when look at the FTSE world, they're still a very big part of it. But I suppose it's like anything, it's just managing the risk of diversification and just thinking about the very long-term philosophy that hopefully you're trying to adopt.

Rachel Pether: (35:46)
Thanks Ruston. So we have time for a couple more questions.

Rachel Pether: (35:49)
So, when you're looking at the long-term philosophy, what do you think might surprise us in the next, say, two to five years?

Ruston Smith: (35:58)
So I think, first of all, I'm quite optimistic. I'm hoping that what we're seeing in the early part of this year, so I think of the canals in Venice and how clean they were when they weren't used, we can see the air and the pollution that's been eradicated in different parts of the world because we took cars off the road. I'm hoping that as we invest in this new world, as we come out the other side of COVID, we will do so in a very sustainable way. In a way that we will invest in technology, we will invest in the planet, cleaner technology, and will accelerate that.

Ruston Smith: (36:39)
So I'm actually hopeful that all those things will be positive. I guess that the bit that concerns me in the short-term are the social aspects around the world. Inevitably, even in the UK, you can see unemployment increasing and the social implications of that, with people not having enough money. And then it's, how do we create an accelerated approach to injecting capital to places to help people retrain very quickly and then importantly get them into jobs?

Ruston Smith: (37:12)
The other thing is that I'm quite hopeful that people have continued to save through the crisis, and particularly people that put money into their pensions at the early parts of this year. When we get back to where we think we're going to be, hopefully they'll have a nice sort of pick up in their retirement savings, so a nice little incentive for their future.

Rachel Pether: (37:33)
Well that's actually a really optimistic note, and it would be a good place to end but we have actually had a question that I think is highly relevant. So, Mark [Birbeck 00:37:43], thank you so much for your question: Just as a counterbalance to the de-risking trend that we're seeing, do you think there's a role for pension funds to be entrepreneurial and support young businesses with capital? Which I guess sort of ties back to your previous comments about investing in innovation. And then: What is the future DNA of pension funds as an investor?

Ruston Smith: (38:07)
So a good question. I'm going to split this between two types of pension fund. So I've got defined benefit, who really are trying now to get to a place where they've got little or no dependency on their employer, which means that they will be de-risking. And so they will invest in private markets for sure, I've already called how they'll do that through income-generating assets.

Ruston Smith: (38:31)
But I think the future for the investment, particularly in start-ups, as the [inaudible 00:38:37] is described, is in the defined contribution market. We've got lots of people investing money with very, very long-term time horizons. And this is a perfect opportunity, with a good manager that gives good diversification across lots of ideas, acknowledging that sadly, yeah, there will be defaults, that we can invest in entrepreneurs in the underlying economy and then drive that through to get to a much better place.

Ruston Smith: (39:04)
And we do have the funds going in, there are lots of savings going in. We're building assets in the UK really quite quickly in defined contribution. We shouldn't get hung up on [inaudible 00:39:14] pricing, particularly for the younger end. There is a huge opportunity. But I think, to some extent, there'll be a change in mindset from where we are today, but it's one I know that the government's behind which is a very good thing.

Rachel Pether: (39:27)
And could you also see the sort of investment in start-up ... I mean, that could fall under an ESG agreement couldn't it? Because it's that social side, it's supporting young entrepreneur's kind of capital for growth as it were.

Ruston Smith: (39:42)
Yeah. And I think actually, Rachel, that the new world should be about sustainability. So any start-up should be thinking about the learnings from the experience we've just had, thinking of the future. And to be a really successful, sustainable business will be all the good elements of ESG.

Ruston Smith: (40:00)
So to bring that together, will be an attractive proposition for a pension fund. Obviously, providing that the idea is good in the first place because we do need to make money.

Rachel Pether: (40:10)
Absolutely. That's true, you need to pay those pensioners because that would probably cause even greater social unrest.

Ruston Smith: (40:19)
Yeah.

Rachel Pether: (40:19)
So we have time for one more question, and my question is: Why do you not have your recent Pension Personality of the Year award up on the bookshelf behind you?

Ruston Smith: (40:28)
So, really simple answer: it hasn't arrived. It's in the post apparently, so I'm very excited. Thank you.

Rachel Pether: (40:39)
Excellent. Well, maybe we'll need to do a follow-up and you can have it in the background.

Rachel Pether: (40:42)
But Ruston, thank you so much, I knew it would be a lot of fun talking to you today. And thank you for your insights and your eternal optimism.

Ruston Smith: (40:51)
Thanks very much indeed Rachel. I hope your finger gets better.

Gert Dijkstra: The Business Case for ESG in Real Estate | SALT Talks #100

“You can invest in a sustainable and responsible way and keep sound returns so you can maximize returns and be sustainable [financially].”

Gert Dijkstra is Senior Managing Director at APG Asset Management, responsible for Global Networks and Peers and for Investing in the Netherlands. Formerly he was Chief Strategy & Communication and member of the Board at APG Asset Management.

More and more, asset management companies are placing an emphasis on investing in socially responsible companies. APG created GRESB, standing for Global Real Estate Sustainable Benchmark, now used by over 180 asset managers. This measures responsible environmental behavior like energy and water reduction. Pension fund management companies are beginning to collaborate in order to streamline the ability to evaluate and monitor institutions’ commitment to key environmental factors like carbon reduction. “We can report on listed companies with regard to their sustainable development goals and results.”

Adherence to ESG commitments involves communication with clients and shareholders. Five-year sustainability goals are set and these standards are weighed along with likelihood of investment returns. 20-30-year targets are also overlaid in building a global portfolio aligned with long-term ESG goals.

LISTEN AND SUBSCRIBE

SPEAKER

Gert Dijkstra.jpeg

Gert Dijkstra

Senior Managing Director

APG Asset Management

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

Rachel Pether: (00:08)
Hi everyone. And welcome back to SALT Talks. My name is Rachel Pether and I'm a Senior Advisor to SkyBridge Capital based in Abu Dhabi, as well as being the MC for SALT, which is a thought leadership forum and networking platform that encompasses business technology and politics. Now SALT Talks, as many of you know, is a series of digital interviews with some of the world's foremost investors, creators and thinkers, and just as we do at our global SALT events, we try to empower really big, important ideas and provide our audience, the windows, the minds, and subject matter experts. Today's focus will not be on the US election. And as our producer, Joe said, "you can think of this as a bit of a palate cleanser from the news for the last few days," but we will be focusing on pension funds, sustainable investing and partnerships. And I'm very excited to be joined by a dear friend of mine, Gert Dijkstra. Gert, is a Senior Managing Director at APG Asset Management.

Rachel Pether: (01:08)
Which is one of the world's largest pension investors. He's been with them for over 12 years and he was a member of the board from 2010 to 2017. He was previously with ABP, which is the pension fund for government and education employees in the Netherlands. Gert studied business management at the University of Copenhagen. And has does further education at [inaudible 00:01:32] NCF/NCA and Harvard Business School. He's also a frequent speaker at high profile events globally, as always, if you have any questions for Gert, please just enter them in the Q&A section of your zoom screen. Gert welcome to SALT Talks.

Gert Dijkstra: (01:49)
Thanks.

Rachel Pether: (01:51)
Now tell me a bit about your background. You're obviously Dutch and you have a very unpronounceable name. So I apologize if I did not get that correctly. But tell me a bit about your personal background and what took you into the world of pension funds investment.

Gert Dijkstra: (02:06)
Yes. Okay. Well, Rachel, thank you very much for this introduction. And the pronunciation of my name was brilliant. Thank you for that. Indeed, I'm Dutch, I'm was born and raised in the Netherlands. And interestingly is that often when, such a question is asked, people start talking about their career and what they're doing and the importance of their firm. But thank you for the opportunity, first of all, for yourself and SALT and SkyBridge for having me. I'm currently in the past several months, working from home and that makes it, well, you might say, we look at a different way to this world and your life. I don't know how you all experienced that, but, several months working from home is interesting and give you food for thoughts. So one of the things I did for instance, is I picked up is play golf, again.

Gert Dijkstra: (03:06)
Instead of commuting for one and half hours from where I live towards my Amsterdam office. I have ample time to try to improve my golf. So that's one interesting thing here, I've learned you can shift your time to interesting things. Next to that, I must admit it's challenging to get used to have just one door between your professional work and your family office. You might say you're working, living with your family. And so often that's interesting to have to get a morning coffee, but it's also challenging to, in the evening, get away from your work and things like that. So my life has changed. As you rightfully mentioned, I studied at University of Copenhagen, did an MBA over there, worked around in consultancy, different consultancy firms for, let's say 10, 15 years doing different things, marketing strategy, [inaudible 00:04:15] M and a.

Gert Dijkstra: (04:15)
And I ended up, one and a half decade ago a bit more than that ,in the investment environment and institutional investment environment for large Dutch pension funds, which gave me an opportunity, to fill in different roles, have different challenges. And... But also to travel around a lot, also driven by having offices in New York, in Hong Kong and since not long ago in Beijing as well. So that's a bit of my life plan and I'm looking forward to the coming season because I am an [inaudible 00:04:55] energetic skier, but currently it's pretty challenging to leave the Netherlands and travel to Austria, for instance, where we often go because of the COVID measurement. It's challenging to plan your ski holiday. So I do hope we mostly go, around Christmas but currently the chances are low that I will be skiing during Christmas. So that's an introduction Rachel.

Rachel Pether: (05:25)
That's a great overview. Thanks so much Gert. And if you've just taken up playing golf, then we should probably have a game, because I'm probably at your level. So it'd be nice to play with someone that's as bad as me.

Gert Dijkstra: (05:35)
Love do to it.

Rachel Pether: (05:38)
But you mentioned your global mandate, and I want to dive into that a bit deeper later on, but the benefit of those in the audience that don't know much about APG Asset Management, Could you give an overview of the company as well?

Gert Dijkstra: (05:54)
Yeah, sure. Love to do that. Well, APG Asset Management, let's start with a bit of history. At one hand, we are very old firm, founded in 1922 when the Dutch government, started a pension fund. So in many years [inaudible 00:06:14] my view it happened nothing until 1996 when the pension was privatized. And then you suddenly see that, there is a broad mandate. You see a lot of new asset classes being introduced, going global. And when I started to run somewhere in 18 years ago, we already were into New York, North America, fixed income, real estate, going into private equity, hedge funds, commodities. So that was a really interesting period of time. In 19- Sorry, in 2009, the Dutch government introduced a new law and the Dutch pension funds has to be split into the pure pension fund and the executing asset manager.

Gert Dijkstra: (07:05)
And that point in time, APG was founded and currently APG Asset Management is the asset manager for four Dutch pension funds of which the civil servant educational pension funds ABP is by far the largest. The second largest one is the pension fund for the building construction industry. And I mentioned those two because they are also next to that they are our biggest clients. They're also our shareholders. So I live in a very interesting environment where my clients are also my shareholders. I maybe touch upon that later. Currently, at least at the start of 2000 to 20, we had around 540 billion euros assets under management. In US dollars, that's around 635 billion, I think. So I mentioned that because that's ranked us in the top 10 of pension funds globally. And I think we are characterized as a global leading, long-term and responsible investment.

Gert Dijkstra: (08:14)
And the responsible part I'd like to elaborate certainly later on. An important characteristic is that we have a large staff, 900 people working for us. So we have a 75% of the assets we have mentioned, we manage internally for the other 25%, obviously we select and monitor external managers. We are an active asset manager in the sense that we don't believe in standard commercial benchmarks, but we do believe being smarter than the market in the long term. Again, I already mentioned 900 people working from the Netherlands from New York, Hong Kong, Beijing. And we embrace typically the responsible and sustainable investment beliefs of our clients and ourselves. So that is, I think in a nutshell, what APG management is.

Rachel Pether: (09:13)
That's a great summary. Thanks Gert. And when we look at the sovereign wealth fund and pension funds world by far two of the largest themes or trends that we're seeing, the move to sustainable investing or the increase sustainable investments, but also the rise of co-investments and club deals between other asset owners. Is this something that you're seeing in Holland and with APG specifically?

Gert Dijkstra: (09:44)
We don't always see it, but we initiate it, I tend to say. It's not a new tendency, you're rightfully mentioned that as an important tendency in the world of large institutional investors. And I remember that I think already 2018, or even earlier, Texas teachers had in their strategy... So Texas teacher pension fund, had their strategy already, [inaudible 00:10:19] property/partnering/partly ordering asset, another part included and there's a beautiful Harvard business case on that. If you like to read more about that, but having said that it's typically a tendency, we already have had in, especially investigative real assets for quite some time, but it also picks up or in other areas. And also from an academic point of view, it's interesting to read some of the work of,[inaudible 00:10:47] as the monk from the Stanford University was privileged quite a lot of it, very interesting and relevant research on networks in the financial sector.

Gert Dijkstra: (10:58)
Having said that, for us we focus on, let's say five pillars, which are part of our asset on the property initiative. And if you look at our strategy, this asset on the [inaudible 00:11:13] property is typically, well needed for, as part of our strategy. The first pillar of that is boosting returns. Typically, if you look at the future, compared to what we could return in the past decade, it is far more challenging to find the same level of return. To find access to an objective yet difficult to implement long-term investments, it's partly is... Well, a very good option. And I think it's interesting example of that is that we collaborate and it's public information. We collaborate intensely in the past year with South Korean funds, NPS, we already did two deals together.

Gert Dijkstra: (12:11)
One toll road [inaudible 00:12:13]in Portugal, a student housing, real estate in Australia and those are typical, examples of too large asset owners collaborating. And this is an example where we talk about two pension funds investors, but you see that we collaborate with several wealth firms. A good example is that we already for long time, together with GIC from Singapore invest together. That's public information as well. But what's new is in the past, let's say two to three years. We talk also with [inaudible 00:12:53] family offices, something I wouldn't have done a decade ago, so everywhere where you see long-term and responsible investors and investment ambitions, large institutional investor find each other. So the first reason to do that is obviously boosting returns. The second important reason to partner with other asset owners is lowering costs.

Gert Dijkstra: (13:21)
So try to find cost-effective in direct investment in for instance, in real asset, but also cost sufficient to deal sourcing or processing and even negotiating fees. You might see as part of the agenda of the cost reduction part of asset owner partnering. Then the third important driver for this standard scene of asset on the partnering is to have more impact, more responsible investments impact. So more control over investments, more increasingly applying all aspects of responsible investing. Let me give you two examples. We were one of the founding members of a benchmark called GRESB G-R-E-S-B. That stands for Global Real Estate Sustainable Benchmark. And that is currently a benchmark used by around 180 asset managers and investors to monitor and report all their real estate investments. And it's typically geared towards reducing energy usage, reducing water usage, things like that.

Gert Dijkstra: (14:42)
As a next step, we also try to develop a lookalike benchmark for infrastructure, which is a bit more challenging. And another example, I'd like to mention to you is a very recent initiative, which we took together with another Dutch pension fund investor called PGGM, but also with Australian pension funds, AustralianSuper, and the Canadians British Columbia, which is an initiative for a... What we call AOPFGI,[inaudible 00:15:15] a platform where we can report, what I'd say, source data and report on listed companies with regard to their sustainable development goals and results. If, for instance, in carbon reduction, that's a new example. So there's typically something we need the partnering with large global investors to set standards in that area. Fourth reason you might say driver for cooperation without a large long term investors is obviously to share ideas on innovation.

Gert Dijkstra: (16:04)
We share our ideas with some of the large investors, sorry, to see whether or not we can jointly, initiative innovative pilots. We do that to go to together with beside parties, but also with cell sites, commercial parties like JPMorgan. We did artificial intelligence pilots with regard to sentiment recognition in the publications of central banks. So basically we don't have enough budget to do it ourselves, but if you share your budget, you can do far more innovative work than when you do it alone. And if you allow me the last fifth and last driver for accepting the partnering, for us is, human talents. What we try to do is to offer, let's say our professionals, which somewhere between mid thirties and mid forties to pick up some experience abroad with one of our peers.

Gert Dijkstra: (17:24)
And there's typically the period in most careers where you're not yet at the highest management level, you have had your university follow-up posts, academic experience, and you're looking for something new. So being able to offer young professionals in that age category to have one year in Japan or Korea or in China or in North America. That is a typically a benefit as well, becoming an attractive employer. So that is more or less the scene behind our ambition to implemented an asset partnering program.

Rachel Pether: (18:14)
I think that all those five points obviously really makes sense. I'd want to pick up on the third one that you spoke about and delve deeper into the impact side. And, ESG becomes such a highly used, or some would say overused acronym and can take on many different forms. Can you maybe just outline how APG actually views sustainable investing? And also I'd like to... You mentioned that your clients are also your shareholders and maybe how that plays into the equation there as well.

Gert Dijkstra: (18:51)
Yeah, well, we'll pick up the last part. Yes, we are obviously very close with our clients because they're our client and shareholders. So if you're talking about target setting and investment beliefs, it's always very dear. You might even say that it's an iterative process where we advise our client, and the client comes back. And so does that [inaudible 00:19:19]. So if you look at our investment beliefs, one important investment belief obviously is that we truly believe, and there is also sufficient economic research for that, that you can invest in a sustainable and responsible way and keep sound returns so you can maximize returns and be sustainable and disposable at the same time. That's a strong belief. And again, we have done some academic-

Gert Dijkstra: (19:51)
In the mean time, we have academic research sufficiently to[inaudible 00:19:55] indepen that belief. So if you try to translate that belief into policy and practice, you might say we have and it differs to be honest on the E environment. Yes, the social and the governance part. But do we have, let's say five parts of our policy, which well, give contents to that belief. First, well, we have a good governance policy. I like to elaborate on a little, we talk about exclusion about inclusion, and that's the most interesting part I like to share with you more elaborate. So say a little development investments and carbon footprint or climate as a theme.

Gert Dijkstra: (20:43)
What's important for us is that we typically start with the targets of our clients. Our client has very clear given us a very clear targets. They already did that for the period in time, 2016, 2020. So basically your question is very well timed because we start with a new set of targets for 2025 and targets for 2055 is in the listed equity environment. 40% carbon footprint reduction in the listed equities, and that's the benchmark is by the way, 2015.

Gert Dijkstra: (21:30)
So that's the baseline, but still challenging. The number two, another example of the targets of... Or really a quantitative target is that we have to invest 50 billion euros in clean, affordable energy, which by the way, is directly related to one of the sustainable development goals for the past agreements, for the specialists that sustainable development goal, number seven, clean and affordable energy. We have to reach that target by 2025. Then an interesting one might be the phase out for coal and tar sense from our portfolio also by 2025 or earlier. And then we have to find the portfolio fully aligned with the past agreement by 2030 and more challenging. And I'm not sure whether or not I will be still an APG Asset Management and net zero ambition portfolio by 2050. So those five very clear quantitative targets drive our policy and investment decision-making.

Gert Dijkstra: (22:46)
And obviously, we can't do that without clients having those type of ambitions. Having said that,[inaudible 00:22:56] adults are actually very challenging to implement that, but that's what we do. And that implies that in each and every investment decision we make, and I gave some examples in the listed of equity, with the same goals for real assets that we make our decision from four angles, obviously from a return angle, obviously from a risk angle, cost angle, but certainly also from the ESG angle. And they all have the same wage for a decision to be made yes or no to a investment proposition. So that's the way we translate, I believe towards targets, towards implementation.

Rachel Pether: (23:48)
That first one that you mentioned Gert, the 40% carbon reduction, do you apply that on a global basis across listed equities? Or how does that work?

Gert Dijkstra: (24:00)
Yes. It's very clear that at the end, it's for the global portfolio and it's a very, very interesting topic you now bring up, because for instance, when I mentioned there is a difference in base between [inaudible 00:24:15] EDA S G. When I take governance in Europe, it is the [inaudible 00:24:22] Anglo SEC's rules you might say, but certainly Europe, we have an increasingly intensive dialogue with the boards of the corporates, the listed corporates in which we invest. To steer them towards a more ESG, if necessary, more ESG like policy.

Gert Dijkstra: (24:46)
We experienced... So we have in Europe, for instance, a focus Europe portfolio equity portfolio with an increasingly, limited number of companies, because it's very labor intensive to have all those [inaudible 00:25:03] islands. So one of the effects you see, is that the number of companies you invest in decreases but at the time invested increases. In China, we now implementing a China focused funds that goes to say a limited number, but you see there that at an E, at environment and social, it works, but governance is quite a new topic for the boards of some of the Chinese listed companies. So there, you have to take more time before you are successful implementing your policy.

Rachel Pether: (25:42)
And we've had a question coming in from the audience. It's similar to a question I was going to ask, but they've actually worded it much better. So I'm going to select their version that said, "why do you think it's often the Dutch and the Scandinavian pension fund is leading the way in ESG and impact investing? Do you think it's a socially driven viewpoint, or is it also tied to the political stance?"

Gert Dijkstra: (26:09)
Well, that's indeed a very good question. And to be... My easy answer would be, I don't know. But when I think about it and often we are challenged to think about it because our Canadian peers often talk to us and call us, the enlightened Europeans that we are obviously very proud, but we'd also... You can also start thinking about why the heck is that... They are doing that, but you're talking about the Scandinavian when one of my dear peers is a Norwegian [inaudible 00:26:41] oil funds. So AND BIM, Norges bank investment managers, and that is typically a fund where there is a strong political connection historically. And I can't imagine that you see they're more political influence than in some of the other pension funds. For the Netherlands, I must say that there is not a strong or any, if you like political connection.

Gert Dijkstra: (27:13)
So then you can come to a discussion about the [inaudible 00:27:19] Anglo-Saxon world and the Rheinland model. So the [inaudible 00:27:22] and the Rheinland model, and when I was at a university [inaudible 00:27:26] in his town of which name you pronounce brilliantly. I was educated with a strong shareholder focus, but looking at my library, I find by all the old books on shareholder value, shareholder value, shareholder value. Still, the Netherlands is at the brink of the Rheinelands and the Rheineland model. So I think we picked up earlier from an academic, maybe full of societal, and maybe even from a political angle. So flavor of the movement early from shareholder towards stakeholder movement and modeling and thinking. And if I look at the board members of my largest clients, so being the Dutch pension funds, they want to be part of the Dutch society.

Gert Dijkstra: (28:20)
They want us to focus on our role in society. So, yes, that's, maybe a bit of no answer, but I do think that if you're in Europe, that might be a bit earlier influence of societal, or if you like stakeholder thinking that it might be in other parts of the globe. What's interesting for me is that we had... We also, here, we have had a fierce discussion some years ago. Was regard to the tension between return focus and which is part of your fiduciary duty or which is rooted in the prudent person rule and whether or not you could broaden your scope towards ESG, so sustainable and responsible investing. And at the moment that there is sufficient academic research and prove that you can do both.

Gert Dijkstra: (29:29)
So being a responsible and a sustainable investor without losing return. That's the solution, that's the way forward. And we had some enlightened CEOs and leaders here at Western Europe who brought us all that route. And I see the same by the way, and some of the same sinking and some of the US-based large venture funds in terms of the Californias,[inaudible 00:30:02], et cetera, who do a pretty much the same thinking as we do. So it's not any more, the enlightened Europeans, I must say. So I am not sure whether or not I answered the question, right, but that's some of my thoughts about it.

Rachel Pether: (30:18)
I think that's very explanatory. And if you do look at the academic research, which shows that sustainable investing actually leads to greater returns, you're doing a fiduciary disservice by not investing sustainably, and you can almost flip that around. You do mention US pension funds, and we've had another question coming in from the audience about that. So I'll address it. And then I have a bit deeper into asset classes, but given that, there are many States employee pension funds in the US that have this large funding gap. Some of them are very heavily underfunded. What do you think can be done the here and what would be your advice or guidance to some of these spaces facing large funding gap issues?

Gert Dijkstra: (31:15)
Yeah, well, I think it's an important question, but at the same time, pretty difficult for me to answer in the sense that I'm curious about the reasons behind the gap. Basically, if you can see what options would, which instruments a pension board has. It's limited. You can say, we can raise the pension premium in, we can lower the pension premium out. We can take more risk in terms of investing, but those are basically the limited instruments the boards of pension funds have. Maybe I can illustrate it by the following. We did some research based on the data our clients gave us that's which gets insight in which part of the premiums paid out were raised by our returns. So if I make it more visible, if you take 100 euro for you, maybe 100 US dollars, but for me, one unit euro, the question was for each 100 euro paid out today to retired fireman or retired teacher, which part is brought up by APGs management.

Gert Dijkstra: (32:54)
So what are the investment returns? And the answer to that question is, well, I'd say very interesting. That's 75 euro. So 75% of the premium paid out are based off investment income. By the way 8 euro is the contribution on average of the employee, 18 euro is the contribution of the employer. And again, 75 is the work we have to do. And I'm not sure whether or not this is the answer but those are the limited options, a pension fund board member has to influence the gap. So that's part of, let's say part one of the answer, part two is there is now a gap. So in a low interest environment, you have to seek for more risky investment opportunities to get an acceptable return for a couple of years or a couple of decades. So what move would forward one way out is to find controlled, but still more risky and more return giving assets, which is a dangerous route.

Gert Dijkstra: (34:22)
But if you don't go that road, it will be extremely difficult to bridge that gap. Obviously, the other one is to cut the bench of premiums paid hours, which is not favorable for society is well, in many senses, it's not a good way to move forward. And obviously the other one is to raise the pension premium page at this moment by their employees. And what we also did is currently with some of the pension funds in the Netherlands, the participants already pay, one day per week of their salary in the pension fund. So we're up 20%. So that's extremely high, extremely high. So in the Netherlands, it's for some of the pension funds, extremely difficult to use that instrument to keep the coverage ratio at a sound level.

Rachel Pether: (35:28)
Yeah. And I think that well, if you suddenly change the amount that you pay out, as you said, it has a whole lot of social implications and relationships either.[inaudible 00:35:37] method as a last resort.

Gert Dijkstra: (35:39)
The good news is, what we have here at Netherlands, I know you know our model. We have the three pillar model where the first pillar obviously is that somebody was working and living in the Netherlands becomes 67 currently, gets a state pension. We don't interfere with that. Then the second pillar is typically our market segment where somebody who is working in the Netherlands on a mandatory basis becomes participant of a pension fund, an industry pension funds. And then when he or she becomes 67, that is paid out as well. And the third pillar obviously, is that you can arrange your individual pension scheme. And that's a market segment where mostly here, the insurance companies are active.

Rachel Pether: (36:33)
And did you know, just quick facts for you that in Birmingham you can retire at age 49 after 15 years. So, as you can imagine, there's quite a difference in the pension model there. We had a whole host of other audience questions coming in. One is, I know you spoke about the public equities and how you look at that, but there's a question that's come in, it's got a few parts to it. Firstly, is how are your policies implemented outside of public equities for example in the private equity and venture capital space. And then the second part, do you invest across the board or you prefer early stage innovation versus much late stage, or do you prefer any sectors or industries as long as they meet those as five pillars that you spoke about previously?

Gert Dijkstra: (37:23)
Yep. Let me first take the last one. Typically pension funds we love long-term predictable cash flows. That's because we have to deal with the liability of our clients. So our clients liabilities. And so the cash flow out is pretty predictable. And so we love long-term predictable cash flows by preferably with a bit of inflation compensation in it. So that's why we invest in [inaudible 00:37:56]. That's why we invest in some of the energy related to industries. Having said that, that was in all the good old days because those markets have become very competitive. So to be positioned, ideally for those long-term cash flows. So for what we call the brownfields, we've moved towards Greenfield, and we have already some mandates from our clients where we can fully invest in venture early stage.

Gert Dijkstra: (38:39)
But still in terms of size it's not that large. So yes, we are moving towards earliest stage in terms of investing, but at the end, we still love our long term predictable let's say brownfield cash flows. So yes, we moved to greenfield. Another important thing is not only in investing, but also in, you might say a behavior or governance. What we did... What we not did, let's say a decade ago was to interfere with project developers, intiaters innovators, and typically in the past years, we moved towards also what you might say, the life cycle value chain in early stage, where we together was entrepreneurs develop, their projects. And if you allow me, two or two examples, one is if you, I would... Rachel, I would advise you when you go and when, come in London again, go visit the Westfield shopping mall.

Gert Dijkstra: (39:47)
That's typically, just parked near the Olympic stadium. It's a beautiful market shopping mall. We already set at the table together with the project developer where there were still the old industry buildings. So that was a very early stage, the same goes for a hotel chain, which started in the Netherlands, by the way, it's called [inaudible 00:40:08]. It's a very easy to go hotel chain. And the same goes there, we started in a very early stage there and that two illustrations of actions we wouldn't have done 15 years ago, 10 years ago, maybe, but we are now trying to position us as a... Well investor for the longterm, but to be... To make that long term interesting, we started early. So that's part one of the answer. The other question was about, yes, you can implement your sustainable, responsible investing policy, in listed equities, but how do you deal with, for instance, private equity or venture capital?

Gert Dijkstra: (41:00)
We have a pretty large private equity portfolio around 20 billion euros. And most of them or maybe all of them are funds, are co-investments secondaries. So we always have to deal with private equity, with GPs, with general partners, and we have to convince them that we really love them, but they need to implement our ideas of sustainable, responsible investing. And that's challenging so the question is absolutely spot on because that's a challenging part, especially in an era where there's so much money available for real assets, for private equity, for venture capital. So at the one hand, you want to be an LLP, in the top core title, GP league and on the other hand you want to negotiate that's the private equity firms start implementing, or at least living up to your sustainable and responsible investing principles.

Gert Dijkstra: (42:08)
The good news is many of the large private equity and top core title, private equity firms have adopted, in the mean time similar responsible investing policies using more or less the same responsible investing criteria. But I think the truth is, it was and still is challenging to get the right level of transparency, the right level of attention for those aspects. So the honest answer is yes, some of the asset classes are easier than the others and private equity is not always easy to get your ambitions in terms of sustainability and responsible investing, implementing, but it's... You need to have a permanent dialogue with those private equity firms and one step forward, I know that in some cases, private equity firms said, no, thank you. We don't want your money because it's too challenging, et cetera. So yes, that's a really a challenge. Good question.

Rachel Pether: (43:27)
Yeah. And I guess with your size, 635 billion having to deploy so much capital, you're already shrinking your investible universe a little bit there as well. It's a lot of money to put to work. We've only got time... we are actually over time, but I'm going to ask one more question from Sebastian Javadi and thank you, Sebastian, because he's a great SALT Talk supporter, but he said, "how do you balance the need to invest in companies that are responsible on the carbon side versus companies that aren't carbon responsible, but are critical to the functioning of our economy." And the example that he gives is, flying appliance for instance, is another carbon friendly activity, but critical for the functioning of our global economy, or maybe not so much in the last few months from the passengers' statement. How do you sort of balance out that tension between, well, necessity or the economy.

Gert Dijkstra: (44:31)
Sebastian great question. And typically a great illustration of one of the dilemmas you encounter, where you have an ambitious, responsible, sustainable investing year that's when policy and tried to implement it. You're typically... Well typically, well, get... I see my colleagues wrestling with those type of dilemmas. And the way out obviously is to start and maintain dialogue with the boards of those companies and try in time to move them towards a situation where they fit into your policy. And maybe, I don't know whether or not we have much time, Rachel but just let me briefly explain our inclusion policy.

Gert Dijkstra: (45:25)
We only invest in companies after a few steps. The first step is to assess whether or not they are a front runner or a [inaudible 00:45:39] in terms of sustainable and development, entrepreneurship. If they are in the front line, then you look at the return options, et cetera. And that it comes into the portfolio. Is there [inaudible 00:45:56]? Those are the most interesting. Applies most on Sebastian question I guess, with your leg art, you have two options, if you see that there is an interesting return perspective, you might say, okay, they are possibly, they are potentially part of the portfolio, but we have to start a dialogue. If the return perspective is negative, these typically are not in your portfolio. So there you see the mechanism we apply, but that is a bit of a technocratic answer on a very, very deep dilemma we encounter every now and then so Sebastian, Thank you very much for the question. It's spot on.

Rachel Pether: (46:35)
No, I think that's a great answer and if it's a case of a [inaudible 00:46:40] and that's an opportunity for you as well, isn't it? As long as the willingness as you say, is there from the actual company to improve. I do just want to ask, I know I said it was the last question, but I do just want to ask, one last question I had about a dozen questions that we didn't get to, and we didn't talk about the elections. I'm happy about that too, but how do you see the post-crisis world and the role of the responsible institutional investor within that?

Gert Dijkstra: (47:15)
Well given that, that's a beautiful last question, which I can, well spend an hour, but you want me to give a brief answer. I still like to have two or three perspective, number one is from a geographical point of view. We guess that, if you look at the three large economic blocks, starting with US. It might be the case that US comes out of the Corona crisis less dominance, partly because there's a division between the States, which is very visible and became even more visible, I guess, during the COVID crisis, Corona crisis. And there is a very strong market and individual orientation. So that might be the big round of US being a less dominance. You have to see that in relation to the second economic block, being China, and although China might come out and be stronger.

Gert Dijkstra: (48:19)
Typically, they cannot take over the leading role globally. The Country is not sufficiently trusted yet at a global stage. And there is evidence sufficiently for that. And then Europe, my own environments. What I see is that Europe is populous divided, and we have to get our act together in decision-making before European union can become a relevant, really relevant part on the global stage. And that is not the case yet. Although I must say that, recently we had a European Green Belt issue, which forced the different countries to work together. And that's a very interesting signal I'd say. So that's perspective number one, if you'll allow me, the second one, that's technology because we do see that the crisis, the COVID crisis might reinforce technological trends in which you can see that US and China have far more stronger technology sectors than Europe.

Gert Dijkstra: (49:34)
Let me illustrate that with the one third of the engineers globally, live in China. So that is a potential source for innovation, which is great. Then you might say that some of the industries like pharmacy and biotech will continue to grow, maybe boost even. Mass entertainment, we think to take a hit over digital individual entertainment. What I will say obviously is that the tourist industry might come out quite differently then when we started the investment company. My last three remarks on the COVID crisis, is one; What we see is that's not necessarily the US dollar will stay the only reserve currency, the midterm or long term, you might even say, it's not inconceivable that interest rates and inflation will take a different path and start to rise sharply. And what other consideration might be that perhaps it will be a turnaround in the popularity of illiquid investments and listed markets being more transparent and being more digital might be re-assessed and being for large institutional investors before will be more relevant and interesting. Well, let's keep it there.

Rachel Pether: (51:16)
Thank you so much Gert for summarizing what could have been an hour answer about three and a half minutes. That was very impressive. And we're slightly over time, but I just wanted to say thank you so much for your really thoughtful and in-depth answers and providing such a great window into APG Asset Management and yourself as well. So thanks very much again.

Gert Dijkstra: (51:37)
Good. Thank you, Rachel. Always great to have a dialogue with you. Thanks.

Governor Cuomo: Getting Control of the COVID-19 Pandemic | SALT Talks #99

“You know, the choice between the economy and public health was never a choice… You can't get the economy going until you solve the public health riddle.”

Andrew M. Cuomo is the 56th Governor of New York, having assumed office on January 1, 2011. Governor Cuomo is the Dean of the nation’s Democratic Governors, and currently serves as Chairman of the National Governors Association. Prior to his election as Governor, Cuomo served as the 64th Attorney General of New York. From 1997-2001, Cuomo served as the 11th United States Secretary of Housing and Urban Development under President Bill Clinton.

A deeply divided and polarized nation has presented unique challenges in getting control of the COVID-19 pandemic. Large swaths of the population will refuse to abide by guidance or direction simply because of their dislike and distrust of the political party delivering the message. These issues were exacerbated by President Trumps denial of the facts where he intentionally downplayed the seriousness of the virus. “It was just total government incompetence. It was a denial, in that the President now admits he lied about it… He was afraid that if they knew the truth it would hurt the economy.”

The Biden administration must put almost all of their focus into getting COVID under control and administering the vaccine coupled with stimulus aid to people and states. In the meantime, effective public messaging can allow economies to function while maintaining safe protocols to limit COVID spread.

LISTEN AND SUBSCRIBE

SPEAKER

Andrew M. Cuomo.jpg

Andrew Cuomo

56th Governor of the State of New York

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darsie: (00:07)
Hello, everyone and welcome back to SALT Talks. My name is John Darsie. I'm the managing director of SALT, which is a global thought leadership Forum and networking platform at the intersection of finance, technology and public policy. SALT Talks are a digital interview series that we launched during this work from home period with leading investors, creators and thinkers.

John Darsie: (00:29)
And what we're really trying to do during these SALT Talks is replicate the experience that we provide in our global conference series, the SALT Conference, which we host bi-annually in the United States and across the world. And what we're trying to do with those conferences, is to provide our audience a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future.

John Darsie: (00:52)
And today, we're very excited to welcome Governor Andrew Cuomo to SALT Talks. And we're very grateful for Governor Cuomo's time during a very interesting time taking place in the country. Governor Cuomo is the 56th Governor of the State of New York. As governor, he's fought for social, racial and economic justice for all New Yorkers. Under his leadership, New York passed marriage equality, a $15 minimum wage, the strongest paid family leave program in the country, the strongest gun safety laws in the country, equal rights for women, greater protections for immigrants, the largest investment in education in state history. He cut taxes for the middle class, he implemented a 2% property tax cap. He put more New Yorkers to work than ever before and became the first state in the nation to offer free college tuition for middle class families.

John Darsie: (01:41)
Now, growing up in Queens, Governor Cuomo learned the reality of the middle-class, working-class struggle. He graduated from Fordham University in the Bronx in 1979, and received his law degree from Albany Law School in 1982. After law school, Governor Cuomo headed the transition committee for then Governor-elect Mario Cuomo and served as an advisor to the governor while taking a salary of $1 per year.

John Darsie: (02:07)
At the age of 28 he founded the housing enterprise for the less privileged, a not for profit that set a national model for serving the homeless. And after the 1996 election, President Clinton appointed Governor Cuomo to serve as the Housing and Urban Development secretary. And in 2006, Governor Cuomo was elected New York State Attorney General. In November of 2018 Governor Cuomo was reelected as governor with the largest number of votes any governor has received in both the primary and the general election. Governor Cuomo is also the proud father of three girls, Mariah, Cala, and Michaela.

John Darsie: (02:43)
Just a reminder for you, if you have any questions during today's talk, you can enter them in the Q&A box at the bottom of your video screen. We're also going to turn it over to Anthony Scaramucci, who is the founder and managing partner of Skybridge Capital, a global alternative investment firm. Anthony is the chairman of SALT. And with that, I'll turn it over to Anthony for the interview.

Anthony Scaramucci: (03:03)
Hey, John. Thank you, Governor Cuomo. Thank you for joining SALT Talk. Before we get started, I just want to hold up your book, American Crisis: Leadership Lessons from the COVID-19 Pandemic. I read this book over the last weekend governor it's an exceptional read. I encourage people to read the book if they want to learn about COVID-19, the things that we didn't know in the beginning, the things that we've learned that also some of the things that you did here in New York to keep us safe, which my family and families around New York are very grateful to you.

Anthony Scaramucci: (03:34)
And so I just want to hold that book up and recommend it to everybody. Governor Cuomo, thank you for writing it. I want to dig into something that I think you would appreciate, because we're contemporaries in a lot of ways in terms of the way we grew up. You grew up in a middle-class family and Queens. My dad was a crane operator out here in Port Washington. You and I both know Ken Langone built a monument to those immigrants out here who mined sand in middle class Port Washington.

Anthony Scaramucci: (04:03)
And I was looking through my photos. There's a photo of you, me and your mom and dad from a few years ago and my wife Deirdre. And as I was looking at the photo is thinking of that older generation, Governor Cuomo. Tell us a little bit about that life experience. I remember the accordion, I remember the bocce balls. I remember the traditional Sunday meals, I remember getting smacked with a wooden spoon, tomato paste cans getting thrown at me, but not necessarily from my mother. It could have been from my aunt or somebody down the block. And my mother was like, "No problem. Hit him with the tomato paste can." And so I was just wondering if you could regale us a little bit with your upbringing, and how it had a big impact on you in your professional pursuits.

Governor Andrew Cuomo: (04:46)
Thank you, first, Anthony. It's good to be with you. I've been an admirer of yours for many, many years. I want to just give you a caution at the beginning of this. I'm not the other Cuomo who you talked to who loves those soft balls, that vague conceptual discussion. I'm a more rigorous substantive better athlete, better looking in general Cuomo.

Anthony Scaramucci: (05:15)
And by the way, Governor I don't have the Cuomo nose, so there's no way I could bring a swab like that on to set. Okay, look at this nose. Okay. Every Italian wants this nose Andrew. Go ahead, keep going, keep going.

Governor Andrew Cuomo: (05:28)
How nasty, my own brother, how nasty. Look, we are a product of the socialization, where we grow up. And my upbringing was like yours. Queens, middle class. My father doesn't become governor until I'm in my 20s. So he was just a middle class, working lawyer. The Italian tradition was much like, I think any immigrant tradition now. They were conservative, they had to work hard. It was about family. It was about discipline. It was about faith.

Governor Andrew Cuomo: (06:04)
They made sure the children knew the fundamental values. I worked every job there was, I had to pay my way through college, pay my way through law school. I was a tow truck driver, I was a landscaper, I was a security guard. You name it. I did it. Summers, you worked. We didn't get on a plane and go to Europe. There was no summer home. And I think that was very helpful, in retrospect, it was tough going through it. And the discipline was tough. But they were right. They were fundamentally right at the end of the day.

Governor Andrew Cuomo: (06:44)
It is about education. It is about respect, it is about law and order. It is about respecting police. They were right. And this country gave them a gift and they maximized the gift. And they loved the country for it. My grandfather, I was named for him, Andrea. I'm working now, you can appreciate this. My father's father was a small grocery store owner. And on the side, he did masonry and he would put ornaments in the front of the house. And he made this little stone castle with stones from Jones Beach, he would go along Jones Beach and pick the nice white stones, and he made this little cement castle about five feet high.

Governor Andrew Cuomo: (07:35)
And I have it now, it must be 100 years old and I'm rebuilding it with my daughters. No I'm not half the artists my grandfather was but just to give you a sense of that kind of transition and how we have to stay with it. So I'm very proud of it. Also Queens, Nassau, where you work. It was diverse. It was, you grew up with Jewish people, Irish people, Asian people. That was also very helpful. It broke down all of these stereotypes and differences. You went to school with different people you grew up with, you played with different people. So it took down the fear level of differences, which I think is so resonant in this nation now.

Anthony Scaramucci: (08:23)
Well, listen, we agree on that. And I've had my tussles with the president, this whole notion of low income housing not being in the suburbs. And Governor, I can tell you, those people that I grew up with, we were surrounded by low income housing. Many of those people went on to live the American dream, created great companies, great jobs. And we learn more in an environment like that our differences are really not differences. Once you see each other you see the commonality of each other.

Anthony Scaramucci: (08:51)
I want to go to the book for a second because I really enjoyed the book. It's a quick read, by the way, again, I'm going to encourage everybody to read it. But why did you feel compelled to write it at this moment, you had a lot on your plate, you gave some of the more masterful press conferences, which were really eye-opening to people and I think you've reduced anxiety. And you mentioned in the book, which I'm going to mention, everybody bringing down the fear, opening up the communication makes people more protected from the disease, but also gets them more comfortable so that they can expand back into their normal lifestyles. Tell us why you wrote it and tell us what people should learn from it.

Governor Andrew Cuomo: (09:30)
Yeah, I wrote it for two reasons, Anthony, first, because we still don't know what the heck we're doing with COVID. I mean, we're eight months into this. The numbers in many states are worse than ever. This is something that we should have been able to deal with. This is government incompetence, meets denial, meets division, national division.

Governor Andrew Cuomo: (10:02)
The government was incompetent. I mean, how can you be the United States of America, you can't find masks and gowns. And you can't make Q-tips which is the nasal swabs for the covid test. It was just total government incompetence. It was a denial, in that the President now admits he lied about it. He just decided to tell the American people everything was fine. Don't worry about it. He was afraid that if they knew the truth it would hurt the economy. It was totally implausible. It was a virus, you don't think they're going to figure out that there's a virus when they see people dying.

Governor Andrew Cuomo: (10:43)
But that was his strategy. He thinks he's a PR maven. And that he can sell anything. Yeah, but at one point, the truth catches up to you, and the truth caught up to him. And then it's a function of the division. Because we're so politicized, we're so polarized that we define ourselves by opposition. If you say "Wear a mask." "I'm not going to wear a mask, just because you said wear a mask." If you say, "It's a problem." "I'm going to say it's not a problem, just because you said it."

Governor Andrew Cuomo: (11:22)
I mean, look at where we are with this election, it's 50/50 a more polarized nation you've never seen. Polarized to our own demise. I mean, this is like a family fighting with themselves in the household. And half the family is going to oppose whatever the other half of the family says. I also wrote it because I wanted to make sure I didn't miss anything. I was going day to day with such a frenzy so little sleep. I wanted to rerun the tape to make sure I didn't miss anything.

Anthony Scaramucci: (12:03)
Makes sense.

Governor Andrew Cuomo: (12:03)
So it gave me an opportunity to go day by day.

Anthony Scaramucci: (12:08)
Well, we're at 230,000, unfortunately, confirmed deaths, there's over 9 million confirmed cases. New York, stable, although the infection rate is up in New York a little because it's deeply up in the rest of the country. But again, I want to thank you on behalf of New York for helping us get this thing under control, making us safer. But what do we do now? What do you recommend in the midst of this large surge of infection, governor, how can we get the virus under control?

Governor Andrew Cuomo: (12:39)
Yeah, let me make one quick point before. Just to make the point of the incompetence. cOVID-19 came out of the blue, baloney. We had SARS in 2002.

Anthony Scaramucci: (12:54)
Yeah, you mentioned that in the book.

Governor Andrew Cuomo: (12:56)
Dengue, Zika, MERS in 2012, SARS, MERS, and COVID. All coronaviruses, all came from China. All came from the wet markets in China, what they call zootropic viruses, came from an animal transfer to human beings. China lied about all three, the World Health Organization missed all three. We never solved any of them. We had plenty of warnings. We were just in denial and brother denial does not work, in government, in business and life. You normally see the problem before it comes and overtakes you. Right you see the wave building as you're standing on the beach. So we just totally blew it.

Governor Andrew Cuomo: (13:50)
It hit New York so hard, because the President was saying China virus, China virus, China virus, the virus had moved to Europe, and was in Europe for three months. And we're taking flights from Europe every day. And Italians and French and Spaniards and Brits were bringing COVID to New York and nobody told us. I mean, it was a if you wrote a movie people would say was implausible that the United States was that incompetent.

Governor Andrew Cuomo: (14:22)
Where we are now is yes, the infection rate is going up. New York State, remarkably, had the highest infection rate in the United States of America. We're now the third lowest, only Maine and Vermont have a lower infection rate. And Maine and Vermont, great states, great governors, but they don't have the density we have, they're more rural states. So it goes Maine, Vermont, New York in terms of infection rate.

Governor Andrew Cuomo: (14:50)
What we're doing is I test like a madman, because I want to know the data. I'm tired of the politics. I'm tired of the anecdotal. Give me the data. And we test about 120,000 tests a day, more than any statements. We test to such a level that I can tell you what neighborhood has an outbreak. It gets as tight as two miles in Port Washington has an outbreak.

Governor Andrew Cuomo: (15:22)
And then we focus on that micro area, we call them micro-clusters. And we lock down that area with restrictions, bars, restaurants, etc. But only in a two mile area. So you're not affecting the economy overall. But you are controlling the virus, we're controlling the virus better than any other state. But when you see a little flame, you're chasing... I feel like I'm looking at a field of dry grass. And embers are flying. And the only strategy is when you see an ember land and start to smoke, run over there and stamp it out. And then look at the other end of the field and stamp it out. So we're doing these very limited close downs in very limited areas. Otherwise, our economy is open.

Anthony Scaramucci: (16:22)
Well talk about that decision making. Because you've made a very good case for the logarithmic, rational decision making to create that intersection between clamping down the virus, stopping it, but not stagnating the economy. And also talk about the schools, if you don't mind. I have two young children in the public school system. And just let us into your thought process and how you interacted with health and public safety officials and making this stuff work for the state.

Governor Andrew Cuomo: (16:54)
You know, the choice between the economy and public health was never a choice. You would say, the President would say Republicans would say, let the private market decide. The private market is deciding. What the private market is saying, what consumers are saying is, "I don't feel comfortable going into a theater and sitting next to someone." If I said today, we have limited restriction on restaurants. If I said "100% of the restaurants are open, go ahead. Nobody would go." If I said "Broadway was open, go see a play today. Tickets are free." They would not fill the theater. You can't get the economy going until you solve the public health riddle.

Anthony Scaramucci: (17:48)
No question

Governor Andrew Cuomo: (17:48)
Because people get it. And the federal government made it a binary choice, it was never a binary choice. So ironically, to the extent New Yorkers feel more comfortable about the virus, and they know we have a low infection rate, and they know we are smart and aggressive on it, it has actually facilitated the opening of the economy. And what I do is we have so much data Anthony, I can tell you day to day, what the infection rate is doing where. And then rather than open close, if I have to I make a minor modification. I slow down in a very small area, which is frankly, from the state's point of view, it's such a small area, literally, we have like three neighborhoods now that we're slowing down. But the economy is open. There are some restrictions, but the restrictions are not what's stopping people. It's the consumer choice. People have decided what they're comfortable with. And that's what they're doing. And that's what they're going to continue to do.

Anthony Scaramucci: (19:06)
Makes sense governor and this a great part of your book, and so I want you to address it. You're in the fog of war, in the beginning parts you know hardly anything, you're open to that, then you're learning stuff. So now you're making this adaptation and pivot, which we all have to do as entrepreneurs, you have an entrepreneurial governing style. So therefore, if you had to look back governor and say, "Okay, this is what we got. This is what we got wrong. This is what we need to be thinking about, God forbid for the next pandemic." What would be some of those things as you're making the evaluation analysis, you more or less addressed it in the book, but I'd like you to expound on it a little bit.

Governor Andrew Cuomo: (19:46)
What we got wrong. The virus was coming here for three months and we never know. And I was listening to the federal government and that was a mistake. We were told the spread was only if people had symptoms, when they cough, when they sneeze, etc. Three months later, they say that was wrong, asymptomatic spread. That was a terrible mistake. Because then we weren't testing people who didn't show symptoms. And people who didn't show symptoms were showing up at work, showing up in nursing homes. That's how it came into nursing homes.

Governor Andrew Cuomo: (20:26)
Staff that didn't know they were sick, and they went into nursing homes. We were told that you could get it from a surface, surface transmission. So I disinfected all the subways and all the buses, never been done before, millions of dollars. Then we're told it's not surface transmission. What should we have learned? We have no health screening at our airports. They stop you if you bring in a bag of fruit, but you can walk in with a virus and there's no screening whatsoever.

Anthony Scaramucci: (21:05)
But they do have that screening at airports around the world. You and I have both seen that in different... Yes. Right.

Governor Andrew Cuomo: (21:10)
Yes. Only we don't have it. There is no ready test. We had no testing that we could have at the airport. We couldn't even make the tests. We couldn't make any of the medical equipment, we didn't have any stockpile. We didn't have any staff that we could deploy. We talk about Homeland Security, after 9/11. We put together this whole mechanism. Yeah, except you have no public health, national security.

Governor Andrew Cuomo: (21:41)
I'll tell you a great irony. When I'm in the president's cabinet under Clinton, they give the cabinet a briefing, God forbid you become president because there's a war and they send you down to the war room, one of the top terrorist threats, the supposed release of an airborne virus, which would create panic. The terrorist threat was they didn't even have an airborne virus. But it was so scary that if they could publicize the threat, you would create panic and chaos. And that itself would become destructive.

Anthony Scaramucci: (22:21)
Of course.

Governor Andrew Cuomo: (22:22)
We weren't even prepared for that.

Anthony Scaramucci: (22:27)
Governor. During the height of the crisis here, obviously, the crisis hasn't gone away. I'm not making light of where we are today. But it seemed like March and April, was sort of the apex for New York at least. And I hope it will be the permanent apex. And you had to work with the federal government, you had to interact with President Trump and you had to build a bipartisan understanding. And so talk a little bit about that, because we have tremendous partisan rancor in our country. And yet you were able to do things for New York with the federal government from the opposition party. How did you do it? How did you go about it? What are some of the recommendations you have for your fellow citizens in terms of dealing with that rancor?

Governor Andrew Cuomo: (23:12)
Yeah, first dealing with the President. You're right. We have great polarization in the nation. And that's one of the main problems, I think that we have, period. It's pervasive. I didn't have a bipartisan problem with the President. I had a Republican Senate for eight years. I got a lot done with the Republican Senate. I don't see it as politics. I see it as dealing with people. You're a Republican. If I had a backdrop, yours says salt, mine would say pepper. So we're not supposed to get along.

Anthony Scaramucci: (23:49)
No, no, sir. Yours actually couldn't say pepper because I own pepper. I thought somebody was going to do that to me. Gov. So I went out and bought thePepperConference.com. Just want to make sure you know that.

Governor Andrew Cuomo: (24:00)
Oh, because I was going to hold up my own...

Anthony Scaramucci: (24:06)
Which is good to know, I'm going to sue you for patent infringement. There you go.

Governor Andrew Cuomo: (24:09)
But, look, you and I are reasonable people. And we have issues that we differ on. But we have issues we can talk, we can communicate. The President, I had opposed on many of his policies since he became president. I knew him before that, by the way. He was a supporter of mine. He contributed to me, I knew his family, they contributed to me. He becomes president. He moves very far right, which he had to in the presidential. And then it's almost like he became an apostle of it.

Governor Andrew Cuomo: (24:47)
I had fought with him as governor, we get to COVID. I called him up. I said, "Look, forget all that. It's a new day. It's a new moment. We have to work together. This is an historic moment in this country. It's going to be your legacy. It's going to be my legacy. Let's do this together. We happen to have the worst problem in the country because of that ambush from Europe. And all those European flights are landing at JFK, etc." The problem was not politics. He is an impossible human being to deal with. And I'm in the business of dealing with human beings.

Anthony Scaramucci: (25:22)
I didn't know that Andrew, I only got a shot out of a cannon. And we've got a whole time limit, 11 days named after my last name, but that's fine. But I didn't know that. But go ahead, keep going.

Governor Andrew Cuomo: (25:33)
He really is impossible. Now, it's interesting, because the extreme personalities, and you know this from your business, are normally in some ways easier to deal with. A narcissist is almost the easiest to deal with. If you get yourself out of your head, and you're just trying to communicate with the other person, and you're seeing it through their way.

Governor Andrew Cuomo: (25:58)
So in some ways, he was easy, because he is a classic narcissist. And he needed to be applauded, he needed to get credit, he needed to be... You had to genuflect. "Oh, thank you, thank you, thank you. If it wasn't for the president." I did all that. But he is really unreasonable, almost to the point of a disorder. And at one point, he was in such denial of the virus, that we just were at loggerheads because I was saying, "We can't deny it, I have people dying. I can't keep praising you when you are in denial." And eventually it just didn't work.

Anthony Scaramucci: (26:50)
Well, and now he has his legacy. And it's an interesting situation that we're living with right now. There may be a Biden administration coming. And I'm sort of thinking that there's going to be, in fact, I would just tell everybody on this SALT Cast that at least the prediction markets have it at 92%. So let's for this sake of this question, you're a policy adviser to Vice President Biden, who's now the president elect, what would be some of the priorities that you would want to have in the first 100 days? What would you advise him?

Governor Andrew Cuomo: (27:26)
Do I get four?

Anthony Scaramucci: (27:28)
Yeah, anything you want?

Governor Andrew Cuomo: (27:29)
COVID, COVID, COVID, economic stimulus, we have to get COVID under control. We don't get COVID under control, we don't get that vaccine right, nothing else matters. You're not going to erase fear just because you say the economy's open, go back to work, it's not going to happen. We have to really deal with COVID. And we have to be smart. And we have to deal with it as a nation. This whole theory of 50 states handle it on their own. It's bizarre, this is a national pandemic.

Governor Andrew Cuomo: (28:08)
I've never heard of delegating it to 50 states, how do I deal with the virus, I have my virus under control. I have New Jersey up, Connecticut up, Massachusetts up, they're all coming into my state. It's like trying to control a virus in your home when people are walking in and out. So we have to get COVID right. And we have to get serious about it. And that's going to be a whole reboot of COVID. The vaccine has to be right. They have no [crosstalk 00:28:37]-

Anthony Scaramucci: (28:37)
Can I stop you one second governor? Do you believe what the Vice President said in one of the debates? He said, "I want to stop the virus, but not stop the economy." So do you believe that we could do that without having a work stoppage or a closure like was going on in the United Kingdom? Or do you think that has to come together for a period of time?

Governor Andrew Cuomo: (28:57)
If you're smart, you can do it. That's what we're doing in New York. It's the testing. And it's the data. How do you run your business, you run your business on data.

Anthony Scaramucci: (29:09)
Correct.

Governor Andrew Cuomo: (29:10)
I get 120,000 tests a day, I get a map of the state and where the 120,000 cases are. And I look at the clusters and I attack the clusters. But you have to have that data. To have that data, you have to have accepted the concept that COVID is an issue. Why am I doing more testing than any other state? Because many of these other states follow Trump's logic. Don't test because if you don't test you won't see the cases. What does that mean? On that theory don't arrest anyone and you have no crime rate?

Anthony Scaramucci: (29:55)
Well, because governor as we both know, they're using it as a political tool. They're suggesting... He said more than once last week, "Well, on November 4, you won't ever hear of COVID again." And he's suggesting to people "Don't wear the mask. And come to my super-spreader events because it's a hoax." Is more or less is how he said it.

Anthony Scaramucci: (30:13)
Now, he'll claim that he was attacking the media, but go look at his statements he more or less believes that. So I guess my question is how do you and you did some of this in your speech, you gave a very rousing, empathic speech at the DNC over the summer. How do you effectively engage the other half of the country that actually believes President Trump that it is a hoax? Or is that something to be taking seriously? How do you put those two together? Because you and I both know, if we don't do that, you're not going to be able to tamp it down properly.

Governor Andrew Cuomo: (30:45)
It's a relationship that has to be restored. And I'll tell you why I think Biden is the right guy. I don't believe Trump created the divisions. I don't. I don't think he's that impactful. I think he sensed the division. And then he played to the division because he's fundamentally a marketing guy.

Governor Andrew Cuomo: (31:09)
We know him from New York. He was never a businessman. He was never a builder. He's a marketer. He saw the anti-semitism, he saw the racism, he saw the fear of the immigrants. He saw the controversy around guns. He saw the controversy around abortion. And he divide and conquer, the oldest strategy, divide and conquer. He saw a crack, he put a wedge in that crack, and he hammered that crack, and he exploded the crack. And then he polarized the crack by saying black and white, COVID, no COVID, everything was binary.

Governor Andrew Cuomo: (31:55)
People get that at one point there are facts. 237,000 people are dead. That's a fact. People know people who died. That's a fact. I think Biden is going to be the turning point, to stop us from focusing on differences. And for stopping definition by opposition to focusing on the commonality. It's a virus, you had a virus, you know how to treat a virus, when your kid has a virus in your house you know what to do? The kid stays in the bed. You tell your other children don't go into that room. She stays in the bed until she's better. And don't let her get out of the bed too soon.

Governor Andrew Cuomo: (32:44)
I think there's a common sense to this, that Biden can communicate to people. It won't happen overnight. But there are things that he can do immediately, mandate that government tests. Because I hate to keep coming back to this, Anthony. But if you don't know, what in your portfolio is the low performing stocks, you don't know how to manage the portfolio. How can you manage a virus if you don't know where it is, which is right where we are in this country now.

Anthony Scaramucci: (33:20)
No listen, it makes sense. I want to shift gears [inaudible 00:33:23]. A few last questions, Governor. I want to shift gears to something I heard you say, and you address it a little bit in the book, but I've heard you say it in your press conferences. There's a difference between a peaceful protest and let's call it violent looting. I think that was actually your exact words. And I want you to tell us, the synthesis of your decision making about federal and local law enforcement, and how to make the majority of the citizens of New York, New York State, New York City feel safe when there's racial tension and there's flare ups like after what happened unfortunately, with the very tragic incident with George Floyd.

Governor Andrew Cuomo: (34:05)
Public safety is job one Anthony, public safety is job one. In your business integrity is job one. You can go up you can go down but it's integrity [crosstalk 00:34:17].

Anthony Scaramucci: (34:16)
We agree on that, 100%.

Governor Andrew Cuomo: (34:19)
In my job, it's public safety is job one. There is a difference between peaceful protest. This is America. God bless people do it to me every day. If there's not a crowd in front of my house arguing about something, then something's wrong. Peaceful protest is one thing. crime is crime. And crime, go back to the Italian, zero tolerance for crime. And you have people... It's actually interesting, you're can have a peaceful protest. You then have people come and like hijack that protest or use the protest to commit crimes.

Governor Andrew Cuomo: (35:03)
That's a crime, arrest them and treat them as the criminals that they are, period. And I think one of the things Trump did very well was make it sound like the Democrats don't respect law and order. Now you do have a nuance here. The George Floyd, Eric Garner, goes back to Rodney king. You do have unfairness towards African Americans in the criminal justice system. You do. And that George Floyd situation was horrendous and the other 30 situations were horrendous.

Governor Andrew Cuomo: (35:42)
They have to be addressed. They're offensive to every American. I don't care if you're black, if you're white, we don't kill people on the street with four cops. We don't do that. That has to be addressed. But you can address that without saying "I'm anti-law and order." You have a bad Catholic priest who abused as a child. It's terrible. It's disgusting. It has to be punished. Doesn't mean I turn my back on the Catholic Church. One bad cop, doesn't mean all cops are bad. So in this environment that nuance is hard to communicate.

Anthony Scaramucci: (36:28)
No, I accept that, Governor, the city has been under economic stress as a result of COVID-19. You and I, unfortunately, sir, are old enough now to see the oscillation of that city. We saw it in the 70s. We saw its resurgence, we saw it in the 90s back in resurgence. Tell us a little bit about the city that you and I love. Many people on this call love. What's your prediction for what happens to the city over the next three to five years?

Governor Andrew Cuomo: (36:59)
Well, it will come back, if we bring it back. We have gone through this before, by the way after 9/11. After 9/11, nobody would come back to New York City because it was going to be a terrorist target if you remember, we can never go back, [crosstalk 00:37:19].

Anthony Scaramucci: (37:18)
Battery Park, that whole area you were very discounted real estate. All those people did very well by being contrarians.

Governor Andrew Cuomo: (37:27)
Oh, yeah. There's part of that. But it's more than just COVID. First, you have to be honest, in your acknowledgement of the problem. It's COVID and the density of the city's scary. It's been this civil disobedience, it's homeless people on the streets. It's a sense that crime is out of control. It's all of that. And you have to address each one of those things.

Governor Andrew Cuomo: (37:59)
I think the main factor is COVID. But we have to purposefully address all of those issues, and show the city and the revitalization and the rebirth. We have an economic problem, not just in the shortfall for the city and the state. This period did something, you realized you can stay home and do Zoom meetings, where before they were just unacceptable. You realized that you can have employees not show up at the office, and not pay for all that commercial space and be just fine.

Governor Andrew Cuomo: (38:39)
So there's going to be an economic, lifestyle transformation that's going on here also. But New York City, I'm going to be part of a very aggressive resurgence, revitalization campaign. I just want to get through the announcement of the vaccine, which I think is going to be the light at the end of the tunnel. I think [crosstalk 00:39:05]-

Anthony Scaramucci: (39:04)
When do you think that comes Governor? If you have a guess.

Governor Andrew Cuomo: (39:08)
I think three four weeks.

Anthony Scaramucci: (39:10)
Okay.

Governor Andrew Cuomo: (39:11)
We're then going to need a vaccine distribution plan, which this administration again, since they don't know how to govern, they don't know how to manage. They have no way to distribute this vaccine right now. Just to give you an idea of what this vaccine requires. We did 120 million COVID tests over the past eight months nationwide. Okay, that's everybody doing everything they could. Everybody was pulling out all the strings. 120 million tests. We have to do 330 million vaccinations. And the current vaccines required to dosages, that's 660 million vaccinations. In eight months, you only get 120 million cover tests, which is just the Q tip. And as my brother pointed out, it's easy, on a nose like mine, because you couldn't miss it. You have a six inch span, anywhere you go you hit it.

Anthony Scaramucci: (40:13)
As long as it doesn't hit your brain you're okay.

Governor Andrew Cuomo: (40:15)
That's right. Now you have to tell people roll up your sleeve, I'm going to give you a vaccine. Some people don't trust it. A vaccine is scary. Some people are going to say hold it, "I don't want the first one. Let Anthony take the first one and then I'll call him up in a month and find out how he's doing." Pfizer comes out with the first, Moderna comes out with the second one, this one comes out with the third one. There'll be all sorts of talk about which is better, you should wait. So it's going to be a very massive government undertaking.

Anthony Scaramucci: (40:48)
All right, so I got two last questions for you. I got a fun question and then I'll end it on a more serious question. What is it with the Cuomo family and the cars? Your brother shows up at my house in this like Blue 68 Pontiac Convertible. I know you've got some fancy cars. I'm an Italian, came from Long Island, you know I'm in love with cars. What is it? Is it in the DNA? Is it part of ancestry free.com? Or is it how we grew up? What is the deal there?

Governor Andrew Cuomo: (41:17)
It is the middle-class, working family culture first of all, it was what you could do... You know you were not going to play golf with Dad, you're not flying off to Europe. So you had cars, were accessible. That was what young people did in the working class neighborhood. And it was machismo and who got the girl, the guy with the best car got the girl. Racing was competitive and machismo.

Anthony Scaramucci: (41:57)
All right, so what are you driving now, Andrew? I mean, I saw a picture of you in some really fancy vintage car. What is that car? Make all these people listening in feel a little jealous about the goddamn car, go ahead.

Governor Andrew Cuomo: (42:10)
All right, but we have to separate what my brother does versus what I do. He has a bastardized 68 Firebird. It is bastardized.

Anthony Scaramucci: (42:20)
Ladies and gentlemen. He's not here to defend himself. But go Keep going. Keep going, governor.

Governor Andrew Cuomo: (42:24)
This is a fact, this is a fact, I'm not a journalist. I speak facts. It is bastardized. It has a different engine than the car came with. It has a different suspension than the car came with. It's a different color. Plus, he committed the cardinal sin, which he had professionals restore it. He didn't do that engine. He didn't do that suspension. He paid someone else to do it, which totally violates the whole...

Anthony Scaramucci: (42:53)
That's an old school, cardinal sin violation. There's no question. My uncle Sal would flip out over something like that.

Governor Andrew Cuomo: (42:59)
Yes. If you have to pay someone else to do it you don't deserve it. If you don't know how to do it yourself you don't deserve it. I hate these guys who go buy a resto-mod. Look at me, I'm driving a 66 Corvette that I paid $100,000 but I can't change my own oil. Then buy a Volvo. I, 68 GTO, all stock, all restored by me.

Anthony Scaramucci: (43:28)
How many cylinders, 8 cylinders?

Governor Andrew Cuomo: (43:29)
Navy blue, 8 cylinders, 400 navy blue blacktop. I just finished the 1967 Corvette, numbers matching, same engine, same transmission. Perfect, restored perfectly, me. I have a 75 Corvette which I've had since college, I bought as a wreck. A total in college, restored that. And then I have a 1996 Bronco, which was the last year for the full size Bronco.

Anthony Scaramucci: (43:58)
Sure, I remember that car.

Governor Andrew Cuomo: (44:01)
Which I have also. But I do all the work. I do the engines, I do the transmissions, I do the rear ends, everything is me. As opposed to my brother with his bastardized blue. That blue didn't even come in 68. Text him, say, "You know what I'm thinking? I don't think that's a Pontiac color in 68." Because it's not.

Anthony Scaramucci: (44:26)
You've already got... You already took my spot on his television show. I'm not sure if I want to text them that. Okay, I got one more question for you, which everybody's dying to know. You are a rising star in the Democratic Party. In May of 2019 you told the hill that you're seeking a fourth term for governor. Your pops once said, "I have no plans and no plans to make plans." What our Governor Andrew Cuomo's plans.

Governor Andrew Cuomo: (44:54)
My plan is to do what I said that the people. We have known each other a long time. And it goes back to where we started. You're nothing but your word. And you're nothing but your handshake. I said to the people of this state during COVID, when there was a lot of speculation I was going to run for president, I was going to run for vice president and I'm going to do this, I'm going to do this. If I let that percolate Anthony, then I would just be another politician. And they wouldn't trust me. You're just another politician looking to better themselves, you have an agenda.

Governor Andrew Cuomo: (45:27)
I said, "I have no plan. I'm going to stay here. I'm going to see us through this challenge." And that is going to be two years, three years, you're right, to bring this state back and this city back. And that's what I'm going to do. Period. That was my word, that's the job they gave me. Govern the state, get us through COVID. And then the second chapter is going to be the rebuilding.

Governor Andrew Cuomo: (45:58)
I'm friends with Joe Biden. I know all those people. I was in the cabinet. I have no desire to go back. But I do want to be helpful to him. I want to make one point to you, to bring us back to the conversation we had 20 years ago. The choice, talk about binary choices, health or the economy. The Republican, Democrat choice is not a socially moderate or socially progressive version versus economically irresponsible.

Governor Andrew Cuomo: (46:36)
I'm a Democrat. I'm so socially progressive, don't discriminate against LGBTQ. That's marriage equality. I felt discrimination as an Italian. Don't discriminate against black people, or Jewish people, or Muslim people. That's socially progressive, I respect a woman's right to choose. My economic record? More responsible than any Republican governor in history.

Governor Andrew Cuomo: (47:07)
Today, 10 years of being governor, your tax rate is lower today than it was 10 years ago. Your tax rate, every tax rate in this state, lower today than the day I took office. Lowest level of economic, government expansion in history. I have a self imposed 2% cap, I will not increase government spending more than 2% year to year. I won't allow property taxes to go up more than 2% year to year. More fiscally responsible than any Republican in the history of the state of New York. How can you be both? Because you can. You don't have to choose. You can be socially progressive, don't discriminate, respect women, and be economically responsible and manage, and understand it's about a strong business sector. And I've done both, which is what I told you I would do 20 years ago.

Anthony Scaramucci: (48:19)
And I love it, because 20 years ago, we did have the conversation. Because when people say they're fiscally liberal, you got half the country hating the word liberal. And when they say that they're fiscally conservative, they have half the country hating the word conservative. And so your choice of words are masterful because what you're trying to do, and you've done a great job in the state of doing it is intersecting and fusing people together where they can find common ground together.

Anthony Scaramucci: (48:44)
And so with that, I applaud you, Governor Cuomo, I want to tell you, a personal thanks for me. On behalf of the Skybridge staff and the SALT staff for joining us on SALT. The book is great, An American Crisis: Leadership Lessons from the COVID-19 Pandemic. If you need a nose job, though, sir, just look at this thing. If you need one, just let me know. Because I could make a really good referral for you. But if you don't need one, that's fine, too. You look fine on the cover of the book. I just wanted you to know that.

Governor Andrew Cuomo: (49:15)
I mean, look, do I have a rough hewn look? Yes. I think it plays into my persona and my character, being the real deal. I am no pretty boy, Anthony. I leave that to you and Christopher, you want the real deal? See me.

Anthony Scaramucci: (49:36)
I'll take it. I'll take it. You can have that look. Okay, I'll take mine. Okay. God bless you, Governor. I'm sending you a lot of love from the bottom of my heart. And thank you so much for being with us today on the SALT conversation. I'm going to turn it back over to John Darsie. He's going to say goodbye to some people.

Governor Andrew Cuomo: (49:50)
Can I say one word?

Anthony Scaramucci: (49:52)
Of course.

Governor Andrew Cuomo: (49:53)
I just want to say I've known you for 20 years. I admire what you've accomplished, what you've achieved, and more, I admire how you've done it. I admire your character and your quality. God bless you.

Anthony Scaramucci: (50:10)
Well, I appreciate it. It means a lot to me. And you know that, I keep mixing between Andrew and Governor because of our closeness. I don't mean any disrespect by that. But Governor Cuomo, thank you so much.

Governor Andrew Cuomo: (50:20)
Thank you.

Anthony Scaramucci: (50:21)
Appreciate it.

John Darsie: (50:22)
Governor Cuomo. We're very grateful for his time and for him joining us on SALT Talks today. A guy, no plastic surgery, no hair dye, fixes his own cars. That's the kind of guy we like to have here on SALT Talk.

Anthony Scaramucci: (50:33)
No Botox, no Botox. You can mention that too.

John Darsie: (50:36)
I didn't say it. I didn't say it. The hair dye I wasn't directing that towards anyone specific, but that's our kind of guy here.

Mishal Kanoo: See Change as an Opportunity | SALT Talks #98

“If you want a company to fail, surround yourself with yes-men.”

Mishal Kanoo currently serves as the Chairman of The Kanoo Group, one of the largest, longest running and independent family-owned groups of companies in the Gulf region. He holds chief positions as Chairman/Director of various reputable companies, including AXA Insurance Gulf, Gulf Capital, KHK & Partners Limited, Dalma Capital, Johnson Arabia LLC and KAAF Investments.

Started in 1890 in Bahrain, The Kanoo Group has been effective at avoiding the generational drop off as control passes down. Often times, there is a disconnect between a family group’s founding and the third generation of control. The Kanoo Group has maintained longevity by treating each generation as an opportunity to change. “We were lucky in that every generation within my family looked upon the new one as a rebirth of a new business.”

Among the recent shifts in approach is the inclusion of more women in the family business. Women are not only equal in ability, but more importantly, they offer a different perspective that contributes to more well-rounded decisions. The combining of men and women on boards creates a long-term benefit where both groups learn to adopt and incorporate a more holistic view when making decisions.

LISTEN AND SUBSCRIBE

SPEAKER

Mishal Kanoo.jpeg

Mishal Kanoo

Chairman

The Kanoo Group

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

Rachel Pether: (00:08)
Hi everyone and welcome back to Salt Talks. My name is Rachel Pether and I'm a senior advisor for SkyBridge Capital based here in Abu Dhabi as well as being the MC for Salt, a thought leadership forum and networking platform that encompasses business, technology and politics. Now as many of you know, Salt Talks is a series of digital interviews, with some of the worlds foremost investors, creators and thinkers. And what we're really trying to do here is, provide our audience with a window in to the mind of subject matter experts.

Rachel Pether: (00:40)
Today's focus is going to be on family businesses, entrepreneurship and gender diversity. And who better to discuss these topics with, than Mishal Kanoo, one of the most iconic business figures in the Middle East. Mishal is chairman of The Kanoo Group, one of the longest running, largest and independent family owned businesses in the Gulf region. He is also a motivational speaker, is published in business journals on a regular basis and holds key positions as chairman or director of various companies, including AXA Insurance Gulf, Gulf Capital, KHK and Partners Limited, Dalma Capital, Johnson Arabia and CALF Investments.

Rachel Pether: (01:22)
Finally, Mishal is also something of a role model to me for the absolute tireless work that he does in terms of female empowerment and gender diversity in the region. So Mishal, welcome to Salt Talks. It's a real pleasure.

Mishal Kanoo: (01:38)
Thank you very much for inviting me.

Rachel Pether: (01:41)
So, we have quite a geographically diverse audience on today's calls, and I know what they say about assumptions, but assuming that people don't have much knowledge about you or your background, could you just tell me a bit about your personal story?

Mishal Kanoo: (01:58)
Yeah. It's kind of an embarrassing situation to be put it, because t's not easy for me to sit and talk about myself. However, I will say the things that I am very proud of are the fact that I'm married and have four beautiful children, and they mean the world to me. And that is my main concern in life, other than of course, ensuring that whatever businesses I'm in, does the best that they can do and make sure that the people who work within the organization also get as best an opportunity for them to grow and to benefit from the organizations we're in.

Mishal Kanoo: (02:40)
I think it's very important, because we tend to forget as humans, and we put organizations at the top of the list, but reality is also going to be the humans are to be at the top of the list, and recognizing them and recognizing the people who help build any business or any institution. They are the key personnel, they are the people who you should be saying thank you to all the time, and we seem to forget that. And I would never be in the place I am in, without the fact that I am member of my family, I am member of my company, I am a member of my community, I am member of my society, and each of them play an important role in where I have arrived.

Mishal Kanoo: (03:28)
And I think it's also very important to recognize that education is what got to me sit here with yourself and be able to sit and talk to you. Education is formal education and education is informal education, and it is both of them, being able to utilize both of those, again, is the reason why I'm sitting here and able to be able to talk to you about this situation or any thought that you'd like to express and talk to me about.

Rachel Pether: (04:00)
Fabulous. And I'd love to come back a bit later to the points you made about education, but you do work for one of the oldest, largest and most well respected family businesses in the region. Did you always want to work in the family business?

Mishal Kanoo: (04:16)
The reality is, yes and no. Yes, I always wanted to give back to my family because they've been very generous with me. They ... when somebody takes care of you, somebody ensures that you have an opportunity, I think the very least you can do is give back something to them. And no, because after a while it becomes a bit hard to continue pursuing all the goals you want to do from personal point of view.

Mishal Kanoo: (04:48)
It's not that I have anything against my family. In fact, I love my family, and I think what you call ... as I said, I wouldn't be sitting here if it wasn't for my family and all the support I get from my family. It's what makes family businesses special, not just my family, by families in general. And it's having the heritage. The company started in 1890 in Bahrain. So, having that heritage in this region is not easy to come by. Having a huge network made up of family members ... at one time, which was made up of uncles, for me, they were made up of uncles, and now made up of cousins. And each one brings his or her own specialty, knowledge base, and we all play a whole role together to make this company significant. And being part of that, for me, is really special.

Mishal Kanoo: (05:40)
So, while I'm not able to do everything I want to do from a personal point of view, but having this as something to fall back on and something to be full of pride about, not arrogance, but pride in my family and all we've accomplished, keeps me and drives me forward.

Rachel Pether: (06:03)
And so if you go back to 1890, the family business was established 130 years ago, you've been through a number of generational wealth transfers during that time. How well prepared do you think family businesses are in general in the Gulf Region for intergenerational wealth transfer? And maybe in terms of being institutionalized enough to make that transfer without too much [inaudible 00:06:30] political tension?

Mishal Kanoo: (06:31)
You ask a very, very important questions, because a lot of family businesses, not just in the Gulf, but in the world as a whole ... there is an axiom that usually says, and sorry it's going to be male-dominated in terms of the wording, but it's, "The grandfather starts the business. The son takes care of the business. And the grandson fritters it away." Again, doesn't matter which country you're from, there's always an axiom that's similar to that one. And it's usually by hitting the third generation, and the reason why hitting the third generation, the business starts to die, is because there is a loss of connection between the last generation, the third one, and the first generation in terms of the struggle and the pain that went into making it, and there is a disconnect. Because of that disconnect, they can't see why they have to continue the struggle.

Mishal Kanoo: (07:29)
I think we were lucky in that every generation within my family, every generation looked upon the new one as a rebirth of a new business. We take new generation, and we look at this, say, "Okay, this is what we have currently, but now the next generation has to add onto it and build up on it. It's a new generation, and a new idea, new thought." It's not a disconnect, because we are consistently and constantly talking to one another, interacting with one another.

Mishal Kanoo: (07:59)
I got to see the pains of my uncles who helped institutionalize for us this business in the 1960s. At that time, it was a very strange beast. Usually, it was the father running the business and bringing his son or sons on board, and then they would run everything. Whatever the father said, the sons would apply. My uncles, two of them at the time, my uncle [inaudible 00:08:31] and my uncle [inaudible 00:08:32], God rest their souls, decided we are going to institutionalize this. They saw the British equivalent that they were competing against, and they brought in professional managers. And the professional managers had a very strong say in terms of how the business was run, in conjunction with, by setting up a board, by setting up how a business should be functioning, governance structures. We did that in the 60s, and I think that was one of the reasons why we managed to institutionalize at such an early time.

Rachel Pether: (09:06)
I love what you said about you're also constantly, not reinventing yourself, that's maybe the wrong word, but trying to be innovative within the family business. Where are you looking at in this generation, and how have you changed your investment strategy and focus to make sure you stay current?

Mishal Kanoo: (09:26)
What's happening currently in the world is a complete different ball game compared to what happened before. In the past, you had geographical/political barriers, and would block companies to come into your playground and start competing with you. Right now, it doesn't really matter what business you're in, if it is expandable, if it's available, it'll be coming to your neighborhood whether you like it or not. And you have to start to say, "Okay, I have what I have, and it'll take a while for this current business to be threatened. But there are opportunities on the other side, on the businesses are coming up. Which one of them is going to be a unicorn?" I'm using the moniker that's used currently for large companies.

Mishal Kanoo: (10:18)
And, it's a shot in the dark, because really you don't know which one it's going to be. The key is trying to understand, do you want to stay in your current businesses and hope to God it goes away, which I can't see happening. So you want to stay in your businesses, and look completely outside of your area of comfort? Or, are you going to look at your businesses, and say, "Okay, what businesses can I add to that are going to scale up, and I can be part of that huge scale up that's going to happen?"

Mishal Kanoo: (10:48)
Right now, every company is basically ... family businesses anyway ... are trying to figure out which one is the best approach. I think those who are going to say "I'm going to seal myself up in a cocoon, and everything is going to go back to what was before," they will very soon cease to exist. Of the other two, one is a more hotshot hoping it actually happens, and the other one is a bit more focused.

Mishal Kanoo: (11:13)
Now, it might be that it will take a while for the ones that they are concentrating, the investments they're concentrating on, will bear fruit. The question is, to what degree are you willing to be patient? If you were an early investor, for example, in Amazon, and first five years, horrible. Next five years might not have been that great. But 20 years on, wow, it's there, this is the company you want to be part of. How many people had the breadth to wait for that to happen? Because it might be that it's not the business that's wrong, it's not the management that's wrong, it's just an issue of time because you need things to catch up with you.

Mishal Kanoo: (11:58)
Or, in some cases, for example, things that happen over night. I mean, you have so many companies that started in say 2018, and today are bigger than companies that existed 100 years ago. It's a matter of sometimes luck, and I know we try to think in business or investment there's no such thing as luck. Yes there is. And sometimes it's an educated guess, and perseverance, because again, whenever someone invests in private equity invests in a VC fund, the rule is one or two are spectacular, three are okay, and the rest are garbage. The question is, is in any business, if you're going to take that approach, you must be able to hope, of your bouquet of investments that you've invested in, one or two of them are actually going to be successful, and you stay with it.

Mishal Kanoo: (13:02)
Now, how lucky are you? Well, that depends on how lucky are you?

Rachel Pether: (13:11)
Yeah, no, I think you're almost de-risking yourself as well, aren't you? If you're investing in companies that can have a direct impact on existing companies in your portfolio, you obviously have a very diverse portfolio.

Rachel Pether: (13:25)
I do want to go down further on some investment questions, but-

Mishal Kanoo: (13:29)
Before you get to this, I also want to focus on one thing. The current businesses, any business currently in [inaudible 00:13:39] is not going to go away for these new technologies. People forget that technologies, any technology is a tool that will be utilized by a business. This is key. I'm not going to invest in technology for the sake of technology. I'm going to invest in technology that's going to actually help what I currently have. So, the key is to be able to understand where I am and what technologies are out there that I can add on to my business, because that business is not going away.

Mishal Kanoo: (14:06)
For example, food is not going to go away. Logistics is not going to go away. Shipping is not going to go away. Air travel is not going to go away. But the tools that will get me from point A to point B, or the project from point A to point B, or the service from point A to point B, if I can get those tools that make me better positioned than my competitor, is what will drive business towards me. So, I just wanted to mention this point. The old world businesses should not be thrown aside in the thinking they're dead. They're not dead. It's just how many new tools can I add on to my current business that will allow me to grow that? That will be key to my success if I pick the right tool for it. I'm sorry, I just wanted to clarify that point.

Rachel Pether: (14:58)
No, I think that's a great clarification point, using technology more as an enabler rather than a set class, as it were, in an of itself.

Rachel Pether: (15:09)
We've already had, actually, a couple of audience questions come in that are related to specifically the family business side of things. So, I'll address them now. We've had a question from Kim, thank you as always, Kim who said: "Mishal is so impressive, and his family's accomplishments. Please ask what he and his family are doing to prepare the next generation to take forth the business." And maybe this comes back to the education point that you raised before as well.

Mishal Kanoo: (15:39)
Formal education is very important. There is no doubt ... and by the way, this is something that we've always done, at least as far as I can remember ... you have to get a formal education, because that's the basis for where you start the other education. But once you've had the formal education, then the other education, which is the on the ground, hands on education ... I'll give you an example of something I experienced.

Mishal Kanoo: (16:01)
When I got my bachelor's degree, I was really happy. You know, I have my degree. Right. Now, I want to have a position in the company. I want to run things and do things, and fix things. My father looked at me like "What are you talking about? Yes, you have formal education, but you don't know anything about the businesses were in. So, do a round of the businesses." So, I did a round of the businesses. Then I thought, "Oh, you know what? Now, I have a better grasp of the businesses, I know everything, and I can take on the world." My father said, "You know what? No. You're going to experience what everyone else experiences from the bottom up." And while it's annoying, and it was painful, it did give me insights that otherwise I wouldn't have.

Mishal Kanoo: (16:47)
So, yes, it's important to get the formal education. Yes, it's important to get the training, what it's calling, investment banking training, which a lot of investment banking will go to family business ... banks will go to family businesses and say, "Give us your children to help train them in the investment aspect of it." But, it's only when you're on the ground, when you feel that you don't have a say in things, and you can start seeing things without having to worry about things so much, because you are so low in the food chain, that you can get to have better picture.

Mishal Kanoo: (17:24)
One of the things we do do in our family, is we send our ... as soon as someone graduates and has gone through a small series of understanding our current businesses, we try to send the outside to other businesses to go and work outside. The idea is you go work outside, you don't have your family nearby to carry you and to push you forward. You get to see what other people, how they interact. You get a better understanding of human nature. And then, when you come back in, you are a bit more of a rounded person. And then you add your experience. There is nothing better for a person to have than his or her own experience in a business because that adds a dimension that books cannot explain to you, other people who've experienced it cannot explain it to you, because it's something you've touched, you've felt, you've experienced. And then, you can have a better picture.

Mishal Kanoo: (18:27)
Now, hopefully, the member of the family who comes in, doesn't come in with an idea that once they've gone through all those steps, that "Okay, now I know everything." Because we're constantly in flux and change, and we have to understand how things work.

Mishal Kanoo: (18:50)
Another anecdote: At my office, I had a huge painting, and it says the word in Arabic, [foreign language 00:18:58]. [foreign language 00:18:58] is not [foreign languane 00:19:01]. In Arabic, [foreign language 00:19:02] means "no." [foreign language 00:19:04] is a definitive "no." It means, "Forget it, it's never going to happen."

Mishal Kanoo: (19:07)
And everyone used to ask me, "Why do you have the painting behind you? Why do you have that painting in your office?"

Mishal Kanoo: (19:13)
And I said, "Because this is the first thing my family tells me every time I have an idea: 'No.'"

Mishal Kanoo: (19:19)
And one day, I am frustrated ... I've been in the company for a while, and I got frustrated ... and I went to my uncle, my Uncle [Abdullah 00:19:24], who was the chairman at the time, and I asked him, "Why do you say, 'No.'? Why is it every time I have an idea, you say, 'No.'?"

Mishal Kanoo: (19:32)
He said, "Because I want you to go and find every plausible answer for every plausible refusal I'm going to give you, so when I say, "no" you can give me the answer, and finally I'll be convinced and we can move forward."

Mishal Kanoo: (19:45)
And I said, "You know what, I didn't think of that."

Mishal Kanoo: (19:48)
It's all, again, coming through these experiences. Now, hopefully, I think myself and my cousins don't do that to our younger cousins, our younger siblings. The idea is to try to help them, embold them to take risk, to don't worry. If you make a mistake, you learn from your mistake. The key is to learn from your mistake. And, get a formal education. This is key. Get a working education and experience. Learn. Read. Come back. Go outside, learn from others. Come back. And then try, and take risks. And if you fail, we are there as your ... we are like a coach, we're there to hold your hand ... you have a problem, go and try to find the solution yourself. You can't find it, come back to us, and we'll try to help you. Our job is always to find ways to help people move forward.

Mishal Kanoo: (20:51)
The next one, and this is key, a lot of families need to understand this, is I need to prepare the next generation for succession. I cannot take their time. I have a certain amount of time where I will work, and then I need to find myself slowly taking a back step, and allowing other members to come in, and for me to sit back and end up being like a consultant. They take up the decision making, they take up the reigns of the company, and I'm there to consult if you have a problem, if you've never experienced this, if you have a political tangling that needs untangled. That's what my job should be.

Rachel Pether: (21:39)
You mentioned the power of the word "no" in sort of forcing you to look at other possibilities and options, but one thing that I do find ... and this is perhaps a cultural thing or a society at large's ... there are a lot of yes-men out there. Right? So, there's a lot of people that will just say "yes" even if they don't think that it's a good approach. I know you sit on a lot of boards. What do you think about the notion that you just surround yourself with yes-men, and it makes your path a bit easier, and how do you go about changing that culturally and creating an environment where people do actually speak up and say "no"?

Speaker 3: (22:22)
If you want a company to fail with you, surround yourself with yes-men, because the moment you die, the company collapses. It's simple as that. I don't need, no company needs chaos from within, as in people fighting all the time. But, you need people to push back. If you have an idea ... okay, I hire professional people, so if I don't listen to the professional advice, why do I hire? I can do this all by myself. You don't need them. I need people to come back and say, "You know what, don't give me an opinion." I have as many people, who ... and every person has an opinion. I don't need opinions. I need you to defend what you say with something that is on the ground. You have better knowledge in finance? Explain to me why this investment is not good. You better experience in operation? Explain to me why we shouldn't be doing this logistic. You better knowledge in human resources? Explain to me why I shouldn't hire this person.

Speaker 3: (23:20)
This is what is the responsibility of any leader. There is this misunderstanding that leaders are the person on top of the hill, leading the charge, and everyone is a minion following behind them. I assure you, the moment that that person is killed, the minions will run away. Now, that's one alternative.

Speaker 3: (23:47)
The more sustainable business leadership style, should be, I bring in people who can help grow the company, so whether I am there or somebody else comes in, it shouldn't have an effect necessarily on the business itself. And the best example I can give you ... this is a story I learned when I was in university, and it stuck in my head. And forgive me for just a couple of minutes, just to understand the type of leadership you should have.

Speaker 3: (24:19)
The story goes, there was this young boy in China walking with his father, and they saw a gathering of men, one man who was sitting down, and a lot of men surrounding him. And the young boy asks the father, "Who's that?"

Speaker 3: (24:36)
And the father says, "That's the Emperor of China."

Speaker 3: (24:39)
So the boy goes, "Oh, he must be the bravest man in China."

Speaker 3: (24:43)
So the father goes, "No, no, it's that man over there."

Speaker 3: (24:45)
"Oh, in that case he must be the smartest man in China."

Speaker 3: (24:47)
Says, "No, that's that man over there."

Speaker 3: (24:49)
"Ah, he must be the wisest." And imagine all the adjectives where you call it the bravest, the smartest, the most philosophical, the best swordsman, the best...

Speaker 3: (24:58)
"No, no, no, no. It's that man. It's that man. It's that man."

Speaker 3: (25:01)
So the son was looking at the father, and he does, "Well, if he's not any of these attributes, why is he the Emperor of China?"

Speaker 3: (25:08)
And the father says, "Because he's the hub that allows all these spokes to function."

Speaker 3: (25:12)
And this is the key of leadership. You don't need to be the best, but you need to surround yourself with the best, and you need to allow them enough space to be able to push this company forward, because remember it's in their interest as much as yours, if you're the leader, it's in their interest as much as yours to move this thing forward, whatever the company is. They need to be part and parcel of it. If they feel at any point it's not theirs, they're not important to it, well very soon they will either go away or utilize you as a base for their own benefit.

Rachel Pether: (25:49)
Yeah, I really like that hub and spoke analogy. I think that was very applicable. And we spoke, I think it was last month, about gender balanced boards, and I want to talk about this specifically in relation to speaking one's mind as well, and creating an environment where people can say "yes." Where are the weaknesses in regional family businesses, and maybe even society at large in creating a sort of environment where females feel in a safe place where they can be assertive, rather than being called something else?

Mishal Kanoo: (26:26)
I will say fortunately in family business as a whole, better than say non-family businesses, unless we're talking multi-national companies, but in family businesses as a whole I think there's ... depending also on the age, of the makeup of the family business to start ... there's a lot more females coming in and playing an active role in the businesses. And, hopefully smart families are not using them as a rubber stamp to say, "Look, we have females in our company."

Mishal Kanoo: (27:03)
Women are a smart as men. There's no reason to think we can [inaudible 00:27:09] otherwise. They have a different perspective in terms of how things are done. There are certain traits that females bring that males don't bring. Now, by the way, I'm talking about traits, I'm not talking about the gender. But, some of the female traits that are brought in ... and the more there are the better for a company ... consensus building, care for people around you, making sure that there I a buy in. These are very female-oriented traits. Male-oriented traits are decision-making, quick decision-making ... how should I put it? Attacking the hill kind of mentality, you know? I'm going to gather people and attack the hill. That's a very male trait.

Mishal Kanoo: (27:54)
I don't necessarily want to see a female on a board that just thinks like a ... have all these female traits. And I don't want to see just male having male traits. I want to see that after a while both males and females on the board, there's a cross filter between the female traits and the male traits so that both of them can start understand each other. Because the more you have a better understanding ... because there are times when you need to make quick decisions, and there are time when you need to be consensus building. And having those traits, whether it's male or female, between both genders on a board is always going to be something beneficial for any board. Lip-service is never going to achieve anything.

Mishal Kanoo: (28:41)
Having also ... By the way, in terms of family businesses, just to bring this to the issue of family businesses, you will find the most successful family businesses are not the ones that are run on board level. It's the one with a very strong matriarchical person who ensures in the background that there is consensus building, that there is some sort of comradery between everyone. And she is looked upon as the person that they all fall back to, because, yes, I need to make quick decisions in a business perhaps, but I also need to have harmony within a family. And she can help in that aspect in a way much better than a male can. Males, unfortunately, will focus on the fear factor, the dictatorship mentality, but the females ... that's the patriarch ... but the matriarch is much more of a consensus building in making sure that no one's left out, everyone gets a piece of the pie. Not everyone necessarily gets equal pieces of the pie, but at least they get a piece of the pie, and there's buy in.

Mishal Kanoo: (29:55)
And this is important, and it's not seen, certain superficially, it's not seen. And it doesn't have to be seen. But, if there is no matriarchical counterbalance to the patriarch, you have issues going to happen.

Rachel Pether: (30:13)
Yeah, I couldn't agree more on that. It's a great point you made about the box-ticking. I mean, I don't think putting someone in the position just to tick a diversity box is going to be beneficial to anyone. Is there anything that you can do, and maybe a politically correct answer, that we could do, to address the sort of fake advocates of diversity? So, those people that are just doing it to pay lip service. Is there a way around that?

Mishal Kanoo: (30:42)
Well, I'm hoping the Darwin awards mentality kicks in, i.e. those who don't utilize soething to the betterment and sustainability of their organization, eventually kill themselves off. You can't change their mindset. If someone has a mindset that he or she thinks ... I'm sorry, in this case, he ... thinks that he's right and he knows everything, and he's going to do everything the way he wants, eventually he's going to kill his company. And, so much the better. Sad for the people employed by him, but so much the better, because when that company dies another company comes up in its place, and hopefully is smart and intelligent to say, "Oh, let's see it from the mistake that that company did, and let's change that."

Mishal Kanoo: (31:28)
And, again, bringing people on board ... to my knowledge men did not inherit the genius gene. It's available to both genders. Men did not inherit the knowledge gene. It's available to both genders. Perspective, a man's perspective and a female perspective, are different. An intelligent person, would say, "You know what? I need to have, since women make up at least if not more than half the population, if I'm selling something to them, I need to make sure I understand what they like. And so, I need to bring them on board, and make sure that they also tell me what I like."

Mishal Kanoo: (32:15)
If you're going to invest in FMCG, sorry, in retail, in clothes, the best thing you could do ... and I heard this from the founder of, I believe it was Vanguard Fund. He's a famous gentleman. I can't remember his name, but I remember what he said. He took his advice from his teenage girls telling him these are the companies they like, these are the companies her and her friends buy from, and they knew something [inaudible 00:32:49]. "You know what, if I asked my boys, they would never know this. If I never asked my girls, I'd never know this." So, he was intelligent enough to say, "You know what, I'm going to try to find from every resource, including my wife, my children, my girls, my boys, my friends. I'm going to try every resource I can to help me in their own way direct me to my benefit."

Mishal Kanoo: (33:16)
Now, as I said, if I don't have the female perspective, whether it's on the board, whether it's in the employment in the company, whether it's within my family, if I don't have that perspective, I've lost half the market. Why would I do that? Whey would an intelligent person do that? The first thing I would be doing is trying to find from everyone what everyone wants, and then seen whether I can afford to bring them the product and/or service, or not. That's what intelligent people do. Not intelligent people, as I said, hopefully will go down the Darwin awards way where they kill themselves off, as they die.

Rachel Pether: (33:55)
That was more politically correct than I thought you would give, so thank you for that. We've had a few people come in and say, "Yes, that was John Bogle from Vanguard [crosstalk 00:34:04] that made that comment."

Rachel Pether: (34:07)
We've had more, so many audience questions coming in. Someone has asked, "What do you suggest for children who are rebels and not willing to flow with the family?" And I guess that means from a cultural perspective. .

Mishal Kanoo: (34:22)
I know the feeling, because I'm one of them. There are different types of rebels, those who rebel against authority and those who are rebelling against a person, not necessarily the authority but the person wielding an authority against them. So, if that person that's wielding the authority against them goes away, rebellious nature goes away. It's just natural. And there are those who rebel again an idea. You can't do anything about that.

Mishal Kanoo: (34:55)
One way to harness this, if you do have a quote-unquote black sheep ... I know it's not political correct, I can't use these words these days ... or a rebellious person, maybe it's time for that person to discover for him or herself what he or she can do. So, I would say, "Here's a chunk of money," whatever amount of money it is ... "Here's a chunk of money. Go away." Now, "Go away and discover for yourself, and then you'll understand what you're missing." Or, "Here's a chunk of money, but you need to also put a chunk of money in there so that you have skin in the game, so it hurts you, and let's see how well you do. And if you do really, really well, put in a clause that says the parent company can come and buy the company that you've built if you both agree to it."

Mishal Kanoo: (35:47)
This way, there's an incentive. If I don't like the way you're running things, and I think I can do better, here's a bunch of money, you add a bunch of money to it. "Go run the business. Go run the business that you think you can run. You will either fly, because your idea is fantastic and great, or you'll be mediocre, and then you might want to think about going back or not. Or, you will fail, and then you can come groveling back to the family." The three options are there, but I think sometimes ...

Mishal Kanoo: (36:20)
Again, depending on the age, because if you have someone who's rebelling at 40, there's a systematic issue that you need to address. If you have someone rebelling at 20, it's usually a personality issue. You can control that one. You can try to help them along the way. When you have someone rebelling at 40 or even 50 ... you can have that ... again, it might be a systematic thing that you need to address. Why is this person rebelling? Sometimes it's not they are rebel just for the sake of rebelling. There is something that they're telling you, but you're not listening.

Mishal Kanoo: (36:58)
Now, it always takes two to tango. Forgive me on the cliché, but it's two parties. One is trying to tell you there's an issue, and the other party is saying there is no issue. Now, if you don't want to listen to the other one, ideally, pay them off and let them go away. If you keep them inside, it's like having an angry tiger in your house. Do you really want to have an angry tiger? But, that's what you're asking for.

Rachel Pether: (37:32)
Yeah, and this may be a Mike Tyson or someone, but, no I really like that point about [crosstalk 00:37:44].

Mishal Kanoo: (37:44)
[crosstalk 00:37:44] tiger, how about that?

Rachel Pether: (37:47)
In any situation, I guess no one party is every solely guilty.

Rachel Pether: (37:52)
We've had a number of audience questions coming in as well interested about your approach, and you mentioned sort of supporting the family at a micro level. Do you also look at, with your businesses, really supporting the regional ecosystem? So, is it important for you to invest in regional start-ups and companies, and how do you see your role within the Middle East?

Mishal Kanoo: (38:18)
I will talk from my personal point of view rather than my family, because it's easier for me to do that. From my personal perspective, there are two roles. When I invest, there are two things that are in my head.

Mishal Kanoo: (38:31)
Obviously, the first one, which is what everyone is in, but no one wants to say, is I'm in there for the money. I say that to get that out of the way. Because, if I don't make money, then I can't continue doing the things I want to do. It's not ... will my lifestyle change? Not really. But, I want to take that money, so that I can do the things that I really actually want to do.

Mishal Kanoo: (38:53)
This is where it comes to the second point. I'm 51 years old. I'm not going to create rocket science, what you call, but there are people in the region in their 20s and 30s, perhaps even in their 40s, who have the breadth to want to do that. And sometimes, there's no one who believes in them. That's when you have to sit there and ... okay, I don't necessarily have to invest financially, but I can invest with my ear. I can invest with my experience. I can invest with talking to them, and giving them an opportunity. "You know what? If you do something along those lines, I'm interested at the next stage. So, I'm giving you hope. Get to that next stage. I will come in. But get to that next stage. If you need help in terms of 'How do I address this problem', maybe you need somebody who can help you because they've experienced that. And that's what I'm here for."

Mishal Kanoo: (39:46)
My job is to try to help the young generation. And, in respect for me, nationality becomes secondary. The key for me is to help young men and young women who want to do something, who don't want to be lazy, who don't want to rely on others, who want to create soething, who want to add something to this world, and sometimes might not have the opportunity. My job is to help them get there. And, as I said, different stages takes ... sometimes it's just a pat on the back. Sometimes it's just recognition. Sometimes it's experience and knowledge. It's sometimes opening the door. Sometimes it's finance. But my job, and this is for me key, I want to make sure as much as I can, and I am limited to what I can do, but as much as I can to help those people to get to a point where they can pick up themselves.

Mishal Kanoo: (40:39)
The more we have those success stories, at least ... and I'm talking in this region, irrespective of nationality ... but the more we have in this region, the more all the rest of the world will start saying, "You know what? Something's happening here." And it is. We have young, intelligent, bright, smart, articulate, go-getters, risk-takers. They're in Egypt. They're in North Africa. They are in the Levant. They're in Iraq. They're in the Gulf. Sometimes they feel, "I don't have the ability." Sorry, "I don't have the support" not the 'ability.' "I don't have the support around me." And my job, and I hope others will also do the same thing, in saying, "You know what? No, no, I am here to help you. I'm here to help you promote and do whatever you want to do." Because we want this region to be a bastion of opportunities for others.

Mishal Kanoo: (41:37)
And I'm taking my lesson, and I'm not saying this because somebody is putting a gun to my head. I'm saying this because I actually believe this. I'm taking a page from the lesson that Dubai created, and it's very specifically Dubai, because Dubai said, "I'm going to open up the door. I'm going to open up the landscape, and I'm going to give you the opportunity, as long as you don't cause mischief in a place, to grow your businesses." How many businesses in the Arab world have grown starting from here because the door has been opened? And I would love to see this happen in Saudi Arabia. I would love to see this happen in Bahrain, in [inaudible 00:42:23], in Kuwait, in [inaudible 00:42:25], in Yemen, in Iraq, in Syria, in Lebanon, in Jordan, in Palestine, in Morocco, Algeria, Tunis, Sudan, Egypt, [inaudible 00:42:40] Somalia ... I'm trying to think of the ones in the Arab world. Did I miss anyone? Djibouti. I think Djibouti was the last one.

Rachel Pether: (42:50)
We're going to get who are writing in from a country that you've left of the list, and they're going to be very irate. But, now, I think that's great, and you're obviously doing so much to support the ecosystem, and the family, and businesses in the region.

Rachel Pether: (43:05)
We do just have time for one more question. So, I'd be very interested ... you put so much effort into helping others achieve their goals, and acting as a source of inspiration. Who or what inspire you?

Mishal Kanoo: (43:22)
The answer for me is very simple, but I'm a bit cautious in what I'm about to say, because I don't want it to sound I'm propagating religion. But, for me the reality is, for me the book that matters to me the most is the Qur'an, and the personality that matters to me the most is the prophet [foreign language 00:43:45] Muhammad.

Mishal Kanoo: (43:46)
And the reason I say that is because the gist of the Qur'an ... put the religious aspect aside ... the gist of it is to be fair and to be caring. And this is what any business has to be to its employees, to its customers, to itself, to be fair, just, and to be caring. Because there are sometimes when you need to bend the rules to help someone who is in need of it. So, this is the principles that are in there, are the principles that drive me. And justice and fairness are huge principles that drive me.

Mishal Kanoo: (44:26)
And the life of the prophet [foreign language 00:44:28] in terms of how he interacted with the different peoples at different times ... whether they were unfair with him, whether they were nasty with him, whether they were good with him ... in terms of how he interacted with them to the idea of whether it was in trade, whether it was in politics, whether it was in social structures, social change that he was bringing, all of thee things matter. And, this is a driver for me. This is what makes me say, "You know what? I want to do as much as I can to live up to the principles in the Qur'an. I want to be fair with people. I want people to be fair with me. I want to give people an opportunity. I want to give them a message. I want to be caring for them."

Mishal Kanoo: (45:11)
I can't do everything. I'm but a human. But, key is to try to do as much as I can to help others, again irrespective of religion, irrespective of nationality, irrespective of political affiliation. At the end of the day, everyone is free to choose what he or she wants. The only thing you can't choose, is I can't choose who my parents were and what the color of my skin is. I can't do that. But, everything else, I can choose. And, as long as they're not harming others, as long as they benefit others, and as long as they're caring of others, there's no reason why I would not want to take those principles that I've learned from the Qur'an and help apply it into my life and help others benefit from it.

Mishal Kanoo: (45:58)
It's key, and it's the most significant driver for me, is to help others. There are people, and God bless them, but there are people who want to obtain money for the sake of money. If they want make their bankers happy, good for them. For me, the key is to take this money and utilize it for the benefit of humanity. And if I can't do that, then making money is useless.

Rachel Pether: (46:31)
Mishal, yes, life is about choices, and I really appreciate you choosing the spend the time to talk to us today and share your views. It has been a pleasure, as always, so thank you.

Mishal Kanoo: (46:43)
[crosstalk 00:46:43] [inaudible 00:46:43]

Anthony Scaramcucci on the 2020 Election | SALT Talks #97

“I think what you have to do in life is you have to enjoy the journey and you have to handle the ups and downs like a gentleman or a gentlewoman, and not let it overly distract you from the long-term gains, or the long-term goals.”

Anthony Scaramucci is the Founder and Co-Managing Partner of SkyBridge Capital. He also the founder and chairman of SALT Conference, a leading global conference that brings together leading investors, creators and thinkers to discuss big ideas in the world of finance, technology and public policy. He is the author of four books: The Little Book of Hedge Funds, Goodbye Gordon Gekko, Hopping Over the Rabbit Hole (a 2016 Wall Street Journal best seller), and Trump: The Blue-Collar President.

Growing up in the blue-collar town of Port Washington on Long Island offered Scaramucci the chance to hone his business skills that set the stage for rest of his adult life. Selling Newsday magazine subscriptions around age 12 to help with his family’s bills served as formative experience. “There was a seminal moment for me, and I believe this happens to everybody, you figure out somewhere between 11 and 17 what you're doing for your life… For me, I love sales.”

All of Scaramucci’s success has been built on the back of a long history of failures and setbacks. He credits his resiliency to the solace he takes knowing he’s just as happy living modestly as he did as a child. Those lessons were called upon most publicly in the days following his firing after an 11-day tenure as White House Communications Director in the Trump administration, creating a new unit of measure: 11 days = 1 Scaramucci.

LISTEN AND SUBSCRIBE

SPEAKER

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

 

EPISODE TRANSCRIPT

John Darsie: (00:07)
Hello, everyone, and welcome back to SALT Talks. My name is John Darsie. I'm the managing director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology, and public policy. SALT Talks are a digital interview series that we launched during this work-from-home period, with leading investors, creators, and thinkers.

John Darsie: (00:29)
And what we're trying to do on these SALT Talks is replicate the experience that we provide at our global conferences, the SALT Conference, which we host twice a year in a normal environment, traditionally in Las Vegas, and then most recently in Abu Dhabi, and we're looking forward to getting those conferences back up and running as soon as it's safe for our constituents, but look forward to doing some virtual events later this year and early next year as well.

John Darsie: (00:52)
So, with SALT Talks, what we're doing, the same thing we're trying to do at our conferences, is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And today's guest is one that we've been working really hard to get for a long time. We're very excited about having him on SALT Talks. His name is Anthony Scaramucci. Mr. Scaramucci is the founder and managing partner of SkyBridge Capital, which is a global alternative investment firm. He's also the founder and the chairman of SALT, and I'll spare you more biographical information about SALT, because if you're here, you probably already know.

John Darsie: (01:28)
Prior to founding SkyBridge in 2005, Anthony co-founded the investment partnership Oscar Capital, which he sold to Neuberger Berman in 2001. Prior to starting Oscar Capital, he was a vice president in the private wealth management division at Goldman Sachs. In 2016, Anthony was ranked number 85 on Worth Magazine's Power 100, which is a list of the hundred most powerful people in global finance. In 2011, he received Ernst & Young's Entrepreneur of the Year award in New York, in the financial services category. He's a member of several high profile organizations, including the Council on Foreign Relations. He's the vice chair of the Kennedy Center Corporate Fund Board. He's a board member of both the Brain Tumor Foundation and the Business Executives for National Security. He's a trustee of the United States Olympic and Paralympic Foundations.

John Darsie: (02:18)
He's the author of four books. The Little Book of Hedge Funds was his first book, followed by Goodbye Gordon Gekko, Hopping Over the Rabbit Hole, and then most recently, Trump, the Blue-Collar President, which obviously came prior to a little bit of an about-face that he did on the president as we head into Election Day tomorrow. In November of 2016, speaking of President Trump, Anthony was, after serving on the Trump campaign, he was chosen to the president-elect's 16-person executive committee on his transition team. So, when people talk about how he was there for 11 days, so he knows nothing about the president or the administration, I sort of laugh, because they're discounting the fact that he was on the campaign for nine months, and also played an integral role in the transition team as well.

John Darsie: (03:03)
Anthony is a native of Long Island, which is where I'm standing today, and where he's sitting today as well. He holds a Bachelor of Arts degree in economics from Tufts University in Boston, and a JD from Harvard Law School. A reminder if you have any questions for Anthony during today's SALT Talk, you can enter them in the Q&A box at the bottom of your video screen. And usually I'll turn the interview over to Anthony, who acts as the moderator, but today, I'm the moderator, and Anthony is the one who's going to be roasted, so I'm looking forward to this.

John Darsie: (03:31)
And just like we do with all of our guests, Anthony, I want you... I read a little bit about your biographical information, but for people who maybe don't know you as well and haven't read your Wikipedia page, or they have and they're looking for a little bit more insight into how you grew up and how you became the Anthony Scaramucci that we know today, please tell people about your upbringing, your professional background, and how you got to where you are today with SkyBridge.

Anthony Scaramucci: (03:54)
So, let me just... I've got something in my eye right here. Let me just get this out of my eye and then we can begin the interview. Hold on a second. Okay. I think I got it out of my eye.

John Darsie: (04:05)
The roast hasn't even started yet. I'm taking it easy on you so far.

Anthony Scaramucci: (04:07)
So, it's interesting. So, John's wife... I think this is an important part of the story. So, John's wife's uncle was one of my best friends in high school. He stole my high school girlfriend, but that happens in high school, big deal. But we stayed friends, it's 40 years later. But John's older sister, who happens to be Sammy's mom... This would be Samantha Darsie, John's wife.

John Darsie: (04:33)
My mother-in-law.

Anthony Scaramucci: (04:34)
Yeah. She basically said to me that I was a townie in Port Washington. Okay? So, these guys obviously grew up on a manor somewhere, but I was obviously a townie. And so, when I thought about that, I was like, she's 100% right. I was a total townie. I grew up in a blue collar neighborhood. You could drive by that neighborhood today, it's all blue collar people and blue collar houses. My mother won't leave the neighborhood no matter what, so God bless her. And the place where my dad worked is now a golf course, but it was a huge sand mine, and he worked there for 42 years. And what's interesting is [inaudible 00:05:08] actually... I helped him with it, but he really put up all the money. He built a monument of all those immigrants, Irish and Italian and Welsh immigrants that built that mine.

Anthony Scaramucci: (05:19)
But it was a great town to grow up in because it was a good mix of wealthy people, middle class people, lower middle class people, low income housing, the sort of low income housing that Donald Trump says he doesn't want to put in suburbs, which is actually valuable to the suburbs for so many given reasons. And so, there we all were. It was a great public school education. But there was a seminal moment for me, and I believe this happens to everybody, you figure out somewhere between 11 and 17 what you're doing for your life. And so, I have a son who's 28, just graduated from Stanford Business School, he wanted to get into technology and biotech and the future, and so he went out to Silicon Valley. Now lives in Venice Beach, California, is building a telemedicine company. My 21-year-old son is like, "Dad, I love music and videography." He's working in the music industry. For me, I love sales.

Anthony Scaramucci: (06:11)
And so, when I was 13... I was probably a little younger than that. When I was 11, my dad got his hours cut back, and there was some economic anxiety now, so I went out and got myself a Newsday paper route. So, if you're riding along Long Island, I was delivering newspapers. And then I convinced Mr. [Fusco 00:06:28], may his soul rest in piece, to give me like 50 free papers on Wednesdays. And so, John would know where this is because he lives out here. There's this place called the Dolphin-Green Apartments. It's on Main Street in Port Washington. And at that time, it was just really Irish and Italian ladies, and they all knew my mom. My mom was like Siri before there was a Siri. If you wanted to know who was having an affair in Port Washington, call Maria Scaramucci, she could tell you. She had everybody's feet... She probably knew people's fingerprints, even.

Anthony Scaramucci: (06:55)
So, I would go into that apartment building with the free newspapers. I would knock on doors, hand out free newspapers, and then I would hit these Italian and Irish women up for subscriptions to Newsday. And so, I built a fairly large Newsday practice, and I gave the bulk of that money to my parents, and I kept some savings for me, and that's how my whole business career started. And I was like, "Someday, I'm going to have my own business. I'm going to make sure that I get myself educated." It's probably too long-winded, but I'm trying to run the clock out here on John Darsie. But go ahead, John. Keep going.

John Darsie: (07:26)
You're trying to avoid the hard questions.

Anthony Scaramucci: (07:28)
No, keep going.

John Darsie: (07:30)
I think it's helpful, and I think going later into your life, I think when people ask me to describe-

Anthony Scaramucci: (07:33)
But the fact that your mother-in-law called me a townie, I still... It's not like I forgot it or anything like that. I just want to make sure that you know that I'm still talking about it 35 years later.

John Darsie: (07:42)
Well, she's not wrong, but we'll move on from that. When people ask me to describe you in one word, a lot of times the word I use is resilience, and you've over the course of your life been able to train yourself to be resilient in a lot of different scenarios, and your path to success hasn't been a straight line. You describe yourself as being a middling student in high school. You got to Tufts and the academic light bulb went off. You obviously have enjoyed a lot of academic success, including going to Harvard Law School. You were fired from Goldman Sachs in the investment banking department before you went on into the private wealth management division. SkyBridge almost failed in 2008 before you pivoted and grew the business to what is now the largest RIC structured fund-to-funds in the country. And you were fired from the White House after 11 days, let me remind you about that.

Anthony Scaramucci: (08:31)
I failed the bar, too. You forgot the bar exam. I failed the bar exam.

John Darsie: (08:33)
You failed the bar twice. I forgot about that. The list is too long.

Anthony Scaramucci: (08:35)
I took the bar twice, yep.

John Darsie: (08:36)
We would run out the SALT Talk if we listed all of your failures and setbacks, but you've been able to bounce back and achieve success on the heels of all of those temporary setbacks.

Anthony Scaramucci: (08:46)
It's really hard to believe I actually elected to do this with you. I'm going to come right through the window there.

John Darsie: (08:52)
If you were talking to an entrepreneur, how do you train yourself to be resilient, and what are other key lessons you've learned in business amid those failures or temporary setbacks?

Anthony Scaramucci: (09:02)
Well, here's the thing. When you grow up the way I grew up, for whatever reason, you're starting from scratch, so you're like, "If I got to go back to scratch, big deal." I always tell my kids, if I have to live in a one-bedroom apartment with a white tee shirt, it won't be a wife beater, I'm not that politically incorrect, it'll be just a regular Fruit of the Loom tee shirt, I could have a six-pack of Schlitz and a rabbit ear television to watch the Met games, I'm fine. And so, I think what you have to do in life is you have to enjoy the journey and you have to handle the ups and downs like a gentleman or a gentlewoman, and not let it overly distract you from the long-term gains, or the long-term goals.

Anthony Scaramucci: (09:42)
And so, I got fired from my first job for probably the right reasons. I sucked at that job. I would like to tell you I was good at the job. I actually sucked at it. And so, what happened was, I wanted the cool job coming out of school, and the cool job at that time was Goldman Sachs, and it was Goldman Sachs Real Estate, Investment Banking. That's 31 years ago. So, I hustled for that job. I got the job, but the problem was I wasn't prepared for the job, and it really didn't fit my skillset or my personality. So, 18 months into the job, the Gulf War started, and we were in a recession, and the firm decided to start laying people off.

Anthony Scaramucci: (10:17)
And a guy by the name of Mike Fascitelli, who went on to become the CEO of Vornado Realty, was my boss. He called me to his apartment on [Jane 00:10:25] Street. It was Friday night, February 1st. Not like I forget anything. It was Friday night, February 1st, 1991. I was 27 years old. He said I was fired. I was like, oh my God, because I had a lot of school debt, and I didn't really know if I was going to actually be able to figure everything out. He handed me an $11,000 severance check, John, and I was really bummed out. And then by that morning, I got up, I went for a run, and I was like, "All right, that job sucked. I wasn't good at it anyway. Let me see if I can go find myself another job. There's got to be another job out there."

Anthony Scaramucci: (10:58)
We were in a recession, so that was creating some anxiety. And then I didn't have a cellphone back then. It was 31 years ago. So, I was pumping quarters into payphones at Grand Central. And then one of my buddies said, "Well, there's jobs open at Goldman in the sales area, in institutional sales." And so, then I called Mike. And this is a lesson for young people who are listening. Don't burn bridges. I called Mike, and I said, "Hey, I got an opportunity upstairs on the 28th floor. Could you help me out?" And he did. And so, Mike and I are still very close to this day.

Anthony Scaramucci: (11:33)
It's the same thing when I got fired from the White House. When John Kelly fired me from the White House, first of all, I did something completely stupid, regrettable, but did it, and so I'm totally accountable for it. So, another learning lesson for young people. Don't go like this and try to blame other people. I admit to something stupid. I trusted somebody. The great irony is the reporter, his family was a 50-year friend of my dad. His father had worked with my dad on Long Island Construction, and so I did the stupid thing, I was transposing that relationship onto my relationship with the guy's son, and that was very, very stupid of me.

Anthony Scaramucci: (12:07)
And so, he wrote this salacious article. It wasn't even exactly what I said, but then when they finally played the recording, you realize it wasn't that nuts. It was just me being my typical antical self. I said some funny stuff about Steve Bannon. And by the way, everything I said about Steve Bannon was more or less true. The guy's a total whack job, so we can talk about that if you want. But, I'm fired, and so General Kelly and I got off on the wrong foot, but look at us now. We've had him on the SALT Talk, we've had him in Abu Dhabi with us, we had him in Las Vegas. I talked to him last weekend. We have a terrific relationship. I'm going with General Kelly to Iowa in January where we're going to be speaking together, and I had him at the Biltmore Hotel in January of this past year, so him and I are on a speaking tour together, and it's been a lot of fun.

Anthony Scaramucci: (12:54)
And so, what do you do? You've got to make lemonade out of lemons, man. You don't sit there and cry about it. I just want you to imagine... and my son, my oldest son, he put together a 15-minute composite video of me getting my ass kicked by late night comedians. It's sort of humiliating, right? It was 15 solid minutes of Jack Oliver and Seth Meyers and all these different people. It was absolutely brutal. But thank God, for some reason it's never gotten on the internet, thank God. But, yeah, I looked at it, I said, "Okay, this is a rough situation. I'm going to get bounced. I got roughed up in the press. And so, I'm just going to go back and do what I know how to do, and try to speak honestly about situations," and I think that's a lesson, John. Look, we got our asses kicked in March. You don't see me complain about it.

John Darsie: (13:39)
Just keep going forward.

Anthony Scaramucci: (13:41)
Some people fired us. Other people hired us. My attitude is always live below your means, always save a little bit of money, and this way, when you get a little older in life, you have a little bit of a cushion, and then some good things happen. My buddy, Steve Cohen, is buying the Mets. I own a piece of that. That's great. And you have to stay balanced, and you have to look at the long run, and try not to burn bridges. So, your obvious question is going to be, "Well, what about you and Trump?" It's nothing personal with me and Trump. It's fine. He's just not fit to be the President of the United States. That's all. It's not a personal thing. It's just, to me, I think there's something off with the guy. It's too dangerous for the country.

John Darsie: (14:15)
Let's frame the whole thing. Let's frame the whole thing. So, you support Scott Walker as the Republican nominee. He fails. You support Jeb Bush as the nominee. He fails. You join the Trump campaign, despite the fact that you don't share a ton of values with Trump, but you thought he could be a pragmatic, post-partisan president. You go to his rallies, and it opens your eyes to what's going on in the country. There's a lot of blue collar people like the people that you grew up around in Port Washington, like your dad grew up around in Pennsylvania, who are really struggling, who feel like they're not part of this American growth story anymore.

John Darsie: (14:50)
And you wrote a book about it. Even after you left the administration, people say, "Oh, you turned on Trump because he fired you." Actually, that's not accurate. You stayed loyal to him and you actually wrote a book praising him and his work in appealing to the blue collar base of the country. But something happened. It was a process, really, that took place, that you eventually sort of rescinded your support of him, and you're now obviously campaigning against him and for Vice President Biden. So, what was that process like? What did Trump tap into-

Anthony Scaramucci: (15:18)
Okay, so this is unlike Sandra Smith on Fox News, you're going to let me explain it. It's just very simple. It's not a personal thing. Imagine the two of us are on the board of a publicly traded company. We select somebody to be the CEO, and then they demonstrate four years of this type of behavior, this type of policy decisions, and they're going off on their Twitter feed the way that he's doing. You're like, "Okay, this is not the right guy for us." It's not the right guy.

Anthony Scaramucci: (15:43)
And so, what happens in our country, it's not a hiring decision, it's a popularity contest or something, and then the media sets up this narrative that we have this great culture war, that this is a battle doing capitalism and socialism, or communism. It's a bunch of nonsense. It's not true. It's not capitalism or communism. We have a political construct in our country where we have a safety net for people that are indigent, but we have by and large a bureaucratic, capitalistic system, but you have to have some regulation and you have to create some opportunity for people that are starting at uneven places in the starting block. I grew up in Port Washington. That was a great public school. If I grew up in an inner city somewhere, maybe I wouldn't have gotten the same education that I got.

Anthony Scaramucci: (16:27)
And I think that that's the unfairness in our society. Life, of course, is unfair, but a good quality government is designed to try to create equal opportunity. I'm not about equal outcome. A candidate for the vice presidency, Senator Kamala Harris, she tweeted out something yesterday, people said, "Oh, that's communism." Go look at the tweet. Someone's starting behind the other guy. All she's trying to say is that a good government, an energetic government, it's not a left or right policy. It's a right or wrong policy. Let's even up the educational system so that people no matter where they're born, they can have a shot at things. That's good capitalism, if anything. That's not bad capitalism.

Anthony Scaramucci: (17:07)
So, my evolution with the president is very simple. He fired me. No problem. Stayed loyal to him. Went out to advocate for him. Now he's separating women from children. He's putting the kids in cages. Okay. You can't argue for that. I'm sorry. So, I denounced that. Then he's in Helsinki, he's saying that he believe Vladimir Putin over the intelligence agencies. Okay, you can't really abide by that. Then he's calling the press the enemy of the people. Him and Steve Bannon are ginning that up. Well, I'm a big believer in the free press. And by the way, I do not have standing with the free press. They beat the living hell out of me, and I have no problem with it. God bless, I talk to the reporters that beat me up as much as I talk to the reporters that don't beat me up, and my attitude is, you're a public figure, take the hits, who cares?

Anthony Scaramucci: (17:51)
But the thing about the press, John, it's very important people understand this, without the press, you don't have the innovation or the economic engine, because you're teaching young kids to speak and think freely. You're doing that in the first and second grade. They go on and create Facebook or Google or Apple Computer or an AI software technological platform. If you're censoring the internet like they do in China, or you're telling people they can't talk about politics, you start to narrow out their way of thinking, and they have to steal your intellectual property. They don't have the bandwidth to create it. And so, it's an important element of the country's success.

Anthony Scaramucci: (18:27)
So, I wrote an article, The Press is Not the Enemy of the People. The president called me on Easter Sunday, super pissed at me, and he said, "Oh, the press is the enemy of the people." I said, "Well, they're not. Read the article." "I don't have to read the article. I read the headline." I go, "All right, fine. Don't you want the independents? Don't you want the moderates?" And this is a very telling thing about the president. "No, I don't want them. I'm going to focus on my base, and I'll let everything take care of itself." Okay. I said, "Look, that's a bad recipe. That's not going to work." He hung up the phone. He was sore at me. It was the last time I spoke to him. And it's fine.

Anthony Scaramucci: (19:00)
And now we're going into the summer time, and he's going after the squad. So, these are four women that are in the Congress, some are African-American, some are Muslim-American, some are Hispanic-American, going after them. He's writing that they should go back to the countries they originally came from. What are you doing? Can't talk like that. That is racism. That is racism. That is American nativism. You can't talk like that. So, I said, "Hey, I'm on the show." I said, "I'm sorry, I'm not going to approve that. I don't sanction that."

Anthony Scaramucci: (19:31)
Rudy Giuliani, you know this, and Rudy has said this. I go back 30 years with Rudy. I wrote him a check when I was 25 years old when he ran for mayor the first time in '89 unsuccessfully. I said to the mayor, I said, "Come on, man. You can't accept that. Your grandparents, your Italian-American grandparents were told by racists and nativists to go back to the country they originally came from. You're going to accept that? You can't disavow your personal story and all your personal integrity to accept that sort of stuff." But Rudy said, "Yeah, no, I'm going to accept it." Rudy's going full bar right now. I don't know. I feel bad about it. I choose to view Rudy the way he was when I was a kid and he was cleaning up New York City. I don't like to look at him the way he is today.

Anthony Scaramucci: (20:13)
So, here we are now. Then the president goes after me, okay? That's fine. I'm a public figure. Ha ha, he he, you can tweet about me. And then I got to go after him, because you know my personality. I'm not going to sit there. So, I think I called him Fidel Adolf Trump. I think you were there. I had to get the fat shaming in. I called him the Notorious FAT. And then I think I got knocked off Twitter for 12 hours. You probably remember that. It was my first and only time that I've been knocked off Twitter. And then, he went nuts, and he goes after my wife. Who does that? He's going after my wife, the President of the United States. Who does that? I raised and gave the guy millions of dollars. I was on his executive team. When everyone thought he was losing after Access Hollywood, Chris Christie and I went and raised money at the Hunt and Fish Club for his transition, who no one thought he was going to have. We were out there raising money for it, giving money to it. He goes after my wife? You got to be nuts.

Anthony Scaramucci: (21:07)
So, I'm not Ted Cruz. You know that. I think Ted Cruz knows that. Most people know I'm not Ted Cruz. You're going to come after my wife, after her and I almost got divorced after me working for you. You know Deidre. She hates Trump. She probably doesn't hate him as much as Melania hates him, but it's up there. It's up there.

John Darsie: (21:23)
Nobody hates Trump more than Trump hates himself, and we've talked about that, but I'm losing my editorial independence now.

Anthony Scaramucci: (21:29)
Well, that might be true. Now he's coming after my wife. He knows her and I were in a battle over our marriage, almost got divorced. It's just this ruthless, insensitive, unempathetic nonsense. That was it. So, I got up in August of last year, and I said, "This guy's crazy. There's something wrong with this guy. He's irrational. He alienates people that could be allies of his. He doesn't have a unifying message. And he's crazy." And then people said to me I'm crazy, he's going to soundly win reelection. I said, no he's not. He's not going to win reelection because he's nuts. And there'll be a crisis that happens and he'll mishandle the crisis.

Anthony Scaramucci: (22:04)
Now, just quickly, and you were in this meeting, we had a senior cabinet official come to SkyBridge. Sat on the couch last October. And the senior cabinet official said-

John Darsie: (22:15)
And this is a real senior cabinet official, not a New York Times senior cabinet official.

Anthony Scaramucci: (22:19)
No, this was somebody named in the cabinet, a well-known name that everybody knows. And he said, "We're not going to be able to handle a crisis because the president, respectfully, can't manage anything." And so, if a crisis comes, you don't have any orchestration, any delegation, you're not running it off the Fred Greenstein, the Princeton professor, or the Richard Neustadt, the Harvard professor that studied the Eisenhower and Kennedy administrations. There's no managerial process in the executive branch, this cabinet official said. And a result of which when a crisis comes, it's going to be a disaster.

Anthony Scaramucci: (22:54)
And when the Soleimani strike happened, I was like, "Okay, this is the crisis that was being referred to." Thank God that abated. That seems like it's a hundred years ago now. And then we got COVID-19. And then he did exactly what people that are close to him that are honest about it would say that he would do. John Kelly, H. R. McMaster, myself. What would he do? He's insecure with the experts. The expert comes in, gives him the expert opinion, and he's insecure about it. They're talking in full sentences, and they got well educations and stuff. He's insecure. So, now he's got to do the opposite of what they're suggesting, because as General McMaster used to call it, it was an intuitive reflexive response to try to show the person that he knew better and that he was smarter than them.

Anthony Scaramucci: (23:44)
Okay. Maybe that will work in opinion-based stuff, and maybe it will work in foreign policy in certain areas, maybe. I want to be as fair as possible. But it's not going to work in science. You're not going to be able to say, "Okay, listen, the South Koreans are going to do the following to handle the epidemic, and they're listening to their epidemiologist. Now they have 20 deaths per million. And the United States is going to do the exact opposite and we're going to have this total chaotic response, and we're going to tell supporters of the president that they shouldn't wear masks, and we should just run rampant through the country," when we have guys like Anthony Fauci saying, "Well, if you do that, we're going to have tens of thousands of unnecessary deaths."

Anthony Scaramucci: (24:26)
And so, you got the crisis. The crisis impacted the president's personality. The president mishandled and lied about the crisis. And then he did, which is the most ironic thing, he wrecked the economy. And so, we can pretend that he's better for the economy than Joe Biden, but he's not. He's not better, because you got to handle the crisis. You got to make the people healthy first before the economy's going to respond.

John Darsie: (24:49)
Well, let's talk about that. Let's talk about that. You've been very vocal in the media talking about how you think Joe Biden is the better candidate for the economy and for markets, in spite of the fact that he's talking about raising income taxes for people making more than $400,000 a year, in spite of the fact that he's talking about raising the corporate tax rate. When you talk about pure corporate cash flows and you look at the stock market as a reflection of things that are going on in the economy, even though it's not exactly a reflection of the economy, why do you think that sacrificing tax rates for corporations and wealthy Americans is worth it and is offset by other normalcy that Joe Biden will bring to the table?

Anthony Scaramucci: (25:32)
Okay. Well, the first thing, you have to either believe or not believe. I believe that the president is threatening the institutions of our democracy and the checks and balances in the system. You don't have to believe that. Just go look at what he's saying. Look at his rhetoric. And Michael Cohen, myself, and others that know him know that he doesn't joke around. So, he's trying to subvert the process, and he would like to jail his political opponents, and he would like to stay in the White House. All of this despotic nonsense is stuff that he really believes.

Anthony Scaramucci: (25:59)
And so, when you've got the President of the United States in the middle of an election saying, "Well, I may or may not accept the peaceful transfer of power," you're like, "Okay, hold on a second. What made us a beacon of hope for mankind and a shining city on a hill is that we did that, and that we had an understanding in the country that we were going to do that peacefully. You can't talk like that from the American presidency anymore that you can tell people that were born in the United States, like members of the squad, three of them were born here, one's a naturalized citizen, to go back to the countries that they originally came from."

Anthony Scaramucci: (26:27)
So, it's classically un-American what he's doing. And so, I would stipulate to all my friends in business that he's very dangerous to the rule of law, and one of the cornerstones that has made American business so successful for hundreds of years is the predictability of the rule of law, the understanding that there is stare decisis, that there's precedent in the law, and that when we enter into legal contracts with each other, they're binding, and there will be some impartiality to that process. Moreover, if someone does something criminal in the country, we'll give them the right to defend themselves, and we'll presume that they're innocent, but there is some fairness there if you are harmed that someone will have justice sought against them.

Anthony Scaramucci: (27:16)
And so, you can't have this nonsense. So, without that, and then the next layer is, well, we got to be healthy. So, we can't have someone lying about the science or not having any managerial skills to handle a crisis, or having such insecurity that they can't even talk to people in the room. They have one run-on sentence where they talk to themselves in this stream of consciousness nonsense, where you've got real experts in the room that can tell you how to do something. And so, you keep going. Okay, well, his tax rates are better than Joe Biden's. Well, we don't know that necessarily. The Obama administration did not raise taxes for several years because the economy was too weak. I don't think that you're going to see a tax hike immediately. I just don't see it, because the economy can't afford it. The economy's in bad shape.

Anthony Scaramucci: (28:04)
The flip side, though, is we had Stephanie Kelton, who's a modern monetary theorist on our SALT Talks. I read her book, The Deficit Myth. She makes a compelling case for deficits not mattering. But she then also says in the book, chapter six, or five, that deficit's do matter, that you can't run it ridiculously where you're running a 50, 60% deficit per year on your operating budget. You don't want to rack up $100 trillion of debt. And so, the great irony here is that the president's done that. If you look at the Obama administration and what they were doing, it's more classically Republican than the Trump administration.

Anthony Scaramucci: (28:45)
So, there's a tremendous amount of hypocrisy, and then you have the news organizations that are fragmentized, and they're speaking into echo chambers in our society now, John. And so, there's a lot of people... I'm saying this. The flaps are going down over the readers. They don't want to hear it. Other people say, "Okay, that makes sense," and then they'll disagree with me on something else, and then bam, we've got the whole demonization thing going again, where we can't just be Americans having civil discourse and honest disagreements and working towards a consensus to come up with the right ideas. We have to have this black or white demonic thing, where if you don't agree with me, you're the devil, and this guy doesn't agree with me, he's the devil, and it's a battle between communism and capitalism. It's not. It's not a battle between communism and capitalism.

Anthony Scaramucci: (29:30)
Moreover, there's no culture war. On certain news media, they've got people believing that Trump is the last white man standing from the latte drinking hoards of Hispanic and African-American transvestites that are going to come up over the transom and take over the culture. That's how they talk to those people. It's not going to happen. First of all, I don't dictate how people live if they're living in the city of New York or South Dakota or Texas or California anymore than those people dictate the way I live here on Long Island. That is the most unbelievable gift of being American, that you have that level of freedom.

Anthony Scaramucci: (30:07)
And so, let's break down all of these myths about what's going on, and then this will clinically get the people involved. Is Joe Biden the perfect guy? No. I'm not saying he's the perfect guy. But he's a better guy than President Trump would be in this situation.

John Darsie: (30:21)
So, let's talk about that. So, there's two separate questions here. There's, what do you think the ultimate outcome of the election is going to be, and how do you think it's going to play out tomorrow on Election Day, despite the fact that in a lot of states, the turnout so far in early voting and in mail-in voting has already exceeded the total vote for 2016? But tomorrow is still Election Day. How do you think, ultimately, the election's going to play out? What's the map going to look like? Who's going to win? And then, how do you think things are going to play out tomorrow?

Anthony Scaramucci: (30:54)
Okay, so I'm not talking my book. I'm looking at it clinically-

John Darsie: (30:55)
Yeah, but this is objectively. This is not you rooting for Biden. This is objective view.

Anthony Scaramucci: (30:56)
Yeah. I'm looking at it the way a money manager would look at it, an analyst. Forget about who I want to have win. How do I think it's going to play out, is I think it's going to be consistent with where the polling is. There's an outlier poll called Trafalgar. They got more things right last time than they got wrong. They're calling it closer than, say, the RealClearPolitics average. And the RealClearPolitics average made a few Midwestern States... I think they missed them by a few points, but it was still roughly inside the margin of error.

Anthony Scaramucci: (31:29)
And so, if you look at the polling, you give the president the benefit of the doubt of the margin of error, he's going to lose the election. He's going to get routed by Vice President Biden. But, the other thing that I'm looking at are things like the Bet Fair Market, the Predictive Market. I'm a money manager, so I like following the money. Joe Biden, as of last night, is a two-to-one favorite. Now, there's gamblers on this call, there's people that understand odds. A two-to-one favorite is a very strong favorite. So, when Nate Silver's saying it's a 90% chance, sure, there's a 10% chance, but let me put it to you this way. I'd have to take a coin out of my pocket and flip it heads four times in a row for Mr. Trump to win. That does happen. So, he could win reelection, but the more likely scenario is that one of those will come up tails as I'm flipping, possibly more than one.

Anthony Scaramucci: (32:20)
And I don't see it happening. Anything can happen. But he doesn't have the groundswell that he had last time. And he happens to be the polarizing candidate this time, not Vice President Biden. And you've got a pandemic going on, and what Carville would say, 28 years ago, James Carville, "It's the economy, stupid." Today's mantra is it's the pandemic, stupid, because the pandemic is tied to the economy, and 67% of the Americans say they would trust Vice President Biden with the handling of the pandemic than President Trump. So, he's going. And so, the question is, how wide of a margin is he going, and then, what is he going to do, what kind of antic is he pulling?

Anthony Scaramucci: (33:02)
Now I'm going to say something some people are not going to like. I don't think he's playing to win this thing. If you look at his speeches or the rallies, what he's saying at these things, he's not really trying to open the tent or trying to get people to vote for him as much as he's trying to create a ruckus. I think he's trying to set himself up for a post-presidency that could be filled with media appearances or filled with some kind of political power related to this movement that he's created. And I also think if he's in trouble anywhere, he's going to want to use that political power to help him and his family if there's potential investigations that he's worried about.

John Darsie: (33:39)
So, Axios reported in the last couple days that he's telling people that if there's any hint that he might have a chance to win tomorrow, he's going to declare victory, and he's going to throw everything into a little bit of chaos. So, he would need to lose probably North Carolina or Florida for us to have a definitive proof by tomorrow night, Election Day, that he's likely lost the election. Do you expect him to lose states like North Carolina or Florida, or do you expect this to drag out for a couple days as we count all the ballots in a place like Pennsylvania?

Anthony Scaramucci: (34:11)
So, you're looking at the same polls, everyone on this call is looking at the same polls, so I don't have any insight there. I did a call with the Lincoln Project yesterday, and they think definitely that he's going to lose tomorrow by wide enough margins. I don't remember them specifically saying anything about Florida or North Carolina. But Bill Crystal, somebody I'm close to, he's done polling in Florida, independent polling, and thinks that the Vice President is up anywhere from 3-5%. So, that's still inside the margin of error. But if I had to guess, because of what's going on with seniors and suburban women, I'm guessing he's going to end up losing Florida, and that will be a very big deal. He won't be able to manifest any of these ideas that he's coming up with with Axios.

Anthony Scaramucci: (34:57)
If for some reason he doesn't lose Florida and it gets a little heated and more contested, he'll try to do things, but if you've got states certifying the elections and therefore bringing in the electors, one strategy that's been proposed is that he goes and sues everybody and says that the state legislatures should be picking the electors, and there's more state legislators that are Republican controlled, and try to subvert the electoral college and get the state legislators to pick the electors instead of the American people, and some vagueries about that. Even though he has such acolytes and he's had such amazing sycophants in the leadership of the Republican Party, I choose to believe that somebody like Mitch McConnell at that point will say, "All right, man, you've got to go."

Anthony Scaramucci: (35:43)
And this is a real lesson in demagoguery, because a demagogue can't do what it's doing without the help of people. You've got to have willing accomplices to do that. So, if you want to lie about the Ukraine and you want to see if you can get a blackmail scheme going with the president of the Ukraine, that's great. Okay. But, what are you going to do? You're not going to be able to... I don't know. You have 52 people that voted against it. Mitt Romney voted for it, understood the law. We've gotten ourselves into this politicization situation which is I think unfair for the country.

John Darsie: (36:20)
So, let's talk about something you do know about. You talked about you don't have any more data related to polling than anyone else has, but Pennsylvania is an area that I think you have a particularly keen sense of. You spent a lot of time in 2016 campaigning alongside people Like Don Jr. in Pennsylvania. Your dad's family is from the Scranton, Wilkes-Barre area. And Pennsylvania is seen as a key battleground here, because if Biden wins Michigan and Wisconsin and Minnesota the way people expect him to, then if he wins Pennsylvania, then he wins the election. What types of people do you think are ones that maybe voted for Obama in 2008, voted for Trump in 2016, and might be voting for Biden in 2020? What does that coalition look like? Why have they turned on Trump potentially, and why would they be attracted to Biden in this race?

Anthony Scaramucci: (37:10)
Well, they would be attracted to Biden because they would understand the way my dad understands having grown up in Wilkes-Barre and in that Scranton area that he's one of them. So, he actually has pathos and empathy for their struggle and empathy for the economic situation that many of those people are facing in terms of living paycheck to paycheck. I think Mr. Trump won those areas because Secretary Clinton, whether you like her or dislike her, I'm not picking on her, she probably didn't connect with those people, and those people have felt that establishment leaders have more or less left them to themselves. There's been a vacuum of advocation.

John Darsie: (37:48)
Despite the fact that she's from Pennsylvania.

Anthony Scaramucci: (37:50)
Yeah. She grew up in Wilkes-Barre as well. When I listen to Secretary Clinton speak, she sounds like my Aunt Eleanor, because my dad grew up... It's interesting. My dad grew up about four miles from where Secretary Clinton grew up, and 15 miles from Joe Biden. So, I know the area well, but I think the northeastern part of that state's going to go for Joe Biden in a way that will cause the state to flip over to Joe Biden. He may not get certain southwestern areas of the state or Pittsburgh, that still seem like they're for Mr. Trump. They believe in the cause of Mr. Trump.

Anthony Scaramucci: (38:25)
But here's what I would say to those people. And I have been saying this, because I've been doing local radio in those markets, and I've been doing local television, is that he's an avatar for your anger. He's been expressing what you're angry about. But he has not been offering a policy solution. He's had four years to offer a policy solution to what you're upset about, but he hasn't done that. And now he's threatening your elderly parents with the COVID-19 crisis. So, we may want to switch jockeys here and see if we can try something different.

Anthony Scaramucci: (38:53)
And by the way, Joe Biden is one of the, what I would call, a blue collar democrat. And so, I think you may get better policy response from Joe Biden than you would from President Trump who... He did a really big corporate tax cut, which I would say helped the stock market. It's unclear how much it helped wages at the bottom end. It didn't necessarily trickle down. But maybe Joe Biden can provide something that's more substantial for those people, and I think that's the right message.

John Darsie: (39:21)
So, you mentioned trickle down. Trickle down economics was a hallmark of Reagan Republicanism. And ideologically, I think we're starting to see a tipping point right now in the Republican Party. So, I think you still consider yourself a Republican, and you voiced a lot of concerns about the direction of the party. You've had people like the Lincoln Project, a group of what I would consider moderate Republicans who are trying to engineer a restructuring of the party. But 90% of Republicans support President Trump. Stuart Stevens wrote a great book, he's part of the Lincoln Project, about his role and how the Republican Party really is being exposed for its hypocrisy over the last 30 or so years.

John Darsie: (40:03)
How has the pandemic or even unrelated to the pandemic, how have things changed recently in terms of how you look at things like a social safety net, or how you look at things like access to healthcare, how you look at things like education? And when this is all over, and let's assume that Trump loses by as much as the polls suggest that he's going to lose by, how does that party restructure itself, and how do we basically build two parties where both of them believe that everyone's vote should be counted in an election, for example?

Anthony Scaramucci: (40:34)
Well, there's a lot of different potential outcomes for the party. Let's assume that he loses for a second. If he doesn't lose, party's going into a nuclear winter. It's going to become a white aging demographic. It's going to become a party of people that are buying catheters and My Pillows from Fox News commercial ads. That's what the party's going to be. And they're going to get trounced in 2024 and 2028. If they have a reckoning like they did in 1980 and they bring in leadership that has a wider bandwidth that can open the tent and can make the party look demographically more like the rest of the country, and they can reach out to people with different ideas that are necessarily, in my opinion, entrepreneurial ideas...

Anthony Scaramucci: (41:17)
The GI bill was an entrepreneur's ideas. Yes, it was a government program, but look at how many entrepreneurs sprouted out from that. The understanding of how to make big tech companies more innovative by potentially breaking them up, that's an entrepreneur's ideas. That's been going on for 15 years, looking at technology companies or businesses that need to be broken up so that there can be more innovation and more opportunity. The Andrew Yang stuff about universal basic income. You and I talked to Fareed Zakaria last week about a tax cut on the income. It's an earned income tax credit-

John Darsie: (41:56)
The earned income tax credit, yeah.

Anthony Scaramucci: (41:57)
... is what it's called. And so, there are ideas that you could present to people that all of a sudden, people that want better lives for themselves and their families, want more aspirational economic activity, want more self-reliance, also can get excited by. And so, if you're going to go down the rabbit hole of we're just going to have lower taxes and high deficit spending, this is the great irony about Trump's base. I think it's very important people understand this. Trump's base is the opposite of what you may think. They are religious conservatives, but they are by and large fiscally liberal, meaning that they want the Medicare, they want the Medicaid, they want the social security benefits, the workers' comp benefits, the unemployment benefits.

Anthony Scaramucci: (42:41)
And so, Trump understands that. And I've had conversations with him about it in 2016. People think that these people are fiscally conservative and they're religiously and socially conservative. They're not. They're the opposite of what people think. And so, I just think it's important that the Republicans have to figure out what the matrix should be to increase the size of the tent. If they go with Trumpism in 2024, I think they're going to get annihilated.

John Darsie: (43:07)
All right. We're going to go into SALT Talks overtime here because we have so much audience participation. I want to talk about, and this is an audience question, about your point about Trump somehow connecting with the forgotten man. He's been left behind by globalization. You wrote about this topic in an op-ed I believe this week. There's a lot of other social observations about income and wealth inequality, race inequality issues, the white grievance that's coming out of people who are now so fervently anti-immigrant. So, how do we make the argument for those people and bring them back into the fold rather than calling them deplorable and basically saying we're just going to ignore them in future elections? How do we bring them back into the fold and make that argument that the American dream still exists and is still attainable for them?

Anthony Scaramucci: (43:56)
So, obviously that's the question. And so, for me, I would want to offer those people a package of services from the government, and some of it could be education, some of it can be jobs training, education for their children, jobs training for themselves, and some liftoff package. It could be a UBI structure or it could be an earned income tax credit structure. But all of a sudden now, they've got some sense of fairness, and they've got some sense of fiscal stability. The amazing thing about the rejection of UBI by the very wealthy is that they're doing it for their kids. Every wealthy parent is giving UBI to their kids to help them get started. They say, "Oh, it's going to cost a lot of money. It's going to be deficit spending." Not necessary. It could be set up in a public/private partnership, where corporations get tax credits to help people, and all of a sudden those people are now inspired to go work for either of those corporations, or work on their own.

Anthony Scaramucci: (44:53)
What we're doing right now is because we're beating the living hell out of each other, we're not sitting down with any level of policy wonkishness to really go through what would work. And so, what I submit, and you've heard me say this publicly, we don't have a 10-year plan for America. We don't have a 15-year plan for America, a 20-year plan for America. We have a no-year plan for America. And so, while our adversaries and our competitors around the world are planning strategically, we're sitting here beating the living daylights out of each other during cable news segments.

Anthony Scaramucci: (45:24)
So, we could come up with a plan, and all of a sudden we can go to those people and say, "Okay, this is a better plan for you. We don't want you to be clinging to the state. We don't want you to be on the 'dole.' We don't want you to have us telling you how to live your life. We want to put money in your pocket and allow you to figure out a way to spend that money in the best interest of yourself and your family. We don't want it to be a top-down structure, but we want to give you some supplementation from the bottom to help lift you up." And I think that's the direction that the Republican Party has to go in, and still maintain a broad sense for propitious regulation and a broad sense for free market principles.

Anthony Scaramucci: (46:06)
But let's stop the hypocrisy you can't say, "I'm a free market guy," and then you want gas and oil credits, "I'm a free market guy, but Wall Street's blowing up, shoot me a trillion dollars to save my investment bank." You've got to look at it holistically, and you've got to say, "Okay, there's elements of the free market, and there's elements of incentives that work for people." That certainly inspired me. I believed 35 years ago if I worked hard, got educated, took some level of rational risk, I would create some amount of financial independence for myself.

John Darsie: (46:34)
Are you worried about deficits? You talked about Stephanie Kelton. We had her on a SALT Talk a couple months ago. She's one of the leading evangelists for modern monetary theory. The Republican Party seems to be concerned about deficits when there's a democrat in office but not when there's a Republican in office. But, we don't know what the long-term effect of these rising deficits and our rising debt will be. Are you concerned about that, or do you think as John Maynard Keynes would say, which we also had Zach Carter on who wrote a great book about Keynes as well, do you think the investment that we make today is going to be worthwhile in terms of the short-term deficit, in terms of the long-term prosperity that it's going to create for the country?

Anthony Scaramucci: (47:14)
I'm worried about deficits, but not in the classic sense that we were trained to worry about deficits. When Dick Cheney said deficits didn't matter, I didn't realize he was a modern monetary theorist when he said it. So, I've done a lot of work on it. I've read Stephanie's book. We interviewed Stephanie. What I would say is that the balance sheet of the United States is big enough to handle what we're doing right now. You've got 28% of the land in the United States is owned by the US Government, and there is natural resources under that land that's probably $60 trillion. So, if we were a company, and-

John Darsie: (47:50)
It's probably undershooting it, to be honest.

Anthony Scaramucci: (47:52)
Okay, I'm probably undershooting it. I'm just giving you a rough market base estimate. Maybe it's $100 trillion. But, the point being is if you've got a $30 trillion debt and you've got $60 trillion worth of assets, and you've got a $22-23 trillion economy with a robust tax base, you can handle the deficit spending. Where Stephanie and I disagree intellectually is that what ends up happening is if you get too much deficit spending, what ends up happening is the Central Bank always moves to monetize the debt. And so, this is why digital currencies are en vogue now, but let me just give you this example.

Anthony Scaramucci: (48:28)
We became a fiat currency in mid-August of 1971. So, that's 49 years ago. At that point, as a result of the Bretton Woods deal in 1944, one ounce of gold was worth $35 USD. When we pulled the pin on the gold standard and we let the dollar float, you tell me, John, I haven't seen it this morning, but it's probably like $2,000 an ounce now. So, we went from $35 an ounce to $2,000 an ounce. I'm just giving you the virtual realtime examination of how we devalued our money, how we monetized the debt. The house that I'm living in now, you would have to buy this house... It would be probably 1/20th of the price that I paid for this house.

Anthony Scaramucci: (49:16)
And so, it's an example of monetizing. When you monetize, the rich stay rich, because they own assets, and their assets are going up in price alongside of the amount of money that's being printed. Nobody cares. But the poor can't catch up. And if you look at the wages of the poor, they're down. My dad's wages, and I told Mr. Trump this in 2016, my dad's wages, his 1976 wages in 2016 were down about 26% in 40 years. So, you've got to fix that. That's fixable, but you've got to be very careful with too much deficit spending, because that's one of the negative side effects of it.

John Darsie: (49:59)
So, let's talk about foreign policy for a second. We have a question about the Middle East as an example. So, Trump has unsurprisingly taken a lot of credit for the Abraham Accords, which is, they call it a peace deal between Israel and the UAE. I think that's a little bit of a misnomer. Those two countries were not, in fact, at war, but it's a normalization of relations, which is a very positive thing. And we did our SALT Conference in the UAE, and have a lot of friends in the region, and it's a very positive development. We have a lot of friends in Israel as well.

John Darsie: (50:29)
But if you bring Vice President Biden into that seat, the presidential seat, how do you expect the current foreign policy of the United States to change, and also, how do you think it would be different relative to what President Obama pursued in terms of his foreign policy, not just in the Middle East, but all over the world? One area that you see plenty of people who served in the state department or in the Department of Defense, they had some frustration with some of Obama's foreign policy. And obviously there's elements of Trump's foreign policy that are problematic, and we won't get into different allegations of why that might be the case. But, what do you expect Biden foreign policy to be, and what do you say to people who are concerned about a shift there back into some of Obama's foreign policies in the region?

Anthony Scaramucci: (51:17)
So, John, what I would say, and it would be a very broad stroke here, what I would say is that learn something from President Trump. I want to be fair to him. He made the bold decision to move the embassy to Jerusalem. It didn't have the impact that other consensus people thought it would. I accept that there's been a 15-year relationship between the UAE and Israel, and with UAE and Bahrain, and they've had a good working relationship. But to formalize it, I want to give Jared Kushner and President Trump credit for that as well. I think that they helped nudge that along. I think that's very, very good for peace and stability. That air traffic, those commercial ideas transferring is very good for peace and stability.

Anthony Scaramucci: (51:59)
A critic would say, "Well, where are the Palestinians? Why are they not at the table?" You and I went to that peace initiative in June of 2019 in Bahrain at the Four Seasons, and we listened to what I thought was a very well thought out economic plan for the Palestinians, but unfortunately, it's not married to the dignity of political rights. And so, you're not going to be able to say, "Okay, I'm going to make you rich, but you're going to be enslaved by me." That's not going to work. So, you have to figure out a way to give dignity through the political process and then marry it to this economic aspiration. And that has to be solved for still. Those are very complex problems.

Anthony Scaramucci: (52:40)
One of the things that happened to me as a result of getting into politics is that you study the thing, or you read a daily briefing, like, "Oh my God, this is way more complex than I originally thought or the way it's reported in the news." And so, it's very complex. But I want to give the president credit for those things. And what I would say to the Vice President is be careful with Iran. President Obama went in a direction of empowering them through the Nuclear Deal. And some people in the region felt that that was sort of like empowering the bully in a neighborhood. And so, you're trying to get the neighborhood bully to come to the table so that you can stop the neighborhood bully from bullying people, but you may in fact be empowering the bully as opposed to disempowering them.

Anthony Scaramucci: (53:22)
So, I would want them to be cautious with Iran, and I think our friends in the Persian Gulf would say that. I think our friends in Israel would also say that. But, I think the good news is, is that there'll be more strategic thinking around our relationship with China, and more strategic thinking around the Western Alliance, and how to strengthen the Western Alliance and hit it in a positive reset as opposed to the sort of stuff that President Trump has been doing, by attacking Western leaders and Democratic leaders and praising dictators. I just think it's a bad reflection on the United States.

John Darsie: (53:58)
So, let's leave it with just a couple final questions about tomorrow. So, I think that's what everyone is focused on right now, is how the election's going to play out. We have a question from a member of our audience about the shy Trump voter. So, in 2016, there was a large swath of undecided voters and shy Trump voters. Do you think that phenomenon is going to play out again to the point that it could lead to massive margin of error in the polls, which is what would be necessary for Trump to win, or do you think that's a misnomer and conditions are a little bit different here in 2020?

Anthony Scaramucci: (54:30)
So, I think they are different. I do think that we've got more polling data around those differences. Even with more polling data around the differences, let's build in a few percentage points for the shy Trump voter. Let's say, and I'll use the Nate Silver example, let's say the polls are as wrong as they were in 2016, and then let's add two points to that, and when you make those two points be favorable to the president, he still loses. So, it may be there.

Anthony Scaramucci: (55:01)
But, listen, he'll have lost this election primarily because of himself. Ultimately, at the end of the day, if he had just said, "Okay, wow, got a crisis, let's look how the South Koreans are handling it, this seems like best practices. How are those guys handling it? Well, okay, you know what I'm going to do? I'm going to keep the American people safe. I'm going to get out on the phone, I'm going to tell them this is exactly what we're going to do. Listen to these experts. We're going to do this in an appropriate way so that we can get the virus under control so that we can experience economic growth when the virus is over," he would've won resounding reelection. But he didn't do that.

Anthony Scaramucci: (55:38)
And so, he wrecked the economy, and he created this self-loathing, self-destructive setup for himself. And so, if he loses tomorrow, and I predict he will, he'll have to answer to that at some point in his mind. He'll have to say, "Okay, well, how did that go so badly for me?" And when it didn't necessarily have to.

John Darsie: (55:59)
Well, we're going to leave it there. We could obviously cover a lot of different ground related to SkyBridge, SALT, and the election, but given everything that's coming up tomorrow, we figured we'd focus on that. Thank you, Mr. Scaramucci, for joining us today. I took it pretty easy on you. I thought it was going to be more like a roast, but you talked too much, so I didn't get my barbs in.

Anthony Scaramucci: (56:17)
I tried to filibuster you. There was someone that asked about telemedicine and tinnitus. So, unfortunately, I experience tinnitus, so just 30 seconds on that. No cure for that yet, but there will eventually be a cure for that, and so we just got to stay patient. I worked on a construction site as a kid, and you weren't protecting your ears the way you should've, and I'm sure a lot of us have been to rock concerts over the years as well. But we will get a cure for that.

Anthony Scaramucci: (56:42)
All right, John, thank you. May keep you around. I don't know, I was thinking about firing you after the Fareed Zakaria situation, where you were just ripping into me, but you were pretty gentle on me today, so we'll probably keep you around.

John Darsie: (56:53)
All right. Sounds like a plan. Well, we have you hosting Governor Cuomo now on Thursday, so that should be an exciting talk. Hopefully by Thursday we have a picture of who the next president's going to be, and I know you're hoping it goes in one direction, but-

Anthony Scaramucci: (57:05)
I think we will. I think we will. One way or the other, but I do think we will.

John Darsie: (57:07)
I know our office is in-

Anthony Scaramucci: (57:11)
And then we've got to work on healing the country, my brother. All right, man. Thank you.

John Darsie: (57:13)
All right. Take care, Anthony. Thank you for joining us on the other side of the ledger, to where you normally sit on SALT Talks. It was a lot of fun, and maybe we'll do that again in the future once we have an outcome for the election. Maybe in the first quarter we can talk about what Biden's first 100 days might look like and preview some of our conferences that we have coming up in 2021 as well.

Pandemic Venture Investment Series - Episode 1 | SALT Talks #96

“Some of our best investments have come out of these periods of extreme stress in the markets.”

This first installment of the SALT Talks: Pandemic Venture Investment Series, presented in partnership with OurCrowd, includes a survey of general pandemic investment trends and disruptive approaches to funding start-ups from Jon Medved, CEO, OurCrowd; and a revealing interview with Steve Krausz, Managing Partner, U.S. Venture Partners, on key sectors, potential opportunities, and lessons learned from previous crises. Moderated by Alec Ellison, Chairman, OurCrowd U.S.

Having gone through multiple economic crises over several decades, Krausz sees an evolved investment landscape. We see more diverse investments that test the strength of companies in venture portfolios. “The difference here, and it's a dramatic difference, is that the venture community now is a very global community. It has a footprint that spans all of the continents.”

The pandemic has brought about a rapid acceleration in digital growth and integration. Companies and their management understand the need to transform their organizations to be more digitally-oriented, beyond just the needs created by an extended work-from-home period. “The digitization of the world economy is going to be enormous.”

LISTEN AND SUBSCRIBE

SPEAKERS

Steve Krausz.jpeg

Steve Krausz

Managing Partner

US Venture Partners

Jon Medved.jpeg

Jon Medved

Chief Executive Officer

OurCrowd

EPISODE TRANSCRIPT

John Darsie: (00:12)
Hello, everyone, and welcome back to SALT Talks. My name is John Darsie, I'm the Managing Director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology, and public policy.

John Darsie: (00:26)
SALT Talks are a digital interview series that we launched during this work from home period, with leading investors, creators, and thinkers. What we're really trying to do during these SALT Talks is replicate the type of experience that we provide at our global conferences, The SALT Conference. What we're trying to do is provide a window into the minds of subject matter experts, as well as to provide a platform for what we think are big ideas that are shaping the future.

John Darsie: (00:51)
Today, we're thrilled to welcome you to the first episode of our Pandemic Venture Investment Series, which is being presented in partnership with OurCrowd, a leading global venture investment platform. In this series, we're bringing top entrepreneurs, investors, business leaders together for deep dives into the challenges and opportunities arising from the pandemic crisis. Today's episode, Investing in the Pandemic and the New Normal, features Steve Krausz, Managing Partner of US Venture Partners, and Alec Ellison, the Chairman of OurCrowd US, with an introduction by John Medved, the Chief Executive Officer of OurCrowd, who joined Anthony yesterday for a SALT Talk as well.

John Darsie: (01:33)
Just a reminder, if you have any questions during today's talk, you can enter them in the Q&A box at the bottom of your video screen. Now I'm going to turn it over to Jon Medved again, to provide a more detailed introduction into this series and today's talk.

Jonathan Medved: (01:46)
Thank you, John. It's great to be here with The SALT Talks. This is a very, I think, important beginning of a new series called the Pandemic Venture Investment Series. We are attempting here to cover a broad range of topics about the investment opportunities represented by the crisis that we're all living through. It's both focused on medical issues and ways that we can combat the pandemic directly, but also what we call the new normal. So there will be sessions in the coming weeks, once a week, about mobility, about artificial intelligence, about ag tech, and about a variety of other great topics. So please come back and see us.

Jonathan Medved: (02:33)
Just a few words of introduction about OurCrowd. OurCrowd is the world's largest venture investment platform. We're managing close to a billion and a half of commitments. We've made over 220 individual company portfolio investments, where you as an accredited investors can actually choose which one you would like to join us with. Each of these investments are curated by the OurCrowd investment team, we invest our own capital, and then we set terms, sit on boards, and open these investments to our crowd. We also offer at the moment, 22 different venture funds.

Jonathan Medved: (03:14)
Today we're proud to start off this series by featuring one of our investments in the spectacular fund known as US Venture Partners, out of Silicon Valley. We were fortunate enough to be a limited partner in US VP number 12, and we're welcoming today my good friend, full disclosure. We went to high school together, Steve Krausz who is general partner, managing partner at US VP. Steve has been there literally, since I think four years after the fund started, 1985. So about 35 years of venture experience. The fund, US VP has invested primarily in Silicon Valley, but also very, very strongly in Israel. They include in their portfolio, great companies such as Check Point, Box, GoPro, Mellanox, Trusteer, and [inaudible 00:04:14]. You can go on and on. It's a great team of people who we're close to.

Jonathan Medved: (04:18)
I also, another full disclosure, I think my first big venture capital investment almost 30 years ago was done together with them in a company called Compugen, which became a billion dollar company in bioinformatics. We're big fans of US Venture Partners.

Jonathan Medved: (04:36)
To interview Steve Krausz and to get his unique perspective, we're joined today by my partner and also very good friend, Alec Ellison. Alec is the Chairman of OurCrowd in the United States. He has a very rich, decades long background where he was the President of Broadview International. Broadview was perhaps in the day the leading investment bank focusing on technology companies. That's where I met him the first time. He traveled to Israel, did more transactions in Israel, frankly, than any local Israeli investment banker. Broadview was later acquired by Jefferies, where Alec then became the Vice Chairman and the head of their technology investment banking group. Today, as I mentioned, he is the US Chairman of OurCrowd, and a big part of our recent success.

Jonathan Medved: (05:28)
So I'm going to turn it over to you, Alec, to talk to my good friend Steve. I think the viewers are in for a treat today. Thank you.

Alec Ellison: (05:37)
Thanks very much, John and Steve, it's really a pleasure to be able to have this discussion with you this morning. Again, welcome to all of our participants.

Alec Ellison: (05:47)
So Steve, let's jump into it. We're approaching eight months into this pandemic. You've been around long enough, as John Says, to have lived through quite a few crises. Even before that, I guess crash of '87 was probably the first one you went through. What do you perceive as different about this crisis from the perspective of being a venture investor.

Steve Krausz: (06:09)
Well, thank you very much. I really appreciate the introduction and the kind words, Alec and John. The difference here, and it's a dramatic difference, is that the venture community now is a very global community. It has a footprint that spans all of the continents. At the time when I entered the venture industry, and it very much was a cottage industry then, you could probably fit all of the VC firms into one room. In '87, it was an industry that had a few tens of billions of dollars invested overall. What happened then and what happened again in 2000 and then again in 2008, were really a fundamental crisis of liquidity, in both our industry, as well as in the public markets.

Steve Krausz: (07:07)
So what is certainly different now is the industry spans all geographies, and it also has sources of capital that it didn't have in the past. It also has a group of individual that are highly diverse but what still remains true is that the crises like these really shake the industry to its core and prove to be a real test of the teams that we invest in.

Steve Krausz: (07:43)
What I would say is going to be different this time is that fundamentally, the structure of work and the structure of the kinds of industries, the supply chains, how people think about their investments in terms of the broad diversity, is going to be very, very different. In past crises, most of us burrowed down and tried to extend the life of the capital that we had invested, but we didn't change strategies dramatically. This time, I think the strategies are changing quite a bit.

Steve Krausz: (08:20)
But as you point out, some of our best investments have come out of these periods of extreme stress in the markets. As a matter of fact, one of my very first public companies, a search company called Verity, we invested in it just after the '87 crash. Then after the 2000 crash, we invested in [inaudible 00:08:46] and Guidewire, which became two public companies. During the 2000 and 2009 period, we invested in Trusteer and Box. So those were really opportunities coming out of those kinds of crises, but this one, this one will be different because of the importance of the venture capital [crosstalk 00:09:10].

Alec Ellison: (09:10)
So picking up some of the opportunities you had in the past. Largely, those were financial crises, crises of liquidity, as you said. We almost had a financial crisis here in March, which was very scary, very, very rapid. Seems to have been, at least for now, put on hold. Frankly, the recovering I think has surprised many, in terms of the public equity markets, but it feels like this time we're dealing with a shift with the economy. Much has been made of the acceleration, digital transformation. I think it was back six months ago, at end of April, [inaudible 00:09:47] said that we've seen two years of digital acceleration or digital transformation in two months. A quarter later he talked about technology resilience or technology transformation being the key to business resilience. It didn't have anything quite quotable on his earnings call earlier this week.

Alec Ellison: (10:07)
Do you think we've seen seven months or eights months, in the eight months, eight years of digital transformation or do you think it was more of a quick acceleration and now we're back on the old trajectory just a few years forward?

Steve Krausz: (10:24)
Well, I think what's changed is the attitude of company management about how quickly they have to make the transformation to a more digital footprint across the globe. So management teams are wrestling, and I was listening to the JP Morgan technology conference yesterday, where Jamie Dimon was talking about how his organization has thought about how many people have to come to the office, how it has to reach out its customers, what consumers are going to be doing differently, so that's a fundamental shift. I think though for the most part, at least to date, has been playing on trends other than the work from home that were already underway. That has to do with cloud, the transition to cloud, the transition to a digital economy, as far as financial services, the change in logistic systems, and some of the changes that were already starting to happen in healthcare. We can talk about that a little bit more later.

Steve Krausz: (11:35)
But I think that the impact of this transition, because venture and technology plays a much more important role across the globe, this time will be fundamentally different from past changes. The digitization of the world economy is going to be enormous.

Steve Krausz: (11:57)
Now, I think what remains yet to play out, quite frankly, and I don't think anyone appreciates this, is we were on a longterm path of improving economics for many people across the globe, bringing many people out of poverty, many people in the middle class in China and elsewhere in Asia, Africa was improving. I think we have seen a fundamental jolt to those economies, and I don't think yet we have a prediction of how that's going to play out. I think whatever trends we started will be accelerated, though, that I know.

Alec Ellison: (12:38)
I mean, what you're getting at is a lot of the so-called COVID casualties, hospitality, travel, some of these are very people-intensive types of businesses, these are in many cases whether it's in developed economies or developing economies, more able to lift up masses than the so-called pandemic plays, which tend to be highly knowledge intensive. Everything from Zoom that we're on now to Nvidia to the mega caps of Apple and others.

Alec Ellison: (13:11)
So as you think about your own portfolio, are you seeing any bifurcation yourselves, in terms of COVID casualties and pandemic plays?

Steve Krausz: (13:22)
We have, I think that's if you were to look at it and make some broad statements, anything that was related to accelerating the digitization of healthcare. We've been participants in healthcare IT for quite a while, but we have seen those companies do quite well as the pandemic had reached us. Companies like Omada, which deals with dealing with diabetes and the management of treatment of diabetes from the technology point of view. We've seen anything related to online E-commerce, Primary, which allows young parents to buy clothing for their children in a fashion is quite predictable, that's exploded because people have left stores and moved towards E-commerce for practically everything that they buy.

Steve Krausz: (14:28)
Some of our enterprise software companies, quite frankly, those are the ones, a few of them actually have struggled. Things in the ad tech space, companies that are dealing more with traditional marketing, automation kinds of plays and even sales, since the entire sales industry has [crosstalk 00:14:47]-

Alec Ellison: (14:47)
Do you think that's because retailers or consumer companies have had less budget or more of a fundamental shift beyond that?

Steve Krausz: (14:56)
Well, I think it's part of it is because retailers have had less budget. I think another part of it is that the way in which companies and enterprises have reached out to their customers or manage their sales forces has changed. You don't have a lot of sales people in the field anymore. You don't have the same workflows that you once had where people had to travel or the channels that you did marketing in or advertising in have changed dramatically. So while digitization will allow you to make those shifts quickly, the near term hit in terms of how these budgets are spent and how these tools are used has changed quite a bit. So those have really seen a dramatic effect.

Steve Krausz: (15:39)
Now fortunately, we haven't played in areas that have been particularly hit by large capital budgets going into travel or into hospitality, so we've managed to avoid-

Alec Ellison: (15:56)
Do you think you avoided... was that more luck or was an area you didn't really like that much beforehand for whatever reason?

Steve Krausz: (16:03)
It was more of an area that we didn't feel matched up with our skillset. As a firm, we've always believed that the partners and general partners at the firm should understand the industries that they're investing in very well, where they have deep and networks that they can pull experience, executives out of and people out of. So that wasn't an area that we understood well.

Steve Krausz: (16:29)
Having said that, years ago, just to show you how venture firms change over time, we did a lot of physical retail stores. I mean we were starters of Ross stores and [crosstalk 00:16:39].

Alec Ellison: (16:38)
Of course, yeah.

Steve Krausz: (16:39)
Yeah, we had [inaudible 00:16:41] running shoes, we had a terrific franchise. We moved that to E-commerce but it really has changed over time. I think every venture firm has to have that kind of transition as the world around it changes.

Alec Ellison: (16:58)
Good, speaking with enterprise software for a minute, where you said there has been occasionally some struggling. Now, enterprise software is about as sticky as things can be. In fact, the pandemic is showing that enterprise software, whether it's a maintenance or a SAS model, is probably stickier than your rent. You're going to pay that fee to keep your company up and you were glad to not have to pay the rent. We've all learned that now.

Alec Ellison: (17:26)
So a little surprised to hear that the enterprise software companies are struggling. Is it more than they're struggling to grow as opposed to maintain their customers and that growth requires some face-to-face selling and that's what's slowing the growth, or is there something different at work?

Steve Krausz: (17:44)
Now let me be clear, it's only in specific areas. What I said is it's the ones that had served channels that directly went after sales as traditionally done or the distribution of marketing dollars as traditionally done. I think that also what is happening there is what's happening throughout technology, is the winners are really winning. Whereas it used to be where you would have three or four... it used to be that the top company, people would say the top company got 50% of the business, number two would get 30%, and if you were three or four you might be able to survive and everybody else was gone. It much more is winner take all and it's I think the winners are going to take 70% or 80% of the market, and that's the challenge because I think that there's less opportunity sometimes. That's a challenge in the industry because there are so many companies being started.

Steve Krausz: (18:44)
So it is a winner take all economy right now, but it's also one in which innovation is happening all the time so you can knock down the big dogs in any sector. I don't say easily, but you can do it with great technology and great people.

Alec Ellison: (19:01)
Let me stay with that for a minute. You can knock down the big dogs. A lot's happening concurrently politically, questioning the dominance of the big five that now have half of the NASDAQ 100 market cap. All companies founded, '70s or later, Apple being the youngest, I guess. Apple, Microsoft in the mid '70s, so Apple, Microsoft, Amazon, et cetera. Do you really believe that you've got companies in the valley that can challenge the Goliaths?

Steve Krausz: (19:36)
Well, there are a few names where their size matters and brand matters to such extent that I think that they're going to last for a very long time. IBM had a run of about 100 years, I am not making any predictions about Microsoft or Amazon or some of the really big Goliaths, as to how long that'll happen but I really do believe that innovation has just made tremendous ability to challenge some of the big Goliaths. I'm not... however, we are right now in a period where capital matters a lot and brand does matter a lot, but and these companies are still very young and the teams that are running them are still teams that started them to a large degree. You look at Amazon, look at Salesforce. There's a lot to be said about having that kind of managerial expertise that's used to dramatic change.

Steve Krausz: (20:46)
However, having said that, look at Snowflake. We're not investors in that company, unfortunately. I know some of the board members well, terrific company. They have really changed and are challenging some of the big dogs. I mean, look at SAP, their recent earnings report was very disappointing. I would never-

Alec Ellison: (21:11)
[inaudible 00:21:11] rushed out to say it's a different model. Don't hate us.

Steve Krausz: (21:15)
They are a different model but they were recently a very dominant players and I think if anybody had looked back 10 years ago, they wouldn't have seen or predicted that there might be changes like that. Now again, a lot of it does go to leadership. I think when McDermot left there, it made a big difference.

Alec Ellison: (21:36)
Just to go back to healthcare for a minute. Have you changed your allocation to that sector over the last 10 months?

Steve Krausz: (21:46)
This is interesting. We have, and we have always been unlike many venture firms, we have always been a participant in healthcare. We have always been a participant about pharmaceuticals, as well as devices, and the ratio in the past was roughly 80-20. Over the last few years because of the expertise of my partner John Root and Casey Tansey. John is an MD and neurologist, he understands the changes going on the pharmaceutical industry quite well. Casey, former CEO, but also what's going on in the economy with regard to digital health and the ever increasing change in the entire way the US healthcare system is both paid and delivering healthcare. So we're probably more like a 70-30, 65-35, depends on how you describe the healthcare [crosstalk 00:22:49]-

Alec Ellison: (22:48)
The healthcare [crosstalk 00:22:49] being the 30 to 35?

Steve Krausz: (22:51)
Yes, yes. I'm sorry for not being clear on that. With the healthcare and the healthcare IT side of it, increasing quite a bit. So I think it's going to be an area since it's in the upper 20s as a percentage of the US GDP predicted over time with the aging of the population, but also with the farther involvement of people in their own health management. We're invested in that area quite successfully, and we've made a few investments there.

Alec Ellison: (23:31)
Any specific ones you've made in the last six, eight months that you want to flag?

Steve Krausz: (23:36)
Yeah, I mean I think that if you... one of my partners, [inaudible 00:23:41] invest in a company called Optimize, which does remote patient monitoring. We think that that's going to be an area because of all the devices that we're wearing, excuse me, because of the automation of healthcare records, and also because of the involvement of people in their own health management, remotely managing healthcare I think is going to be a major trend I the healthcare industry. So that's one that we invested in recently and feel real excited about. That was during the pandemic.

Steve Krausz: (24:20)
We've done a couple of others during the pandemic also. We've long been a player in cyber security, and we've been very successful as John kindly mentioned. We were investors in Check Point at its very beginning.

Alec Ellison: (24:34)
Right, I remember well from another side of it.

Steve Krausz: (24:37)
[crosstalk 00:24:37] alongside Shlomo Kramer and his most recent company Cato, which also plays to the pandemic, is a company that it really addresses the fact that the way that the networks around the world were built in the past, heavy on equipment, networking equipment, heavy on networking protocols that have changed over time. Cato allows you to do all of what we're doing today around the world very inexpensively and yet be very secure at the same time.

Alec Ellison: (25:09)
Was this at a seed or A round stage or a little later, or?

Steve Krausz: (25:12)
We were the first institutional investor alongside Aspect, which is now [inaudible 00:25:21], so that was a series A, and have been joined since then by great luck and light speed. Couple of great partners with us and people we like to work with.

Steve Krausz: (25:31)
The investment that we did just recently was in Cyber Hunters, where my partner Jacques Benkoski sits on the board. Cyber Hunters is a company that is, or cyber AI as many know it as, is a company that does extended threat detection and response. What I mean by this is it allows you to do threat detection in a dynamic way, in an autonomous way. You don't have to have all these scripts. It figures out for itself what kind of threats you're seeing. Believe me, that's been an explosion since the pandemic hit.

Steve Krausz: (26:13)
Another healthcare-

Alec Ellison: (26:14)
It was also exploding because of 5G rollout, which just creates so many more devices on the edge too.

Steve Krausz: (26:20)
Absolutely.

Alec Ellison: (26:21)
Correct?

Steve Krausz: (26:21)
Absolutely, and the 5G really hasn't hit yet, it's been talked about quite a bit. I know that certainly Apple's depending on it quite a bit. It's going to dramatically change everyone's experience on the internet and the way that they work with technology. What it's also going to mean though is that again, back to our earlier point, that some of the real big dogs are going to have an opportunity to see some exciting new startup companies go after them. Even though much of infrastructure, as it relates to equipment and semiconductors, has not been a sweet spot for a while for us because of the capital intensity, but for many there is so much capital now that's available, both in venture from the seed stage to the series A to the later stage venture funds, but also private equity firms are getting involved. You're now seeing the rise of SPACs, which is really just a way for large pools of capital to invest in startup industries.

Alec Ellison: (27:36)
So your interest rates do pretty interesting things don't then?

Steve Krausz: (27:40)
Then zero interest rates help quite bit, yep.

Alec Ellison: (27:42)
Yeah, yeah, or they expect working [crosstalk 00:27:46]-

Steve Krausz: (27:46)
Just the flood of liquidity that's coming from all of the central banks around the world. It's hard to see that changing at least over the next couple of years and we could have a different discussion about what it means.

Alec Ellison: (27:58)
So floods of liquidity typically impact valuation? We're certainly seeing valuation, bifurcation in the public market. Are you seeing major changes in valuation in your markets since March? If so, is it altering the stage at which you're focusing?

Steve Krausz: (28:18)
Well, we have seen valuations increasing now for the last few years. I mean if you go and US Venture Partners is primarily a series A. We're not a seed investor but we're primarily a series A, which means from our definition, once there's a little bit of product market fit shown. So valuations have about doubled during the last two years, and from where they were before in the later rounds. In the series A, they have gone up maybe about 50% or so. In the seed stage, it's been flatter, which historically actually has been a pattern we've seen in other periods of crisis where the very, very early stage was hit the hardest. The later stages didn't see the kind of valuation increase but this time they are. I think that that'll probably adjust. I can't quite honestly, it follows public markets, all the [crosstalk 00:29:23]-

Alec Ellison: (29:23)
Yeah, doubling sounds like a lot until you look at Amazon and Apple, or with Apple in particular, triple is flat.

Steve Krausz: (29:30)
Again, going back to the JP Morgan conference yesterday, Mike Millman put up a couple of slides in which he was showing that the market cap if you're talking about for early, for fast growing companies, was now 20 times revenue on the recent IPOs and also on some of the recent public companies for companies that were growing well over 30%. About 13 times revenue for companies that were growing between 20% and 30%. That's astronomic, that used to be PEs.

Alec Ellison: (30:02)
Well again, it's what happens with zero interest rates. That terminal value in the future doesn't get discounted so badly.

Steve Krausz: (30:08)
Right, exactly, exactly, right. So it does have echoes of what we've seen before but I think the firms that have been around for a while and the partners that have been around for a while know how to manage through that.

Steve Krausz: (30:22)
So what we've done is during this period we've raised a lot of capital for all of our early stage companies. When the money is available, we take it. We tell our companies, rather than the traditional one year to 18 months, they better have money for two years plus. [crosstalk 00:30:44].

Alec Ellison: (30:44)
The worse thing to do is run out of money. What would you-

Steve Krausz: (30:45)
You never want to run out of money.

Alec Ellison: (30:48)
Anything you're doing or your firm is doing that you would characterize as contrarian to your [crosstalk 00:30:54]-

Steve Krausz: (30:54)
That's a... I would say thing. I would say that if you look historically at venture capital, what has been contrarian has been our commitment to some of the healthcare areas that venture capital have historically pulled back from a little bit. That was particularly medical devices because medical devices were seen as firms that had to go through the-

Alec Ellison: (31:22)
FDA?

Steve Krausz: (31:24)
... FDA cycle, also had to have phase one, phase two, phase three clinicals, and were very expensive and very capital intensive with modest sized markets. But we've remained active investors in that space and continue to make investments in that. In fact, we made an investment in that space recently, that was one called CARLSMED, which my partners have done, which is a patient specific, a design for a vertebrae implant to solve for ruptured discs and the like, but it's patient specific. So you're putting together all the technology that allows you to build essentially a disc for a particular patient and put it in their bodies. That's the kind of thing that many firms wouldn't have even touched in the past. [crosstalk 00:32:16].

Alec Ellison: (32:17)
So yeah, I tend to agree. A lot of firms have avoided the area because of the regulatory clearance, but devices tends to be easier to clear the FDA on than therapeutics.

Steve Krausz: (32:30)
[crosstalk 00:32:30].

Alec Ellison: (32:33)
It would appear to many that [crosstalk 00:32:36]-

Steve Krausz: (32:36)
[crosstalk 00:32:36] gross margin attached to them and distribution attached to them that's a lot more difficult than therapeutics and training.

Alec Ellison: (32:42)
Oh yeah, absolutely. The therapeutic companies can be worth billions before they even have their clearance or their approval, rather, and aren't being sold at all but the pandemic is clearly accelerating elements or the speed of approval. Do you think that is a secular trend or that it is likely to just be pandemic specific and we'll see a reversion back to a little more of a slow paced regulatory clearance environment? On both the devices and on therapeutics.

Steve Krausz: (33:12)
I would say that what we have learned from past disruptions like this is there's no going back. Once there really is a change and a change that is merited because you have some reasons and in this case the reasons are you have a lot better analytics. The hard part is still the onboarding for trials. I mean we're seeing it today, but look at how fast in COVID-19, we've been able to onboard 30,000, 40,000 people or more for some of these trials. So I think because of the digitization, we're learning how to identify, how to track those people, how to contact them, and how to enroll them. There's so much pressure to improve that cycle that I don't think we're going to go back.

Steve Krausz: (34:03)
Now, it doesn't mean though that we're going to give up protecting patients by doing it properly, but I think that the way in which we process it and the way in which the FDA reviews and makes their approvals will accelerate. Plus, you have more involvement now from competition from China, competition from Europe, and I think that will only make things better from the point of view of putting some pressure and fire under people's seats here to get stuff done.

Alec Ellison: (34:33)
You made a reference to capital intensity, I want to turn to a segment that I don't think your firm has been active in because of its capital intensity, which is space commercialization.

Steve Krausz: (34:43)
Yes.

Alec Ellison: (34:44)
I think I explained to our viewers, your own personal background early in your career.

Steve Krausz: (34:48)
So yeah, early in my career, I was a double E out of Stanford back in my passion, I had a lot of interest in space because my father actually started a company that made deep space antennas for tracking the early Apollo programs and Mercury programs before that. Also, for intercontinental ballistic missiles coming down [inaudible 00:35:14].

Steve Krausz: (35:14)
Then I worked at NASA and at NASA in the '70s, that was the time when Viking was first landing on Mars and that was very exciting to watch. So I've always watched the space area well and I have personally gotten involved with a group called B612 Foundation, which is run by a former astronaut, Ed Lu and Rusty Schweickart helped to start it. That tries to look for large life-ending events from asteroids. So they do some terrific work now, originally were going to put a burden to space that would be solar orbiting, but now they're managing a lot of the data that's coming from smaller satellites. So again, there was an idea that changed too. They originally felt that they had to put something up in space and now they can use all these micro satellites being put up by many venture backed companies and some of the really, the best entrepreneurs we're seeing who share my passion for all things space.

Alec Ellison: (36:19)
So you do believe this actually will be an area where we'll see more venture because capital intensity is declining?

Steve Krausz: (36:26)
I do believe it's going to be an area because the need for capital to do some of these things, especially when it comes to lower with orbit and things around our planet are becoming reachable from a venture pool of capital that's available, but. There's a lot more money that is available in some of these areas that can take it all the way and again, private equity firms, large defense contractors who are looking for other ways to add to their business, and public, private partnership, but you do need a big fund. Our funds tend to be in the $350, $400 million range, series A focused because that's where we really think the best bang for the buck and our expertise is. We like that space, but if you have a billion dollar fund or a multi billion dollar fund, heck, go for it. My hat's always off to my good friend, Ira Ehrenpreis, who invested in Tesla, and then he followed up in SpaceX. So I'll give a tip of the hat to Ira. He just has the conviction and the vision that I'm a little reluctant to step out my partners who'd probably whack me down [crosstalk 00:37:39] strategy Steve, but [inaudible 00:37:42].

Alec Ellison: (37:43)
Well, I know we have about five, six minutes left. We're going to a lightening round of question. I want to ask, we'll pick up on what you just made about your firm. Your firm has stuck to it's knitting, you're on fund number... what number is it now?

Steve Krausz: (37:53)
12.

Alec Ellison: (37:54)
12, right, as John said at the outset.

Steve Krausz: (37:56)
Hold on, my lights just went off on me.

Alec Ellison: (37:57)
Okay.

Steve Krausz: (38:03)
That's because my wife has put in these timers that if nobody is moving around and it's still nighttime out there, she wants to see, anyway.

Alec Ellison: (38:12)
So you stuck to your knitting?

Steve Krausz: (38:14)
Yes.

Alec Ellison: (38:14)
Many of your colleagues, firms, in the valley have not, they're got bigger firms, they have set up all different size firms, stage firms. Why is that? It's obviously served you well, but that's been a bit of a contrarian play in it of itself, correct?

Steve Krausz: (38:29)
That's true. I think that comes from a couple of things. One is, we do have a, from a strategy point of view, we think that good venture investing comes from investors who have been in the industry, who know the industries well, that they're investing in, and choosing opportunities that have a multi-decade capability to do well. So I think we've been fortunate enough to pick areas in IT and in healthcare that really are multi-generational actually, in their appeal.

Steve Krausz: (39:07)
But we also, we did have larger funds back in the 2000 period, in both in terms of personnel and also in size. We were investing basically in the same areas but we realized that it's very hard to do three, four times your money on very large firms unless you have a very fortunate capital cycle and market cycle playing with you. So when we know how to do what we do, and we do it well. We've very selective and very careful in bringing on new partners and developing them. We think that it works for us.

Steve Krausz: (39:48)
Other people have done a wonderful job building large platforms and work for them well. I mean, look at what the guys at Andreessen Horowitz, who I respect a lot, and Light Speed and NEA have done. NEA started the same time that were more or less, and they've really developed a much more multi-asset category. But I think that for us and for our LPs, they know what they're getting when they invest with us and they've had good returns for 40 years now, so. We're [crosstalk 00:40:21]-

Alec Ellison: (40:21)
So being early stage makes you particularly... well, all firms are dependent on the management teams, but early stage maybe even more dependent. So how is your valuation of management teams and CEOs in particular, had to change in our more virtual environment now with Zoom and otherwise?

Steve Krausz: (40:40)
Yeah, I would say that that is an area that we feel very strongly about, in terms of sticking to our knitting, as you would put it, in terms of really wanting to sit down and get to know our teams and their ability to hire teams. So what that has meant in terms of what has changed, is we're leveraging even more some of the teams that we know personally or have close relationships with because despite the fact that this means of communication works okay, hiring a full management team over Zoom, people are still people. It's tough to really get to know what's at the heart of a person's core and identity. How their value system, how they think about people, how they think about hiring. Also, management teams, we rely on them to hire the teams below them. So we're relying more on people that we've seen that have done it successfully in the past than perhaps some others who are willing to do the entire... we've done a few things entirely over Zoom, but it's mostly through relationships that we've already had or people that have relationships with those people. So that's changed a bit. I think that it's probably going to remain the same for at least this investment cycle.

Alec Ellison: (42:15)
So speaking in the last minute or two of getting to know someone better. For our viewers to get you to know you better, just some quick lightening round questions, quick answers. Last book you read for fun?

Steve Krausz: (42:27)
The last... actually, there were two that I just finished. One was Just Mercy, which is Bryan Stevenson, and during this period, what's going on in this country and around the world, I thought it was just a terrific book. He is with the Equal Justice Initiative and it's well worth reading. Then one of my partner, Irwin Federman and I both share a love of history. Years ago I shared a book on The War to End all Wars. He followed up with a book called The Bridge on Drina, that's probably one you've never heard of before.

Alec Ellison: (43:02)
No, no.

Steve Krausz: (43:03)
That was by a... it was written right based on by Ivo Andric, who was a former Yugoslavian ambassador to Germany, and it was about the decline of the Ottoman Empire and the Baltics. I am a real fan of the Balkan states, rather. I have a real interest in history. So it was written about the end of the Ottoman Empire and what happened in the Balkans.

Alec Ellison: (43:27)
So speaking of history, most historical figure alive or deceased, you most want to have dinner with?

Steve Krausz: (43:36)
Boy, the alive or deceased that I most want to have dinner with? I would say that really, especially at this moment in time, it would probably be Jefferson. The reason is, I want to know what the hell he was thinking when he wrote the Constitution of the United States the way he did. There's a whole bunch of things he could've cleaned up, but I think he's a perfect example of an individual who you admire an incredible amount of what he did, and yet on the other side in this personal life and some of his thoughts, you think, how did those two ideas exist in the same brain?

Alec Ellison: (44:17)
Right.

Steve Krausz: (44:17)
That's-

Alec Ellison: (44:18)
Real quick one for you. What kind of smartphone do you use?

Steve Krausz: (44:21)
I have an iPhone 11.

Alec Ellison: (44:24)
Okay, 11 all right. Reasonably [inaudible 00:44:26].

Steve Krausz: (44:25)
Yeah.

Alec Ellison: (44:27)
Then finally, company in your portfolio most likely to become a household name?

Steve Krausz: (44:34)
A household name?

Alec Ellison: (44:37)
I know you love... yeah, so it's not like you don't love all your children but a company that's most likely for [crosstalk 00:44:47]-

Steve Krausz: (44:47)
Well I would change it, a little differently. [inaudible 00:44:49] become a household name in the world in which I travel because again, I'm on the tech side. That would be probably Cato, I think has a chance to be a real leader and ring the bell [crosstalk 00:45:00]-

Alec Ellison: (45:00)
Just for our viewers again, describe Cato again. You mentioned earlier.

Steve Krausz: (45:03)
Cato Networks, founded by Shlomo Kramer, who I've invested with a number of times and an Israeli entrepreneur who's probably been the best security entrepreneur that I've known and watched, although and there have been quite a few that we've invested in. What they do is they really manage the change in the network that you run over. So the entire software stack is going to run in their environment and they're going to allow you to connect all of your devices, keep them secure, keep them well managed, at a much lower price than you have done in the past. So I think that they have the ability to be the software and the backbone that runs all of what we think in the past of telecommunication systems, whether it be the AT&T's of the world or the Comcast's of the world. I think that the software and the architecture, they could be the heartbeat of that.

Alec Ellison: (45:59)
Terrific, thanks so much, Steve. So you heard it here first, Cato. To all of our viewers, thanks so much for joining us. Steve, you're really a great, far ranging discussion this morning. I think back to you, John, to wrap it up.

John Darsie: (46:14)
Thank you, everybody, for tuning into today's SALT Talk. This is the first episode in our Pandemic Venture Innovation Series. We're very excited about this partnership with OurCrowd, one of the leaders in the crowd funding space for venture investments, so we're excited. So thank, also Steve, for joining us. We'll look forward to hopefully meeting you at one of our in-person conferences here in the near future.

Steve Krausz: (46:37)
I appreciate that, John. Again, I apologize for the coloration here because I am sitting here in the dark in California. This room just happens to have a very yellow light. My son is just going to gag when he sees me with the complexion that I have today, especially considering where we are right now in the election cycle, but I've really enjoyed it. We're USVP.com, it's very easy to find us. Please reach out if you have any questions and thanks for the followup. I very much enjoyed the partnership with OurCrowd. I thank Alec for leading me through this conversation, and my good friend Jon Medved, for all of the support that he has given us and the exciting companies that he's started. I think it's a great idea, so.

Alec Ellison: (47:26)
Yeah, no, ourcrowd.com, we currently probably have a dozen individual companies on the platform and all these several funds as well. So please join if you haven't already. Thank you again, Steve, and John.

John Darsie: (47:37)
Yep, thank you, Alec.

Steve Krausz: (47:38)
Thank you. Good night, have a great day, everyone. I can go back to sleep now?

John Darsie: (47:42)
Absolutely.

Steve Krausz: (47:43)
Thank you.

John Darsie: (47:43)
Thank you, all right.

Abdulmohsin Al Omran: The Modernization of the Financial Technology | SALT Talks #95

“Like any business, you have to try things, but in the digital world, you need to fail early, fail fast, and learn, and adopt technology allows you to maneuver very quickly.”

Abdulmohsin Al Omran is the founder and Chief Executive Officer of The Family Office Co. BSC(c) (“The Family Office”), and Chairman of the Board of Petiole Asset Management AG, the investment arm of The Family Office, based in Zurich, Switzerland.

Born into one of the oldest families in Riyadh, Al Omran set out from an early age to gain experience in different areas of finance with an eye on moving his country’s economy into the 21st century. Despite having 25% of the world’s oil reserves, Saudi Arabia is transitioning towards a more diversified economy that sees data as the new oil. “If I wanted to renew my passport or my driving license… I could do all this digitally … the private sector including the banks are trying to catch with what the government has been doing in the last five years.”

The next stage in Middle East development will center on the rapid modernization of the financial technology space and sovereign wealth funds made of diverse and strategic investment portfolios. This new approach is guided by the four C’s: Commitment, Client, Culture and Cost.

LISTEN AND SUBSCRIBE

SPEAKER

Abdulmohsin Al Omran.jpeg

Abdulmohsin Al Omran

Founder & Chief Executive Officer

The Family Office

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darsie: (00:07)
Hello everyone, and 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 digital interview series that we launched during this work from home period with leading investors, creators and thinkers.

John Darsie: (00:27)
And what we're really trying to do on these SALT Talks is replicate the experience that we provide at our global SALT conferences which our guest today has been to several of those. And what we're trying to do at those conferences and on these SALT Talks is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future.

John Darsie: (00:49)
And we're very excited today to welcome Abdulmohsin Omran to SALT Talks. Abdulmohsin is the founder and Chief Executive Officer of The Family Office and the Chairman of the Board of Petiole Asset Management, which is the investment arm of The Family Office, which is based in Zurich, Switzerland. And The Family Office is an asset management company that has an increasingly digital focus, which is something that we're going to talk about today.

John Darsie: (01:14)
Prior to founding The Family Office in 2004, Abdulmohsin was part of the private wealth management team at Goldman Sachs in London. He started his career at Gulf International Bank in 1988, after which he worked in reputable financial institutions, such as the Saudi International Bank, Riyadh Bank, and Investcorp. Abdulmohsin holds a degree in Industrial Management with a Finance major from King Fahd University of Petroleum and Minerals, and an MBA from the City University in London.

John Darsie: (01:43)
He's coming to us today from beautiful Manama, Bahrain, somewhere Anthony and I have been several times over the last few years, but Abdulmohsin is also a Saudi national, so we also have great relationships in the kingdom. So looking forward to talking about the growth of industry, and the financial industry in particular, in the region, and also the exciting things that are going on at The Family Office.

John Darsie: (02:05)
Just a reminder, if you have any questions for Abdulmohsin during today's SALT 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 I will say, Anthony is in a little bit better mood than he was about 10 hours ago. So we're looking forward to seeing his smiling face here this morning. I won't comment further on that, but Anthony, I'll turn it over to you for the interview.

Anthony Scaramucci: (02:33)
First of all, for those of you that are listening, John Darsie has zero political judgment and zero political instincts. But enough about the feud between me and John Darsie, which started about 10:30 last night. I mean, we'll discuss it later on another SALT Talk. Abdulmohsin, where are you beaming in from? Bahrain? Where are you right now?

Abdulmohsin Al Omran: (02:54)
Yes. I'm out of our office in Bahrain.

Anthony Scaramucci: (02:58)
So Abdulmohsin, before we get started on your business and your professional career, I want to talk a little bit about the way you grew up, where you grew up, what got you into this business, why did you come into this business, and tell us something about your personal story.

Abdulmohsin Al Omran: (03:17)
Sure. I'm originally from Saudi Arabia. I grew up there. I did all my education-

Anthony Scaramucci: (03:25)
In Riyadh, Abdulmohsin?

Abdulmohsin Al Omran: (03:27)
Yes. I grew up in Riyadh. Our family is one of the oldest families in Riyadh. We are about 1500 people today, in Riyadh. And I did my high school in Riyadh, and then I moved to the Eastern Province, King Fahd University of Petroleum and Minerals and studied there. Then the bridge was being built to Bahrain and Bahrain, being the financial center in the eighties, and still an important financial center in the region. I took the opportunity to come to Bahrain.

Anthony Scaramucci: (04:01)
[crosstalk 00:04:01] I'm going to stop you there if you don't mind, because you're talking about a bridge being built by rain. So explain that Bahrain is effectively an Island, in the Arabian Gulf, and it is not too far, obviously off the coast of Saudi Arabia. And so this bridge was built to connect the two countries,

Abdulmohsin Al Omran: (04:21)
Correct, 1986.

Anthony Scaramucci: (04:24)
And this unleashed a lot of capital deployment for the Bahrainis. And it helped the Saudis as well. Explain that if you don't mind, because we have a lot of people beaming in from the United States that may not understand that relationship.

Abdulmohsin Al Omran: (04:38)
Sure. Bahrain and Saudi Arabia are part of the GCC, the Gulf council, where they are all one family. Honestly they are very close to [inaudible 00:04:53] into marriage with having two tribal [economic 00:04:57] support each other. So during the times of King Fahd, King Fahd gave the orders to build a bridge with Sheikh Isa who was the father of the current King, Hamad. And that was a very important strategic move to tighten the relationship between the two countries and allow Bahrain to be closer to the most important country in the region, which is Saudi Arabia, as you all know.

Anthony Scaramucci: (05:28)
And so now you're getting your career started. How did you end up in financial services?

Abdulmohsin Al Omran: (05:34)
Well, it's interesting. In 1988, I was sent to a firm. Maybe a lot of people don't know that firm when I mention it, a firm called Manufactures Hanover to New York. So I went to the city and got my training, corporate finance and credit analysis. Then once I got back to Bahrain, I managed to work at the clue department and I was asked to join the bond portfolio investments during the [inaudible 00:06:06] invasion of Kuwait. And from there, I got exposed to the investment world and then I moved to in different positions and different banks. And then I ended up with most important alternatives from that time, which was the pioneer of private equity distribution. And this region that was Investcorp became a partner. And as I was about to start up my own business, I got a call from Goldman Sachs. I joined Goldman Sachs for about three years. And then I said I'll go back and establish a wealth management platform. Lack of creativity, I chose The Family Office as a name.

Anthony Scaramucci: (06:47)
No, it's a great name. And it's obvious you've built an amazing brand in the region. And again, just for the people on the call, Manufacturers Hanover Bank was a great commercial bank in the United States, merged with Chase. Chase, eventually merged with Bank One and J.P. Morgan to create the colossal JP Morgan Chase that we have today. And so-

Abdulmohsin Al Omran: (07:12)
And Chemical.

Anthony Scaramucci: (07:14)
And Chemical. That's correct. And chemical bank. And so I left out one of the other big banks that was consolidated. Interestingly enough, Abdulmohsin, as you know, all of those banks were Goldman Sachs clients back in the day. Guys like John Darsie, of course, don't remember these names, but you and I are old enough to remember these names. So let me ask you this question. You're at Goldman Sachs, Goldman Sachs was still a partnership. And so tell us a little bit about the vintage era of Goldman Sachs prior to its public offer.

Abdulmohsin Al Omran: (07:49)
No, actually I was there during the time, once a post, they went public. So I joined Goldman in 2002 until 2004.

Anthony Scaramucci: (07:59)
Okay. My bad. I thought you got there in '98. So I apologize for that. So let me rephrase the question then. You were there just after the public offering, tell us about what Goldman was like 17 or 18 years ago.

Abdulmohsin Al Omran: (08:12)
Well, Goldman, as you know, it's a big tribe, very competitive, very focused on results. So I've learned a lot. Rubbed my shoulders with the smartest people in the family. Learned to be much more commercial. I've always said Goldman helped me to monetize my career. The thinking, the drive, the creativity setting up higher results oriented really made a big difference for me. And more importantly, as you know, the Goldman and the [XCOR 00:08:51] , the network, is something not to be matched.

Anthony Scaramucci: (08:56)
So let's segue into geo politics for one second.

Abdulmohsin Al Omran: (09:03)
I will ask one to know about geopolitics.

Anthony Scaramucci: (09:06)
Yeah. Well, okay. We can talk about that too, if you want. But I want to talk about the region, the Middle East. MENA. Middle East, North Africa, Saudi, Bahrain. Where you see the future, and what do you think is happening in the region? And I'll give a little bit of an editorial comment I'm having now with your help travel to Saudi Arabia many times now, I see a country that's embarking upon massive reform and massive possibilities for economic growth away from oil. And so I'm wondering if you can comment on that.

Abdulmohsin Al Omran: (09:43)
Sure. For those people who don't know Saudi Arabia, Saudi Arabia in terms of size is about two thirds of Western Europe. So from a geography, it is an important big place in the Middle East. Our neighbors are Iran from one side Iraq, Kuwait and the South Yemen. Across the Red Sea, we have South Sudan, Egypt, Jordan on the North with close proximity to Israel as well. So when you have all those neighbors, you need to make sure that you are friends with everybody and have the stability. So Saudi Arabia had always played the role of the stable leadership have, as we all know, every country experience, external internal issues, but Saudi have always managed to any of these issues very wisely and continue to ensure a very stable country.

Abdulmohsin Al Omran: (10:57)
And with the main focus on developing its own nationals. Saudi Arabia has 70% of its population today below the age of 14. Prince Hamad bin Salman vision of 2030 is spot on. He's addressing what are the needs of those people in 2030 and everything that is happening today is around what will be needed in 2030 by this young population. This young population is very important because they are very tech savvy. I'll give you an example, 500 times have studied in the United States or graduated from United state universities in the last 15 or 16 units.

Anthony Scaramucci: (11:47)
Well, I was going to tag on a question because I just think it's a fascinating thing and more so for the Americans that are listening in. Saudi oil reserves are approximately 25% of the world's oil reserves. Is that fair to say?

Abdulmohsin Al Omran: (12:07)
Sorry.

Anthony Scaramucci: (12:11)
No, I'm saying the Saudi oil reserves are approximately 25% of the world's oil reserves.

Abdulmohsin Al Omran: (12:17)
Correct.

Anthony Scaramucci: (12:17)
Okay. And yet the country is in transition away from oil. And the tech industry, as an example is saying that data is the new oil. And so I would like to get your thoughts on that as it relates to the country, Saudi Arabia, but then also tie it into the family office, your business, some of the things you're doing in terms of a massively changing the landscape for technology interface in financial services.

Abdulmohsin Al Omran: (12:45)
Let me give you an example, how advanced the Saudi government moved in terms of technology. If I wanted to renew my passport or my driving license, or I wanted to give a permit for a friend or drivers to take my car from Saudi Arabia to Bahrain, I could do all this digitally today. The Saudi government is so advanced and I have heard specialists go on and say, Saudi government, is more advanced than even the Singaporean government. And very few people understand that. And this has been a huge initiative by the Saudi government to ensure that [the wilderness 00:13:52] and this is the one of very few times that the government has really leapfrog the private sector and the technology side. Now the private sector, including the banks, are trying to do a catch up with what the government have been doing in the last five years.

Anthony Scaramucci: (13:54)
Well, tell us about the future of financial services in your mind and what your vision is for wealthy individuals in the region and how you plan to help them and how you plan to use technology to help them.

Abdulmohsin Al Omran: (14:08)
So onto me, you remember your days at Goldman, even my days at Goldman, we would never have thought that ETFs would replace algorithm trading would replace a lot of the brokerage business. Who would have ever thought the [Tropin 00:14:26] held over. E-Trade another, almost trading at zero cost. This is something that is happening today. And we will see a huge acceleration in the whole financial services industry in the coming five years. I used to think two years ago, I thought in 10 years. Today, I think it's five years if not three years. The rationalization of the industry is going to take place. We have an important inflection point. Our region is no different. People would like to get financial simplification of their lives. So anyone who would provide that financial simplification of their financial life is going to be a winner.

Abdulmohsin Al Omran: (15:15)
Today, there are a lot of individual FinTech companies that have addressed parts of the financial complexities. But there has to be yet someone to be able to put this together all the way from current account, which is digital banking to our consumer loans, to mortgages, to investments, pledging your investment for further investments for those people who want to do marketing trading and so on. Credit card, producing your taxes, your income statement and balance sheet. Can you imagine just going to one place and all that is done for you? I think we'll see this in less than five years.

Anthony Scaramucci: (16:00)
Well, I think it's amazing, which is why I wanted to bring it up to you. I'm personally blown away by the rapid modernization, if I'm even pronouncing it right. The modernity, if you will. I see Darsie laughing at me pronouncing modernization. Okay.

John Darsie: (16:20)
It's almost like you didn't get much sleep yester night. It's modernization.

Anthony Scaramucci: (16:23)
Okay. Let me, I got a [inaudible 00:16:26] and I just have to fix my eye while I'm talking to you. But the entrepreneurship, the modernity and the country, because I can't pronounce modernization because I'm exhausted. Let's talk a little bit about those two things. And how has the region been successful in creating this new technology ecosystem?

Abdulmohsin Al Omran: (16:47)
Well, as I said, the governments in this region have focused into how do they improve the quality of lives of people in these countries. While other countries around us have spent most of their money on weapons or financing the wrong people, our countries have really invested in its own nation. And we have seen the sovereign wealth funds building very important strategic portfolios that will enable us to continue doing that. In addition, it has taken the lead, as I said, in creating a platform that makes it easier for businesses to do that. So I'll give you an example. By the end of this month, we will be able to onboard clients in Saudi Arabia, all digitally with seven clicks. Can you imagine the whole KYC is done digitally?

Anthony Scaramucci: (17:46)
Well? Yeah. I mean to me, it's fascinating before I turn it over to John, because we've got a ton of questions coming in from the audience participation. I want to ask you about NEOM and what your thoughts are there. And just for our American listeners, NEOM is a brand new project from Prince MBS, talking about building a $600 billion city, sort of in the Northeast quadrant up alongside the red sea in Saudi Arabia. This would be a city of the future. And it would be a city that I think would transform Saudi Arabia for that matter. And I just wondered if you could give us your thoughts and opinion on that and where you see that development going.

Abdulmohsin Al Omran: (18:32)
Yeah. You know, for most people, when they hear these projects, they think it's a [Samanage 00:18:40] for us. It isn't because we do, we did live what happened in this region. I'll give you an example about 70 miles away from where I'm sitting today, there a city called Jubail. So if you went there in the seventies, it's just dessert next to the sea. Today, Jubail is the world largest petrochemical complex in the world with that produces about 8% of the petrochemicals in the world. Okay. [inaudible 00:19:17] which is the largest oil exporter. So no one can imagine what takes place over the 20, 30 years and this future. So NEOM it's a tragic location. The vision of Prince Hamad bin Salman is going to be realized. Are we going to realize it few years earlier? A few years later? I don't know, but it will happen. I assure you. I've seen a lot of visions in this region, I've got executed, and these are going to be a game changer for the region.

Anthony Scaramucci: (19:55)
My last question, before I turn it over to John, the UAE and Bahrain, as well as Saudi Arabia have maintained a very good relation with the United States, but they are also increasingly looking to the East to develop good commercial ties to China. What do you, in the middle East, see the position of the middle East, I should say, what do you see it in terms of the evolving world order and how would you like to see it?

Abdulmohsin Al Omran: (20:24)
Well, in 2005, so it was my first time to go to China. And I visited with our dear friend, David Dusk. In 2007, I took 30 of my investors to China. And then we repeated the stroke twice in 2009, 2010. And all of them said, wow, all this has taken place without us seeing. I remember took them to [10 cents as 00:20:25] an example with [inaudible 00:20:54] as well. And everybody thought it's expensive and they'd missed it.

Abdulmohsin Al Omran: (20:58)
But look where we are today compared to 2010, that the whole Asia, not only China, we all know it's going to be the growing part of the world. That doesn't mean that we are turning our back to the West. We are educated in the West. Most of our nations are educated in the West and understand the West well. So we'll continue those relationships for sure. But if you look at how Saudi Arabia has always been, as I said to you has been always creating stability and everything that does Saudi Arabia is the custodian of the two Holy mosques, which is for Islam. And Islam, our greeting is Asalaam-Alaikum, may peace be on you.

Abdulmohsin Al Omran: (21:45)
So Saudi Arabia tries to always be in peace with itself, with everyone [inaudible 00:21:51] but ensuring that it is not going to be a victim or any nation. For any company, you will never rely on one supplier. You always have to diversify its portfolio, or its relationships, especially given the Asian proximity, the pilgrims bring a lot of Asians for the last thousand 400 years plus to Mecca. So the familiarity of the Asian continent is something that we do understand. We might not understand the language, but most of them speak English. We speak English and understanding the culture and the proximity is very important for us.

Anthony Scaramucci: (22:39)
Okay. Well, I appreciate you coming on Abdulmohsin. I'm looking forward to the pandemic ending so I can get back to Bahrain and eat and cut with you. That was the last time I was there, frankly. I was with your son in that amazing restaurant. I'm going to turn it over to John Darsie so that he can ask some questions from the audience. And I apologize for mispronouncing modernization, but I haven't slept in 24 hours. There's a small thing going on in the U S right now that I happened to have been involved in the last six months. So go ahead, Darcy, start pronouncing the things appropriately. Okay, go ahead.

Abdulmohsin Al Omran: (23:18)
I doubt you'll sleep tonight.

Anthony Scaramucci: (23:20)
Yeah, no, it's going to be another interesting night although I'm very confident in the outcome now for a number of different things that I've learned today. I do believe that the vice-president will be the 46th president by January 20th. And I think that'll be good for the world actually. And it'll also calm things down. And, but that's for another topic that's for another day, Mr. Abdulmohsin. Go ahead, John. I, you got a ton of questions. Go ahead, fire me.

John Darsie: (23:47)
Absolutely. It was great eating at cut and Manama. Also, Riyadh, home to a lot of beautiful restaurants, beautiful Italian restaurants. We have some great meals recently in Riyadh, and I think people would be blown away going to both of those cities, Manama and Riyadh, just to see how quickly things are growing and modernizing as well as Abu Dhabi and Dubai, which obviously we have a great friendship there and had our conference most recently at SALTS, Abu Dhabi. And you spoke at SALTS Abu Dhabi, and you run a great panel with Abdallah Obeikan. And he's a leading thinker in the fields of digitization, digital transformation. You guys had a great conversation. I would encourage people to go on our YouTube channel and check it out if they haven't seen that talk. But one thing you talked about is the importance in this industry of scaling fast and failing fast. What are the benefits of taking a more aggressive approach to digitization and modernization of your systems? Even if it leads to failure in the initial phase?

Abdulmohsin Al Omran: (24:48)
Yeah. Like any business, you have to try things, but in the digital world, you need to fail early, fail fast and learn and adopt technology allows you to maneuver very quickly. The skill sets that are available, whether from design, whether from coding, the data science, et cetera, enables you to adjust and move to the next level. So we are, I wouldn't say we have done, but we have really made the big progress in our, in both [Javanese, 00:25:28] our digitalization, [ Jordan, 00:25:34] and the digital transformation. Both projects are going very well. And I expect that by mid next year, we will be in a very unique position with our offering or our ability to service our clients much more than we do today.

John Darsie: (25:53)
One thing you talked about in that panel at SALTS Abu Dhabi was the importance and the challenge of creating a culture of innovation and a technology forward type of culture within your firm. What are the things that you've done at the Family Office to allow yourself to build that type of culture? And how do you think it's benefited your work?

Abdulmohsin Al Omran: (26:16)
The culture is one of the four Cs. I always say, when you buy a diamond you look at the four Cs. and in order to have a perfect digital transformation, you need to have the four Cs. The first C is you get the commitments from the board and the management. And that is one of the most difficult things to do. [inaudible 00:26:37] Number two, you need to be client focused. Everything you're doing is not anymore about the firm. It's much more about what the client needs. What are the client's pin points? How can I make their life much easier to do things? Number three is the culture, which is the most difficult thing in the whole journey and the culture you need to start early, you need to educate your team. You need to train them in a workshop.

Abdulmohsin Al Omran: (27:08)
You need to get them to take courses. And through this process, which would take an average firm, if they are lucky, they do it properly, two years. And if you do it well, you will know who is in your firm are going to be continuing with you and who are the wise who will decide most likely themselves, that this is not for them. And they would like to go and work in a much more traditional, slower base industries or style of management. So that is really the most difficult from everything that I have read and may have experienced.

Abdulmohsin Al Omran: (27:45)
You need to expect that about 50% of your team are going to make it. And 50%, they're not going to make it over two to three years. So they will be replaced. You will not need to replace the 50% because what digitalization, digital transformation, you would have gained some efficiencies that will enable you to operate at the higher multiples of scale, with lower number of people. The new 25 people that sent, let's say that you would bring in to replace the 50% that went out are going to come with a completely different way of thinking, operating. If you come to our office, you will see that people are putting stickers on the walls or post-its. They are writing on glass windows. It's a different environment.

John Darsie: (28:41)
It's like a mini Google type of environment.

Abdulmohsin Al Omran: (28:43)
Absolutely. So you have to accept that and you need to try to weave the old culture with the new culture. A lot of times make a mistake with developing a separate digital business, not being integrated with the original business, but that's the most difficult thing. The fourth C is going to be the cost. A lot of times, things that through digitization and digital transformation, costs is going to go down. Absolutely not. You will have to invest your costs will actually go up as a dollar amount, but once you really make it, you are going to get much more number of clients, which would make the cost per client, way lower. And very few people understand this.

John Darsie: (29:34)
So I recently got a demo of your wealth management platform. It's fascinating. And I understand you have a new launch coming up potentially early next year. Is that something you guys are talking about publicly and where do you see the firm going in the next five or 10 years? We have an audience question from [mats 00:29:51] talking about that. What you see the firm doing in the next five to 10 years?

Abdulmohsin Al Omran: (29:54)
As I said before, the world is going to be much more connected. There are a lot of great FinTech companies out there that could not scale. They could not have the clients, but they really have unique products. So what we are doing, we are preparing ourselves to plug and play with some of those 10 tech that have an age. So they would generate revenue, but not of the very high cost us and our clients, but adding them together as a puzzle, we'll give you a beautiful picture. If, that is the simplification of it. Another thing is the ability to connect with the bigger firms, whether it's BlackRock, whether it's fidelity or E-Trade and so on. And allowing the clients to access a lot of those funds almost at zero cost. And that's going to be big game changer in the coming five years.

John Darsie: (30:52)
So Anthony talked a little bit earlier about how the kingdom of Saudi Arabia has invested a lot through the public investment fund and other entities to build a technology portfolio, but also build a technology ecosystem in Riyadh, in Jeddah and other places as well. Can you comment on sort of the maturity of the venture capital industry in the kingdom and the access to financing for early stage projects that exists not just in the kingdom and Riyadh, but also in, in Bahrain and the region as well?

Abdulmohsin Al Omran: (31:24)
Yeah, the Saudi government has not only encouraged, but also have been funding, giving all the help to the small startups, setting up funds and encouraging the banks, encouraging investors and this and those startups. If you look at the time, span, things have moved extremely fast in this region. If you look at Kareem, for example, have been acquired by over. So there are a lot of successful... Tuk had been acquired by Amazon. So there have been a lot of great examples that have really motivated a lot of the youth that got educated in computer science and business and finance to really venture and take the risk. We all know that this is not easy. The failure rate is very high, but the fact that there is appetite to take risk supported by the governments creating FinTech hubs. Bahrain recently announced 973 technology hub. [inaudible 00:00:32:35]. So nobody has that.Abu Dhabi is having now another one, Saudi been having it. So this is going to really mushroom. I believe about the coming 10 years.

John Darsie: (32:46)
It's very exciting for us. You know, we've spent an increasing amount of time in the region, in the UAE and Bahrain and in Saudi. And just to reiterate what we talked about earlier, I've been blown away by the amount of entrepreneurial spirit that's emerging among young people in the region. And we think it's going to be an area of growth around the world. You look around Europe, you look around the United States. The world is sort of starved of growth and with the demographics and the amount of entrepreneurship in the region, we think it's going to be a continued area of growth. So we're very excited to work with you and work with others around the region to grow our presence and grow awareness of what's going on in the region. So Abdulmohsin, we're going to leave it there. Thank you so much. Anthony, do you have a final word for Abdulmohsin before we let him go?

Anthony Scaramucci: (33:33)
Well, I know that John wants to wear that head dress someday Abdulmohsin, but you and I have been friends for two decades. And so I'm going to insist that under no circumstances is he allowed to do that. Okay. I want him to continue his life with that hilly billy hair, with that center part that makes him look like Ichabod Crane. Okay. So no head dress for him. Okay. Is that an agreement you and I have before I sign off?

Abdulmohsin Al Omran: (33:58)
Well, the reason I, one of the reasons I have this is I didn't have his hair, so I have to cover it up.

John Darsie: (34:05)
Thank you, Abdulmohsin. Anthony was hurting my feelings and you say cold man.

Anthony Scaramucci: (34:09)
That is too politically correct for me, especially coming from Bahrain. Well, God bless you. Congratulations on this great business that you've built. And John and I are looking forward to the prospect of potentially doing many more SALTS conferences in the region. You were an amazing partner to our event in Abu Dhabi. And so we're looking forward to having you do that for us in the region, in the future, once the pandemic ends.

Abdulmohsin Al Omran: (34:35)
Thank you. [inaudible 00:34:40].

Anthony Scaramucci: (34:38)
See you soon.

Abdulmohsin Al Omran: (34:39)
Thank you. Bye now.

Deven Parekh: How COVID-19 Revealed the Need for Tech | SALT Talks #94

“If you're great at something, you'll figure it out and you'll adapt your lifestyle to something that you're passionate about.”

Deven Parekh joined Insight Partners in 2000, and has been a Managing Director with the firm since 2002. He also manages the firm’s largest investment team, doing deals across the spectrum of venture, growth, and later-stage leveraged transactions.

Heading into the pandemic, investment from Insight Partners was expected to slow down, but that ultimately was not the case. Technology investments have proven resilient in the age of COVID as it becomes even more integral in socially-distant environments. Major companies and industries had to compress 6-7 years of e-commerce investment into six months in order to meet the pandemic-induced demand. “I think what people underestimate is how much they touch software in their lives.”

With the continued upward trend of AI and data collection/analysis required, tech sectors like software will see huge growth. Predicting a 15% a year compound as an industry, expect to see category winners grow more than that, resulting in more companies at half a trillion- or trillion-dollar market caps.

LISTEN AND SUBSCRIBE

SPEAKER

Deven Parekh.jpeg

Deven Parekh

Managing Director

Insight Partners

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darsie: (00:08)
Hello, everyone and 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 digital interview series that we launched during this work from home period with leading investors, creators and thinkers. What we're really trying to do during these SALT Talks is replicate the experience that we provide at our global conferences, the SALT Conference. And what we're trying to do at those conferences and on these talks is to provide a window into the mind of subject matter experts, as well as to provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome Deven Parekh to SALT Talks.

John Darsie: (00:52)
Deven joined Insight Partners, which is a leading global private equity and venture capital firm in 2000, and has been a managing director with the firm since 2002. He also manages the firm's largest investment team, doing deals across the spectrum of venture, growth and late stage leveraged transactions. As head of Insight Partners, Deven manages investments in application software, data and consumer internet businesses globally, having actively worked with investments in Europe, Israel, China, Latin America and Russia. Deven has led 68 deals at Insight, deploying 4.3 billion in capital to date, with 38 exits averaging gross multiple returns of 2.6 times.

John Darsie: (01:38)
Deven sits currently on 16 portfolio company board of directors and advises many other CEOs more informally. In addition to his investment work, Deven has been a leader and a vocal advocate for diversity, equity and inclusion. He's been a primary driver of initiatives and thought leadership programs within Insight, promoting female and minority leadership across Insight's portfolio and the larger software and investment ecosystems.

John Darsie: (02:05)
I would also note that Deven has appeared on numerous industry award lists, including the Forbes Midas list several times, the list of Top 100 venture capitalists by CB Insights. And he also won an award from the Venture Capital 100 for his investments in 2014 in Twitter and Chegg. Just a reminder, if you have any questions for Deven during today's SALT Talk, you can enter them in the Q&A box at the bottom of your screen on Zoom. And hosting today's talk is Anthony Scaramucci, the Founder and Managing Partner of SkyBridge Capital, which is 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: (02:44)
John, thank you for wearing your sports jacket today. Deven, of course you don't have to wear one but I came with the suit and tie. Does everybody know that? Now I may be wearing the suit and tie from the waist up. But we'll leave that up the Zoom and the pandemic. Deven, tell us something about your career that we couldn't learn on Wikipedia?

Deven Parekh: (03:06)
The thing I would tell you is I don't ever expected to be sitting here talking to you talking about technology.

Anthony Scaramucci: (03:12)
Oh, man. Well, of course not. I mean and by the way, we're still trying to figure out why you accepted the invitation. But we can ask your psychiatrist that later. I mean, but tell us something. Why did you go in this direction?

Deven Parekh: (03:23)
Well, I actually started out, I started out in college studying biochemistry, and I had a full intention of being a doctor, probably doing an M.D. Ph.D. and going to research. I mean, that was kind of my plan. And I think at the end of the day, I'm sitting here talking to you because I was impatient. I ended up with a bunch of roommates who were economics majors or Wharton majors. I figured one was going to be a 12 year path to starting my career, one was going to be a lot shorter path to starting my career. So I ended up transferring to Wharton out of the College of Arts and Sciences and ended up going to business. And I started my career at Blackstone and went from there to a merchant banking boutique called Berenson and my company and then joined Insight in 2000.

Anthony Scaramucci: (04:15)
So we find our way though, right? I mean, that's more or less we're making a plan and then things happen to us so we go in different directions, but you strike me as somebody that really loves what you're doing. And so we have a lot of young people that join these SALT Talks. And so what would you say to them about your personal odyssey to getting to where your passion is, and what would your advice be to them?

Deven Parekh: (04:39)
Well, I'll start by just giving the advice I give my own kids. I've got a 17 year old and a 20 year old and my simple advice to them is find something that doesn't feel like work. And if it doesn't feel like work, you'll probably be great at it. And they obviously have the question of what are the careers where I can make enough money and my answer to that is if you're great at something, you'll figure it out and you'll adapt your lifestyle to something that you're passionate about. So that one to me is the most important.

Deven Parekh: (05:09)
But then the second really is I think you have to, well you have to have a plan. Understand that plans are adaptable. And when opportunities come across your path that maybe don't fit within the plan, but that are compelling, that kind of call you, go for it. And you can always course correct. And as I go back and look at my career, those were the things, the ones where I kind of jumped on something that wasn't part of the plan. That really worked out well.

Anthony Scaramucci: (05:41)
So you have an interesting model. I mean, the Insight Partners, it sort of looks this way to me, and I'm sure you'll agree with me, it looks like it's a hybrid between private equity and venture capital. And it seems like it's a blended structure. Can you tell us how that works, what the benefits are of that and how you guys decided to go in that direction?

Deven Parekh: (06:02)
Yes. So if you look at when Insight was founded back in 1995, our strategy was really focusing on at the time, these terms that we use today like scale up didn't really exist. We called it then was expansion stage software. So what do we mean by that? What we meant was, companies, they weren't just ideas. There was a product, there was an entrepreneur. And most importantly, there were customers, and expansion stage capital was to take that kind of fundamental product, so there's some product market fit that existed. And the capital is really going to kind of then expand the company through investment, sales, marketing, potentially acquisitions.

Deven Parekh: (06:43)
And so you're taking kind of base technology risk off the table. You're taking some level of adoption risk off the table, because you already had customers. And you're really taking primarily kind of execution risk. Now back in 1995, when Insight was founded, there were not lots of profitable software companies. There were a few but not many. And so most of the capital kind of went in to, as I said, make incremental investments in the business.

Deven Parekh: (07:10)
But fast forward to 2020 and we'll go more into this later. But software is an incredibly powerful model with very high margins. And so what we basically said is that, once we decided that all we were going to do is software as a firm, we basically said we wanted to be able to serve the full continuum, from kind of the early growth company, all the way to really mature profitable companies. And so we've kind of taken our approach where we have a sourcing team of close to 50 people that are basically looking for the best software companies globally, proactively reaching out to them. We have an investment team that kind of finds the best companies. And our approach is to go to them and say, "Listen, we don't care whether you want to sell 10% of the company, you want to sell 90% of the company, or you want to sell something, you want to have something in between. You're a great business, we love your market, you've got a great team, we want to find a way to work together.", not have an approach that we only do control deals or only do minority deals, we want to be in great companies.

Deven Parekh: (08:14)
And then lastly, we have a 70 person operating group that kind of is really able to work with companies, not to run them because our model is not to go in and we want to back great entrepreneurs. What that operating team really does is share best practices, because what we view ourselves as good at is pattern recognition. What works over here, how do we apply it over there? And that team's role is really to play that. We can go into any one of those in more detail. But that's really the approach we're taking.

Anthony Scaramucci: (08:45)
And it's working out amazingly. But now we're dealing with a COVID-19 pandemic. And so has this changed anything about the business Deven, from your perspective? Has your investment philosophy changed, the deployment of capital? What's different today in the post COVID-19 portal?

Deven Parekh: (09:05)
Well, like all of us, we walked out of the office one day in March and haven't really been back since. And I think if you had asked us at the end of March, I spoke to our LPs at the beginning of April, I told them that they should expect significant pressure on valuations. They should probably expect significant decline in our investment pace and that we didn't really have a lot more visibility to be able to offer but given that we're likely going to see the largest economic contraction since the Great Depression, it was hard to assume that it was going to be anything but challenging conditions for the next nine months. And here we sit in November, and that's really not the way it played out. Tech has been extraordinarily resilient. We've done 27 deals since COVID. We've deployed as much capital this year as we deployed last year, and so everything about what's happened, and we can talk about why that is, but anything, everything about what I would have predicted at the end of March hasn't really played out that way.

Anthony Scaramucci: (10:19)
So tell us about that, because I think that's another big point about life and adapting, and things are happening that you don't expect. Certainly none of us thought that we would be in a global pandemic, perhaps you did. I thought it was unlikely that someday we might have a pandemic, but I didn't think it was going to be imminent and it came upon us, in my opinion very quickly, caused all of us to make some adaptations to our business. Obviously, I would love to be doing this with you in a live event, a live SALT event, which hopefully someday we'll be able to... exactly, so hopefully, someday we'll be able to do that. So go through that thought process, go through the machinations, the adapt and pivot and also then explain how you identify that in good leaders in the companies that you're investing.

Deven Parekh: (11:05)
Look, I start by saying this, some of the pre-COVID just a general comment, and we'll talk about COVID. But I think what people underestimate is the impact how much they touch software in their lives. So you use your iPhone as your alarm clock, that's software. You get up and you ask your Alexa the weather, that's software. You get into your car and you put something in a navigation system, that's software. The average car today has 10,000 more lines of code than a Boeing 737 software code. You go to the bank to get money out of the ATM machine, that's software. You show up at the office and do your thing. This is pre-COVID. That's software. You come home and you watch something on Netflix, the recommendation engine, that's AI software. I can keep going. But the point is that the amount of consumption that's driven by software, it just continues to go up.

Deven Parekh: (12:02)
Now let's talk about COVID. So what happened in COVID? And I'll use two industries as examples. So banking. About 50% of consumers used online banking pre-COVID. Within a month of COVID, 73% were using online banking and of those 73%, 75% said, the ones who are first time users said they would continue to use it post-COVID. Grocery 30% of people used online grocery pre-COVID. 63%, by the way, I'm surprised it's not even higher, but 60% use online grocery post-COVID. And again, 75% of those people said that they were going to continue to do that.

Deven Parekh: (12:47)
So what does that mean? Well, what it means is well, if you were to use a New York example, which won't be relevant to others maybe outside of New York, FreshDirect, well you already had an online platform and you were good at doing online delivery. But what's really happened and what's driven so much incremental spend is, if you are Walmart, you took probably four or five years of e-commerce investment and compressed it into like six months, five months, four months, because you now realized that your primary channel was probably going to be online, not the store.

Deven Parekh: (13:29)
If you were a bank, Anthony was not going to a branch anymore. And so really what happened is it wasn't the Etrades of the world that needed to make that change, because they already had online channels. But all the incumbents had to fundamentally, they're all thinking about online, they're all thinking about having a great experience, but they realized it was from being part of their experience to becoming the primary experience.

Deven Parekh: (13:55)
And what does all that require? It requires a massive investment in software. So who was the beneficiary of that were these enterprise software companies who basically were providing the tech platforms required for these companies do that. And then the last example I'll use, obviously just collaboration and communication. So we did walk out of the office in March, I am stunned at how seamless it's been. We can talk about what maybe some of the things that aren't happening, but it's been remarkably seamless, because of things like Zoom. Zoom's and ow worth $150 billion. We were joking about Zoom earlier. I'd rather be Zoom than GE for that reason, and wiser-

Anthony Scaramucci: (14:34)
Just for our listeners and viewers out there, John Darsie compared me to GE, and he told Deven that he was Zoom. I just want to make sure everybody understands that that's going to be something I'll be talking about with my therapist.

John Darsie: (14:47)
I can confirm that.

Anthony Scaramucci: (14:49)
Yeah, that was a brutal example. Deven, it's phenomenal what you're saying. I got two follow up questions. So you said everything's seamless, a few things are missing. What are the few things in your mind that are missing?

Deven Parekh: (15:05)
Well, I'll just use Insight as the example. I already gave you the stats. We're getting the deals done, right? But first of all, we're now investing significant amount of capital without having met people in person. Now you say, "Well, how important is that?" Well, the honest answer is, I can't tell you for a couple years how important it was. Maybe it's a false negative or false positive to think you have to meet people. But in the work context, we've onboarded, I think 20 or 25 employees since COVID. I've never met any of them in person. I've interviewed some of them on Zoom, but I've never met any of them in person.

Deven Parekh: (15:42)
The bigger challenge for them is going to be mentoring. So if you're a junior person at an organization, what used to happen, we're having a negotiation on a deal. I'd say, "Hey, John. I want you to jump in my office and listen in on the call." That's not happening anymore because everything is structured. So either somebody's invited to a Zoom meeting or they're not invited to a Zoom meeting. So you are losing, I think that collaboration, the mentoring of the junior folks, and then I think, look, not meeting people works fine when things are going great. But I think whether it's in business and politics or whatever it might be, personal relationships matter a lot. And when you have a problem, you need that reservoir of goodwill to get to that problem.

Anthony Scaramucci: (16:27)
I will say I agree with that. We lost business during the pandemic. And I'm absolutely confident had we been able to have face to face meetings with those various people, and some of the stuff got lost in translation. And some of it got lost in the haze of what was going on in the early part of the pandemic. But listen, I own that and we move on, we learn to adapt and pivot. But if I had the opportunity to meet with people face to face, I think it would have been a better outcome for both parties. I think when you're in a misinformation situation in a crisis, you can create a lose-lose if you're not careful. So it's always always caution, and offering up more communication to each other.

Anthony Scaramucci: (17:07)
You're a big thinker, you're a great executer, you built an incredibly successful business, congratulations on all that. But you are also a super big thinker and a visionary. And I know you've looked at this before so I have to ask this question. If you look at the top 10 companies in the United States, GE is a good example, in 2000, that would have been a top 10 company in the United States. And then a decade later, it's slipping. And two decades later, it's no longer a top 10 company. And lo and behold, we have other top 10 companies. There are a few private companies right now that could be those types of moonshots over the next 10 years. What do you think those companies are? What sectors of the economy? Where is the puck going in the world of tech and in your space?

Deven Parekh: (17:56)
Look, I think that there's, I would say, it would almost be impossible for us to predict which ones it will be. That being said, I think if you think about, data and age, if you think about AI, and I'll come back to your question, but if you think about AI, which I think is going to be an incredibly important, will continue to importantly trend. Data is kind of the oil of AI, right? So without data, you can't really do. I mean, you train AI using data. And so companies understand that. And they're kind of capturing kind of more and more data. And I think that the analytical platforms to help analyze that data are incredibly important. A good example of that might be Snowflake, that just went public recently. We're not investors in that, I will just disclose.

Deven Parekh: (18:47)
And so I think that the power of compounding is incredibly important. And I was reminded of that the other day. So if you compound a business at 20% a year for 20 years, it's 39x, right? Now, if you look at two actual examples, ServiceNow compounded for the last 10 years at 50%. Shopify compounded at the last 10 years at 80%. And so when you think about these companies today, like the Amazons, and the Facebooks and the Alibabas, that are anywhere from 500, Microsoft $500 billion to $1.5 trillion market caps. And again, five years ago, if we were doing this interview, and you said, "Oh, there's maybe three or four of these companies that would be north of $1 trillion market cap." I think most people would say there's no way that's happening.

Deven Parekh: (19:40)
I think what everybody underpriced is the power of compounding. And it's not so much the power of compounding because you can learn that in pretty basic finance. It's the durability of that compounding. And I think that what everybody, including investors like us, didn't necessarily believe that these businesses could compound for as long as they have. So you could have made 62 times your money in the public markets just buying Salesforce at the IPO and not selling. Very few people did. Because along the way, you would have read research reports that said it's massively overvalued. It's massively overvalued. It's a short. And really only one thing happened. It just kept rolling.

Deven Parekh: (20:21)
And so what I see and I'm not answering your direct question by giving you the names, but what I see is that you've got so many sub sectors in tech, and particularly in software, where you can see these categories compound, total category compound at 15% a year. Now you'll have winners, they'll compound even north of that. So I think if you go out 10 or 15 years, you're going to see a lot more companies with market caps that are $500 billion and $1 trillion in the space. Tech's already 28% of total market cap. And by the way, that dirty little secret in the market, the market's great, the market's great. The reality is software's up 33%, financials are down 21%, real estate's down 5%. The S&P is up 3%, 3.5%, but this 28% has really driven a lot of the market.

Anthony Scaramucci: (21:13)
So I mean, you bring up a really good question, because how do you see through that? How do you see through that fog? Research reports, valuation? How do you teach an investor your own clients, yourself, your team, to stay disciplined and stay in something? Look at the returns you would have had if you just bought Amazon as an example from the IPO. What do you say to people regarding that?

Deven Parekh: (21:42)
We've made, but number one question we get from both existing LPs and prospective LPs is are valuations stretched? We've been getting the same question for five years. By the way, it's not always easy to answer that question. Because anytime you look at something, and you look at it, and you say, "Well, it's the most expensive it's been in 10 years.", the easy answer's to say, "Therefore, it must be overvalued." But that isn't necessarily true if it continues to compound for 15% for the next 10 years. The question is figuring out how. We've made plenty of mistakes over time of distributing stocks too early, selling companies too early. I think what we try to spend most of our time on today, and I would far from claim that we've perfected it. We probably make more mistakes on this than almost anything else is really trying to figure out sustainable growth. Not okay, did it grow 100% this year? But what can it grow at for 10 years? What can it grow at for 15 years?

Deven Parekh: (22:48)
And that's what we spend a lot of time on and we look at who are the incumbents in that space. What does their product quality look like? How much disruption can happen? But in my view, the best markets aren't disruptor markets. The best markets are where you're creating a new market. That being said, it's also the hardest. It's the hardest thing to figure out. So I always like to use examples of companies who are not investors but I'll use Uber as a great example. When we looked at Uber, we had a chance to invest in one of the early rounds. Still very expensive, we passed and we pass for a very simple reason. We did an analysis that said the size of the New York and San Francisco cab market, what is it?

Deven Parekh: (23:28)
And we did a calculation, and they were looking for a valuation that was like six times the size of the market. I said, "Well, this is two cities, we're going to pay six times a market. How can you ever make money on this investment?" Except we missed something really, really fundamental, which is that when you change the way people consume that service, and you put it on their phone in San Francisco where cab service had been historically very, very bad, you totally change the demand curve.

Deven Parekh: (23:55)
So now, the size of the markets today in those two markets is 10 or 12 times what it was when we looked at that investment. We missed that. We looked at existing market and said we're just going to take existing market and move it to us, as opposed to this massive new market that can get created the we can own a significant portion of. So what we try to do and we make lots of mistakes, that being a great one, great example of one rather, is try to really be thoughtful about how a market might evolve over time. I don't know if that answers your question.

Anthony Scaramucci: (24:30)
I think it's an amazing message. Because you're basically saying, look, we're going to make mistakes, we'll miss things. But if we stay in our bandwidth and in our discipline, we're going to hit the target more often than not, and that's basically the lesson.

Deven Parekh: (24:41)
What I say is, "Guys, we're going to make mistakes. Let's try not to make the same mistake twice." Let's make new mistakes. And I think it's important to make mistakes. Just try to avoid them the second time.

Anthony Scaramucci: (24:54)
I'm going to shift gears because the irrepressible John Darsie is going to come on. We've got tons of audience participation and we want to allow the audience to engage with you as well. I want to shift gears into one of the big facts of our time that we're living in, something I'm always worried about and I'm sure that you're thinking about and I'd like to get your great mind on this topic. We watch a city like New York suffer higher homelessness, people defecating on the street. We see what's going on in San Francisco, and some of the other great cities of the United States. And I'm wondering what your thoughts are about that. And I'm wondering about what seems to be happening more than ever before is a separation between the haves and have nots. What are your thoughts on that? And what do you think we can do?

Deven Parekh: (25:47)
Well, we're probably veering away from tech. I think that look, I agree with you. I think that if you want to see the impact of wealth concentration, people should go back and read about the French Revolution, it doesn't really end well if you're sitting at the top of the heap. So how do we change that? I think that the challenge we have as a country and I don't even think this is a political comment one way or the other, is we're way too short term oriented. And if we're going to change the game on what you're talking about, it's going to start first with educational opportunity.

Deven Parekh: (26:24)
That's how you change the game. And we have to make sure that we are giving, look, I view myself as incredibly lucky. I got access to great education. My family was able to afford that great education, I didn't have to work during college. I could spend all my time studying, put myself into this career. My dad was an immigrant, and I was very lucky. There's thousands of people out there that are just as smart, if not smarter, who just didn't get that same set of opportunities. And so for me, it's long term investment in kind of education is really the long term antidote. Obviously, there's things you can do around tax policy to change things in the short term. I don't know that they change the long term game. And so there's certainly changes in tax policy.

Anthony Scaramucci: (27:15)
Give me one example, and then we'll turn it over to John. What's an example of tax policy?

Deven Parekh: (27:20)
Oh look, I mean the ones that people are talking about. Certainly one, the simple one is an increase in ordinary income tax rates, the other would be elimination of the capital gains tax rate. And that's one which is very controversial. But one could make an argument that, and I'm a beneficiary of that capital gains tax rate. The flip side is, if you think about this, you could say, "Well, one is a tax on labor. Why is a tax on labor so much different than the tax on capital?" And if you wanted to change wealth concentration over time, you would bring those rates closer together. I mean that's a very rational economic argument. Obviously, there are lots of people on the other side of that. There's pros and cons from a policy standpoint, but that's certainly one policy prescription, if you were trying to address the issue you're talking about.

Anthony Scaramucci: (28:18)
One last question. Deven, if you could be anything other than what you are right now in this lifetime, what would it be? And I'll tell you this, I would want to be the starting first baseman for the Mets. And so that was never going to happen to me due to my size and skill and my athleticism. I'm stuck here at SkyBridge. But what would it be?

Deven Parekh: (28:37)
I remember when my son was in sixth or seventh grade, he told me he decided he was going to go to Georgia Tech. And I said, "Well, why are you going to go to Georgia Tech?" And the baseball player that he loved, who was a Yankee player at the time and got to Georgia Tech. I said, "Caden, the odds of you being the first Indian baseball player are pretty low. I'm not going to pick sports." And look, I actually truly have and still have a passion for science. So I think if I weren't doing, I want to do something I love and I love what I do. But I also think I could have loved being a doctor. And I think if it was not this, it would be medicine.

Anthony Scaramucci: (29:17)
I think it's a very honest answer. And again, I think it's another refreshment for the younger people that are listening. Pick something you really love. The first job that I had, unfortunately, was in real estate investment banking. I was terrible at it. I got fired from it. See, John Kelly wasn't the first person to fire me. I was fired before that. And the reason I was fired was I stunk at the job. Had I just gone into something that I really liked, I would have been able to have succeeded from the get go. And so it's just a learning lesson for people. I'm going to turn it over to Darsie, who's about to be fired because he called me GE. But we'll let you enjoy him for the next 15 minutes as he asks you these questions.

Deven Parekh: (29:57)
Great. Thanks, Anthony.

John Darsie: (29:58)
Deven, it's a pleasure to have you on. There's a concept that you speak and write about a lot called the scale up phase for a tech company. I want to talk a little bit more about that. Basically, your thesis is that we call companies startups for way too long. And there's actually a key phase that comes after that startup phase. Could you tell us more about that scale up concept and what the implications of that are? And also, is there a role for governments to play in supporting those scale ups as well?

Deven Parekh: (30:29)
Yeah, so let's hit the first part. So we talked earlier about kind of the stages that we invest at. And when I think about a startup, and I think startup, as you rightly pointed out, there are companies, I mean, you'll read a Wall Street Journal article about a company with $150 million of revenue. It's a Silicon Valley startup. That's really not a Silicon Valley startup. What we think about when we think about scale up is that you really feel good that product market fit has been established.

Deven Parekh: (30:57)
So what do I mean by that? If I talk to 10 customers, they say, "I buy this product for this reason, and it works for this reason really, really well." And do you use it for this? Maybe not. Do you use it for that? Maybe not. But for this thing, I really like it, and I'm going to probably buy more of it. So you've really established product market fit. Now there are companies, including companies that I have investment in that have revenues, but they don't really have product market fit. What does that mean? I call five customers, I get five different answers of why they bought the product. That's fine, because you got some revenue, but it doesn't really scale up. which goes to what your point? Why doesn't it scale up?

Deven Parekh: (31:33)
Well, if you have five different reasons you bought a company, what exactly is a marketing strategy for the business? How do you actually figure out what customers to target? And what's the right skill set for the people to go do that marketing and that selling? Just use sales and marketing as an example. So in a true scale up company, you've got product market fit. Generally, you've got a management team. The management team might not be fully formed to take it to the next level. And really, the investment at that point is figuring out how to make it scalable, which is why you're saying scale up. And so what does that typically mean? Well, it means how do you really figure out taking, how do you increase sales at the same or better unit cost? If I bring it down to the crux, I'm oversimplifying to keep the answer short. How do you do that? And that's one of the reasons we have the onsite team, which is run by my partner, Hilary Gosher, is to really have a true understanding of each functional area of a scale up organization, what are the best practices? And that's why our entire organization is built to really focus on companies that are at that phase.

John Darsie: (32:51)
So we have a lot of participants on these SALT Talks at our SALT conferences. We've also hosted SALT conferences internationally, in Singapore, in Tokyo, in Abu Dhabi. And we've been blown away by the emergence of entrepreneurialism and technology ecosystems outside the United States. India is another great example. We have a lot of Indian constituents that come to our international conferences as well. What are trends that we're seeing in terms of foreign or international venture capital that U.S. investors may not be aware of?

Deven Parekh: (33:24)
Just to make sure I understand the question, do you mean as it relates to U.S. firms investing internationally? Or do you mean in terms of international firms investing in the U.S.? I just want to make sure I get that.

John Darsie: (33:33)
I'm talking about U.S. investors or investors from around the world investing in local tech ecosystems around the world. So for example, you're having to see a company like Google sort of wave the white flag in India and invest in Reliance Industries, because of sort of a tech nationalism or digital decolonization, and you're seeing tech ecosystem springing up in different areas of the world? Is that something that you guys are observing or how are you investing based on the globalization of tech?

Deven Parekh: (34:00)
Yes, let me separate the two things. There's the strategics, who put the flag up because they have to, because you have to have a relationship with the local government. And there's certain countries like India and China where there's just a reason why you have to do that. So that's one category. But let me address, that's not really our category. So let me address the other category. Look, the world on tech has really gotten flat, to use somebody else's title, and it used to be that we saw great entrepreneurs, we'd see great companies, but we didn't necessarily always have, we didn't always have the quality of management that we would find here. And people will be like, "Oh, it's Silicon Valley, the best management's in Silicon Valley."

Deven Parekh: (34:42)
We're increasingly finding great management everywhere in the world. And then the other interesting thing is, where do you find great tech? Well, you can find great tech anywhere. So we've got, I think now, a couple billion dollars invested in Israel, and Israel has probably become one of our most active geographies. There's fantastic tech talent in Israel. It used to be people are only around areas like security. But now it's across lots of different areas but we've invested in a lot in Israel. We've invested in Australia. We've invested in pretty much around the world.

Deven Parekh: (35:15)
The areas, the two markets we've probably been less active in, though recently, we've done a bunch of investments in China, have been India and China. And this is for a very simple reason. They have a very robust local venture capital ecosystem. So if the deals getting to Deven, there's probably 47 people who said no already. And I don't have the local network in those countries to kind of talk to the temp, like in the U.S., if I get a company come in the door, there's probably 10 people I can call to make an assessment. I don't really have that same network in those places. But I think that that's going to continue to happen. Berlin's another, Germany, we have lots of investments in Germany. We're very, very active in Europe. And the market is getting more competitive, in that it used to be that one of the benefits for us was we're willing to kind of go anywhere. The problem is so is everybody else now. So we run into a lot of the same competition no matter where we go.

John Darsie: (36:12)
So Anthony asked a question earlier about income inequality and ways that you would solve it. And I want to sort of ask that question through a different lens, focusing on tech and data. And there's that existential question about whether technology is going to be our doom or be our savior. And so the technology has obviously maybe displaced some jobs, and it's changed our society and harmed labor in certain ways. But there's also plenty of ways how tech and data can help solve those problems as well. How do we ensure that tech and data are a force for good? And how can they also be part of sort of this push for social inclusion, economic inclusion factors as well?

Deven Parekh: (36:52)
Well look, I think when you think about tech and data and you think about kind of public policy, the interesting contrast would be the U.S. and China. So if you do any reading on AI, what you would find is that a lot of AI applications are more advanced in China. But why? Well, one, they have a lot more people and two, the people's comfort with their data being, maybe it's not comfort, but their willingness to let their data be shared, it's not optional. And we have a much higher standard of what we believe for privacy as a society. And that's not a value judgment, pro or negative to China or the U.S. But what it does do, it allows a country to build a comparative advantage in certain areas. So if you wanted to build self driving cars, China probably has more data than we do. They've actually built cities with entire parts of the city. They're structured for self driving cars, so they can collect kind of more data.

Deven Parekh: (37:57)
I think there's lots of social implications around self driving, there are safety implications. But when you get to things like privacy, and you get to security applications, so can I walk you through a building and take a picture of my face, identify who I am, and take action based on that, or people are aware that in China that they have these effectively social scores for every citizen. And these are things that obviously would not be acceptable in the U.S.

Deven Parekh: (38:26)
I think in any one of these constructs, data can be used in a positive way. So most people would say that if we could and the interesting thing about self driving cars, just to use that example for a second is that it's when a self driving car kills a person, like it happened in Arizona with Uber, seven, five or six states shut down self driving car testing. And yet, that same day, probably 20 or 30 people were killed by a drunk driver. And you would probably 80% reduce that with self driving cars.

Deven Parekh: (38:59)
So the interesting thing with all these from a policy standpoint, or if you remember when the two Boeing flights because of software flaw, which is horrible, crashed, and you had hundreds of lives lost. There was an outcry that was disproportionate relative to what happens when the same thing happens because of pilot error. And so there is a societal acceptance that needs to happen around these things, which is really, really complicated. And certain societies are going to do it by fiat. China, this is what we're doing, and others are going to progress over time. It just takes time for societies to kind of get used to these changes.

John Darsie: (39:46)
So you're no stranger to public service. You served on the board of OPIC, which is the Overseas Private Investment Corporation for those who aren't familiar. You're on the advisory board of the U.S. Export Import Bank, which is somewhere where China has sort of leapfrogged the United States in terms of how they use these types of organizations to drive investment. And you are also on the FCC Advisory Council. So if you can wave a magic wand from a policy perspective or a regulatory solution to drive more investment into the types of companies that can improve quality of life in the United States or other elements of our society, what would that policy solution be?

Deven Parekh: (40:26)
I don't know that there is an easy, I mean I've thought a lot about this. I don't know that there's an easy policy prescription. And one of the things, look, I think one of the things you're seeing right now is an increased, going the other way, is probably an increased interest on the part of Washington to regulate the tech industry. And some of that is I think that, and this is a personal opinion, but some of that is the tech industry's fault. I think for too long a time, the tech industry's kind of taken this view of we're out here doing good, kind of saving the world, just kind of leave us alone. You don't need to worry about us. We're making it easy for you to find information and we're doing all these great things.

Deven Parekh: (41:10)
And we took a very arrogant view as an industry, I mean towards government. And we're seeing the backlash of that right now. And I think like every industry, some regulatory oversight can make sense. And then the one that I think, I don't really think it matters who gets elected next week. I think as it relates to, for example social platforms, there's likely going to be more regulatory focus today than there was before.

Deven Parekh: (41:44)
So I don't think, I think the odds of the government putting a policy in that's going to significantly change the rate of adoption or the curve around tech is pretty low. What I go back to though, and to your point is, there's still this massive digital divide, and COVID really, really brought it out.

Deven Parekh: (42:06)
So biggest issue in my home when everybody was home for school is how come we don't have the one gigabyte thing so that we're all streaming faster, right? Well, what happened, where on the other hand, what's happening is you have people who have one laptop at home or one computer at home, and they have two or three kids. And so this digital divide is, which is only going to get exacerbated in the world we're in today, we really need to fix. And there needs to be a massive investment on the part of government, in my view, to fix that, by making broadband available everywhere.

Deven Parekh: (42:48)
It's crazy to me that living in a country that's as rich as ours, that's supposed to be the envy of the world, that we have so many people who don't have availability, the internet access. I mean, I remember when I was on vacation in Africa, I had better data on my phone in Africa and I can tease Anthony, than certainly in the Hamptons.

John Darsie: (43:16)
Yeah, absolutely.

Deven Parekh: (43:17)
And that's true, I say facetiously, but there's a much more fundamental kind of issue. And if I would focus on something right now, I wouldn't focus on the government trying to come up with a regulation or a rule that's going to help the tech industry. I think that's likely not going to work. What they can do is things like this, and making technology available, making broadband accessible, so that everybody can have access to the same tools that everybody on this call has access to, that's powerful, because you know what? Somewhere, there's a kid who should be watching this right now and watching all the SALT Talks and getting educated in all these issues. And they can't. Why? Because they don't have a laptop with a broadband connection. That's a travesty.

John Darsie: (44:03)
Yeah, when people think about infrastructure investment in the United States, they think about fixing roads and making our airport terminals look better and making trains go faster, but really it's the digital infrastructure that's in the biggest need updating. And we had a speaker on SALT Talks about a month or so ago talking about Chattanooga, Tennessee. They had a very smart, forward thinking Chamber of Commerce that said, "You know what? Let's just give ourselves a really fast internet. Let's give ourselves gigabit speed internet and see what happens." And what happened was you had tech companies that flocked to Chattanooga who were able to leverage the speed of the internet and the quality of the tech infrastructure to start building companies and processing data in ways that you couldn't if you didn't have that same type of tech forward approach. But Deven, we're going to leave it there. We're so grateful for your time and grateful for you joining us on SALT Talks. Anthony, you want to have a final word for Deven?

Anthony Scaramucci: (44:56)
No, listen, it's a brilliant conversation and congratulations on an amazing career. I think you left a lot of things for younger people on this call as well as seasoned investors to think about when they're running their portfolios or thinking about investing. Are you raising another fund now, Deven, by any chance or no?

Deven Parekh: (45:17)
We closed our last fund in March.

John Darsie: (45:21)
Good shout out, Anthony.

Anthony Scaramucci: (45:23)
No, I'm saying that for promotion, but I'm a very shy, reserved person. I have a lot of introverted aspects t my personality.

Deven Parekh: (45:33)
I think if you look up shy in the dictionary, there's a picture of you.

Anthony Scaramucci: (45:35)
There is. It's right there next to me and several other luminaries of shyness, but I just say I wanted to bring it up because you're the type of person that's going to make a fortune for people in the future and I wish you great success and thank you for joining us on SALT Talks.

Deven Parekh: (45:52)
Anthony, John. Thanks so much. That was a lot of fun.

John Darsie: (45:53)
Thank you, Deven.

Voice of Cannabis Series - Episode 4 | SALT Talks #93

“I believe Biden would sign any piece of [cannabis] legislation that comes his way.”

Jason Wilson is Principal at Fourth Wall Advisory, a strategic marketing advisory firm, and a Cannabis Banking Expert. Joining Jason is David Culver, Vice President of US Government and Stakeholder Relations for Canopy Growth Corporation; Patrick Martin, Principal & Director of Midwest Public Strategies for Cozen O’Connor; Erik Huey, President of Platinum Advisors; and Melissa Kuipers Blake, Shareholder at Brownstein Hyatt Farber Schreck.

A Democratic trifecta in congress and the presidency is the best case scenario for the advancement of the cannabis industry. Initially, expect to see a Biden White House use executive orders that address the decriminalization and rescheduling of cannabis. Though, the start of the administration will be consumed with the COVID-19 pandemic. Support for cannabis has grown steadily over the years and has become a bipartisan issue. In congress, legislation will likely focus on passing a new version of the MORE Act. Such a bill will likely make it to the floor for a vote, but would struggle to earn the 60 senate votes needed (if the filibuster remains intact). “There’s a lot of parallels here from 2008 in the marriage equality issue with Obama… We could have the same thing with Biden and Harris [supporting cannabis].”

LISTEN AND SUBSCRIBE

SPEAKERS

Patrick Martin.jpeg

Patrick Martin

Principal & Director, Midwest Public Strategies

Cozen O’Connor

Erik Huey.jpeg

Erik Huey

President

Platinum Advisors

David Culver.jpeg

David Culver

VP US Government & Stakeholder Relations

Canopy Growth Corporation

Melissa Kuipers Blake.jpeg

Melissa Kuipers Blake

Shareholder

Brownstein Hyatt Farber Schreck

EPISODE TRANSCRIPT

John Darsie: (00:11)
Hello everyone and 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 digital interview series that we launched during the work from home period with leading investors, creators, and thinkers.

John Darsie: (00:32)
And what we're really trying to do during these SALT Talks is replicate the experience that we provide at our global SALT Conferences, which we have an annual conference in the United States and annual international conference, most recently that was held in Abu Dhabi. And we're looking forward to doing likely a virtual Abu Dhabi Conference in early 2021.

John Darsie: (00:51)
But what we're really trying to do is provide a window into the minds of subject matter experts for our audience, as well as to provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome the fourth episode of our voice of cannabis series, where we bring together leaders and innovators from the front lines of the cannabis industry to talk cannabis politics, cannabis regulation, and the business of cannabis.

John Darsie: (01:17)
Today's episode is called the State of Play Before Election Day. And it's in partnership with Fourth Wall Advisory, which is a strategic marketing advisory firm. A special welcome to our newest panelists today, Melissa Kuipers Blake. Who's a leading lobbyist and seasoned political strategist, focusing on the field of cannabis.

John Darsie: (01:36)
Hosting today's talk again is Jason Wilson, who's a principal at Fourth Wall Advisory, and a cannabis banking expert with more than 15 years of experience in the asset management, finance, and structured product space. Jason has a track record of bringing hard to access asset classes to market. He's been working in connection with the legal cannabis industry for the past decade. And with that, I'll turn it over to Jason for the interview.

Jason Wilson: (02:00)
Thanks John, really appreciate it and great to be here for our final episode. Obviously lots going on, we go back to the VP debate, and I think when Senator Harris mentioned that if the Democrats win cannabis will be decriminalized or legalized, and man, did we ever see the markets move and the chatter start based on those comments?

Jason Wilson: (02:22)
Here we are a week to go to the big election and lot at stake. There could be several scenarios, several outcomes, so much going on. Eric, why don't you to kind of give us a state of play? What's the chatter? What're the expectations? Where do you see things going with it a week to go to the election?

Erik Huey: (02:41)
Perfect. Well, thank you, Jason, and thanks again to SALT and the team for having us back on for this discussion. Here we are a week out, it always seemed like people were saying it's a long ways away. It's too early to start to think about this. We're now seven days out, we're within striking days of this.

Erik Huey: (03:00)
And the reality is, we've already been in election month. This is the first election in American history where more people will have voted prior to election day than vote on election day. And the numbers that we're seeing are astronomical, 66 million people have already voted. 25% of them did not vote in 2016.

Erik Huey: (03:20)
And it States like Texas, that's 84% of the 2016 vote is already voted. In Georgia, 71%. We're seeing increased turnout among blacks, Latinos, and young voters. So people are getting to the polls early, there's a lot of reasons for that. A lot of it's COVID related, and safety-related, the numbers so far have leaned heavily democratic. A lot of that is due to, I think, voter enthusiasm, but also President Trump's comments about mail-in voting.

Erik Huey: (03:50)
Mail-In voting constitutes about two thirds of the votes so far, and in-person voting constitutes one-third. This could be the largest turnout we've seen perhaps in American history as a percentage, certainly the largest in terms of raw numbers and undoubtedly the largest in 100 years. So where are we? Right now, it's Joe Biden's general election to lose. He has had a very durable, steady lead for the entirety of the summer, all through the conventions into September, through October, in any October surprises.

Erik Huey: (04:27)
And here we are a week out and he finds himself up by nine points, almost 10 points nationwide in the poll of polls, the numbers I'm going to use are RealClearPolitics 538 poll of polls. So it's a polling average, he's up nine to 10 points. Hillary Clinton at this point was only up five, so that differential alone could be the Delta, but where [inaudible 00:04:50] as we know, the electoral college is how we judge who've won and lost.

Erik Huey: (04:54)
And the even though we may see a differential four, or maybe even five million of votes in favor of Joe Biden, the electoral college still could would determine this. So we look at where he is in the swing states, Michigan he's up by eight. Biden is up by seven in Wisconsin, Florida two, one Iowa, Pennsylvania five. Arizona, North Carolina, and Georgia up by three, two, and one.

Erik Huey: (05:22)
Trump is not out of the margin of error in any of the swing states and he's only up in Texas and in Ohio. What Joe Biden has done, he's grown the map, forcing the Trump team on the defensive nationwide and enforcing them to fight battles that they didn't expect to fight in places like Georgia and Texas, and spend money that they don't have, that the Biden advantage is two, if not, three to one, going into these final race weeks.

Erik Huey: (05:46)
And this is going to have an impact on down ballot races. So the Democrats, it's a non zero chance that Trump could win. We've seen that in 2016, but he does not have magic powers. This is a very different election in 2016, and it looks right now like Joe Biden is going to win well by over 300 electoral college votes.

Jason Wilson: (06:10)
Patrick. I mean, you're in the Midwest, we're talking about battleground States, and we also have the Senate to play here. I mean, that could flip, right? Where do you see this coming on emergence?

Patrick Martin: (06:21)
I share an optimism like Eric expressed, that the vice president is in a strong position, but mine is a very cautious optimism. And part of that is sort of living out more in the middle of the country, my in-laws and family are in Michigan. We spend a lot of time in Indiana and other states in the Rust Belt. And there is just a very different America and a lot of parts of the country than what you see in Washington, D.C., New York, San Francisco, and other large urban areas.

Patrick Martin: (06:53)
The battleground states are really close. And I think there has to be accounted for a percentage of people that are going to vote for President Trump, that don't tell pollsters that they're going to, or don't even answer calls when they get them from pollsters. I would also look at history as a guide, one thing we did in 2016, which is why I think a lot of us got the election wrong is, we didn't think that it mattered that you had sort of an insurgent outsider running against someone going for a third term, because we just thought that the fact that Donald Trump was Donald Trump was the offsetting factor.

Patrick Martin: (07:33)
And really all of the factors pointed to a Republican President having a really good chance in 2016, we just didn't think that it could be Trump. So let's look at recent history on incumbents who are defeated when seeking a second term. In the cases of both George H. W. Bush in 1992, and Jimmy Carter in 1980, you had incumbent presidents dealing with crisis at home and abroad, that suffered very, very contentious primaries within their own party in seeking the nomination for a second term.

Patrick Martin: (08:07)
And you had disruptive forces within the base that would be sort of a lack of support among core constituencies. I don't see any of that right now with Donald Trump, I mean, facing a crisis with this pandemic and the subsequent recession, but his base is firmly behind him. They were behind him in the primary, and the Republican Party is enthusiastic and energized about him as any political party has ever been about [inaudible 00:08:34] in my lifetime and probably my parents' lifetime.

Patrick Martin: (08:38)
I would make note of that. I would also just point out the obvious point, we are an evenly divided country, we're very divided. And I think you're going to see turnout that is very enthusiastic on both sides, because both sides feel like there's just a lot at stake for the country, and for people sort of way of life, and what they value and find important.

Patrick Martin: (08:58)
On the Senate races, which you mentioned, Jason, that's really important. I would point to an often repeated stat from 2016, but no Senate candidate in 2016 won a state that the presidential nominee of their party didn't win. We just don't see a lot of tickets splitting anymore. And as I look at the Senate map, I think that continues to make the Democrats path of the majority very challenging.

Patrick Martin: (09:22)
We'll have to see what the early vote numbers look like as we get close to the election, and kind of when all the votes come in, but I would say Biden is a favorite, but it is very tenuous in the same path that was available to President Trump four years ago, remains available to him today. And I think that's where things stand.

David Culver: (09:41)
Jason-

Jason Wilson: (09:42)
Go ahead David.

David Culver: (09:43)
Sorry, can I just jump in here with a quick comment, and also a question for either Eric or Patrick? Because I think their comments, both of them are spot on. First of all, I just want to say for the record that it is stunning to me that Joe Biden is in Georgia this week campaigning, and that that state is actually in play.

David Culver: (10:01)
A Democrat has not one that States since 1992, and I think Patrick alluded to that earlier, and that's something to keep a very close eye on in addition to some of the others that are running neck and neck. The second is that, there's been a lot of chatter about the staggering amounts of money that the Biden campaign has raised, and it is indeed record-setting, and staggering.

David Culver: (10:21)
The most important things in my mind though, in terms of the money is not the ad buys, but rather the paid GOTV, and also the paid legal, which there are hundreds of legal challenges across the country already. We know that this could potentially drag out until the second week of December. But they have actually the legal structure and pay in place. These are not volunteers, these are paid professionals.

David Culver: (10:44)
I think that actually is going to have a big impact, and I also feel like the paid GOTV is something that's not getting a lot of chatter, but it's really critically important. But one thing that I wanted to raise though, is that also this week, the one pollster from 16 that got it right, suggested that this time around it's actually a 5% kind of quiet Trump favoritism, right? Everything that we're seeing should be minus five, or plus five for president Trump. I'm just curious Eric, Patrick, if either one of you could comment on that, and if you think that that's actually real, and how that could potentially impact next week.

Erik Huey: (11:24)
Well, I would say, any one poll, you have to look at the biases of the poll, and the biases of the pollster, which is I think, why it's important to look at the averages, and where it's heading, and where the polls have been breaking. And the polls have been breaking not toward the incumbent, which is normal in elections. The challenger is where the undecideds break at the last minute.

Erik Huey: (11:45)
The polls are breaking to Biden, and Donald Trump doesn't have the advantage of A, running against Hillary Clinton who was extraordinarily unpopular. And he also doesn't have the advantage of running as an outsider. We've had five years to get to know him, and he's the only president incumbent in polling history who's never hit 50% approval.

Erik Huey: (12:06)
Right now, his approvals is at 43%, his disapproval is 53%. More than half of Americans disapprove of the job he's doing, and that's significant. Conversely, Joe Biden is over 50%, he's up by nine points, he's at 51, 52, 53 in these polls. And he's over 50 percentage points in key battleground South states, which Hillary never was. That doesn't mean he's ahead, that means he's winning those states.

Patrick Martin: (12:34)
I would agree with that, the polling certainly looks a little bit better for Biden right now. I think we're going to need to see over the weekend, as things tend to tighten in the last week leading up to the election. What sort of the real clear politics average looks like, the aggregate of all polls, but David, your point on spend the money is incredibly important. You and I both worked for Red State Democrats in our previous life.

Patrick Martin: (12:57)
And there is only so much you can do in some of these States to stay competitive with the Senate level during a presidential year. And so I think how resource data to GOTV, and to potential legal challenges, you've got like eight to 10 races that are all within the margin of error. You are going to have some really razor thin Senate results, and who ultimately can win, and prevail on legal challenges there, could ultimately tip the balance to either the Democrats or the Republicans.

Patrick Martin: (13:26)
I would just add one more thing on the silent Trump vote, and what percentage that is, I don't know. And I've certainly found the comments you mentioned very interesting as I listened to them as well. I would point out where my family lives, it's just sort of a general suburban type area. I think we're in the Chicago suburbs, but thank Philadelphia suburbs, Milwaukee suburbs, [inaudible 00:13:49] suburbs.

Patrick Martin: (13:51)
We will take a walk around our county, and there are a lot of Joe Biden signs. And this is Paige County, this used to be sort of ground zero for Republican support. There are almost no Trump signs, but there are a lot of Republican Congressional signs, there are a lot of Republican local elected official signs. And I don't think those people are voting for Joe Biden, I just don't. I just think that they don't want to put a Trump sign in their yard for fear of being shamed by their neighbors or whatever else.

Patrick Martin: (14:18)
And so I do think that is because of our politics, because of Facebook, and how tribal everything has become. There are a lot of people that are going to vote for Donald Trump, that people just don't really factor in. And I think that will be reflected in the overall results next week. I don't necessarily think it's going to be enough to tip the election, but if it is, I will be disappointed, but not surprised.

David Culver: (14:40)
Jason, just finish on my point here-

Melissa Kuipers Blake: (14:41)
[inaudible 00:14:41].

David Culver: (14:43)
Sorry, Melissa. But I'll just add quickly before Melissa jumps in. In my mind, this is a pure toss up, because of the silent Trump vote. And I appreciate my good friend, Mr. Dewey's enthusiasm, but I see this again. If you look at the battleground States, it's just a pure toss up, Melissa, please.

Melissa Kuipers Blake: (14:59)
Thanks David, and I would agree with that. I've worked in Republican politics since 1996, starting in Florida, and throughout the country. And there's been some very interesting dynamics there over the last few weeks with general support for Trump coming from places that are not traditional, including the Bernie voters.

Melissa Kuipers Blake: (15:16)
And if you talk to a Bernie voter, they don't have any interest in supporting Joe Biden. And they're not going to sit home either. And I had a conversation with an old boss a couple of weeks ago, who said his daughter who's 17, can even vote as a Bernie supporter, and has got a Trump sign in her car, and is doing everything she can to get Trump elected.

Melissa Kuipers Blake: (15:37)
There's these pockets right throughout the country where you look at the coast, and I think you can determine where they're going to end up. But you do look at the middle of the country, I'm living in Denver, and yes, Denver Boulder Metro are pro Biden, but when the minute you leave that city center, you find a lot of Trump signs. And not only did we see that, you see a lot of Trump flags, and parades, and this passion. And I've said to many clients over the last couple of days, this election is a lot about passion for Trump. You either don't like Trump by a lot, or you really like Trump by a lot. The energy is not around Biden.

Jason Wilson: (16:13)
It's fascinating, right? You said, there's this whole lightening rod, and there's this passion, and it's an incredible election experience. There's two crisis going on in the country right now. I mean, outside of the whole Trump issue, look at the fact that we have obviously a social justice crisis right before our eyes, 2020 has been a horrible year to remind us of all of that, and then layer on COVID on top of that.

Jason Wilson: (16:42)
We've been hearing a lot of chatter as how cannabis, tax revenues, job growth, we have a super majority of Americans living in states that have already legalized. We saw some progression with the Farm Bill passing, and hemp related products, but we still have hiccups at the federal level. Melissa, how's that coming into play? Obviously there's this divisiveness over whether Trump's president again or not. But is cannabis... Is there any electability to that at all? How's that affecting the voter's minds?

Melissa Kuipers Blake: (17:16)
Thanks, Jason. It's a great question, and it's funny, cannabis has been legal since 1996 in California. The first medical marijuana state, fast forward to present day, we've got 33 medical States, 11 adult use States. I would suggest the tipping point came first in 2012 when Colorado and Washington decided to legalize adult use. So yes, many states, I think 20 some states had medical by then, but to take that forward-looking step and say, we're going to have this as a recreational product.

Melissa Kuipers Blake: (17:45)
And then fast forward to 2019, where nearly 20 states legalized medical and recreational. And there's now been this tipping point, and after next week we may have five more states, which would put us at 38 States that have legal cannabis. And the question for any politician at any level is simply, well, if this is something my constituents want, why am I going to be opposed to it if I want their vote?

Melissa Kuipers Blake: (18:08)
And there's just this groundswell that has been building up over time with recreational markets coming online, and this acknowledgement by many members of Congress that while they may not have voted for it, and many of them didn't particularly on the Republican side, like Cory Gardner right here in Colorado. They do acknowledge that this is important to their state.

Melissa Kuipers Blake: (18:26)
And another very interesting piece of the cannabis conversation is how it's legalized. You have individuals who do ballot measures, and they end up putting cannabis in the constitution like we have here in Colorado. Well, interestingly enough, Republicans will say to me, as I speak to them about cannabis, "Well, we can't really defend ourselves with the second amendment in the constitution, and then deny cannabis, can we?" Because it's all about the constitution for us.

Melissa Kuipers Blake: (18:51)
Not only are they supportive, but they're leading the charge because it's cloaked in the state constitution. And those are conversations that we've had in Washington, I do think we're at a tipping point. Certainly in the next Congress and I know we'll talk a little bit about the scenarios and what that might look like after next week, but cannabis is becoming normalized, it's becoming socialized, is being put in the categories of alcohol and tobacco. And this is just another third pipe bucket of things that folks can use, should they desire for medical or adult use?

Jason Wilson: (19:20)
Yeah, and I mean, we're seeing it. Cannabis dispensary is being allowed to remain open during COVID as essential business. Obviously sales are going up, it clearly poised to do well in a post COVID type economy. You mentioned some scenarios, and obviously there's a number of them. I mean, there's a lot of people we're hearing even on the show a little bit expecting maybe a Democratic sweep.

Jason Wilson: (19:48)
Obviously we could see the Senate flip, we could see maybe... I don't know, we could talk about this, do the Republicans surprise the heck out of us. And do the Democrats lose control of Congress? I guess the best situation for the cannabis industry really is a democratic sweep. David why don't you speak to that a little bit? What would it mean if the Democrats flip the Senate, take the White House, keep control of the house?

David Culver: (20:22)
Good question, Jason. I think of all the scenarios, as you said, in my mind, this is by far the best for the cannabis industry. And I think that I should qualify that by saying that, no matter what happens on election day, and no matter what the makeup of Congress is, and who's in the White House next year, the momentum behind cannabis is going to continue.

David Culver: (20:43)
I've been at this for almost two years with cannabis growth, and the amount of momentum it has been staggering that I've seen, and I don't know that we're necessarily pushing the ball down the Hill, but we could get to that point early next year. Let's think about this, if it is a dumb sweep in two ways, first of all, if Biden Harris are in the White House, the political rhetoric that you've heard out of the campaign thus far has been around executive orders and decriminalization, and also rescheduling.

David Culver: (21:16)
We've never seen anything in writing particular, we don't know exactly what those executive orders would look like. And the proof of course, will be in the putting them in terms of what exactly does that mean generally or both of them would mean? But we'll need to see something in writing if that's in fact, the course that they go down.

David Culver: (21:32)
Now, they're going to be very focused right at the beginning on COVID. And it's going to suck all the political oxygen out of the room. And the bigger question in my mind, related to the cannabis, and other issues that they want to tackle is, how much can they do in that first 100 days, that's non COVID related. But let's assume that they do act relatively quickly on this, and then we would see those two executive actions early next year.

David Culver: (22:00)
But the bigger question though, in my mind is that, we're in the political silly season right now. And does that position that they have currently stick? I know that there's a number of us in the cannabis industry that we'll continue to chat with the Biden Harris campaign, and talk to them about policy, and whether it makes sense to reschedule cannabis, or to take it off altogether, if they'd be willing to go that far post the election.

David Culver: (22:25)
Those are some things to watch this fall and obviously pay very close attention to the rhetoric. But from what we know thus far, those two executive orders could be the action out of the White House. The second and parallel track is action on Capitol Hill. If we have Nancy Pelosi leading the house, and Senator Schumer leading the Senate, we know that cannabis legislation is going to move through a regular order. And by that, I mean that it'll be re-introduced in both houses, there'll be a number of bills, but most likely in my mind, the focus for next year is going to be prominently on the MORE Act, and the 2.0 version of said bill.

David Culver: (23:09)
But I do think that the legislation will be reintroduced, it'll go through the committee process. And then it's a question of whether or not it has to get over the filibuster in the Senate or not. If it has to hit that 60 vote threshold, then this becomes a much harder exercise to get it through Congress. If it doesn't, if the Democrats remove the filibuster, which they haven't shut the door on doing, then we could see this thing sail through a bit easier, because it would be a matter of picking off a more moderate Democrats that are questionable on cannabis versus trying to find another 10 more moderate Republicans to it through.

David Culver: (23:45)
And then final point I'll make is that, the big question then of course will be if Congress does act on a full descheduling package, what does the Biden Harris team do? Do they sign it? Do they not? That's kind of the million dollar question in my mind, we just don't know. But I will say that having Senator Harris as a part of that ticket, she's the sponsor of the MORE Act.

David Culver: (24:10)
I do think that there's a lot of parallels here from 2008 in the marriage equality issue with Obama, and oddly enough then Senator Biden, who was very pro marriage equality. And we all know how that one played out. We could have the same situation with Harrison Biden going into next year, once elected. But we'll have to wait and see.

Jason Wilson: (24:32)
Melissa, what happens in a status quo situation? I mean, Trump stays in the White House, McConnell's controlling the Senate. What happens in that outcome?

Melissa Kuipers Blake: (24:45)
I think you'll continue to see Pelosi and her house team pushed the issue. The Republicans in the Senate have consistently said, we need this to be a house issue, and then we can negotiate the details of it. I don't expect that that would change. And I'll get to why in a second, when we talk about Senator McConnell. But in terms of the house, I think Pelosi and Senator representative Perlmutter would put together the SAFE Banking Bill again.

Melissa Kuipers Blake: (25:07)
They would probably combine it with the MORE Act and work with Chairman Nadler and his team. There's no doubt there would be some social equity language, very front and center on that legislation. They passed an omnibus or a comprehensive Cannabis Bill, it comes over to the Senate. And the question is, does it hit with a big thud as it has over the last several years?

Melissa Kuipers Blake: (25:28)
And I think now in a new environment with Trump having been reelected, that might actually get some traction, and there's a couple of reasons why I think that. Members are no longer up for reelection that are in very difficult races, they have a little more leeway, right? So they have six years before the re-election to make nice with voters at home, assuming voters at home are opposed to cannabis.

Melissa Kuipers Blake: (25:50)
Based on our earlier conversation about potentially 38 States that are legal. I think the senators have a little more room now to say, I may not agree with this issue, but it is now legal and I have to honor my voter intent. When you get to the president, and he's a lame duck now, and there's a lot of appetite for the president to move forward on the State's Act, he said it publicly, he said he would sign it if it got to his desk, and that's what we've been working on for the last several months and years.

Melissa Kuipers Blake: (26:16)
The concern there for him right now is of course, evangelical voters. And how do they feel about cannabis? And the last thing he can do is erode that base, knowing how much as we previously discussed, he needs those voters to turn out right now. In a lame duck scenario, I think the president has more room, his closest advisers, including Ivanka and Jared have had very meaningful dialogue with the industry about this issue, so I think there is a path forward.

Melissa Kuipers Blake: (26:39)
And back to McConnell for one final second. You talked about the banking efforts on hemp and how hemp is a priority for Kentucky. The problem is, McConnell... Cannabis is not a priority for Kentucky yet. We're hoping that will be a factor in the coming years. But McConnell is really a bubble up leader. And what I mean by that is, he doesn't say to his Republican conference, here's what we will and will not do.

Melissa Kuipers Blake: (27:02)
What he says is, if you have a critical mass of an issue that this is important to you in your home states, you come to me and we'll find a way to make it work for the collective good for the majority of the Congress. But the last thing he'll do is put his members on record on an issue that might only matter to one or two senators. So this all goes back to this grassroots effort, this groundswell, to get enough senators interested to go to Senator McConnell as the leader and ask for some room on the issue.

Jason Wilson: (27:29)
Eric, think about Biden Harris victory, but the Democrats can't slip the Senate, how much friction can be tied, how's that going to change the analysis of these outcomes?

Erik Huey: (27:43)
Let me first say that Senator Harris' remarks in the VP debate were C-change for the Biden campaign, and her remarks or her ability to make those remarks, they've moved from sort of her personal beliefs to the official position of the campaign, were the result of a lot of work by the cannabis industry and outreach by the cannabis industry, including a number of folks on this call, most notably David Culver.

Erik Huey: (28:14)
I believe that she could not have made those remarks without that outreach. We've seen this campaign move, and I think it will continue to move. I think president Biden, if elected would sign any piece of cannabis legislation that comes his way, whether that's the MORE Act, whether that's the State's Act, or whether that's SAFE Banking, or some sort of Cannabis Omnibus, Can-Omnibus if you will, they could come his way.

Erik Huey: (28:41)
Will it get through the Senate? As Melissa rightly pointed out Speaker Pelosi, and there's zero chance that the Democrats will lose the house. They will all in all likelihood probably lose five seats in places that they shouldn't have won, and then probably pick up five, or 10 more. So it'll be about a wash, but they may actually gain seats.

Erik Huey: (29:01)
Speaker Pelosi, and she will be Speaker Pelosi, we'll continue to move this legislation. And then if it comes to the president's desk, President Biden will sign it. So the question then becomes, can you get it through the Senate? And Melissa just sort of outlined what will likely happen on the Republican side, on the Senate. If there is intransigence and this continues to be a political winner for Democrats, then to David's point, you could see some executive actions by the Biden administration where they D schedule.

Erik Huey: (29:39)
And I view all of this, any one of these actions, whether it's SAFE Banking or the MORE Act it's sort of like the day the Berlin wall fell in cannabis, because shortly thereafter, that one event meant that Czechoslovakia fell. It meant that all of the dominoes, if you will, toppled. Any one of these trigger events, even through executive action, I think will completely open this up for the industry, which is exciting.

Jason Wilson: (30:05)
It is incredibly exciting, and fascinating to see how this all comes into play, but we have to keep in the back of our mind. And I want Patrick to speak to this a little bit. Sure as many of us are of Democrat victory. I mean, what happens in the other scenario where Republican stay, let's assume. It's not even status quo, let's assume that that Senate remains Republican controlled, Trump stays in the White House. And I mean, maybe the house flips and ends up under Republican control. Patrick, what are your thoughts on that? What would that mean for the cannabis industry if it went that way?

Patrick Martin: (30:51)
Well, I think the scenario Jason, that we discussed, I call it the least likely scenario, at least in my view. Or the least likely scenario, I think would be the Republicans take back the house. But the second least likely scenario in my view would be President Trump is reelected, but the Democrats flip the Senate. It would go against everything I know about politics for that to happen, but I spent a little time [inaudible 00:31:16] how it would work.

Patrick Martin: (31:17)
And I'll just propose this as a potential scenario, rules are being broken in politics all the time. As sure as I am, that it won't happen you never know. But in 2016, the Republicans were able to maintain their Senate majority primarily, because President Trump helped pull a lot of their incumbents across the finish line, and states that were really competitive at the presidential level.

Patrick Martin: (31:39)
It was a little different in 2020, is you have some Senate races taking place in swing states, but not nearly as many as there were in 2016. So this type of scenario where the Democrats control both houses of Congress and Trump gets reelected, you would have to have a certain type of situation where the Democrats gained the majority through these competitive really well-funded Senate races in Arizona, North Carolina, Colorado, maybe even Montana.

Patrick Martin: (32:06)
But that in the swing states that don't have competitive Senate races since the table, and that's like a Florida, Pennsylvania, maybe the Republican Senate candidate in Michigan does really well, or Peter's pulls it out, Wisconsin, Nevada States like that. And there would just have to be sort of an alignment, but in [inaudible 00:32:27], it would present a really complicated political dynamic where you would have to balance a democratic controlled Congress who is going to have [inaudible 00:32:36] disappointed base of their party, that the president was reelected.

Patrick Martin: (32:40)
But also the opportunity that you have a very ideologically flexible president, and is there the potential to get things done without him having to worry about running for [inaudible 00:32:53], you could see some real back and forth on what can we attach SAFE Banking to that we would just force him to sign, with some things like that. The two things I'll add to Melissa's comments, one, President Trump has said, he'll sign things and won't sign things all the time and then changes his mind.

Patrick Martin: (33:11)
It's really hard to know sort of what he'll ultimately do at the end of the day. I worry a little bit about his interest in signing cannabis legislation without any political upside, given that he's already been reelected. And the other thing is Melissa pointed out correctly, there are some really important advisors around him who I think was making progress on this issue. There is one very important advisor with a personal vested interest that he doesn't do anything and that would be Vice President Mike Pence.

Patrick Martin: (33:41)
He needs that evangelical support, he absolutely wants to run for president in 2024. And you could see him going to the president and saying, "You cannot do this to me, I cannot have this administration stamping support on cannabis when I'm going to be seeking the support of evangelicals in the 2024 primary." And you'd have powerful voices on both sides weighing in with him and then it's just like, it is every other day in Washington, right now. It's trying to get into Donald Trump's head to figure out what he's going to do, and I don't think I'm going to go there, I'll leave that to others.

Jason Wilson: (34:14)
Let's assume we have a lame duck session coming our way. And we obviously have a number of bills that are out there right now. Eric, assuming a lame duck session, do we see any progress? I mean, maybe it's the SAFE Banking Act that can get some traction. What do you see happening in the first few months post election?

Erik Huey: (34:37)
Well, I think that it depends on the election results, right? In the shape and the contours of a lame duck package, particularly if it's a stimulus relief package are going to be governed by the outcome of the election. In other words, if the Democrats sweep, leader McConnell will want to get as much into this package as he can, because he knows that he'll be coming out of the majority in January.

Erik Huey: (35:03)
If he holds onto the Senate, he will have more leverage certainly. And they might come to some sort of a conclusion. I think it depends on the parameters of this, assuming that it's a small let's fix PPP, let's do some funding around state and local, and a couple of the other things that we want to do, extending unemployment benefits up to 400 or $500 a week.

Erik Huey: (35:26)
That's a skinny package, that sails through without any of this. If it's a much larger package in the lamb duck, that's where you could see some pressure from Speaker Pelosi, who could be newly empowered and currently minority leader Schumer to say, "Hey, we've had SAFE Banking pass the house of representatives, it's part of the Heroes Act. So let's just include that in this package, there is no real natural constituency on the other side, this is going to grow jobs, not only in large cities, but throughout America, in communities, large and small, urban, and rural." And they could push that.

Erik Huey: (36:15)
I think it remains to be seen, at the same time you're going to have Progressive's, and a lot of Democrats say that no matter what passes in the lame duck or thereafter, you've got to have a social justice component to this. If you do not have social justice, we simply aren't tackling this in the right way. And you've heard me say this before, but we have 8 million people who are in prison right now for cannabis offenses.

Erik Huey: (36:39)
We arrest somebody every 17 seconds in this country for cannabis, black Americans are four times more likely to be arrested the cannabis. Our cannabis policies, historically through 1971, and rescheduling, were designed to put black and brown men into cages. So moving forward on any aspect of this, we'll have to have social justice, whether that's in the lame duck or next year.

Jason Wilson: (37:05)
Well, and obviously the MORE Act speaks to that directly, but obviously we didn't have any movement on it this year and we've pushed it back. David, where do you see the MORE Act going? I mean, is it going to come back in its current form? Is there going to be modifications? How's this all played out?

David Culver: (37:25)
Let me get MORE in a second, I want to just add one other comment about the SAFE Banking Act, which is, I agree with everything Eric said. I think that that is a very possible that we see a legitimate action in both houses on SAFE Banking in the lame duck period. Primarily because it's been endorsed by so many groups across the country, and also because this is a health issue now.

David Culver: (37:46)
You have all of these dispensaries, which have been deemed essential that are dealing with cash money all day long every day. That's a problem, and that's got to stop. I do think that access to the banks is really critical from a public health perspective. Now, onto the MORE Act. First of all, in terms of the lame duck, leadership in the house of representatives has made iron cloud promise to the bill sponsors, that they are going to vote on the MORE Act this fall.

David Culver: (38:17)
We don't know exactly when, and of course, as Eric alluded to earlier, the election impacts could potentially impact this MORE Act vote. But it was polled prior to the election, there was some nervous members inside of the caucus about voting on this bill prior to the election. So they pulled it, they promised to do it in the lame duck, I do think that we will see this historic vote come in November or December before they adjourned for the year.

David Culver: (38:45)
I don't think that the bill, as it was introduced in April of 19, is going to change very much, Jason. I think it's going to be relatively the same package as was introduced. And as members of Congress have co-sponsored. But going into 2021, I think, but I'm going to call it the MORE Act 2.0, I don't know exactly what it would be titled, but I think it's going to be different.

David Culver: (39:10)
First of all, you're going to have a very, very loud group from the left, especially if it is the Dem sweep. Either way though, you're going to have a very loud voice from the left, and there's going to be a lot of incumbents on the Hill that are looking to embrace the cannabis issue, especially those that are in the Senate and up for re-election in 2022. So I'll let you go back and do your homework on that one, but there's a lot of powerful folks in the Senate on the Dem side that are going to be looking for issues that will appease the left to make sure that they are not challenged from the left. And there's no better way to do that than cannabis.

David Culver: (39:46)
The second thing I'll say is that, the MORE Act punted the entire regulatory structure for cannabis to the tobacco model. And I think in my mind, that's something that I spent a lot of time thinking about and talking about, that's going to be the big change. What does that regulatory structure look like inside that bill that's specific to cannabis? What's the tax structure to look like that would allow for a transition from the illicit market into the legal market?

David Culver: (40:13)
The burden isn't set too high at the beginning, but perhaps ramps itself up over a period of time. How do you regulate medical cannabis versus recreational? All of these questions, I think HIll leaders are starting to look at. And I think that when we see the MORE Act in 2021, it's going to have a new and robust regulatory structure. It's still going to have all of the social equity provisions that Eric alluded to earlier.

David Culver: (40:38)
And I think if we do need a new Senate Bill sponsor, if Senator Harris is Vice President elect, then I think you should look to that class of 2022, and or other members that are concerned about their left flank. So that in a nutshell is kind of how I see them MORE Act for next year.

Jason Wilson: (40:59)
You touched briefly on the regulatory aspect and there's been in the last few weeks, there's been a fair amount of discussion regarding the States Act, actually, maybe being the best paths of regulation. Melissa, you're in Colorado and obviously been in the middle of this for almost the last decade. I mean, what's your view for a sec the States Act.

Melissa Kuipers Blake: (41:21)
I think the State's Act is really quite gorgeous in its simplicity, and essentially saying if cannabis is going to remain on the schedule one list, but if you're in a state that has legalized cannabis, then the federal law and the punitive nature of remaining on schedule one would not apply to you. And when you present that to a legislator, particularly in a Republican Senate, they are interested in hearing that conversation based on the 10th amendment and state's rights.

Melissa Kuipers Blake: (41:50)
The concern was the State's Act in the house and I understand it, and I hear it loud and clear, is there's not a social equity component. The question lies, is there a trifecta possible between the States Act, the SAFE Banking Act and social equity language. And I think that is where many of us in the industry and in on the Hill are looking, is there a global deal to be cut? If so, what does that look like?

Melissa Kuipers Blake: (42:14)
And I'll say, Republicans are generally okay with a social equity or social justice component, what they are generally not okay with is expungement language, where you're going back in time and changing previous marijuana convictions. And they tend to give me the same response, which is, well, if the speed limit was 50 miles an hour 10 years ago, and you got a ticket and now it's 65, are we going to go back in time and give you a refund on that ticket and change your points?

Melissa Kuipers Blake: (42:41)
No, but we will look at it going forward and that whether it's good or bad is the general law and order view of Republicans. So to the extent they're willing to entertain a Cannabis Bill, I do think there would be language similar to perhaps the first Step Act and looking at a second Step Act, which I think is coming as well, and that would be led by the president.

Melissa Kuipers Blake: (43:01)
Could we perhaps include social justice language and the second Step Act, as it relates to cannabis, and then have a separate bill that deals with the mechanics to David's point, of how is it going to be regulated? What are the banking guidelines going to be? What are the rules of engagement? Does it look more like alcohol, or tobacco, or something altogether different?

Melissa Kuipers Blake: (43:20)
There may be a hybrid of a couple of bills, although I think an omnibus for those of us in the lobby co would be a much better way to do it. But I think the State's Act for people, for even on the Democratic side, who don't necessarily like cannabis, and many of them don't. I think that's one of the misconceptions is that all Democrats like cannabis and they're supportive of it.

Melissa Kuipers Blake: (43:38)
There are many Democrats I've talked to who have family reasons, and personal stories that are very sad and tragic, and they want nothing to do with legalizing cannabis. It's a matter of finding a reasonable path, not necessarily a partisan path. And the thing that I've learned the most over the last decade or so is that, this is really not a partisan issue. It appears to be, but the more you dissect it and the more you talk about it, it's actually quite bi-partisan.

Jason Wilson: (44:06)
It's amazing, right? I mean, we have all these different pieces of potential legislation that come into play, and so many steps. I mean, even just to get in the regulatory structure, right? Absolutely fascinating how this is going to work, 2021 is going to be a banner year, but the one thing we do seem to know for sure. And you mentioned it earlier and also briefly is that, we're going to see quite likely and real quite potentially five more states legalizing. We have five ballot initiatives this year. David, do you want to touch on those states and what's happening there?

David Culver: (44:37)
Yeah, for sure. I like to think about... Let's see, what five when we rattled them off for the listeners Arizona, South Dakota, Montana, New Jersey, and Mississippi. And there was a lot more that were under consideration at the beginning of this year, COVID got in the way of some of them, but fast forward to a week before the election, and now we have these five states, which are fabulous. But we also have a number of states that their governors have come out publicly and been very vocal about the fact that they would like their state to act as well.

David Culver: (45:16)
There's been a number of reasons, but the primary driver of course, is the giant budget gaps that states are facing. The way that I like to think about these five ballot initiatives, and they are critically important, and hats off to all of those that are working in those five states especially our friends at the Marijuana Policy Project, they've done a really good job on all of these thus far. And I think that the numbers that I received this week are all looking good.

David Culver: (45:44)
But there are four main things in my mind when I think about this. Number one is normalcy. Melissa alluded to this earlier in her comments, the more states that legalized, whether they're medical or recreational, the more normalized cannabis becomes. Number two, is going to be the economic impact that I alluded to earlier. States are looking for jobs, they're looking to fill their tax coffers, which have been devastated because of the pandemic.

David Culver: (46:10)
And these are real discussions that they're having inside of state capitals about how did they do it? And cannabis could be a brand new industry for their state and could generate an amazing amount of positive economic impact, which the state is going to want to capture, because we don't obviously have interstate commerce at the moment. And if you do legalize in some way shape or form your state capitalizes on every aspect of it.

David Culver: (46:32)
Number three is, the impact on federally elected officials, right? If a state that has two Republican senators is to legalize, then like South Dakota, I'll pick on them. Melissa alluded to this earlier, those members in the Senate are going to have to scratch their heads and think about their policy position, because it's going to be important that it somewhat mirrors what their public wants, what their constituents want.

David Culver: (47:02)
And then the final thing is the regional impact. And we may want to get into more discussion on this with the other panelists, but if you think about a state like New Jersey, which is population heavy, which is surrounded by New York, and Pennsylvania also population heavy. If New Jersey does legalize, when I think they're going to, then what does New York do? What does Pennsylvania do? And you've heard the Pennsylvania Governor and Lieutenant Governor, very vocally calling for a legislative solution to this before the end of the year, and or next year.

David Culver: (47:34)
You've also heard just this week, Governor Cuomo come out saying we are going to legalize next year. And they need to do that because they need to fill their tax coffers, and they need to get the jobs, and they don't want their neighboring state of New Jersey to reap the benefits of this. That in a nutshell is how I think about it, and I think that... I mentioned earlier that the momentum is going to continue in the cannabis space next year, no matter what happens next Tuesday. And a lot of the reason I say that is that we are going to see more and more states whether through ballot initiatives, or through legislative action, look at cannabis very, very seriously next year.

Jason Wilson: (48:12)
I mean, you mentioned Pennsylvania and Governor Wolf. He's been very vocal and very critical. Patrick, I mean, I got to believe it's New Jersey, obviously that initiative moves ahead. That Pennsylvania moves to legalize this year as well, what would that look like? What would that mean?

Patrick Martin: (48:33)
I mean, there is a real possibility that the adult use can get done in the lame duck in the Commonwealth of Pennsylvania, but the real issue is the Republicans just aren't quite there yet. And it may be that we're looking to next year for a better opportunity for this to happen in Pennsylvania, that the electorate is certainly very, very popular both the amount of coal program and the prospect of adult use.

Patrick Martin: (48:58)
And also the budget shortfall that David mentioned as a result of COVID, that localities, and municipalities, states are cash strapped, and they are desperately trying to find ways to fill that budget hole. But to your point, Jason, each of these states regionally getting closer makes it much more likely that everyone's going to kind of tiptoe up to the finish line.

Patrick Martin: (49:23)
I mean right now it's like all three of these states all want to ask the same girl to prom, and neither of them are just willing to kind of take that final step and do it. And I can speak from the experience here in Illinois, that a factor that really, really helped in our legislative debate, and ultimate passage was the fact that Michigan had this on the ballot. And so you had a state regionally close by, that wasn't just saying, we're going to legalize it or use for legislature.

Patrick Martin: (49:51)
They have a Republican legislature that wasn't really an option, but because it was on the ballot, folks here knew there's going to be a set date that we're going to know if this is going to be legal in the state of Michigan. And ultimately it did pass. Amongst all the other factors that helped it along, that was a big one and my evidence would be, Illinois has a democratic governor overwhelmingly democratic legislature, but so does New York. The fact that there hasn't been sort of a forcing action from another state and the region, I think has made it possible to block it a little bit for all the reasons we've all followed in the states.

Jason Wilson: (50:29)
Melissa, may I ask you. You're in Colorado. Can we look at Colorado as, I mean, obviously, one heck of a model. And we're speaking specifically, I mean, not just revenues, can you walk us through what's happened from sales, from revenues, what that's meant to communities, and what's the reaction been since? I mean, how has this been perceived years later? Talk to us a little bit about it.

Melissa Kuipers Blake: (50:54)
What's happening in Colorado. Happy to share that. When adult use was on the ballot in 2012, nobody thought it would pass including the governor, including the attorney general, including a lot of observers, including myself. Who've watched polling and watched campaign events here for a long time. It passed it and got more votes than Obama in 2012.

Melissa Kuipers Blake: (51:15)
And the next day after the election, we all looked around and thought, "Oh, okay, well, I guess we have to do something about cannabis." So Governor John Hickenlooper at the time put together a commission of people, quite frankly, that he trusted from across all levels of government, and private sector to really literally write the first cannabis laws in the country. So that entire year of 2013 was our legislative session dealing with the implementing bill, and the legislature included certainly a state tax that would have to go to our voters based on the way we have something here called TABOR, Taxpayer Bill of Rights, where voters have to approve all tax increases, even if they already approved the underlying tax measure.

Melissa Kuipers Blake: (51:53)
We passed the legislation through the legislature in 2013, put it on the ballot in 2013, had the taxation approved, which allows for state sales tax and wholesale tax, and gave local governments the discretion to either opt in or not to cannabis, and either to tax, or not based on the voter approval in 2013. Fast forward to January 1st of 2014, we go live, you saw the lines on the news of people waiting to buy the first legal cannabis, probably after years of buying illegal cannabis. So it was a big day.

Melissa Kuipers Blake: (52:23)
And from that point forward, I will tell you, the sky has not fallen here. And a lot of people thought that it might that, what were we doing, what would this mean for kids? A lot of the studies and a big one called the Healthy Kids Survey that the state Colorado Department of Public Health does every year, has come out and essentially said, "Teen youth is not up with regard to cannabis, it in fact remains flat if not down after legalization.

Melissa Kuipers Blake: (52:48)
The public service announcements are working, the education is working, the dissection of medical use for cannabis from adult use is working. And there's a lot of public relations and PR campaigns by the state around those two issues. At the end of the day, let's talk money, right? What has this done for Colorado? Well, I can give you some COVID related information.

Melissa Kuipers Blake: (53:09)
The pandemic has been very good for the cannabis industry here. When you tell people they can't leave their house, they buy alcohol and they buy cannabis. In June, I'm sorry, in May of this year, we had a record setting month at $149 million in sales. That was big news. Well, only to be followed by June, where we had $158 million in sales. And that's because cannabis is allowed to be delivered now as a condition of the pandemic in the shelter in place orders. Under a bill passed last year, you can deliver medical, but you couldn't deliver adult use, so we were able to find a way to have delivery for both.

Melissa Kuipers Blake: (53:43)
What does this mean overall? In the last six and a half years, the State of Colorado has collected $1.5 billion in sales tax, as a result of cannabis being legal. And those numbers are only going to continue. And of course that includes licensing fees and other things, but the majority of that is sales tax. To David's point, to states, and cities, and counties that are looking for revenue, yes, there is a cost of doing business. You've got to have money to set up the ultimate regulatory structure, but after that, you can find ways to pave your roads and to do a lot of things.

Melissa Kuipers Blake: (54:15)
Ironically, here in Colorado, the first 40 million of the cannabis dollars that come in every year go to capital construction for K-12 schools, and that was in our ballot measure. There's a lot of ways to dovetail these dollars, and to find ways to really fix the holes that cities, and counties, and states had before the pandemic, but certainly have now.

Jason Wilson: (54:34)
And every state obviously is taking a different approach, I mean, from seeing what's happening in Illinois versus California versus Florida, I mean, different types of markets from open markets, limited licensed markets. I mean, it sounds like it's been overall regardless of model, it's been a positive experience regardless of where we've had a legalization.

Jason Wilson: (54:58)
At this point, we should probably move to kind of, I guess, final thoughts, final remarks. What we want to do at the end of our voice of cannabis series was to give everyone an opportunity to have 60 seconds, maybe just give it his final thoughts on where the industry stands, how that ties in with the election, what we can expect in 2020, and 2021 going forward. I mean, from my perspective and maybe David, you can lead off, but a lot of that will have to tie into kind of industry unity. I mean, there's no question that genie's out of the bottle.

Jason Wilson: (55:32)
And we have state by state legalization, sounds like we're going to be quite possibly 40 states, if we look at the ballot initiatives and then some legislative states that might legalized through a legislative process. Clearly there's a demand sales are growing in virtually every jurisdiction, the tax revenues are there, but I still look back at the Farm Bill and what people thought that that would do for the CBD/Hemp industry. And it's going back a few weeks ago to where [Axle Bandy 00:56:07] was saying from New York. We still have all these interstate commerce issues, I mean, we don't have... There's this conflict between the DEA, USDA, FDA.

Jason Wilson: (56:19)
The industry together has to really figure out how to make proper regulatory change. So this does become a true industry. And so that's what we're hoping to see, legalization or decriminalization huge part of that. Outcome is going to determine how that happens, but I really feel like it's going to be up to the cannabis industry itself to have the biggest industry partners really make sure that we get regulation in place to make this truly scalable, while addressing all the social justice issues.

Jason Wilson: (56:54)
That's what I'm excited to see, is that how we can solve, check all these boxes, and make this work. David, why don't we take it over to you, maybe we can follow up with Eric, Patrick, and then Melissa, if you don't mind wrapping up the close out. And we're not going to have QA today, so I'll just leave it to you for you to give us your final 60 seconds, or so each. Thanks again, everyone for joining us, and thanks to our panelists here. I'll turn it over to you, David.

David Culver: (57:23)
Thank you, Jason. Well, first and foremost, I just wanted to thank Melissa for joining us. You were an excellent panelist, and we certainly hope that you will join us again at some point in the future. But thank you so much for being with us today. Jason, look, I may be the most boring commentary on this particular wrap-up session, but I'm going to beat the same drum I always beat. And you summed it up quite nicely.

David Culver: (57:46)
Which is number one, we must be unified as an industry going into 2021. We have got to find alliance amongst everybody that's out there so that we can march and lock step to get something done. I spent 16 years in beverage alcohol industry, when we were not aligned as an industry, we failed period. When we were aligned, we won and there was some really major pieces of legislation in the states and also in the federal level that we were able to accomplish as a result of that unity, that's number one.

David Culver: (58:17)
Number two, to the regulatory structure, again, we've got to get figured out on the federal level. If we in advance of legalization, in advance of cannabis being de-scheduled, what does that regulatory structure look like, and what is specific to cannabis? What models specific to cannabis that actually works? All of the big brains in the cannabis space are working on this right now, including those folks that are on this panel right now, and leaders on the Hill.

David Culver: (58:43)
But we've got to get that right going into 2021, otherwise, it's going to be a mess when we do legalize, and like my good friends in the beverage alcohol industry, we're going to spend the rest of our careers, cleaning up a mess that we made prior to legalization. Those are my two comments, and thanks so much again to you, and your team, and the folks from SALT for having me today.

Jason Wilson: (59:08)
Thanks David, it's been absolute pleasure working with you throughout this series. Eric.

Erik Huey: (59:17)
I've got two messages, one to voters, and one to policy makers. The message to voters is vote. You must get out and vote if you care about this issue. In conjunction with other issues that are important to you, you've got to make your voice heard. We're getting up to the point where you can mail on your ballots, but go down and vote in person where you've got early voting vote. Vote only in-Person where on election day you have to vote. This is exceedingly important generally, but particularly as it relates to this industry.

Erik Huey: (59:47)
And then my message to policy is, a friend and weed is a friend indeed, which is to say, this is a political winner, whether you're a Republican or a Democrat, cannabis is going to be good for your district in terms of jobs and economic development. It's time to put away the vestiges on both sides of the aisle, and embrace the fact that we're past the tipping point, and we are here. This is the future, it's time to catch up.

Jason Wilson: (01:00:18)
Awesome. Thanks Eric. Thanks a ton, Patrick, are you back?

Patrick Martin: (01:00:23)
I'm here and my final sort of thought on all of this is trying to look ahead to what happens after the election. And one of the scenarios we discussed which is if it turns out that it's a great democratic year and Democrats end up in control of everything, there is going to be a view, I think amongst the activist community on among voters, that there is going to be sweeping immediate change on cannabis.

Patrick Martin: (01:00:51)
And I think all of us who have spent time working in government and politics knows, that it almost never works that way. And that there is going to be some time that is going to have to go by before we start to see the change that I know all of us want to see. You're going to have a new Congress and president potentially have the same party dealing with responding to the pandemic.

Patrick Martin: (01:01:16)
It's very possible that the US Supreme Court strikes down the Affordable Care Act in which they would ask to be a massive legislative response to shore up the nation's healthcare system. And while I think that you will see positive movement on cannabis, it's not going to be like a light switch on day one if Democrats control Washington.

Patrick Martin: (01:01:34)
And so I would urge all of those who care about this issue to make your voices heard, to continue to push elected officials to act, and to be responsive, but to also understand that governing sometimes doesn't happen as quickly as we would all like. But hopefully through the work of David, and others in the industry that will result in a thoughtful approach to legalization, and a federal regulatory structure that works not just for all of us right now, but for generations to come.

Jason Wilson: (01:02:04)
Now, fully agreed and well said, it's definitely not going to be a light switch. This is just the beginning of a very fun kind of time with lots of change to happen. We'll wrap it up with Melissa again. Again, thanks Melissa, I know we got you on here in short notice, but it's been really great to hear what you have to say and get your perspective. So we'd love to hear your wrap up.

Melissa Kuipers Blake: (01:02:27)
It's been my pleasure, Jason, and thank you so much to you, and SALT, and David for the invitation. A couple of thoughts, I mean, we've talked about how cannabis is here to stay. And I think this is no longer a flash in the pan that certain states have legalized. This is definitely coming and it's coming right for Washington.

Melissa Kuipers Blake: (01:02:42)
And Washington is going to have to figure out how to talk about cannabis, particularly members who don't like it, don't know how to talk about it, don't have it in their state, which is where we as lobbyists and we as companies can come in as that resource and say, "You don't have to like it, we just have to help you understand it." And there's a huge educational point that has been happening. I can tell you even five years ago, I would call certain members, moderate Republicans who wouldn't even give me a meeting on cannabis, now they're calling me asking for a briefing for the staff.

Melissa Kuipers Blake: (01:03:08)
Things have changed, they want to be educated, they want to understand, they're all caveat with, I don't want to be the lead, but I do want to know how to talk about it, and I do want to know where this ship is going. I think we are very much at that tipping point and certainly what happens in the next week in the election will inform that. It's not just about cannabis though, it's about other industries that are looking at cannabis, and wondering what it means for them, including alcohol, including tobacco, including pharmaceutical, including pharmacies who might be interested in dispensing medical marijuana products.

Melissa Kuipers Blake: (01:03:37)
I can't tell you how many phone calls I've gotten over the last seven to 10 years saying, "Hey, can you fill me in on what you know about cannabis? Where's the industry going for my other particular industry that these folks are talking about?" This is a big deal, I think the world is watching, it's very exciting, I've never worked on a public policy issue as dynamic and exciting as cannabis legalization. And it's going to be here for a long time. Thank you so much again for having me, and I really appreciated everyone's time, and my very talented panelists today.

Jason Wilson: (01:04:06)
Awesome. Thanks Melissa, and thanks SALT, and thanks everyone for joining us today. We look forward to seeing what the election, the end of 2020 and 2021 brings. Thanks again.

Jon Medved: Equity Crowdfunding, Venture Capital & Angel Investing | SALT Talks #92

“[The Abraham Accords] are not just about business, it's about basically taking away the sand equivalent of the Berlin Wall. There was this artificial divider in the heart of the world.”

Jonathan Medved is a serial entrepreneur and according to the Washington Post “one of Israel’s leading high tech venture capitalists”. Medved currently is the founder and CEO of OurCrowd, the leading global equity crowdfunding platform for accredited investors and angels. OurCrowd has $1.2B in commitments and has made investments in 200 companies and funds, and 30 exits since its launch in February 2013.

Venture capital has long been inaccessible to the majority of investors who don’t have $5-$10m available for a limited partnership. A crowdfunded platform gives individuals and institutions an opportunity to invest in venture portfolios. “Today, these private companies stay private much longer. When they finally go public, most of the money has been made by smart investors in the private markets and those are venture capitalists.”

The Abraham Accords represent a major moment in the relationship between Israel and the UAE and Bahrain. While Israel was not at war, the normalization has already created massive business opportunities with governments of the US, UAE and Israel announcing a $3 billion fund. There are now 112 direct flights between Israel and the Emirates where there were none before.

LISTEN AND SUBSCRIBE

SPEAKER

Jon Medved.jpeg

Jon Medved

Founder & Chief Executive Officer

OurCrowd

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darsie: (00:07)
Hello, everyone. Welcome back to SALT Talks. My name is John D'Arcy. I'm the managing director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology and public policy. SALT Talks are a digital interview series that we launched during this work from home period with leading investors, creators and thinkers and what we're really trying to do during these SALT Talks is replicate the experience that we provide at our global SALT conferences and that's to provide a window into the mind of subject matter experts as well as to provide a platform for what we think are big ideas that are shaping the future and we're very excited today to welcome a speaker from our last SALT conference in SALT Abu Dhabi in 2019 and a leading Israeli entrepreneur, Jonathan Medved of SALT Talks.

John Darsie: (00:56)
Jonathan, welcome, thanks for joining us. Jon is a serial entrepreneur and according to the Washington Post, he's one of Israel's leading high tech venture capitalists. In 2008, the New York Times supplement, Israel at 60, named Medved as one of the top 10 most influential Americans who have impacted Israel. Medved is the founder and CEO of Our Crowd, which is a leading global equity crowdfunding platform for accredited investors and angel investors. Our Crowd has 1.4 billion in commitments and has made investments in 200 companies and funds and made 30 exits since its launch in February of 2013.

John Darsie: (01:36)
Our Crowd exits have included JUMP Bikes, which was sold to Uber; Breathe Cam, which was sold to Canon; Argus, which was sold to Continental; Crosswise, which was sold to Oracle; and Replay, which was sold to Intel. Bloomberg Business Week said on May 7, 2015, that Our Crowd is hands down the most successful equity crowdfunding platform in the world right now. TheStreet.com described Our Crowd as crowdfunding for real investors. Prior to starting Our Crowd, Jonathan was the co-founder and CEO of Vringo and the co-founder and general partner of Israel Seed Partners with $262 million under management. And I know it's a great source of pride for us, I referred to the fact that Jonathan spoke at our SALT Abu Dhabi conference in December of 2019.

John Darsie: (02:26)
That was well before the Abraham Accords were announced, the peace deal if you will between Israel and Bahrain and the UAE, and we were very proud to have brought Jonathan into the UAE to speak at our conference and start building those bilateral commercial relations which have resulted in now diplomatic relations and we're very excited to help Jonathan and Our Crowd build on that success and given his open mindedness and his commercial instincts, he has already been one of the first Israelis to build business ties into the UAE. So, again, we're very proud of helping facilitate that and we're also very proud to have Jonathan on to talk more about that.

John Darsie: (03:03)
A reminder, if you have any questions for Jon during today's SALT Talk, you can enter them in the Q&A box at the bottom of your video screen on Zoom and hosting today's talk is Anthony Scaramucci, who's the founder and managing partner of SkyBridge Capital, which is 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: (03:23)
John, thank you and Jonathan, it's a great pleasure to have you on SALT Talk. The only bad thing about all this, I was hoping to see you in Abu Dhabi in December but unfortunately, we've got that on hold. Obviously, we want everyone to be safe and healthy and we promise everybody we will be back in the region once we're all very confident that those two things can be achieved but before we get into the Abraham Accords and your amazing business, I want to go into your background. I ask every one of our guests sort of the same question. Tell us something about yourself that led you to the journey of starting Our Crowd and where you are today.

Jonathan Medved: (04:03)
Thank you, Anthony and it's great to be back with you and hopefully, it'll be in-person with you, either SALT in the US or back in Abu Dhabi, maybe someday Israel. You never know.

Anthony Scaramucci: (04:18)
I tried to get to Israel twice a year until this whole thing happened and so we'll definitely take you up on that as well.

Jonathan Medved: (04:24)
Cool. I grew up in California in a pretty typical American Jewish family, went to public school, grew up as a product of the 60s and 70s, went up to Berkeley and things sort of changed a bit when I finished my freshman year at Cal and I wanted to go abroad and I asked my parents, like any normal Jewish kid, "Where will you pay for me to go get some seasoning?" And they said, "Israel." So, off I went. I fell in love with the place, ended up learning Hebrew, visiting several times and have been living in Israel for over 40 years.

Jonathan Medved: (05:07)
Now, I was really lucky to get involved in technology from a very early date through another Jewish tradition called nepotism. My late father, Dr. David Medved, was a pioneer in fiber optic communications and I joined the family business. Turns out that I had a liking for tech and helped him raise money and we ultimately sold that company to the Amoco Corporation and that was my first exit. Then three or four companies later, all of them either successfully sold or taken public in New York either on NASDAQ or on the New York Stock Exchange, built a venture capital fund and in 2013, started Our Crowd.

Jonathan Medved: (05:55)
The idea behind Our Crowd was to open up access to the venture capital asset class to the broad range of investors who sort of watch venture capital from afar and say wow, that's great but may or may not have had the $5 or $10 million available for a limited partner's check or didn't understand the sort of esoteric nature of the VC term sheet and we started it and now seven years later, we're about a billion and a half in assets as you spoke about, 60,000 investors worldwide and an increasing number of institutions who are investing in our large and successful portfolio. So, that's my story.

Anthony Scaramucci: (06:40)
Well, listen, I love the story. I want to jump right over ... We're going to talk about venture capital in a second but I want to jump right over to the Abraham Accords. So for people who don't know what that actually means and some of us are super focused on the news like you and me and some of us are focused on finance. What are the Abraham Accords and what does it mean to the State of Israel, what does it mean to the Emiratis, the Bahrainis, what does it mean for the region and what does it mean for your business, Our Crowd?

Jonathan Medved: (07:13)
So, first of all, it's mistakenly called a peace deal and it's not a peace deal because we never were at war with the Emiratis and the Bahrainis. We never had a normal relationship, so it's really a normalization set of deals that now establish full relationships. To give you an idea, I was just in Dubai last week and it took me 20 hours to travel there each way. I had to fly from Tel Aviv to Zurich, hang out at the airport for five or six hours, then Zurich back to Dubai. It's a nightmare and on the way back, I had to go via Frankfurt.

Jonathan Medved: (07:56)
As of January, there will be 112 direct flights between Israel and the Emirates, 112 weekly. It's a three-hour flight. What it changes is-

Anthony Scaramucci: (08:13)
Sounds like some pent-up demand, though, huh, Jonathan? It sounds like long lost brothers and sisters trying to get reconnected, right?

Jonathan Medved: (08:20)
Big time. I was talking today to an Emirati and I said, "Do you think we can use these 112 flights?" And he said, "Are you kidding? We're going to need more," because everybody he knows wants to come to Israel and everybody I know wants to go that way. So it's not just about business, it's about basically taking away the sand equivalent of the Berlin Wall. There was this artificial divider between ... In the heart of the world, in other words, if you look at the map, you'll see that Israel and the gulf are connected by a land bridge which really is the middle of the world and there was a division there which was artificial, was because of politics or mistrust. It's now open and this is going to cause huge business.

Jonathan Medved: (09:11)
I was on CNBC last week. I described it as a $10 billion near-term opportunity. That was before the three governments, US, UAE and Israel just announced a $3 billion fund. So somebody smart, who I know, said, "Medved, you missed it, you missed a zero. It's more like $100 million opportunity." What's interest is the rest of the world is playing a role and I was on a call last week with a group of Japanese businessmen. All they wanted to talk about were these accords and what do they mean for world trade. So it really is one of these things which is much needed good news in today's difficult environment and really going to change things in a big way.

Anthony Scaramucci: (09:59)
The decision to come to the SALT conference, so I mean you sort of made history coming to the SALT conference in Abu Dhabi. Correct me if I'm wrong, but I think you were the first Israeli business person to speak at a large event in the United Arab Emirates. Is that true?

Jonathan Medved: (10:16)
That is completely true and thanks to you.

Anthony Scaramucci: (10:20)
I appreciate that. I'm not looking for the credit for it but I appreciate you accepting our invitation but what went into that for you?

Jonathan Medved: (10:31)
Look, it was a dream come true. I've been doing business in the gulf sort of under the radar for 12 years already. In 2008, I had a startup called Vringo, which was in the mobile content video sharing business and our first big customer was a UAE operator called Etisalat and we established really great business with them. So good, that we took our company public in 2010 and then as we were filing our S1, the SEC said, "Why are you leaving out the stuff about Etisalat in your prospectus." And I said, "Well, for obvious reasons, I don't want to get them in trouble. We're from Israel. These connections are sort of quiet." I think the New York Times called it the worst kept secret in the Middle East, the connections between Israel and the UAE before the normalization, but the SEC said, "Sorry, buddy, you got to disclose it." And what was amazing was how cool our partners were in the gulf.

Jonathan Medved: (11:36)
So, I've seen this going on below the surface and I just felt back in 2019 when you invited me that things were right for a change. It was not just that your conference was being sponsored by Mubadala and serious people down there but they were ready to hear about Israel. They were ready to talk openly and this was already, I think, a signaling of the winds of change afoot back a year ago.

Anthony Scaramucci: (12:07)
All right, so let's segue. I mean all that is fantastic and obviously one of the goals of the SALT conference was to create those types of synergies and I always tell people, I want people to have opportunities to meet people that can help them with their business. Hopefully, we can learn something from each other and lastly, and this was something I said to all the guys at Mubadala and ADGM, I'm there to have fun. Other people want to be boring and dry, I'm sorry. I grew up on Long Island, that's not what we're about, okay? So I'm there to have fun and so hopefully it was a combination of those things.

Anthony Scaramucci: (12:45)
Let's talk about Our Crowd for a second. What are we doing at Our Crowd? Why is it called Our Crowd? I think that's a fascinating connection into your business plan. Explain your business plan to people. Explain where you want to go directionally with the business.

Jonathan Medved: (13:00)
So, look, the idea is that venture capital should be in everybody's portfolio. The problem is it's not only not present in 99% of accredited investors in America, they estimate about 14 million accredited households in America and less than 1% have a venture capital commitment, which means a lot of people are simply sitting on the sidelines. Now, that didn't really matter 30 and 40 years ago when people went public early. Companies like Microsoft and Amazon and others went public at sub-billion dollar valuations. You held onto these things for 20, 30 years like the way that people like Warren Buffet recommend, you made 500, 1000 times your money. That's great.

Jonathan Medved: (13:49)
Today, these private companies stay private much longer. When they finally go public, most of the money has been made by smart investors in the private markets and those are venture capitalists and private equity people who are doing growth and the reality is that it's a shame, and it's really hard to watch this sort of inequality, this lack of democratization. Jay Clayton at the SEC has been talking about this quite insistently that given the fact that we've reduced the number of public listings by half. In other words, companies simply are not now ... We have the [inaudible 00:14:29] phenomenon and whatnot but still companies are not going public the way they used to.

Jonathan Medved: (14:34)
You've got to give some kind of a chance for everybody else to get in but it's not just, by the way, the individual high net worth and investor of the family office, it's the institution. I mean most institutions look at Yale University with envy. The Yale endowment now is targeting, I think, it's 23% of their endowment in VC this year. That's extraordinary. So I don't know how many of our listeners now are institutions, do a gut check, guys. Ask yourselves how much of your corpus is committed to VC and I'll be shocked if a bunch of them can get to 2% or 3%. It's simply too hard.

Jonathan Medved: (15:17)
The venture funds are too small. It's too esoteric. You've got to be sort of a known guy out in the valley and so that's why we set up Our Crowd. The first way we solved the problem was to provide access to the world's second Silicon Valley, which is Israel. So, a big part of our growth story has been the growth in Israel over the last decade. When we started back in 2013, there was about $2 billion being invested annually in Israeli venture capital backed companies. This year, it'll be over $10 billion. So there's been a four-fold growth, which is extraordinary for an ecosystem over this period of time and we've got now 60,000 accredited investors and close to 500 institutions and family offices who are now on our platform and accessing our investments every week. We're doing about 100 deals a year where you can pick your own deal or you can pick a fund and we have a family of 22 funds at the moment.

Anthony Scaramucci: (16:23)
So, first of all, congratulations on all that. It's fantastic. We'll talk about your pandemic fund in a second but I want to ask you something that is about 10 years ago, Dan Senor, who's a friend of mine, he wrote a book called Start-up Nation. When I visited Tel Aviv, I think, in 2015, I had an opportunity to visit some of the incubation venture capital laboratories, some of the things that Israelis were working on related to cyber security, cyber theft, protection of people's digital assets, et cetera. For people on this Zoom call that don't know a lot about Israel and a lot about what's going on in venture capital there, I was told, and I'm assuming it's still true, that there are more venture capital investments being made in Israel or from Israel than all of Western Europe. I'm assuming that's still true and if it is, tell us about the progress that the Israelis are making in the world of venture capital.

Jonathan Medved: (17:26)
So, it's roughly true. It depends on whether you're counting the UK or not or if you stop in Germany and go farther east but the reality is that there are about 7000 Israeli venture backed companies. There are hundreds of venture funds. All of the major venture investors from Silicon Valley put money into the Israeli ecosystem and what makes it unique is that $10 billion I referred to, about 90% comes from overseas. So while there are significant capital pools in Israel, most of this is people literally in the past coming physically to make those investments, today doing it all on Zoom. We're up, by the way, this year in Israel from $8 billion to $10 billion in the time of the COVID pandemic, which is unreal.

Jonathan Medved: (18:15)
What makes Israel so interesting is a couple of things. Number one, the big source of this technology other than sort of a mindset and a culture which asks a lot of questions, which breaks a lot of rules, which dreams a lot, I've got a good friend [inaudible 00:18:32] from Intel, says the way to motivate an Israeli R&D team is tell them that what they're trying to do is that it's impossible. I mean that's probably the most important part of this phenomenon but on top of it, you have about 400 multinational corporations who are located in Israel, doing R&D and increasingly providing exit to our companies.

Jonathan Medved: (18:54)
You have three trade agreements with Europe, increasing ties with Asia and this unbelievably core relationship with the US and a very strong sort of cultural and technology affinity with Silicon Valley where there are probably about 100,000 Israeli expats so deeply embedded in the American tech ecosystem that some of these M&A transactions where a big American tech company buying an Israeli company, they're negotiating in Hebrew because the guy working for Google, Facebook, whatever in the valley is speaking Hebrew to his cousin or his own brother-in-law or whatever it is back in Tel Aviv.

Jonathan Medved: (19:37)
The ecosystem in Israel is very broadly distributed according to sectors and you'll see everything from cyber security to food tech, Ag tech, the cloud, ecommerce, mobility now, drones, you name it and what's really interesting is we're starting to scale companies up. It used to be that we would sell them, I think, on the cheap and for a couple of hundred million dollars and call it a day. Today, if you're not selling your company as a billion dollar plus exit, you're not making the press and it turns out that Israel now has between 40 and 50 unicorns, that is private companies that are now worth a billion dollars. The big exits were Mobileye in the mobility area to Intel for 15 billion and a bunch of great stuff going on including in our platform.

Jonathan Medved: (20:32)
We have several that ... We just go a company called Lemonade, [inaudible 00:20:38] company went public with probably the best debut of an IPO this year in New York and that's an Israeli company that went three years to $3 billion in value very, very quickly.

Anthony Scaramucci: (20:54)
And a friend of mine, who you may know, Michael Oren, who obviously is a similar guy-

Jonathan Medved: (21:01)
I went to college with his ex-wife and by the way, Dan Senor and I go way, way back.

Anthony Scaramucci: (21:07)
We don't have to bring up ex-wives on the Zoom call. I mean come on. I mean Jon hit the ... You have to have a five-minute ... You have a five-second delay when [inaudible 00:21:15] can't bring up the ex-wives on the Zoom call, okay? One of the stage lights is going to come down and hit you in the head.

Jonathan Medved: (21:22)
I love Micheal. Michael's a regular guest of mine.

Anthony Scaramucci: (21:27)
But I'm just saying, Jesus. I was coming up with a really good question and then you bring up the ex-wife, the poor guy, right? All right, and the poor woman. All right, but anyway, he wrote a book a few years back, maybe 10 or 12 years ago called Power, Faith and Fantasy. I don't know if you've read the book-

Jonathan Medved: (21:42)
Yes.

Anthony Scaramucci: (21:42)
... but it talked about where things are in the Middle East, where they are for Israel, what America's relationship is like for Israel. Where do you see America's relationship with Israel today and where would you like it to be over the next 5 or 10 years?

Jonathan Medved: (21:59)
Well, I think that the American/Israel relationship has never been better and yet, it's not a question of one party or one administration, it's always been that way and really from the time of Harry Truman, who, god bless him, recognized Israel at a moment when it wasn't even sure that we would survive, that we were being attacked on all sides. It was an experiment and Harry Truman said this is the right thing to do and recognized the new Jewish state.

Jonathan Medved: (22:31)
Since then, our relationship with the US has been sort of bedrock and it's not just based on defense needs or common intelligence sharing but it's about values, about the fact that we're both democracies, the fact that we're both about a liberal outlook on life, about capitalism, about creativity and it really runs the gamut with culture and religion and families and the American/Israel relationship is unbelievable. Where it's going to go is continue to be driving shared economic benefit and what's remarkable is how many big American corporations are now taking advantage of Israel a sort of their idea factory.

Jonathan Medved: (23:19)
Israel is really good at ideation, creating new ideas out of nothing and whether it's the tech companies or even companies like John Deer or big automotive companies, they all realize that they need to be in Israel. So that's why there're 400 multinations, mostly American companies, who are there. But what makes Israel so interesting today is that these set of special relationships are really now spreading around the world. So, Israel is trying to dance at two weddings at the same time, increasing relationship with Asia, in particular with Japan and Korea and China, Singapore has been a longterm friend. Israel's biggest trading partner continues to be Europe which is in our backyard and despite some political ups and downs in that relationship, the trade business is very significant.

Jonathan Medved: (24:15)
But what Israel and America share is this entrepreneurship sort of leadership in the world and there really is nowhere else for startup investing in companies like Silicon Valley and like Israel. They are both unique in terms of the way the world works.

Anthony Scaramucci: (24:35)
Excuse me, before I turn it over to John, Jonathan, let me ask you about your pandemic fund. You just started it. It's a pandemic ... It's called the Pandemic Innovation Fund. It's a slightly different business idea from your other aspects of your business model. Tell us about that. Tell us how it's going. Tell us what you'd like to see for it over the next three to five years.

Jonathan Medved: (24:59)
So, look, I think that what's remarkable about this very special and challenging time we're living in is sort of the tale of two cities aspect to it because there are a lot of people who are suffering. There's a lot of terrible unemployment. Many traditional businesses have been belly punched and are reeling but on the other hand, the digital economy is booming and you can see it in the price of the FANG stocks. You can see it in what's going on with startups but if you are empowering everything from work from home or if you're empowering telemedicine, if you're empowering diagnostic testing or remote education, your business is on fire, doing really, really well.

Jonathan Medved: (25:47)
So, we decided to set up a fund that would focus on both the medical aspects of the pandemic that frankly had been under invested, whether it's diagnostic testing or tracking and tracing or vaccines or prevention. We were committed to that but also investing what we call the new normal. So we put together this relatively modest $100 million fund and we're still early days in putting it together and raising it but we're investing in a bunch of really interesting companies including one of the leading candidates in Israel for the vaccine. This one happens to be an oral vaccine which is very important given some of the issues in storage and logistics to get some of the more esoteric vaccines out to the world.

Jonathan Medved: (26:38)
If you look at what happened with polio, the first vaccine was a shot and then the Sabin vaccine, which was oral, was the one that really took the day. So we're hoping that that'll be ... That company's called MigVax. We're hoping that will be a winner and a whole bunch of other companies that are doing everything from robotic process automation to distance learning, cyber security which is becoming a huge part of the work from home conundrum [inaudible 00:27:11].

Anthony Scaramucci: (27:12)
All right, well, with that, I'm going to turn it over to John D'Arcy. We've got a ton of audience participation here, Jonathan. Congratulations on everything that you're doing and it's an awesome story and I hope that SkyBridge and SALT and all of us can be together soon and help grow that story.

Jonathan Medved: (27:30)
Thank you, Anthony.

John Darsie: (27:32)
Yeah, Jonathan, we have a lot of audience questions, so looking forward to getting into these. The first one, going back to the Our Crowd platform, you talk about how your goal is really to democratize access to the type of venture capital opportunities that typically are only available to large investors with high minimums. What is the minimum for an investor on Our Crowd and what's the process like for them to be onboarded, to verify their accreditation, for them to ultimately invest in deals on your platform.

Jonathan Medved: (27:59)
It's great. So, first of all, it's an accredited investor platform. So you've got to meet those criteria. In the US, where I imagine most of your listeners are, this is a million dollar net worth test outside of your primary dwelling or a $200,000 annual income test and again, there are about 14 million households that meet that. We have a pretty frictionless onboarding process where we use a third party vendor who qualifies that. We use something called 506(c) which is a new part of the Reg D regulations that allow us to actually do public solicitation. So, in order to do that, we do have to get more than just a self attestation to your credited status. We do that pretty quickly but it's pretty much about a one-day process and you're up and running and you're on the platform. And again, we have about 60,000 registered investors at the moment. Like it to be 600 or 6 million someday or 60 million but we'll get there.

Jonathan Medved: (29:06)
But once you're on, then every week, you're going to see several opportunities and you're going to get this information by email and be invited to go to our website either through your mobile phone or through your desktop. We actually post a lot of information about the company and the investment opportunity including the company's debt as well as an analysis written by our team because we put our own money in as any GP does. I mean we're not a crowdfunding platform in the traditional sense where companies are paying us to slot them and then we're getting a commission from the companies. We're principle investors. We're venture capitalists. So we're putting GP money in. Each of the investments is approved by our investment committee. It's been fully diligenced and then once we do that, we share that information with the crowd.

Jonathan Medved: (30:02)
We actually lead the majority of our investments. We sit on company boards and then we open these investments up to the crowd. The minimum investment in a single company deal is $10,000 per deal and the minimum investment in a venture fund is 50,000. So it's quite accessible and quite democratic. I mean let's face it, most of the venture funds you want to be in, their minimums are like $5 million. So to bring it down to 50,000, we think is going to change the way that access is done and I noticed there was another question that someone had asked about benchmarking. We're very, very obsessed with performance and we are benchmarking ourselves against Cambridge and all the other metrics that are watching people's performance.

Jonathan Medved: (30:53)
We have good performance for some of our portfolio funds. We have a fund called OC50, which actually takes your $50,000 investment and then divides it into 50 individual bite sizes of approximately $1000 and so you get a very hyper diversified portfolio of venture companies. Very, very interesting in it's construction. All of these companies that we're doing diligence on on the platform, in any event. And we're now getting ready to launch series four of that fund. It's an evergreen fund that we continually make available on our platform and performance has been running, depending upon which iteration, in the healthy double digit IRR net after fees. So we're quite happy with that.

John Darsie: (31:45)
In terms of companies that are on your platform, in terms of the deal pipeline, is there a geographic focus? Are you focused on Israeli or Jewish entrepreneurs or is it a global fund? What is the makeup geographically of the types of companies you have on the platform?

Jonathan Medved: (31:59)
There's absolutely no religious or ethnic focus at all. There is a slight geographic preference simply because we live in Israel, we're headquartered there. We now have 13 offices around the world ranging from Sydney, Australia to Hong Kong to Singapore to London to Madrid, down in Sao Paulo, Brazil and our newest, of course, is in Abu Dhabi. So thanks to you guys. And the reality is that we ... Today, about 54% of our deal flow is in Israel and about 46% outside of Israel. So we're approaching parity between Israeli deals and external deals, which I think is a good thing.

Jonathan Medved: (32:51)
So, on the one hand, if you're seeking a great source of Israeli deals, please come to Our Crowd but we're offering deals elsewhere. So, as you mentioned in your very kind introductory comments, we were investors in JUMP Bikes, people who have seen those red bikes, bought by Uber. We were investors in Beyond Meat, which was one of the best IPOs, really, of the last decade before it went public. And these are ... We were investors up in a Canadian company called Wave. It was bought by H&R Block for 440 million, and we're continuing to make ... We just led a big round at a very nother interesting food tech company. I can't say it actually now because they're about to announce it soon, so I've got to watch my tongue but the reality is we're about half/half in terms of deals in Israel and outside of Israel.

Jonathan Medved: (33:43)
Those outside of Israel are by and large US deals, although we have some deals in China and Europe and we're really seeking to be a global platform and as we get bigger, we'll do more and more outside of Israel.

John Darsie: (33:56)
So, you talked about how you've been quietly doing business a little bit in the gulf even prior to the normalization of relations in Israel but you were one of the first, I think you were the first Israeli businessman to sign an MOU with an Emirate firm after the Abraham Accords. What has surprised you about the opportunities and the entrepreneurial spirit that exists in the gulf and what type of opportunities do you see for commercial collaboration between Israel and the UAE going forward and Bahrain for that matter?

Jonathan Medved: (34:25)
I think the opportunities are great. First of all, there was a question there of Bahrain as well as the UAE, because the UAE's got a GDP of about more than 10x that of Bahrain, they get lost sometimes, but I think there's great opportunity in Bahrain. There are a whole series, I think, there's now 12 weekly flights going to go into Bahrain from Israel. So we don't want to leave them out of the equation and we're very committed to that. Our regional office for the GCC, if you will, will be in Abu Dhabi but we'll probably be building in long run, sort of satellites in other cities and other regions there as we grow it.

Jonathan Medved: (35:09)
Look, the opportunity is essentially for three different things. It's for investment whereby both Israelis are going to be investing there and we're getting ready to announce our first investment in a UAE company, which we're very excited about. People from the region are going to be investing in Israel and we've got ... We just announced $100 million framework investment deal with the Al Naboodah Group. That's number one is a tremendous sort of bilateral investment.

Jonathan Medved: (35:42)
Number two is going to be creating joint ventures whereby it's not just about taking Israeli products and moving them into the gulf or gulf products and moving them to Israel, but it's going to be about creating new things together. I was sitting on a porch outdoors last week with a group of 20 and 30-something sort of next gen Emirati business people who were the sons of ... And one of them pointed to this huge building in the distance and said, "That's my dad's building," and he said, "I want to build something bigger." And I said, "Well, where is the building going to be?" He goes, "I don't want to build the building. I want to build the startup." And these guys were all interested in AI and food tech and mobility and logistics and they were completely up-to-speed with what's going on in both Israel and in Silicon Valley and I think that when you put these two together, it's going to be fireworks.

Jonathan Medved: (36:45)
The third area which we're looking at is actually doing research and development over there because there are generous government benefits and it's easier, in some cases, to actually recruit people from abroad to come live in the Emirates as expats because today, let's face it, in Israel, we're growing our ecosystem but we're short, at the moment, about 20,000 engineers for our companies and that gap is growing. So we really need to do R&D everywhere. We've got teams working in the Ukraine and Hong Kong. People are working for Israeli companies. They are becoming sort of like baby multinationals and I am certain that there's going to be a lot of really interesting R&D done in that area too.

Jonathan Medved: (37:37)
So, the opportunities are huge. It's going to be broad. It's going to be everything from property technology to clean energy to logistics to Ag tech, to food tech because they're really into food security, cyber security, oil and gas, you name it. There's going to be a lot going on and I think we haven't even seen the beginning of this.

John Darsie: (38:03)
Yeah, just to echo that, we obviously have some clients in the region on the SkyBridge side and we have friends in the region in Saudi and the UAE and Bahrain but we were blown away as we dove deeper into that ecosystem as a result of SALT about the entrepreneurial vigor that exists among the next generation, especially in the UAE and in the region as a whole. So it's a very exciting time.

John Darsie: (38:25)
So, we have another audience question about how do you source deals for the platform, especially ones that are highly competitive? How do you get into those deals and how do you source them?

Jonathan Medved: (38:35)
So, first of all, we source them, by and large, through our network of investors because once people are investors on the platform, they trust us, they see how we work and they want to bring us into the deals they're looking at. They want our opinion and we're quite happy to share that. That's probably our biggest source. Perhaps our best source of deal flow is from our entrepreneurial core, the CEOs of our companies, the 200-plus, they bring their friends because they work with us because let's face it, today, the way you get into a highly competitive deal is not to outbid somebody. That's so last century. Today, the way you get into a good deal is by outbidding somebody on the value that you can add.

Jonathan Medved: (39:22)
In other words, you've got to be able to convince the smart entrepreneur, the smart CEO that you're not just going to write them a check and be there in the future to write more checks, which is a big part of this job, to continue to sustain these companies going forward, but that you can provide strategic introductions to partners, that you can help recruit key members of his management team, that you can get them in the media, that you can introduce them to other investors. I mean this is really what this is about.

Jonathan Medved: (39:54)
It's not like about picking a public stock. We're not deal pickers. We are company builders and we bring to this a remarkable amount of added value because of the crowd. Because we have 60,000 people on our platform and hundreds of family offices and multinationals and whatnot, we're able to go to an entrepreneur whether it's in Abu Dhabi or in Israel or even in Silicon Valley and say how would you like this international network to come work with you and that becomes, usually, a very compelling part of the value proposition. We urge them to call our other CEOs and ask what's it like working with these guys? Do they really deliver? And smart entrepreneurs do their diligence on the investor the way that investors do their diligence on the company and that's how you get into the good deals.

John Darsie: (40:48)
So, before we let you go, I want to finish on another followup question about your Pandemic Innovation Fund and about the pandemic in general. So as some of you may have seen, we put out a press release yesterday. We're going to be doing a series of SALT Talks, partnering with Our Crowd, which we're very excited about, talking about all the innovation that's taking place as a result of the pandemic whether it be new trends that are emerging or the acceleration of existing trends. One of the interesting things, I think, about your Pandemic Innovation Fund, and it's not just first derivative effects of the pandemic. It's not just okay, we're going to have remote work, so we're going to invest in Zoom and Skype and Microsoft Teams. There's a lot of second and third derivative investments in that fund that I think are fascinating. Could you talk about some of those second or third derivative effects and the investments that you're making as a result of those effects?

Jonathan Medved: (41:36)
Sure. So look, I think that when you start looking at, for example, food tech, which you might not think that food tech has much to do with the whole pandemic story but as you know, by the way, during the pandemic, there were terrible breakouts that happened in ... Yeah, there's a dog-

John Darsie: (42:01)
That's part of the Pandemic Innovation Series. [inaudible 00:42:04] dogs barking in the background.

Jonathan Medved: (42:06)
Yeah, a bark suppression algorithm which we can sell to ...

John Darsie: (42:12)
I need a bark suppression algorithm and don't worry about it. People appreciate the dog barking in the background.

Jonathan Medved: (42:19)
It's actually the most effective security system known to man were dogs.

John Darsie: (42:24)
Absolutely.

Jonathan Medved: (42:25)
But in any event, there were a lot of meat packing companies that really got terribly whacked and there were all kinds of issues about food security as a result of the pandemic. People went attacking these food shelves and so there are companies where we have money invested like Ripple, which is not the cryptocurrency but the plant based milk, where all of a sudden, their sales started to take off because of the fact that they have a long shelf life and people didn't want to have to go keep running back to the market and they said wait, this stuff lasts for a month or even longer in my refrigerator? I'm going to get that.

Jonathan Medved: (43:10)
We have another company called Tovala, which basically makes a smart oven that takes a pre-packaged piece of food which is shipped to you. It's, by the way, fresh and it cooks it for you. Their sales went through the roof as a result of the pandemic. We have a company called Trellis which helps big food companies do optimization of their supply chain so that they can save 15% and so I'm just drilling down here at various ... I'll give you another one. We have a company called Tevel, which used drones to pick fruits and it turns out that there's been tremendous shortages of farm hands and for foreign workers during the pandemic to get ... So just fruits rotting on the trees. So these drones do that.

Jonathan Medved: (44:04)
So there's four examples in just one narrow segment of companies that most people would not think of as having been impacted by the pandemic. So this new normal we're living in, we haven't even begun to understand how deeply reality is changing and we all think ... We all understand Zoom now and we're amazed that Zoom's market cap keeps on seesawing with IBM but there's a lot more beyond Zoom. I'll give you one more example in the medical area which is that we had a pandemic innovation conference online where we had the head of Johns Hopkins Health on and he predicted that 30% of hospital visits are simply going to move to telemedicine and then we had another webinar with the head of one of Israel's leading hospitals, Sheba Innovation Group. I asked him what he thought of that prediction, because it's pretty astounding when you think about it, 30% of hospital procedures are now ... Or visits are now going to go online?

Jonathan Medved: (45:10)
That's a huge market opportunity and he said, "Way underestimated. Try 70%." So, you look and you start thinking, has the smart investor realized how big this shift, disruption is going to be in the delivery of medical services and digital health, of telemedicine, and I don't think most people have really thought this through yet and that's why you need things like our Pandemic Innovation Fund, which are focusing on that.

John Darsie: (45:42)
Well, John, thanks so much for joining us. Again, we are so excited to do the SALT Talk series in partnership with Our Crowd. It's a fascinating platform and we share so many of the same values in terms of democratizing access to alternative investments and also plenty of other values as well but thanks so much for joining us this morning. Anthony, you have a final word for Jonathan?

Anthony Scaramucci: (46:03)
Listen, we got to get back together. That's what I'm looking for, okay? I'm looking for some one-on-ones, face-to-face, that's what I'm looking for.

Jonathan Medved: (46:12)
And some hugs.

Anthony Scaramucci: (46:14)
Yeah, yeah. I got to tell you, there's a guy in his basement, he's beating up on the guy that's not in his basement and I'm in my basement too, Jon. So we're sitting there right now. But I mean, maybe the basement is after all ... Maybe the basement is the best strategy after all, I don't know. We'll have to see.

John Darsie: (46:32)
It's been a long day.

Anthony Scaramucci: (46:33)
All right, you do well.

Jonathan Medved: (46:33)
A lot of great companies set up in basements and garages, that's for sure.

Anthony Scaramucci: (46:37)
Amen. All right, well, you be well, Jonathan.

Jonathan Medved: (46:40)
Thank you, guys. See you soon.

Angela Matheny: Diverse Asset Managers Initiative | SALT Talks #91

“Many black and brown asset managers, even women, have not been hiding…. you simply need to fish in a different pond.”

Angela Matheny joined Crewcial Partners in July 2016. She is the firm’s CIO and co-manages the investment. Angela also continues to drive the firm’s manager diversity initiative to attract and source diverse asset managers while monitoring protocol and the internal vetting process of women and diverse asset managers.

The private equity and venture capital space continues to see a dearth of black and brown asset managers. For too long, companies and its leaders operate within their existing networks, leading to less exposure of diverse candidates. Beyond the social good, diverse teams offer real financial benefits by bringing in different perspectives that ultimately lead to stronger investment portfolios. “One of the ways that we like to think that you can incorporate that downside protection is actually implementing diversity, which leads to diversity of thought, which then leads to diverse outcomes.”

LISTEN AND SUBSCRIBE

SPEAKER

Angela Matheny.jpeg

Angela Matheny

Director, Investment Staff & Head, Diverse Manager Equity

Crewcial Partners

MODERATOR

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Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darsie: (00:08)
Hello everyone and welcome back to SALT Talks. This is John Darsie here, the managing director of SALT, which is a global thought leadership forum at the intersection of finance, technology, and public policy. And it's great today to be back in SALT HQ. Got the great branding over my shoulder. It's my Wednesday pilgrimage into Manhattan. And it's good to at least start to get back to a little bit of normal. But we're excited to continue our SALT Talk series. What SALT Talks is, is a digital interview series that we launched during this work from home period with leading investors, creators and thinkers. And what we're trying to do during SALT Talks is replicate the experience that we provide at our global conferences, the SALT Conference. And that's really to provide a window into the mind of subject matter experts, as well as to provide a platform for what we think are big ideas that are shaping the future.

John Darsie: (00:58)
And we're very excited today to welcome Angela Matheny to SALT Talks. Angela joined Crewcial partners in July 2016. She and the firm CIO co-manage the investment team, to ensure internal processes are efficient, while managing the firm's manager selection process and the systematic process that helps best ideas that are constructed into portfolios. Angela also continues to drive the firm's manager diversity initiative, to attract and source diverse asset managers, while monitoring protocol and internal vetting processes of women and diverse asset managers. Angela facilitates the constant communication between crucial partners and fund managers, as the firm continues to build a robust pipeline of what it believes are truly the most largely under followed segments of the asset manager community marketplace.

John Darsie: (01:50)
Angela also acts as a conduit in sourcing diverse managers, when recommendations and introductions are made by clients and/board members. She frequently attends emerging manager and diverse manager conferences, returning with best practices while networking and learning about industry wide issues and the inclusive approach many institutions may take to include more diverse managers in their search processes. Angela received a master's in Public Administration at the Metropolitan College of New York. She also earned a certificate in Human Resources Management from Villanova University, which included studies in diversity and inclusion. She received her Bachelor's Degree in Psychology from Bernard Baruch College in New York, and she also serves on York College's Foundation Board. A reminder if you have any questions for Angela during today's SALT Talk, you can enter them in the Q&A box at the bottom of your video screen on Zoom.

John Darsie: (02:44)
And we're very excited to welcome back Sarah Kunst as the moderator on today's SALT Talk. Sarah is a managing director of Cleo Capital, which is a venture capital firm that she founded. And with that, I'll turn it over to-

Sarah Kunst: (02:55)
No, no. Don't you think you should be wearing... I mean, look at you guys. Don't you think you should be wearing a suit and tie? What's wrong with you [inaudible 00:03:01]?

Anthony Scaramucci: (03:01)
[crosstalk 00:03:01].

John Darsie: (03:01)
Come on, it's millennial.

Anthony Scaramucci: (03:02)
Jesus Christ I mean-

John Darsie: (03:02)
We like to be a little more comfortable.

Anthony Scaramucci: (03:02)
Enough with the millennial fashion. Enough with the millennial fashion.

Sarah Kunst: (03:09)
Anthony you look great.

John Darsie: (03:11)
Anthony got cargo shorts on underneath that suit. So let him not fool anybody.

Anthony Scaramucci: (03:13)
That's not true, Sarah. Okay. This is 100% Briony. Don't be listening to that.

Sarah Kunst: (03:18)
I believe you.

Anthony Scaramucci: (03:20)
And with that... Sorry Sarah, for that rude interruption from our typical host, Anthony. But we'll turn it over you for the interview, and we're looking forward to hearing more from Angela.

Sarah Kunst: (03:30)
Awesome. Thank you. And thank you guys for joining us, and especially Angela. I am thrilled and excited to have you here today. So we can talk about all the things we always talk about around diversity and investing. And what in the world is going on in the world of those things right now. But before we do that, give us sort of what you do and how you got here. Because I have talked to a lot of funds and allocators in my time, and you have one of the most, I think unique roles in the industry.

Angela Matheny: (04:02)
Thank you, Sara. So good to finally be at the SALT conference. And I'm actually very excited that you guys have a focus on diversity and inclusion as it relates to a lot of emerging managers that I see. And so I've been wanting to attend SALT for many years. And I just told one of the representatives at SALT, John, that I just need a reason to come to Las Vegas and many of the other places that you guys hold conferences, at internationally or nationally. And this is a really, really good reason. I'm always excited to talk about diversity and our focus at Crewcial Partners. So first and foremost, the big elephant in the room is that we have rebranded. We are formerly known as the firm called Colonial Consulting. Colonial Consulting was a name that we inherited from the owner, the first owner of the firm. He retired. Four owners currently bought him out. And we probably should have changed our name then but really what the name meant was that the owner had a love for sailing and boats.

Angela Matheny: (05:13)
But Crewcial Partners really reflects who we are today as a crew, as everything we do is a team effort. All of our colleagues in different departments are deeply embedded in the success of the firm. And so we've gone from maybe this concept of a sailing boat to a rowboat where we are all rowing together. And you can see the diversity reflected across the firm. And many people didn't know that we were so diverse internally. But I'm excited to direct people to our new website so you can see exactly what our focus is and how many of our colleagues are engaging. And really, you can see the reflection of diversity across our firm, as it relates to what we want to see more in America. So I was brought on board about four years ago to source diverse asset managers across five asset classes. We are a traditional investment advisory firm. And we work primarily with endowments and foundations.

Angela Matheny: (06:17)
And it looks a bunch of community foundation's that engage in grant making. And what's nice about our capital is that we are focused, and that we tend to have a very, very focused group in the sense that we work with clients who have a long term focus, long term goals in terms of growing their portfolios. And we're all trying to really earn seven plus inflation for our clients. And it's nice to have a well oriented goal to weather crisis such as the one that we're currently in. But our primary goal entails preserving our clients purchasing power, is what our CIO was always trying to do and most of the team each day. So after grants and spending and inflation, the question is, can you really earn a return that exceeds that? Now, as it relates to our focus on diverse managers, it's deeply embedded in our investment philosophy.

Angela Matheny: (07:13)
And so again, four years ago, I hit the pavement nationally. Going to many, many cities, looking for diverse asset managers, partnering with trade organizations, exercising the many resources that they have. The educational component of many of these conferences such as NAIC, NASP, TOWEGO, SEO. There's so many of them now and so many new ones focusing on venture capital. I found that there is a talented group of individuals that include women and people of color across asset classes. I'm happy to engage with them, happy to bring back so many inquiries. And then we just drill down, take meetings, conduct overviews. I do what I call triage, to see what exactly a manager is building and to see basically if they're ready for a client's capital. Now, I don't make that decision alone. So I often bring many of my colleagues into meetings. I seem to have a lot of first time meetings myself, and then just running up the flagpole see if there's any particular interest, particularly when a strategy comes across as something maybe convoluted, structured products and hedge funds.

Angela Matheny: (08:31)
A lot of things that are complex that I haven't seen, we tend to not overall invest in... We don't invest in things that we don't understand. And so the team is very engaged, they're now sourcing their own diverse managers, although I was initially focused on this effort 100% of the time. I'm glad to see that everybody is building this pipeline of robust managers that are underserved and under source.

Sarah Kunst: (08:59)
I love it. I wish that every big allocator took a page from your book, because I think that it's obvious that they brought you on, and it was super helpful to help kind of grow what they want to do. And so that's great. So tell me-

John Darsie: (09:14)
And we look forward to collaborating on the SkyBridge side, with your pipeline of diverse managers, It's something that we've started to focus on in recent years. After this talk, we're looking forward to putting our heads together on that as well, Angela.

Angela Matheny: (09:27)
Perfect. That would be great. It's an ecosystem. So I love that you said that.

Sarah Kunst: (09:31)
Yes, yes. It takes all kinds and we are very excited to see people like SALT and SkyBridge lean in on that. That's literally how I met SALT. I cold emailed them and said, "Hey, can I come to your conference in Abu Dhabi? I want to speak. And they're like, "Okay." And then now we're here. So I love that spirit of collaboration. So tell us a little bit about, we know it's bad but it never hurts to hear specifically how bad it is. What is the landscape look for Black and Hispanic fund managers across kind of all the asset classes that you cover?

Angela Matheny: (10:04)
Well, I'm still having a challenge finding Black and Hispanic hedge fund managers. I can count on one hand how many there are in the US. There's a bit more in the UK. But it points to opportunity or lack of opportunity, on a corporate level to even have the opportunity to get hired by top tier firm or any firm. It doesn't even have to be top tier, but really, really good investors, where black and brown managers across various asset classes can cut their teeth and sort of learn the blueprint of the firm is what I always like to say. But that training and mentorship is huge. And if HR doesn't have the backbone to create a strategy to allow leadership to lean in, and listen to what they have to say, in terms of building a diverse workforce, that's where we see the dearth of talent across asset classes. So a challenge in the hedge fund area, a challenge maybe even in US equities, we are seeing a handful of white women and Asian asset managers.

Angela Matheny: (11:06)
And so turning to the black and brown community, there are huge opportunities currently, particularly in private equity and venture capital. Because everybody's paying attention to what I call the ratio pandemic. And particularly what our clients being nonprofit organization, you would think that they're well aligned in terms of their missions, their values, and who they serve in their community, but they have woefully and inadequately allocated to diverse managers traditionally, and to me that may point to the fact that maybe boards or committees are homogenous groups, and so they're just doing more of the same, trucking in the same network. It also points to what I hear a lot that consultants are the gatekeepers. So are they making the recommendations? But even going a step back, are they even building a pipeline of managers that look different from the managers that are typically on the roster?

Angela Matheny: (12:07)
And so the importance of me being appendage, initially an appendage to the team, and sourcing women and diverse asset managers has been a huge focus as you know Sarah, but it's really important in terms of portfolio diversification, because for us we feel it's sort of a downside protection kind of thing in order to build a diversified portfolio across age, gender, ethnicity, even geography. So there's many ways you can do portfolio construction. And one of the ways that we like to think that you can incorporate that downside protection is actually implementing diversity, which leads to diversity of thought, which then leads to diverse outcomes.

Sarah Kunst: (12:48)
And as we know, diverse teams tend to drive better results. Yes, I love that. So to what can allocators and investors do? You mentioned this, if it's a consultant or wherever these roadblocks are. What can allocators and investors do to be better at sort of attracting and funding diverse talent? Because we're out here I exist, but how do more people I guess, on that side get in front of me, just as I'm trying to get in front of more people?

Angela Matheny: (13:13)
I love how you said you're out there and you exist. And that's the thing, you haven't been hiding. Many black and brown asset managers, even women have not been hiding. And so you simply need to fish in a different pond, whether you want to initially hire someone to tap into those networks. I think that initially, maybe some people don't feel comfortable answering certain rooms. I remember a CIO told me years ago of a story of him actually being the minority in a room, when he attended consortium's conference led by the great Renae Griffin, who's now at Grosvenor. And he talked about that experience, and he didn't say that he was uncomfortable in any way. What he said was that it was different but he saw for himself firsthand, this diverse room, this great... he had a sense that they were a talented investors. Were they the right type of investors for us in terms of aligning with our investment philosophy, and a lot of the other things that we look for in our diligence process? Well, that remains to be seen.

Angela Matheny: (14:16)
But one of the jobs that he charged me with was just go out. And he didn't tell me how to do anything that was so fascinating about my role. The huge sense of autonomy, how I just went out and I checked in different places across the nation and I brought back all these inquiries. And we found that the talent was out there, I had no problem engaging with any group. And so now we're about four billion, north of four billion allocated to diverse asset managers of the... I want to say 35 billion plus assets that we manage for our community foundation, that number probably went up because we just got a couple of new clients on board. But it's approximately 35 billion. And there's no finish line to this effort, we're going to keep going until all of our clients portfolios reflect the diversity that we need to see. Again, not having to do anything with really ethnicity, race, or whatever you want to call it. But diversity of thought.

Sarah Kunst: (15:18)
Yeah, yeah. So for every allocator who's like, "We just can't find them. You have some four billion worth add." There you go. There's the proof. Anybody who can't find them needs to come talk to Angela. That's awesome. And then also everybody, feel free to drop questions in the Q&A. Angela is a wealth of knowledge, and one of my absolute favorite people to talk to about these topics. I'm a VC, so I to talk to her about venture capital, but she spends a lot of time looking at other strategies, including hedge funds which I know a lot of you are big fans of. So definitely drop questions, and we will go through them as they come in. So, Angela tell me, what does it look like? And you and I talked about this a lot. Because I have my first fund and getting started on my second. What does it look to be fundable by a large allocator? Right?

Sarah Kunst: (16:10)
It's not just going to your buddies and saying, "Hey, I'm smart. Give me some money." What does it look like? What are the things where you see people and you're just like, "No, you're messing it up. This is what you're supposed to do." What are the common mistakes? And what are the things where you're like, "Yes, this is what you need to do. Go do more of it."

Angela Matheny: (16:27)
Well, first of all, I don't want to take total credit for the four billion that we have allocated across all those asset classes, because I have a really, really great group of colleagues behind me, although we did focus on me doing 100% of the sourcing initially. But to answer your question. Oh, my God, I just drew a blank about your question.

Sarah Kunst: (16:50)
So my question was-

Angela Matheny: (16:52)
[crosstalk 00:16:52] about my team.

Sarah Kunst: (16:54)
... How do you be investible right by large allocators?

Angela Matheny: (16:57)
Oh yeah.

Sarah Kunst: (16:57)
Because a lot of people get started, you're raising money from friends or angels. And then leveling up and you and I have had this conversation, to get the money from the large allocators is a whole different ballgame. What should they do? What should people not do? What are common mistakes you see? Give us a playbook.

Angela Matheny: (17:13)
Okay. So I have some pet peeves, I'll get to that in a second. But the answer is kind of fluid because it depends on what allocator you're approaching. You really have to do your homework. So I've attended all sorts of conferences. I've attended emerging manager conferences, which is largely hosted by a lot of pension plans, defined pension plans. They usually have a lot of large mandates. And so they want you to manage large amounts of capital, and your strategy may not lean to that. I just started seeing before we all started working from home, more venture capitalist at the conferences that I attend. The really large ones with, again, a lot of mandates. So I thought, "Wow, I'm seeing some venture capitalists at these conferences. So that means that maybe Community Foundation clients are there or smaller LPs like us who appreciate smaller funds are there, and we can eat up a $20 million fund, right?" We like $100 million fund.

Angela Matheny: (18:15)
So, we tend to say that the small funds that we see that would traditionally be too small for a lot of large allocators, they actually perfect for us because we want to grow with them. And so some of my pet peeves is with the small funds, because they're just starting out. There are some rookie mistakes. There's like, no website, no contact on the website. I can't tell you how many times I've been up two in the morning on a Friday, or maybe on a Saturday, just bored not doing anything, or believing that this is a mission and it's something that keeps me awake at night. I comb website. And sometimes I'll look at someone's strategy and I'll think, "Wow, that looks kind of perfect for us. It was really interesting. I would like to reach out to this individual," and there's no contact information. Somebody will probably email me from their Gmail account and say that they're fundraising. "Well, why don't you have a website and a real email address that connects with your funding."

Angela Matheny: (19:11)
And then people are fundraising and they don't have all of their fund documents. So that means that on many levels, maybe you're not ready to go to market, you don't have a data room. You don't have something as simple as a DDQ, which you can download if you just Google it. There's so many rookie mistakes. But one of the largest things I want to say for this audience is just try not to be all things to all people. Really tell us what's your unique edge. What's the differentiator in your strategy? What inefficiencies are you finding in the market that you're capitalizing on? And why this fund now? And why this fund size? And if you come back to market and let's say your fund size is double, we want you to walk us through what opportunities are you seeing that warrants that larger fund size? Large funds, maybe I think of it as maybe if we wanted to invest in a BlackRock, or one of the larger asset managers, we would do that if a fund is too big you sort of become the market. And we saw how that looked back in 2008.

Angela Matheny: (20:20)
And so we sort of have a niche for small managers. But I'm always open to discussion, early building of relationships, to walk people through the do's and the don'ts. I even get them ready. Meeting ready for our team. And you know you and I have done that a lot. Don't present yourself as a networker. I think we have enough networking professionals in this industry. And so what we want to see is what your value proposition if we're talking about private equity or venture capital? What level of expertise do you bring to the fund, where your founders can really leverage that expertise? It has to be something beyond you writing a check, and just walking away. Can they call you? Can you take them through the different iterations of, how they're going to scale and grow their business and then survive? And are they right for venture capital? And so we want to hear about your sourcing, what questions do you ask? What's a non starter when you find a founder? Do they have to be a revenue generator? What's precede? Define that for us because we all know that the goalpost keeps moving.

Angela Matheny: (21:30)
And so yeah, there's just so many questions. But we really, largely just want you to be you, bring your authentic self to the meeting, pitch authentically, don't worry about what we're looking for, what we're going to say. I think that even if we don't end up writing a check, you'll get a wealth of feedback. And it's probably maybe a not right now instead of a no. And we see that over and over again.

Sarah Kunst: (21:55)
Yeah, yeah. That's also helpful. We have a couple questions. So we're going to start with Lisa Hinze, who asked, "Can you speak to the demand side? What are endowments and foundations asking for with respect to diversity? What's driving them?" Are you getting calls saying, "Hey, we need to allocate to diverse managers." Or are you more having to push that?

Angela Matheny: (22:18)
So, pre pandemic, it was slow moving. We have a handful of clients that actually love to look at diverse managers, and they're trying to solve either housing crisis, they're focused on impact. And we allow them to define what is impact for them. Some clients may want to put all diverse managers women into an impact pool or bucket. So again, we don't define it for them. But when we source a manager and we diligence them, put them through our process. And finally, we're at approval, and then we're pitching to our client base, we are thinking that this is a high conviction manager, we don't want to put them in a sleeve or carve out a section for them, they should be part of the general portfolio. So having said that, a lot of our clients don't have a mandate for diversity. But if you comb a lot of these websites, particularly for nonprofits or community foundations, you will see that their mission and value is geared towards that.

Angela Matheny: (23:14)
And a lot of them probably want to invest maybe in a local manager, or they want to invest in a black or brown manager, because they want to solve this racial equity problem. But we haven't seen any hard mandates, what we have seen and helped with was getting manager diversity language into their investment policy statement. I like that idea. And we've helped with that numerous times. Because I think that that has to be sustainable as boards turnover. I can't imagine a new board member coming on the scene and saying, "Why is this language here, we should take it out." And so it held it helps to hold the committee accountable for what they should be focused on, and so that's why it's important to have it there. And so now in the current environment, yes, we're seeing so much interest in black and brown managers and women. They want to see what they're building. I get inbounds all the time about diverse managers in the venture space, because many managers are picked up by the media in various ways, and everything looks good. And everybody's excited about what someone is building.

Angela Matheny: (24:23)
Some of it is promotional. When we look under the hood, we can tell how ready they are for our clients capital. And so that's where I come, trying to really have real down to earth conversations to walk them through our process and to see whether they're ready or not, again for our clients capital.

Sarah Kunst: (24:40)
Yeah, yeah. That's super helpful. And then Mark asked, "Are the comments you made about the VCPE industry germane for minority, private equity, real estate manager too?" And then he says, "Keep up the good work." Which I agree you're doing amazing work. But yeah, I mean, does this apply to all strategies? Do you see massive differences in writ versus hedge funds versus VCPE? Or what do you think about that?

Angela Matheny: (25:07)
I'm seeing if the question relates to, where am I seeing the most diverse managers? I'm seeing the most in the private equity space, particularly venture. Again, there's still a dearth of the managers that we haven't seen traditionally. Many investors and hedge funds, global equities, even US equities. I would love to see some Hispanics that I could vet in that space. But I think that private equity and venture is probably a more, what we call I hear this word a lot, sexy asset class. And what I'm also seeing is people with very nontraditional backgrounds enter the space in many ways. So that's interesting.

Sarah Kunst: (25:53)
Yeah, that's amazing. That's awesome. And then [Kai 00:25:57] ask, he says, "GMO that the large money manager has very low equity return expectations for the next seven years." Aka the recession might finally hit that feels we've been waiting for since mid March. "Do you have return expectations for hedge fund, venture funds and private equity for the same period?" So how are you guys thinking about, if the bottom finally comes for us. If the stock market here is about what's the pandemic. Well, what does that mean?

Angela Matheny: (26:29)
We've been having a lot of conversations around this. And I think people are basically, as you alluded to, we're waiting to see if the bottom is going to fall out. We see decreased valuations, if you look at private equity, particularly venture. And we're waiting for things to shake out. But we always have high expectations about many things, but everyone's listening to what's going to happen with the election. For instance, what return expectations are we expecting? Who knows? People have this maybe macro focus. They want to time the market, I don't know. It's going to be what is going to be, and then we'll try to see what are we going to do with the cards that we've been dealt. But we always, we're not going to change our sourcing metrics. We're not going to lower the bar in any way, in terms of what we would traditionally expect. But we'll see. I think that we're all looking from a high level, don't want to lower our expectations.

Angela Matheny: (27:36)
But we'll be where we're going to be, and we'll do the best of what we can and we'll continue to source all types of managers and look to see what's out there that we can capitalize upon. We just did a revisit of our asset allocations, as it relates to how much heavily weighted are we in global equities versus US equities. And so it's just a model, whether or not we follow the new model, or we go with the model that we created in January, I think we'll see. But a lot of our clients because they're nonprofits, they're looking for liquidity for a number of reasons. We have university clients and students are not in class, and they've lost their revenue generating engines. And so, when we look at global equities or any type of equity, sometimes we try to... The consultants, I hear them say a lot, they tried to talk them down in terms of selling. But the real truth is, is that, if something has done well in equities you want to sell so you can buy something else. You want to have that purchasing power for your client.

Angela Matheny: (28:51)
And so a lot of times it makes sense. But we're trying to see what we can do. And sometimes I kind of feel as an advisor, and I don't want to speak for my firm but this is how I see things. Are we in this sort of lame duck session where we're just sitting back and seeing what's going to shake out to see how we can really best advise our clients? And how can we continue to grow their capital on a long term basis? I don't know. We'll see what happens. But we're not veering away from our investment philosophy.

Sarah Kunst: (29:22)
Yeah, yeah. I love that. And then Wang asked, "Do you work with private debt managers?" He said, he doesn't see much diversity in that space.

Angela Matheny: (29:31)
Yeah, I don't see much diversity in that space either. Actually, we just talked this week with our investment team about two private debt managers. One was, we were looking at distress, we were looking at a lot of credit. And so one of our investment directors, actually yesterday two of them talked about a housing strategy. And we want to be really, really careful. And so looking at the hood and really, really, what is that strategy mean? We looked at non performing loans, we think about what are people actually doing out there? Again, our client base is not going to agree with a lot of things that are happening. But there are opportunities that we should capitalize on. But we want to be really, really careful to make sure that we're not doing more damage than good.

Sarah Kunst: (30:20)
Yeah, yeah. And so Kai asked again, "What are your approaches to evaluating emerging and new hedge fund managers and strategies?"

Angela Matheny: (30:30)
It's the same across all five asset classes. I mean, we ask different questions, obviously of different managers. But I'll tell you one thing, low AUM is not a deal breaker for us because as I said earlier, we want to be able to grow with that manager. So we are paying attention to AUM because we want the business to be strong and viable. We've been known to be anchors as well. And while we rather not be such a large portion of your business, we will be that first check to come in, to allocate to you if we have high conviction in you, the strategy, your investment acumen, your passion for investing. There's just so many boxes to check. But really, we need to see what sort of firm do you want to build? What sort of team are you bringing in? What sort of team do you want to build? And have you all invested together before? All of these things matter. We want relationships to be tested. We don't like risk adverse investors.

Angela Matheny: (31:30)
And so if there's a lot of volatility in the strategy, we tend to get our clients comfortable with volatility, if that's something that they want to see. But it doesn't scare us. So our CIO in particular, he's a real contrarian investor. So as long as we can understand what you're doing from an underwriting standpoint, and you're very transparent with us. Everyone is trying to get comfortable. But again, just be yourself, be unique. And I think that you'll have a successful meeting.

Sarah Kunst: (32:04)
I love it. That's super helpful. And we have 10 more minutes. So I'm going to go back to asking you some of my questions but if anybody else has last minute questions. Angela is a very hard woman to get time with so this is a great time to ask her-

John Darsie: (32:17)
I've got a question, Sarah. I'm raising my hand.

Sarah Kunst: (32:19)
Yeah.

John Darsie: (32:19)
I'm raising my hand. I've got a question.

Sarah Kunst: (32:20)
[crosstalk 00:32:20]. Yeah.

John Darsie: (32:21)
What type of, for the industry, the investment management industry as a whole. What type of changes would you to see the industry make, to give greater opportunity to minority asset managers? Both women, Hispanic Americans, African Americans. I give you one example, in the NFL years ago and it's, I wouldn't say it's controversial, but it has mixed success. They instituted a rule called the Rooney Rule. Where basically anytime there was a head coach opening on an NFL franchise, you had to interview a minority candidate before you finalize the hiring of a new candidate of any race or creed. And what that did is it basically gave minority candidates experience in the interview process. And it also exposes teams to candidates they might not have interviewed, if that mandate wasn't in place. I think about that when I think about the industry about, just the lack of opportunity and credibility that are given sometimes the minority managers, just because you don't see and hear from a lot of people that look and sound like them.

John Darsie: (33:20)
But what types of things from an industry perspective, could we do better to ensure that minority candidates get the confidence and the experience needed to eventually launch their own fund, get those senior jobs at investment management firms?

Angela Matheny: (33:33)
Oh, my God. John, thank you so much for that question. First of all, the Rooney Rule. That rule is helpful to some people who want to dip their toe in the water and who believe that they can't find them. But really, I believe we can do better than that. Crewcial has certainly done better than that. To me, that's like saying, "Oh, I have this one black friend. And that's who I'm going to bring to the interview." And then that's it. I checked the box, I hire that person. But there are so many institutions that are filled with black talent, such as all of the HBCUs. And there's also hiring and sourcing from nontraditional... from Ivy League, from schools that are not Ivy League institutions. So for instance, we source a lot from city and state universities, as well as Ivy League talent because again, we want that diversity of thought, diversity of backgrounds. But what, as an ecosystem what we can do, I pointed earlier to HR and Chief, also chief diversity officers. They really, really need to speak up and work to align themselves with leadership.

Angela Matheny: (34:38)
Because sometimes, certain firms engage in nepotism or they can slip a resume in and say, "Oh, here's a friend of a friend." However that goes and that's how we see these homogenous groups in many firms. And that's how we see the wealth gap completely continuously widening. HR needs to fire their recruiter who doesn't listen to them, the same way investors are probably going to start divesting from asset managers and consultants who say... when you say you want to see a more diverse set of asset managers, that's exactly what we want to see. And it's your job to bring these candidates forward. But we have a nice, nice, really robust internship program. And one of the things that I like about Crewcial is that the entire firm is engaged in this cohort of interns that we hire each year. It's usually about 10, or 12 candidates. We want to persuade them to come into this career. Consider this career in asset management.

Angela Matheny: (35:42)
So our CIO would say we like to brainwash them to stay, but they can go anywhere they want. They can stay on the investment team, which we prefer. Or there's other opportunities in client services, and even our information technology department. But for the most part, our CIO, he has lunch with not only every single person in the firm, so you get to engage with senior leadership such as himself, myself. I take all of our interns to industry conferences with me, when they're based in New York City. All of the opportunities in New York City. Some of our industry colleagues say, "Wow, Angela, I see you have your clan with you." That's right, because they cannot be what they cannot see. And so that's so important. And so there's many recruiters, there's many diversity resources and agencies that have a wealth of talent that every single asset management firm, whether you're an allocate or an LP, you can exercise and take advantage of this talent that's out there. Like Sarah said earlier, we are not hiding. We've always been here, we want the opportunities.

Angela Matheny: (36:48)
The strange thing is, is that if you are a firm and you're not hiring diverse talent, that's why we can't see enough black hedge fund managers, enough women in hedge funds. That training and that pedigree that comes out of a lot of these shops is really, really important. Not only is it a lucrative opportunity, but if you turn the venture we're looking for that 1% GP commitment. I don't have a rich uncle that I can call up, where am I supposed to get this? How do I get in the game? You can't even compete, because you've never had those corporate opportunities. You've never had a chance to maybe get a little capital to manage a portfolio, you've never had the opportunity to engage with an executive leadership team, to get a lot of other training. So that doesn't happen. We're just not going to see enough of us in those key positions.

John Darsie: (37:43)
Thank you for that, Angela. And I'll turn the microphone back to Sarah.

Sarah Kunst: (37:46)
Awesome. Thank you. Yeah, no. All of those things I heartily cosign from what I've observed in this industry. Julia has a question. And she ask, which is kind of a funny question but it's good. And you and I've talked about this a lot, Angela. "How do you define diversity? Is it a percentage of total workforce of management? Do you guys have your own definition? Does it differ client by client? Are there any best practices in the industry or benchmarks in place for asset owners to kind of compare their diversity mandates?"

Angela Matheny: (38:19)
So two things. First of all, we define diversity Crewcial does for our clients as more than 50% equity ownership at a firm. And we prefer that equity to lie on the investment team. The founders, the co-founders. Because we believe that that is the diversity reflected in the portfolio. Those are the decision makers. And those are the outcomes that we see in a best performing portfolio. And so that more than 50% is really, really key. You can't count the black receptionist, the Hispanic person in the mail room, the people who are non investment related professionals, or even your wife who probably is not even working at the firm, or maybe a relative is working in a different capacity. It really needs to lie on the investment team.

Sarah Kunst: (39:11)
Yeah, I love that. Great. Awesome. We're almost at time, so I'm going to kind of ask you the last question here. This has been obviously the craziest year of the, I don't know, like ever. It feels like, and starting with this summer and the George Floyd protest we've seen... feels a lot of talk right? We've seen a lot of black squares. Do you feel like things are changing, right? You're the money lady. You're the one who's sitting where the actual, kind of rubber hits the road. Are things changing?

Angela Matheny: (39:44)
I hope they're changing. I hope this is not just momentum. I think that it is a very pivotal moment and I do feel as though we are turning the corner. I do feel that this is the second wave of what you might call the civil rights movement as it relates to economic opportunity. It's about time. We are here, again we haven't been hiding. And what I'm seeing is that there's a lot of client interest as it relates to diverse managers and women. And people are becoming more and more educated as to why diversity makes so much sense, and how it is our fiduciary duty as consultants to make sure we're continuously building that pipeline, across the five asset classes in which we invest on behalf of our clients. And so I think there's so many institutions focused on racial equity. Certainly nonprofit clients, it make sense for them. Students are getting involved, some are even wondering at the universities, are you investing in diverse asset managers as it relates to the investment portfolio of the university?

Angela Matheny: (40:52)
So I think young people have a huge voice. And I think that for managers with nontraditional backgrounds, particularly in venture, there's many ways to actually get into venture now. People were probably looking at traditional backgrounds, historically, you would have to go to a venture capital firm, make its partnership or have some sort of pool of capital to manage. What I love that I'm seeing, with some of the top venture firms is that they have, what do they call? They have these sources that go out. What's the terminology, Sarah? You and I always talk about this.

Sarah Kunst: (41:29)
Yes. They're scouts. I was a scout at some-

Angela Matheny: (41:29)
Scout.

Sarah Kunst: (41:29)
Yes, yes.

Angela Matheny: (41:33)
Yes. So I love that opportunity because if you have a budget to be a scout, and you can just go out and source a number of things, ideas. Things that are important to you, that you would invest with your own capital. And I've seen scouts do that, and then spin out and create their own fund, and then those top funds that gave you that budget, they can sort of cherry pick in terms of what is interesting to them. But what I love is that, they're accessing a pipeline of talent that they normally wouldn't see in their network. And so they're hiring diverse women and individuals to tap into that talent base. I think it's a start.

Sarah Kunst: (42:10)
I love it. And I agree. Well, this has been amazing. And I so appreciate, as I know everybody in this call does. You giving us your time and wisdom. And thank you so much for doing the work you're doing. And I don't care what you say, I am personally attributing every single one of those $4 billion to you. And I'm excited to see more come down the pipeline. So with that, thank you so much. I'm going to hand it back to John.

Angela Matheny: (42:36)
Thank you.

Sarah Kunst: (42:38)
Angela, thanks so much for joining us. And Sarah, thank you again for introducing us to great people. That's why we brought you on here as a moderator for SALT Talks and a member of our community. So we're very grateful for that. And again, Angela, we look forward to collaborating from a SkyBridge level, on ways that we can allocate our capital to more diverse managers because we think it can help drive improve returns. That's ultimately the goal.

Winston Ma: The Global Digital Economy | SALT Talks #90

“It is estimated that [sovereign funds] have $30 trillion under management, so they have enormous power in the capital markets… that's why it is important for the capital markets to get to understand this group.”

Winston Ma is an investor, attorney, author, and adjunct professor in the global digital economy. He is one of a small number of native Chinese who have worked as investment professionals and practicing capital markets attorneys in both the United States and China. Most recently, he was Managing Director and Head of North America Office for China Investment Corporation (CIC), China’s sovereign wealth fund, for 10 years. Prior to that, Ma served as the deputy head of equity capital markets at Barclays Capital, a vice president at J.P. Morgan investment banking, and a corporate lawyer at Davis Polk & Wardwell LLP.

Hedge funds and asset managers typically get most of the spotlight from the media when it comes to large investment groups. In reality, sovereign funds play massive roles in the capital markets, yet are under-discussed and not fully understood relative to their importance.

“They are the LP investors in many of the hedge funds; they are the deal-making people which engage the investment banks and they're typically the mother of the funds.”

Sovereign funds have historically been more passive in their investing, but have become much more active. Even more recently, funds have shifted away from traditional asset classes like real estate to venture. This shift to venture is a higher risk, higher reward investment profile and has offered a large pool of available venture capital in places like Silicon Valley.

LISTEN AND SUBSCRIBE

SPEAKER

Winston Ma, CFA, Esq..jpeg

Winston Ma

Former Managing Director

China Investment Corporation (CIC)

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

Rachel Pether: (00:08)
Hi everyone and welcome back to Salt Talks. My name is Rachel pether and I'm a senior advisor to SkyBridge Capital based in Abu Dhabi, as well as being the MC result. Thought Leadership Forum and networking platform that encompasses business technology and politics. Now as many of you know, Salt Talk is a series of digital interviews with some of the world's foremost investors, creators and thinkers. And what we're really trying to do here is, provide our audience a window into the mind of subject matter experts. The subject for today's talk is going to be on sovereign wealth funds and venture capital investing. And who better to discuss these topics with Ben Winston Ma, who is the former Managing Director at the China Investment Corporation, one of China's sovereign wealth funds.

Rachel Pether: (00:56)
He spent 10 years as the MJ and Head of North America for the CIC, and was a founding member of the CIA's private equity department, and also the Special Investment Department, direct investor. He is the author of China's Mobile Economy, the Digital Silk Road, China's AI Big Bang, and investing in China. He also has two new books coming out this year, actually, one later this week, which we'll go into more detail on later. In 2013, Winston was selected as a Young Global Leader at the World Economic Forum. He has multiple degrees, and he has served as an adjunct professor at a number of world class universities. As always, if you have any questions for Winston, just enter them in the Q&A section of your screen. And with that, Winston, welcome to sell talks.

Winston Ma: (01:46)
Yeah, thanks for having me, Rachel.

Rachel Pether: (01:50)
It's such a pleasure to have you with us today once so now you are you're an investor, you're an attorney, You're an author, and you're obviously also a professor in the global digital economy. So maybe we just start by you telling me a bit more about your personal background.

Winston Ma: (02:07)
In 1997, I received a scholarship from NYU Law School. So I came to New York, which started my Wall Street career. First, as a lawyer at the Davis Polk, and then after B-School, I joined JP Morgan, for Equity Capital Markets, convertibles and derivatives. 2007, Barclays Capital, started US equity business and they hired me to start their business. And they also in the same year, CSE was set up to manage a portion of China's sovereign wealth the trillion dollar foreign reserve. So starting from the beginning of 2008, I moved back to China to become an investment professional to manage a portion of the country's wealth.

Winston Ma: (03:00)
Between the 10 years at CIC, I also spent four years in Toronto, Canada for CSE North America office actually for the first time, CIC had overseen the office, and they picked Toronto for the North America presence. That was sort of my 20 years in the capital markets. 10 years on Wall Street, working on global capital and China opportunities. And then, last 10 years I was with CIC that was more like China capital and global investments. Right? And I moved back last year to back to the capital markets, it seems life has its own way of circling around, and the rhymes in different time is not that interesting [crosstalk 00:03:50]

Rachel Pether: (03:52)
Definitely, and so with over this 10 years of experience, I do want to sort of maybe take a step back and start with the why. So, you have a great deal of experience with the sovereign wealth fund world and your time at the CIC. Why is this group of investors increasingly important for the capital market players?

Winston Ma: (04:14)
Yeah, to put this into context, right, here's a quick question, who holds the power in the financial markets? To many people the answer probably would be, the large investment banks, the big asset managers and the hedge funds because they are often in the Media Spotlight, right? But this new group of sovereign funds, I would say because this concept includes the sovereign wealth funds, includes the public pension funds, as well as the investment arms of many central banks. And this group of investors have huge amount of capital, it is estimated that they have $30 billion, sorry trillion dollars actually, $30 trillion on the management.

Winston Ma: (05:00)
So they have enormous power in the financial market. And to put this again into the contest, right, they are actually the enablers of the players in the media every day. They are the LP investors in many of the hedge funds. And they are the deal making people which engage the investment banks and certainly, they're typically the mother of the funds, or many asset managers, just starting from their large size of capital, they are super, super important to this capital markets. But they are still very little known. And that's why it is important for the capital markets to get to understand this group.

Rachel Pether: (05:47)
Interesting, and last time I saw you was actually in Austin, and we were at a sovereign wealth fund conference and I pretty much just sit here in my apartment, and you've actually gone and written two books, and one of them is about this digital economy at the hunt for unicorns, how the funds are reshaping investments in the digital economy. Can you tell me more what we can expect from less than how that 30 trillion of investment capital plays into the digital economy?

Winston Ma: (06:19)
Sure, the big background of this is, these sovereign funds used to be very passive and behind the scene, and in recent years they've become, many become much more active and direct in the capital markets. And they started with the traditional asset classes, like infrastructures or real estate or the general p industries. And in more recent years, they made this leap forward into the venture investing, which used to be viewed as drastically different from institutional investing, right, because venture investing is very specialized. And it's tends to be very early stage and small ticket size. And they are, they take times and they are a high risk, high return, which is very different from the typical risk profile, right. That the institutional investors look for.

Winston Ma: (07:28)
So it's in this kind of context, we come to see the sovereign funds become the new power for venture capitalists, and they naturally bring change to the traditional play of venture investing and Silicon Valley. So the way to think about their difference is in the following ways. Firstly, obviously the large size, they have trillions of dollars under management just individually right for some largest players. So their average equity check is very large, very different from the typical VC investment. And secondly, they are much more long term, fewer IPO of tech companies compared to many years ago. Right. And there's a third aspect is, they are called sovereign investors, so they inevitably they have this government connections. So in the middle of this geopolitical tensions around tech competition, inevitably, they're caught up in the global tensions, which is also different from the typical VC fund.

Rachel Pether: (08:37)
Yeah, so she let's pick up on each of those points that you just mentioned, the first one being about the large ticket size, and

Winston Ma: (08:45)
exactly

Rachel Pether: (08:45)
how big daddy, and if you look at the SoftBank Vision Fund, right.

Winston Ma: (08:49)
Exactly

Rachel Pether: (08:49)
100 billion dollars, 60 billion from two Middle Eastern investors. So, can you elaborate a bit more on actually how the sovereign wealth funds access this venture capital, and maybe also specifically on how the vision fund has impacted this landscape?

Winston Ma: (09:08)
Yeah, the vision fund is a great example of this big ticket size of the sovereign funds. Because the overall theme of vision fund can be summarized by two words, right, think big. I think that's sort of the motto from Masayoshi Son, think big. So, from the unicorn side, I think that means the startup masters, think big in terms of develop their business and become the leading company in their respective sector, right. I think that's what Masayoshi Son was preaching. And then from correspondingly from the investment perspective, that means they are ready to write a very big check, right?

Winston Ma: (09:55)
So in a sense, they are not only the unicorn hunters, but they also they can be viewed as unicorn feeders. Yeah, obviously if you didn't find a fitting that built, but a lot of other sovereign funds are also in that category, right? The best example of that probably is head of financial, the upcoming IPO of the fintech arm of Alibaba. Now they of course, they're looking for a 200 billion plus valuation for IPO, that's a large number. But even before this IPO two years ago, when they had the private round of financing, they got to 100 because they got to 150 billion valuation. To a large extent thanks to many sovereign funds investing during that that round which includes the Singapore sovereign funds of Temasek and the GIC.

Winston Ma: (10:49)
And even some less known sovereign funds, like the Malaysia is khazanah. And also, guys from the patient world, such as CPPIB Canadian patients. And of course before that 150 billing round CIC and China's Social Security fund another sovereign investment vehicles of China, were already investors in enter financial years ago, right. So, these big ticket investments from the same investors definitely created these unprecedented valuation of unicorns. That's the Think of Big Site, right. And the consequences, now we have too many of the unicorns. It's 2013, when the word unicorn was created, there were 38 unicorns across the world. And by 2020, by the data end of 2019, globally there are more than 400 unicorns, that means during the seven, eight years, seven years actually, we had a tenfold increase of the number of unicorns, and I would say just think big from sovereign funds. A tree is a major reason for that.

Rachel Pether: (12:15)
And don't you think that's for myself actuating as these unicorns are often the market leaders and extremely well capitalized. That's almost a self fulfilling prophecy. And that sort of thing. Like you get a startup, $500 million to build a business, they're going to crush the competition. They have similar teams and other resources.

Winston Ma: (12:41)
I think the word similar is the key, Rachel, because in some way unicorns are hunted, they are manufactured. Once people see the formula of well, two unicorns a lot of smart people began to industrialize that manufacturing chain of unicorns, right. It's not only in Silicon Valley, but also in China. And it's not only China in the US, but also other innovation hubs in the world, such as India, right. The typical ingredients of a unicorn is online service, based on online service on internet platforms, promoted by social media, right, and partnership with existing giants, who have large user traffic.

Winston Ma: (13:36)
And of course, on top of that as you mentioned, right is taking the venture money and subsidize users to generate more traffic and attention. Right. So, this is the time of this time to come to reflect a tree. There's this global downturn, this pandemic, right. And this global tensions all the headwinds are ravaging the hurt. When you take a closer look at the hurt some are pretty troublesome, some already took on too much fat they can now race, some are beautiful show, not for the race and some are even worse, they already got sick from their own issues, like we work that kind of situation, right? So, you need like, you have to kind of see a doctor. So this is a very interesting time to revisit this hurt[crosstalk 00:14:41]. They have to be kind of active investor even more quickly, to take on the unicorns more directly and in a more involved way.

Rachel Pether: (14:55)
Yeah, I think that's a great point on the case studies and I'd love to dive a bit in front We work later on, and then how might be excess capital played into that equation. But one of the points you mentioned was this long term investment piece. We actually had Russ and I know that you're friends with as well from the hedge fund. And he was on yesterday talking about how countries can and should use their wealth to invest more domestically and potentially, especially given the current pandemic impacting local economies. How do you see that playing out? And what are your views on investing in the hometown?

Winston Ma: (15:39)
Yes, that's a great, great point very relevant in the post COVID global economic recovery. The background of this is even before pandemic, a lot of the sovereign funds already have multiple objectives, on one hand they seek financial returns, at the same time they are also trying to use their investments to help their domestic economic development. And in the Middle East the guys you mentioned are probably the best examples, certainly, when they put a 60 billion in vision fund, they're not only looking for financial investments, right. But also they want to transform their economies from fossil fuel based into more innovation based economy, right.

Winston Ma: (16:29)
And we're seeing more and more like this for example, in Africa, right, you see more sovereign funds are being they are being created, to better manage their resources money, and use them to finance their economic transformation, especially the digital transformation. Right. So I think the way we put this into historic context where it can be like this, during the last, after the last financial crisis, 2008 lots of countries have used the sovereign funds or mobilized sovereign funds to invest new infrastructure as a catalyst for economic recovery. Right. And let's say 12 years later, 2020, for the post COVID recovery, it's quite natural that the countries would do similar things, but I think they will focus more on the digital ecosystem, to your economy ecosystem, and the digital infrastructure.

Winston Ma: (17:33)
Obviously the world is still lack of more toll roads and highways and utility grid, right. But at the same time to be competitive in the upcoming digital economy the emerging markets, I would argue, have even more important need for more digital infrastructures, data centers, fiber connectivities, and even just the basic internet connectivity, so that, globally about the three billion people who do not have the internet connectivity can be part of the digital ecosystem. That can bring some growth catalyst to the world economy. So I can imagine, just like during the last crisis the government funds have used a sovereign capital to invest in infrastructure to promote growth. Now, we may see more sovereign funds, putting money into digital economy, as the new growth engine post to call it.

Rachel Pether: (18:46)
Yeah, no, that's a great point. As you mentioned, we are seeing that in the Middle East, particularly, as well, you've placed a lot of emphasis on this word sovereign. And obviously, they are represented 100% owned by sovereign nations. How do you see the tension? Because we spoke about China, US tech investment is also kind of at the forefront of the geopolitical battle rail, as well. So could you maybe explain how that technology battle sort of plays into that geopolitical tension?

Winston Ma: (19:22)
Yes, the technology is the front line of every index, right. And it's no exception for the sovereign funds. But to some extent it's kind of just coincidence of time. But it played out in the broader context. What I mean by this is the sovereign funds are obviously becoming active investors and direct investors in technology. So from the historical context, it's a natural extension, right? They started as passive investor, and they become the random Investors in the asset classes they're familiar with, like infrastructure in a real estate and a graduate they extend into every sectors they are interested. So they become this new venture capitalist.

Winston Ma: (20:15)
So this is the historical context. But let's say the current attention is we were just talking about the historical development. But the current attention is that technology is viewed as a strategic assets of a country. Right. like the data, like advanced technology these are viewed as strategic assets, and even national security by all nations. Right. So it's just interesting to see this collision at a time that all the sovereign funds are becoming actively invested in the tech sector, and they recognize that tech investments can be a useful tool for their own economic development. On the other hand, right, there's a host countries, the countries that are receiving the capital investment, become more alert or become more conscious of the value of technology, and they are increasing their regulations and scrutiny, right, of such foreign investments. And I think that's sort of the context of this collision we're seeing today

Rachel Pether: (21:33)
I guess you mean, TikTok in the current debates in the US a great example of that data and the information.

Winston Ma: (21:49)
Exactly, TikTok probably the best example of this. It's really not surprising to you, it's a main case for my upcoming book, right, into the title of The Hunt for Unicorn, hasami investments, change the future of digital economy. So what I meant by that is, TikTok represents a very important case study for all the stakeholders in this. One, entry. First of all, it's a very positive story, because a TikTok represents a growth story during pandemic, right? Because of the pandemic TIKTOK during the first half of 2020, was the second most downloaded app in the world. And of course you know what's the number one, right, this is Zoom? So after Zoom, TikTok was most downloaded. So it shows you that even with the pandemic, there are still growth areas, right.

Winston Ma: (22:54)
So there are still new opportunities coming up, which means this hunt for unicorn story will continue. That's number one, very pod. The second aspect of this uniqueness of the TikTok cases is that it may give us useful reference in terms of cross border data management, because except for the US company, Apple, TikTok and its parent company ByteDance is the only company in the world that has large number of users in both US and China. They have Chinese users and US users in respective territory each shoe is more than 100 Millions, which is unique trick. So, this is the first case of governments to work out a scheme that can handle a company that has data in different countries. Like Google does not have a presence in China. So Google doesn't have this issue. Facebook is not in China, Facebook doesn't have that issue. Alibaba is very big in China, but Alibaba is not very big in the US. Right.

Winston Ma: (24:16)
But TikTok and ByteDance is unique in the sense that it has users in both countries, and no matter what kind of the term sheet come out, it will be a very useful reference to understand how governments kind of going to work out. And then the third aspect of the TikTOK cases is there's real money on the line. Right? Because if there's no solution and right now the US is saying, you mus sell, you must sell TikTok to US companies, because it's national security of the US, right. And a Chinese saying we were going to manage the sale of the algorithm, because this is the national security of China. Right? So if I tell you, as a former GEO lawyer banker investor, it's not very easy to please do governments at the same time, right. So if you don't have a good term sheet, if you don't have a solution, then TikTok must be shut down. And it's Then the 50 billion valuation people put to TikTok work will go just like that. So there's real money on the line in the context of the TikTok case.

Rachel Pether: (25:33)
Do you actually say that as a risk that it could just be shut down? If they can't come to a conclusion?

Winston Ma: (25:40)
Maybe, because if you don't have a solution like, who eventually hold the algorithm. And who will manage and control the user data? Right. And just to highlight the complexity remind you that the algorithm has been trained by data from both sides. So in a sense that the China algorithm was trained by the US user data. So it's not very easy to come up with a rationale to give this thing up, women need the King Solomon, to give us some wisdom about this.

Rachel Pether: (26:30)
I guess as you say, it's a very interesting case study. Because normally, when you look at China and the US digital economy, it's quite bifurcated, right? So you have, Amazon, you have Alibaba. And I guess this is a true case that I also want to briefly touch on because you've been looking at this area for a while you published China's Mobile Economy a few years ago on that and looked at sort of the world changing digital transformation in China. Back then, why was an inflection points on the internet in China, and maybe also talk about how today's geopolitical tensions is applying to that?

Winston Ma: (27:12)
Yeah, sure the book of China's Mobile Economy was written in 2016, published in 2016. And that was sort of the fastest growth time of China's mobile internet. That was certainly a huge inflection point for China's internet, because overnight, people go mobile. Right. So, that's the beginning of this mobile only age. What I mean, mobile only me. I mean, for many Chinese people, their first time to be connected to the internet, is the time they have a smartphone. They never had a PC, they never had a landline phone. But with the smartphone, all of a sudden, they have a phone, and it also they have the internet.

Winston Ma: (27:59)
And that's a very big thing because in just a few years, China become this largest mobile internet population in the world with more than 900 million people that's almost like the combined population of the US and Europe right. So that's a huge, huge growth during just this few years. Now the development of the internet industry of that time can be referred to as copied to China. CTC Copy to China, which means the first generation of Chinese tech companies had their start as copycat versions of Western size. In a cell phone, Alibaba was viewed as the Chinese version of eBay, at the very beginning, Alibaba and then it added alipay so you say that's eBay plus PayPal, or Weibo it was viewed as Chinese version of Twitter, and Tencent may be viewed as Chinese version of Facebook plus messenger, right.

Winston Ma: (29:19)
That's the general perception during that time, right. Now what's interesting is after this period of growth, China's innovation ecosystem has entered into the second face, this face in many areas actually, China has become a trendsetter instead of a trend-follower in the mobile economy for example, TikTok is very good example. Right? It started this phenomenon of short video, and then Facebook is adding similar features to its empire. Right. So, this face you can refer to China copy PCC, right. And of course there's a short video just for the teenagers, but the doubt version of this is in the last couple years, like China was mostly doing the ketchup relating to smartphones and The 4G network and in and the mobile internet economy. But with last few years of development, China has become a equally interesting Innovation Center just like the Silicon Valley of the US.

Winston Ma: (30:38)
Right? So what do you see is, the big data from the 900 million users have become the base for AI and big data analytics. The large internet platforms in China become the infrastructure for next generation startups. And of course during that process, a huge millions of college students become entrepreneurs, college graduates. So I think in new summary, essentially, what we're seeing is, in theory, the 4G, the age of 4G, and the smartphone, China had proved its catch up. And now, as we enter into the age of 5G, China is becoming a equally important innovation centers, and in many areas, China is competing with the US head to head and to your question about geopolitical tension context. And I think that's the link to the geopolitical tensions. Because years ago, it was a follower. Now, it is a competator.

Rachel Pether: (31:48)
Yeah, that's a great point less likely to be threatened by someone else by just following what you're doing. And actually, we have a number of audience questions that have come in, and they're all quite heavy, meaty questions, so I am going to go through them. We have time. So again, thank you, as always, for your question. Again, he's asked what do you think so we had is really on giving his perspective that China and the western market are developing bifurcated internet standards? And are there different approaches to say the development of AI? And maybe you could also talk about what you mentioned about how China's market size plays into that, and just that maybe give them an advantage? In this area with 900? Or over a billion users?

Winston Ma: (32:37)
Yes, specific AI right I think what's, what's really makes China different is the government come up with a comprehensive policy and agenda to set for its development phase, development paths the trigger point was 2017, when Google's AI machine beat a Chinese player in the go chess game, which proved that AI is way let's say smarter than human players. Right. And that sort of triggered China's rush into AI. And of course every country is talking about AI. But what's really unique about Chinese it comes from the central government, as well as the private sectors, it's the central government level, since we're talking about sovereign funds today what's remarkable is, it came up with a top level kind of vision that by 2030 in just like 12 years from that game, China will become the world's leading AI superpower.

Winston Ma: (33:55)
Right. And then from there the different ministries come up with different kind of industry guidelines. So, for example, the NDRC come up with rules relating to AI champions setting standards for different AI industries, for example, autonomous vehicles, or the education ministry, where come up with guidelines set up, I think the plan was to have more than 100 majors on AI, at different universities, so on so forth, right. So what's really sets China apart is this common efforts and the common vision and the government resources to be put into this effort and of course the size of the market, 900 million users united by the same language, same culture and the same mobile payment means a lot of activities, internet platform every day, which left a tremendous amount of data and they organized the data on these internet platform that can be used to train AI algorithms, right. So to some extent the flexible policy for flexible regulation on data is also a helpful fact during the early years of AI

Rachel Pether: (35:32)
Yeah, and we actually have another audience question, which was kind of builds on these internet giants and China. Edsger Alonzo, it would be great to get your thoughts on the future of Tencent and Alibaba, given that they've seemed to extend their reach into asset management, media, logistics, and then also taking stakes and other companies that are quite forward looking themselves as venture capitalists investors. So how do you see this company[inaudible 00:36:01]

Winston Ma: (36:03)
So I think, to answer this question, I will start by saying if there's anything that's in agreement, by US and China governments, it's in the regulation of the Big Tech. There's not too many things that China and the US government agree in these days, but it seems like they have pretty much consensus on regulating the Big Tech. Right, so forth. So let's use anti financial for the first example. Right, for anti financial? It's the financial arm of Alibaba and of course we all know, right. As we're all in the financial market, we all know, the financial sector is always heavily regulated. And in the early years as I mentioned earlier, right, China takes more flexible approach to regulation. So in the early years, Alibaba enjoys super growth because there's very relaxed environment. But as we speak, in 2020, we start seeing more and more regulation. And more and more regulation of this sector.

Winston Ma: (37:16)
And also more and more risk alert as from the regulators. So for example, this China's central bank starts to warn about this system, systemic risk of financial lending platform, right, because you when they use internet data then they can do remote lending without the need of collateral. So this may be a maybe a risk to the financial system, according to the central bank. Right. And, of course, the central bank, plus the minister commerce in they are looking at an antitrust issue and financial and related internet system. And most recently very funny theory in IPO. Right the China's securities regulators they talk on end because, and to use the mutual funds on their own platform to sell their IPO shares, which triggered China intense review.

Winston Ma: (38:20)
So you can see these regulations are coming up. And of course in the US, you also see antitrust pressure on these internet giants going up in and also you have this to prick attention related, Big Tech regulation, right? Because enter financial entry, according to media reports, last couple days, is being watched by US as the potential target for crackdown in the US. So, I think probably the most pragmatic or practical way to view to think about the prospect of guys like Alibaba and Ant Financial and Tencent is to have a realistic prediction of their future growth. They will still have growth, because they are the momentum is just tremendous. But the regulators are taking our action so we should have more, let's say, realistic projection for their future growth.

Rachel Pether: (39:36)
Yeah, that's a great point. And we've actually had a couple of questions coming in. And we haven't even touched on this yet. And it is quite a big topic, but on the China's One Belt, One Road initiative. How do you think like, what's the long term perspective by the sovereign wealth funds, sort of efforts to benefit society such as China's and business for the One Belt, One Road, I guess, in addition to the physical infrastructure and the digital infrastructure? And we've also had a question saying how important was sovereign wealth funds be driving securitization of the now almost 800 billion and One Belt One Road loans

Winston Ma: (40:23)
Sorry, yeah securitization of 100 million projects

Rachel Pether: (40:29)
Of the loans associated with One Belt One Road.

Winston Ma: (40:35)
Interesting, yeah. Honestly, I haven't really put too much thought about this securitization thing. In general when you have a sovereign credit, you don't have to worry too much of that. But I think the potential solution of this credit issue along One Belt One Road project, a tree may come from the sovereign wealth funds of those local countries, what I mean by that is the local sovereign wealth funds can be a great partner for China capital, with respect to One Belt One Road projects in those countries. They because when they are part of the game, they bring the local credit into the mix, and they may even sort of use this credit support to engage more institutional investors in the mix, more capital markets institutional investors into the mix that may provide a better solution to the credit issue.

Winston Ma: (41:52)
And I think that going forward, we may see more Digital Belt Road, and actually the term for that as Digital Silk Road, this digital prom of one belt one road, and which means down the road we may see more nimble investments. Of course, you will still have similar infrastructure projects let's say internet connectivity infrastructures, right? Or the smartphone network or the satellite towers and so forth. But there will be more investments, let's say in the ecosystem, let's say mobile payment, right, let's say ecommerce platform so I suppose Which means they are not necessarily as capital intensive, as the traditional Belt and Road, that people relate to me because most of the time people relate Belt and Road into Toros highways and steak like a state and utility grid, a type of infrastructures, right. But in the going forward in the digital economy, that the digital economy ecosystem, in this kind of like, soft connectivity is just as important. And we may see like, a more kind of private equity type of investment as compared to the traditional infrastructure investments, Yeah.

Rachel Pether: (43:22)
Yeah, absolutely. Digital and physical infrastructure. We are over time, but I did want to just make sure I answered those audience questions, although we do still have some outstanding time. Sorry about that. But I know we've spoken about geopolitical tension and your upcoming book is actually called potential war, but I do always like to end on an optimistic note. So maybe talk a bit more about that. While we can hope for even though the title of your book is, The DigitaL War.

Winston Ma: (43:57)
Yeah, my other book is titled The Digital War, how China's tech power, shapes the future of AI blockchain and the cyberspace. I certainly think that the interconnectivity of the countries not only in the digital cyberspace, but also in a kind of real economy will still keep us working together and find the synergies. And again if we look at the IPO of Ant financial as an example certainly they have existing investors from all over the world and for the IPO. Guess who the underwriters they're the Wall Street investment banks, right. And for lots of the distribution, I can bet you that a lot will go to US institutional investors, even though they will be listed in Hong Kong and Shanghai right now, Nasdaq, partly because of the tension. But you can still see different levels of connectivities between the two countries. So I'm still positive

Rachel Pether: (44:59)
Well some people always came to collaborate when there's a commercial upside.

Winston Ma: (45:05)
Exactly, Money Matters.

Rachel Pether: (45:08)
Yeah, quite right. Well, we are we're actually not out of time. We're slightly over time, but I just wanted to thank you so much. It's been a pleasure. As always, I really appreciate you giving up your time to speak to us today.

Winston Ma: (45:21)
Yes, thank you very much, Rachel. Thanks for having me on the show talk.

Fareed Zakaria: Author "Ten Lessons for a Post-Pandemic World" | SALT Talks #89

“You’ve got to give them a sense of respect when we talk about essential workers, about farmers, about people in construction, about people who are working in mines.”

Fareed Zakaria hosts Fareed Zakaria GPS for CNN Worldwide and is a columnist for The Washington Post, a contributing editor for The Atlantic, and a bestselling author. Fareed Zakaria GPS is a weekly international and domestic affairs program that airs on CNN/U.S. and around the world on CNN International. Since its debut in 2008, it has become a prominent television forum for global newsmakers and thought leaders.

Globalization over the last 100+ years has been responsible for the many of the most important advances in western civilization. Though, in the last 25 years, globalization fueled by an information/technological revolution has created greater inequality with a priority placed on more skilled work. “What's happening is the higher and higher value stuff is being made digitally and operates in a digital world, and the lower and lower value stuff is the physical world… It's more technological than it is globalization and the pandemic has massively exacerbated it.”

We’ve seen the consequences play out in politics and culture where an anti-establishment backlash has emerged. A global economic system designed to move fast was built with few safeguards to protect the working class from the economic seizures we’ve seen nearly once a decade. The key is developing an economic system that balances growth with social and economic security for our more vulnerable populations across the country and globe.

LISTEN AND SUBSCRIBE

SPEAKER

Fareed Zakaria.jpeg

Fareed Zakaria

Host, Fareed Zakaria GPS

CNN Worldwide

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darsie: (00:07)
Hello everyone and 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 digital interview series that we launched during this work from home period with leading investors, creators and thinkers.

John Darsie: (00:28)
And what we're trying to do during these SALT Talks is to replicate the experience that we provide in our global conferences, the Salt Conference, which we host annually in the United States and we also host an annual international conference most recently in Abu Dhabi in December of 2019, and we're looking forward to getting those conferences resumed here in the near future as soon as it's safe for all of our participants.

John Darsie: (00:49)
At SALT Talks, what we're trying to do is really provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And our guest today wrote recently a great book about these big ideas and these big trends that are shaping our future, some good and some not so good. And our guest today is Fareed Zakaria, and we're very excited to welcome him to SALT Talks.

John Darsie: (01:12)
Fareed is the host of Fareed Zakaria GPS, which is a weekly international and domestic affairs program for CNN Worldwide. He's also a columnist for the Washington Post, a contributing editor for the Atlantic and a best-selling author. Interviews on Fareed Zakaria GPS have included US President Barack Obama, French President, Emmanuel Macron, Chinese Premier, Wen Jiabao, Russian President, Vladimir Putin, Israeli Prime Minister, Bibi Netanyahu and Turkish President, Recep Tayyip Erdogan.

John Darsie: (01:44)
Zakaria is the author of three highly regarded and New York times bestselling books, In Defense of a Liberal Education, The Post-American Worlds and The Future of Freedom. And then at his most recent book is Ten Lessons for the Post-Pandemic World, which is what we're going to focus on today. Prior to his tenure at CNN Worldwide, Zakaria was the editor of Newsweek International, the Managing Editor of Foreign Affairs, a columnist for Time, an analyst for ABC News and the host of Foreign Exchange with Fareed Zakaria, which was on PBS.

John Darsie: (02:18)
In 2017, Zakaria was awarded the Arthur Ross Media Award by the American Academy of Diplomacy. He was named a top 10 global thinker of the last 10 years by Foreign Policy Magazine in 2019, and EsQuire once called him the most influential foreign policy advisor of his generation. Zakaria serves on the boards of the council on foreign relations of which Anthony is also a member and of New America. He earned a bachelor's degree from Yale University, a doctorate in political science from Harvard University and has received numerous honorary degrees.

John Darsie: (02:52)
Just a reminder, if you have any questions for Fareed during today's talk, you can enter them in the Q and A box at the bottom of your video screen on Zoom. And hosting today's talk is Anthony Scaramucci, the founder and managing partner of SkyBridge Capital, a global alternative investment firm. Anthony is also the chairman of SALTs and he was also President Trump's Communications Director, I believe it was for 11 days. And we're now inside of one Scaramucci until the general election, so that's a big milestone.

Anthony Scaramucci: (03:19)
You're going to get fired, okay? I'm just telling you, keep it up, you're going to get fired, okay?

John Darsie: (03:23)
But Anthony, I'll turn it over to you for the interview while we still [inaudible 00:03:26].

Anthony Scaramucci: (03:26)
Everybody knows Darsie, so be careful, Darsie, be careful. Now Fareed, I'm telling you, we've read that exactly the way your mom wrote that, okay? How impressive is that resume and that background? God bless you. And it's a real honor to be able to call you a friend. And I thought that your book was tremendous. And so, as I'm wanting to do, I'm going to hold up the book, amazing book. Obviously, will go on to be a best seller, but I encourage people to read this.

Anthony Scaramucci: (03:52)
And Fareed said this while we were in the green room, he's written these books so that they can be read in one or two sittings. It'll take five or six hours to read. Probably seven or so hours to listen to in Fareed's voice. And I want to get into it with you Fareed. But before we do that, I asked this question of everybody and I've got to ask it of you. There's something about you that we couldn't learn from Wikipedia or from your television show, and I was wondering if you could share something with us about your life that caused your life to go on the arc that it's gone on in this amazing trajectory that you've had.

Fareed Zakaria: (04:29)
First of all, thank you so much. It's a huge pleasure and I so appreciate the fulsome introduction and the holding of the book. You might've heard this once or twice before, Anthony, but you are a good salesman. You are a very good salesman. To answer your question, look, I think the part that people don't talk about enough, people like you and me who have happened to have had some success in our lives, luck plays a huge part in one's life. And I think we should always remember that. And we should remember that when thinking about people less fortunate than us. There are a lot of smart people out there and there I think that, I meant some important areas, I got lucky.

Fareed Zakaria: (05:13)
But probably when I look back, I'll say the thing that I notice that I think when I look back helped me a lot, was this. My parents, my father was a politician. My mother was a journalist. And in some ways my dad was particularly a traditional dad. I don't think he ever went to my school, for example, in that 12 years that I was in school. But they took us seriously as kids and they shared with us at the dinner table, all the conversations that they would have any way.

Fareed Zakaria: (05:47)
Their friends would come and sit with us at the dinner table. And we would talk about my dad's career, my mom's work, what was going on in India, what was going on in the world. And I got very comfortable with adults, adult conversation and navigating adult life. And I noticed that when I got to college, I got a scholarship to Yale and I got there. And in some ways I was under-prepared. I went to a good school in India, but nothing like the Andovers and Exeters of the world.

Fareed Zakaria: (06:18)
But I think I was better prepared in that one respect. I had a very good feel for how to handle adults and the adult world. And nothing about it faced me, nothing about it intimidated me, because I'd been talking to these people and navigating that life for a long, long time. So I probably feel like that was a crucial advantage.

Anthony Scaramucci: (06:43)
Well, we agree. We agree on providence or the universe offering us luck. There's no question about that. And I think that's apropos to what I'm going to ask you about, because we're an interesting situation. I know you're a student of history. You write a little bit about this in the book and I want you to address your philosophical thinkings about this threading history. The gap is widening Fareed. We can look at the empirical data between the haves and the have nots, or the eventuality of a plutocratic world and then a world that's below the plutocrats which may be suffering.

Anthony Scaramucci: (07:19)
And those people, unfortunately, I'll speak for myself, growing up in a blue collar neighborhood with blue collar parents, we were aspirational, but those very same people are now desperational. And so my question to you is, is this an effect of globalism? Is this is a by-product of globalism? If it's not a by-product of globalism, what do we do to help these people? Because whenever you think of Mr. Trump or the rise of nationalism or populism that exists and systemically it's putting pressure to be reflected into our political leadership. And so I'm just wondering your thoughts on this and how do you think this unfolds over the next decade?

Fareed Zakaria: (07:59)
Wow, that's a great question. It is in some ways the big question, which is particularly in the Western world, how do we sustain this western marvel that transformed the work over the last 200 years, given the very pressures you're talking about? So the way I would describe first of all, to describe the problem correctly, I think that this is fundamentally a combination of globalization and the information revolution. It's not just globalization, because globalization has been going on for a while as you know.

Fareed Zakaria: (08:29)
I mean, we basically begun the big burst of globalization in the 1880s, then the 1920s, then the 1950s. But what has happened in the last 20, 25 years is that you've had globalization, and obviously that means some work goes to lower cost countries. But generally speaking that worked out because that was work people didn't want to do in rich countries. People don't want to make t-shirts for a dollar a piece in the United States anymore. They don't want to make sneakers for $25 a piece. That work migrates and then what happens is what's left in the US and in Germany is the higher value work.

Fareed Zakaria: (09:08)
Some of that has been thrown off by the fact that a lot of the world globalized simultaneously, particularly China and India. And so the effect was faster and more accelerated. But the biggest issue has been the information revolution. Work is now digital, and this is the sense in which the pandemic, as you described correctly, has massively exacerbated this problem. Look, you and I are doing fine because we can work digital. It's a bit of an inconvenience we're doing it this way, we would normally have done it in a conference hall, but that's an inconvenience.

Fareed Zakaria: (09:47)
But think about everybody who works in restaurants, retail, shopping malls, theme parks, hotels, that world has just been devastated. And so what's happening is the higher and higher value stuff is being made digitally and operates in a digital world, and the lower and lower value stuff is the physical world. And of course, that correlates with, do you have a college degree? Do you have technical training? So that's the problem. It's more technological than it is globalization and the pandemic has massively exacerbated it.

Fareed Zakaria: (10:22)
The solution I think has to be two fold. We've got to spend a lot more money on these people to put it very simply. I think we are not even beginning to understand the amount of money we need to spend on things like retraining on the earned income tax credit, so that ... What the earned income tax credit does, it says, if you work full-time in the United States, you will not live in poverty. Whatever the market does, the government will top up your wages so that you do not have to be living in poverty. By the way, it's a great social program. Milton Friedman was in favor of it, so it's a free market program because it encourages work and these people spend that money. So it's actually good for the economy.

Fareed Zakaria: (11:05)
The retraining part is harder, but I'll tell you this, because I've got senior government officials, people who you have to know very well in the Trump Administration came and talked to me about retraining because I've written a lot about it. And they said, "What is your sense of how we learn from the true Germans?" I said, "You want to want the best way to learn from them is, they spend 20 times as much per capita on apprenticeship programs as the United States does." So yeah, there's some clever aspects to the programs, but the number one thing is, they commit real resources to it.

Fareed Zakaria: (11:38)
So I think a lot of the answer is that Anthony, but finally, I would say this and you know this better than I do and this is what Trump gets, you got to give this people dignity. You got to give them a sense of respect. When we talk about essential workers, when we talk about ... that's the right kind of language for us to use, not just about essential workers, but about farmers, about people in construction, about people who are working in mines. I mean, I think that even talking about this transition, it's not the right way to think about it. It's you first begin by honoring these people.

Fareed Zakaria: (12:12)
And then you say, what we are trying to do is to make sure that your children can have the same kind of dignity and work and study. And we are therefore going to find great jobs in the future for those people, but you, we honor, we respect and we want to help make sure that your family has the same kind of life that you've been able to have. Something like that. But I think we shouldn't minimize the dignity part because a lot of what the right is better at doing than the left is the dignity, even though they don't spend any money on these people.

Anthony Scaramucci: (12:43)
Well, I would say that it's the right coincidence with President Trump. I think it was prior to President Trump, probably not as much. In fact-

Fareed Zakaria: (12:51)
Correct.

Anthony Scaramucci: (12:52)
... what I once wrote is that there was a vacuum of advocacy for these people on both sides in the establishment for three decades, which gave Mr. Trump the opportunity to exploit that in 2016. You bring up in your book, which I found fascinating, you more or less say that the way the world is now organized, it seems like we're having a seizure or an economic crisis, or now it being a healthcare crisis once every 10 or so years. And if you think about it, the 1998 crisis, which led to the Fed intervention, long-term capital management crisis, the 2008 crisis, the COVID-19 crisis, we could go back. And I'm just wondering why you think that is? Why do you feel like the way we've set up the mechanisms and architecture of globalization is causing these once or so, once a decade or so seizures?

Fareed Zakaria: (13:45)
Yeah, it's a great question because I puzzled about it myself. And I think that fundamentally, if you look at the system we've created and obviously nobody sat down and created it, but that we have allowed to build up. The system is very fast, very open and very unstable. It's very fast. It moves at lightning speed, accelerated by information technology. It's very open. Every country can participate and that is multiplied by the information revolution.

Fareed Zakaria: (14:14)
But we've never wanted to put in safeguards, guardrails, seat belts. We've never wanted to buy insurance because you don't want to slow it down. But the danger of a system like that is that it can careen out of control. So I mean, at some level you can think of 911 as the kind of reckless expansion of Western liberalism and democracy everywhere in the world without much attention to the parts of the world that we're really showing a backlash against it. And with a minority of people in the Middle East, but we saw pretty violent backlash to that idea.

Fareed Zakaria: (14:49)
If you think about the global financial crisis, right? I mean, ever since we have massively deregulated the financial space, is basically since the 1990s or late '80s, you've seen a lot of these crises. I mean, the SNL crisis, the Latin American debt crisis, the Tequila crisis, the Asian crisis, the Russian default, the global financial crisis. And if you look between 1938, roughly when FDR regulates to 1985, not a lot of crises, but a much slower system. So I'm not saying we know what the balance is, but clearly it is out of control right now, because we are seeing, it's not just the pandemic. We're seeing forest fires in California that, I mean, we've burned five million acres of land. That's the entire state of Massachusetts up in flames because between global warming and the way we have actually incentivized people to live at the edges of forests, it's an invitation from one of these accidents to careen out of control.

Fareed Zakaria: (15:52)
Factory farming, the way we do, it's an invitation for another pandemic. So I want us to think more about resilience and security, maybe sacrifice a little bit of dynamism because the thing you don't know, Anthony, is one of these could be the last, or at least could be so severe that it becomes ... just imagine if we had been able to sacrifice some dynamism and not had the global financial crisis. The world probably spent $20 trillion recovering from that. Imagine if we could have bought a little insurance and been a little careful about human development, so we don't have these constant contacts between animals like bats and human beings. We're going to spend, I don't know, 30, $40 trillion on this pandemic by the time we're done with it. It would so much be worth a few billion dollars, a few tens of billions of dollars in prevention rather than the cure.

Anthony Scaramucci: (16:53)
Very well said, and hopefully we'll get there. Your lesson 10. I mean, I loved all of the lessons frankly, but the lesson 10, I found fascinating because you really do understand the Post-World War II architecture. You mentioned a little known fact by most Americans that FDR really started the process in '43 into '44 with the notion of the Post-World War II architecture starting, even though the outcome of that war was uncertain. He knew that and he was a Wilsonian in many ways because he was the undersecretary of the Navy for Rob Woodrow Wilson.

Anthony Scaramucci: (17:31)
And when I was reading that and reflecting upon it, I was actually listening to it on audio tape. And then I went back and looked at it in the book, when I was reflecting upon it, it's 75 years out. It's been by and large successful. We've had peace and prosperity as a result of the Post-World War II alliances and the architecture. But I'm wondering now, because a lifetime has gone by, 75 to 80 years, is it time for a reset? And if it is time for a reset, Fareed, what would that reset in your mind look like? What would it need to look like to continue peace and prosperity and the lifting of the rest of the world into middle-class living standards?

Fareed Zakaria: (18:10)
God, you're asking all the big questions. I mean, I think that's in a way the central international question and you're right. There's no question. I mean, FDR was a total visionary. And you really have to imagine in that situation isolationist America, 43, as you say, one and a half years after Port Harbor and he's already thinking that we are going to create a new world order. We're going to create a new system. We're going to create an architecture that gives the great powers and incentive to be in there.

Fareed Zakaria: (18:38)
He was at Versailles visiting as under assistant secretary of the Navy. And he said, "Wilson's ideals," roughly speaking what he said was, "Wilson's ideals were the right ones, but the guy doesn't understand, it's not going to work if you just say these are the laws and these are the rules. You got to give the major countries an incentive to be there." That's why we ended up with the security council. That's why we ended up with the great powers Veto which invests the strongest countries in the world, in the system.

Fareed Zakaria: (19:09)
So that is in some ways at the core of my answer to your question, we will not be able to sustain this system if the most powerful countries in the world today, not in 1945 are not invested in. If you think about the architecture now, I mean, the five countries that dominate are the five countries that won the war in World War II. Was actually four countries, we pretend that France won the war when it really didn't.

Anthony Scaramucci: (19:38)
Oh, not to interpret but I will. It's sort of like the Dow or the S&P, Fareed. We recirculate, again to show you that the Dow 30 in 1945 are not the same as the Dow 30 today or even 10 years ago for that matter. I think it's a very interesting point.

Fareed Zakaria: (19:54)
No, exactly. Now another analogy though, which is a little less hopeful is the American constitution. I happen to be, as an immigrant, a huge fan of the American constitution. I think it got more things right than any constitution has ever gotten right. But it is an 18th Century document. Parts of it are badly worded. I mean, the second amendment, frankly, is just a grammatical mess. Nobody even knows what it means when you talk about a well-regulated militia. So there are parts of it that clearly need updating, but it's very hard to do.

Fareed Zakaria: (20:28)
So the real challenge here is going to be to do a kind of software update, a soft update. You're not going to be able to say, we're going to bring the system down and we're going to start from ground zero. But we have to find a way to incentivize the most powerful countries in the world that could otherwise be the spoilers to in some way be part of it. It doesn't mean that they're all going to be beautiful, liberal democracies and the world is going to be at peace. No.

Fareed Zakaria: (20:54)
China is going to be a competitor. We're going to have to play hardball with it. We're going to have to find ways to out-compete it. We're going to have to find ways to push back against it on many issues, but we both have a very strong overriding interest that there'd be an open system, a rule-based system in which mostly things are resolved by dialogue and not by force in which everyone can trade with everyone. So if we can come up with a set of rules and try to incentivize people, and what does that mean? It means we blew it in the Obama Administration on something called the Asian Development Bank.

Fareed Zakaria: (21:31)
The Chinese came to us and said, we want more influence in the Asian Development Bank, which is basically a public financing mechanism in Asia, and we'll put in a lot more capital. Obama Administration said, no. The Brits actually advised us to exceed to the Chinese demand. And we're like, no, we like the fact that we dominate the Asian Development Bank. So the Chinese say, okay, we're going to go off and take our marbles, and we'll start our own thing called the Asian Infrastructure Development Bank, which I think got five times as much paid up capital as the ADB. So they went out and freelanced, created their own alternate system. It's working better than the ... and the Asian Development Bank is dying. We've got to think that example through a hundredfold.

Anthony Scaramucci: (22:14)
A hundred percent. They did the same thing with the Export Import Bank for China versus our EXIM Bank in the United States.

Fareed Zakaria: (22:20)
Exactly.

Anthony Scaramucci: (22:20)
Fareed, you wrote an amazing book. I have to turn it over to John Darsie because we have huge audience participation and we've got tons of questions coming in. And so I'm not that promotional, right? Fareed, so look, I'm like using the book as a windshield wiper, see that, but it's an amazing book. I encourage everybody to read it and wish you great success with the book. And I'm looking forward to your future writing on this topic, because I think you're right on point in where the world needs to go. So congratulations Fareed, I'm going to turn it over to John and all that blonde hair, Fareed. Look at all that American blonde hair.

John Darsie: (22:58)
All right, I'll-

Fareed Zakaria: (22:59)
Thank you Anthony.

John Darsie: (23:01)
It's my pleasure to take the baton. So Fareed, I want to elaborate more on what you talked about in terms of humans encroaching on animal habitat. So it was a great book that we've talked about before on previous SALT Talks called Spillover written in 2012, that more or less predicted elements of this pandemic. And you write as one of your lessons in the book about how the pandemic and likely future pandemics is sort of nature's revenge for overpopulation, human environmental encroachments. And you also worry about the implications of a meat-based diet. Could you elaborate on all the different implications of more people around the world moving into consuming meat and the implications that has for our planet?

Fareed Zakaria: (23:42)
Sure. So first thing to remember is the more meat we're eating, the more unhealthy we get. Small amounts of meat are perfectly fine, but larger and larger amounts of meat correlate with all kinds of terrible dietary issues. One of the reasons, by the way, that we don't talk about why America has been hit so badly by COVID is we're all obese. The United States has a massive obesity problem. And as a result, and that is essentially a disease multiplier. But the problem with a meat-based diet is fundamentally, it is terrible for the environment in terms of global warming. The amount of farmland you need to produce the amount of calories we consume from meat is massive. I can't remember the exact numbers, but it's something like 40 or 50% of the farmland for 15% of the calories.

Fareed Zakaria: (24:32)
So secondly, there's a huge amount of methane that is released into the air. And thirdly factory farms, which is by the way, how 99% of meat is produced. So if you think you're having organic meat in Europe solving the problem, you're not. You're 1%, 99% of meat is produced through factory farms. Your hoarding animals together in incredibly unsanitary conditions, and you've chosen animals that are genetically selected to be similar, because that's the whole point of factories, you're producing exactly the same product.

Fareed Zakaria: (25:06)
And that means that these animals have no defenses against viruses. So the virus just keeps hopping from animal to animal, getting more and more powerful. You've injected the animals with antibiotics. So the viruses are now becoming antibiotic resistant and this is a Petri dish for a pandemic. And my great fear is that COVID-19 is the dress rehearsal for what is going to be a more Virial inversion of a respiratory virus born out of this factory farming.

Fareed Zakaria: (25:41)
So you've got global warming issues. You've got environmental issues and you've got pandemic issues. And most importantly, your personal health will be substantially alleviated by reductions of animal protein. Now, to be clear, I'm not a vegan, I'm just careful. I think it's very important to ... my sort of approach in life is our Aristotelian, everything in moderation. But I'm very careful about how much meat I eat, because it's bad for me. It's bad for the country. It's bad for the planet.

John Darsie: (26:16)
So we've seen certain countries and your point about this current pandemic being a wake up call from a potentially more deli future pandemic is well taken. And we've seen certain countries and certain cities be much more resilient and effective in fighting the spread and the morbidity of COVID-19. What cities and countries have stood out, and what can we learn from their success in preventing the spread and in treating the virus?

Fareed Zakaria: (26:41)
Sure. It's a really good question because we really have a wide variation. It's exactly what a social scientist would want, and almost that kind of natural experiment. So probably the gold medal goes to Taiwan. Taiwan is about 24 million people. It's right next to China. It gets huge amounts of traffic from China, tourists, business travel, millions and millions of people. And despite all that, Taiwan has had, I believe, seven COVID deaths. So to give you a sense, New York state, which has 19 million people, 5 million fewer than Taiwan has had 35,000 COVID deaths, roughly 34,000, I think.

Fareed Zakaria: (27:22)
But Taiwan's death rate is 1:2000 that of the United States. So you ask what they've done right? First thing they did was they acted early. They decided having gone through SARS and MERS, they realized, you know what? Better to take no chances and they got smart early on. Secondly, they were aggressive. They put in place some travel bans. They put in place some immediately, if you came off the plane, you were coming from China, they took your temperature. They made you do certain kinds of checks. They kept your information. And then they started banning a certain amount of the travel.

Fareed Zakaria: (27:58)
Most importantly, they immediately ramped up mass testing and tracing and isolation. We don't talk about that because it's the inconvenient part. You have to quarantine the people who are potentially infected. The whole thesis behind the Taiwan strategy is, a lockdown is a bad idea because it shuts down the economy. A lockdown is a sign you've already failed. So what you're trying to do is say, this doesn't just spread randomly through the public, it spreads in clusters. So the minute you find one person who has it, you are trying to capture that cluster of potential infectees. Isolate them, separate them from the population, and they did this in Taiwan.

Fareed Zakaria: (28:43)
In total, they separated 250,000 people for 14 days at a time obviously, not all at the same time. But that's 1% of the population of Taiwan. So they were able to keep 99% of the country, the population fully operational by just selectively and strategically, and immediately pulling out those people who might be infected. So it's only aggressive and intelligent. We were late, passive and stupid.

John Darsie: (29:14)
So Mark Meadows, the White House Chief of Staff told your colleague Jake Tapper this weekend that we basically just need to give up on trying to contain the virus. It's not going to happen in America. People value their freedom of movement and the right to wear a mask or not wear a mask too much. We need to focus on therapeutics and getting a vaccine. Is our inability to fight the virus a lack of political will to put these systems in place to fight it, or is there a lack of testing capability that's more of a product of lack of scientific development and manufacturing development? Can we do this if we decide that we have the political will to contain it, the spread, not just the death rate?

Fareed Zakaria: (29:57)
We absolutely could do it. We could still do it. First of all, to explain why we don't have a mass testing and tracing system in place, it is purely a political decision. The testing piece is trivial. Do you know why we don't have real good testing in America? Because the federal government has not made a distinction between tests that are returned within 24 hours, within 48 hours, within three days. But tests that with the results you get three days later is essentially worthless. You're trying to figure out when people are infectious and separate them. So you're infectious for about three or four days, maximum, during the course of this disease. If you get the tests back three days later, you've already passed the point where you're infectious. So at that point, there's really no point in isolating somebody.

Fareed Zakaria: (30:48)
So the whole point of isolating is once you find out that somebody is positive, you put them in a place where they can't infect anyone else. So if the federal government will not make a distinction in reimbursing, why would a private company, you guy, most of your viewers are business people. Why would a private company be stupid enough to incur heavier costs, to turn around the test in 24 hours as an act of public virtue? They're not going to do that.

Fareed Zakaria: (31:15)
The feds have a very simple solution, which is you reimburse double for a test that you get back in 24 hours, normal rates for 48 hours, and maybe 10% for anything that comes back afterwards. You would see the testing regime change in a minute. I mean, these companies could do it easily, but while they have 95% margins, why are they going to do it now?

Fareed Zakaria: (31:38)
The tracing piece, yeah, there's a little bit of a challenge there. But other Western countries have been able to do it. Germany has a very good tracing system in place. Some of the Northern European countries have a very good system in place. No, we are just being defeatist. And the Trump Administration has decided that their election strategy is to say, look, this was not something one could handle, so any change to the system would imply that they made a mistake and Trump hates to admit he's made a mistake. The real truth is what we should be doing is saying we failed, happens in life, whatever, that's history. We can learn from the failure and we can still set it right.

John Darsie: (32:18)
So I want to shift gears a little bit to a couple other themes that you've written about a lot in the past and you talk about in this book as well, which is the growing digitization of the world and our migration that's been accelerated by COVID to life on the internet, remote work, the rise of robots and robotics, artificial intelligence. Long-term, what do you think the implications of the pandemic are to the speed of the development of those technologies? And what do you think those technologies look like in our society in say 10 to 15 years from now?

Fareed Zakaria: (32:52)
Yeah, it's a great question, and it's a big question. The way I think about it is what the pandemic did was it massively accelerated an ongoing trend, which is, we were clearly transitioning to a greater and greater digital life, but it's massively accelerated it. Look at telehealth. It was very hard to get people to go to their doctors. People like to go and physically meet with the doctor. The doctor like to meet with you because the doctor got paid more when they met with you.

Fareed Zakaria: (33:21)
Suddenly COVID has eliminated all those human obstacles, and you're going to have one billion tele visits or health visits by the end of 2020. Most people had predicted that would take about 10 years to happen. So you're massively accelerating it. Now in doing that, my fear, there are a lot of hopeful things about that because it massively increases productivity. It massively increases the scale at which you can operate.

Fareed Zakaria: (33:48)
Think about education. One of the things that will come out of this is we're doing it badly right now, but online education will be totally transformed because by having this huge, massive stress test to the system, we're going to figure out what pieces work, what pieces don't work so well. I've got a son in college who already, they're all piecing it together. They're realizing, if it's a lecture, Zoom works fine. In fact, you don't even need to Zoom, you can listen to the lecture as a podcast while you're doing something else. You're biking or you're running or you're walking.

Fareed Zakaria: (34:24)
But for a discussion section, Zoom is not that great because you don't ... so you're finding some areas where the technology is actually great. You're finding in some areas where it needs a lot of work, you need to supplement it. I find that with dealing with my teams for the show. Building social capital on Zoom is very hard, spending it is easy. If you already have good relations with people, you already have a good working environment, you can execute. But what about the new person? What about the new process? What about the new ... what about the little stuff that you haven't thought about?

Fareed Zakaria: (34:57)
So all that is the challenge, the dark side, and I end with this is it's happening really fast. So if you think about globalization, one of the reasons we're in the situation we are with the anti-globalization mood is that China and perhaps to a lesser extent India, were just such large shocks to the system. Before that, when we had expanded globalization, what did it mean? Japan came online, 50 million people, South Korea came online, 30 million people. Singapore, Taiwan, 10, 15 million people in total. And then you get China, one billion people. Then you get India at the time, 800 million people. And so the scale was just so much larger than anything we had dealt with before that it did cause an impact both economically and politically. I worry that the speed with which we are now going to make this digital transition is going to just be devastating.

Fareed Zakaria: (35:57)
So let's say it transforms the restaurant industry, which I think it will. And you will have a much greater degree of online web based delivery systems at a smaller number of high-end restaurants, where you go for the real experience of a kind of really cool bars where you're going for the atmosphere. So there will be some kind of sort. Normally, maybe it would have taken 20 years for this to happen. If it happens in the next two years, what happens to all those people who were waiters and busboys and the bellhop at hotels? So change is good, but when change accelerates that fast and almost unnaturally, are we ready for it? And that's one of the reasons that I come back to the importance of government as a stabilizing force to try to help us get through what is in a crazily accelerated transition to digital.

John Darsie: (36:53)
So what are those solutions? That's a great segue to a couple of audience questions. There was one that was focused on India. India is obviously undergoing massive economic development and digital development. You're seeing the growth of the technology industry is very fast right now in a place like India. It's the same type of phenomenon we've seen across the world in China and the United States. What type of government policies do we need?

John Darsie: (37:16)
Obviously, you talked about technology providing a more level playing field in terms of access to telemedicine and health care, better access to at least the bare minimum quality of education in the form of lectures and things like that. What type of government policy specifically would you like to see in the United States or elsewhere to make sure that people on the bottom rungs of the ladder at least have the means to live not an impoverished life?

Fareed Zakaria: (37:42)
It's a great question. Look, it's quite different I would say honestly. A place like India, you're still facing the fundamental challenge that about 600 million people in India still live on less than $2 a day. And one of the reasons is that the Indian economy remains very closed, very regulated, very socialistic. And so in India, the answer is open up, open up, open up, you need growth. You cannot get those people out of poverty without growth.

Fareed Zakaria: (38:13)
China is the perfect example of that. You have to focus first and foremost on growth. And you have to focus on employment friendly industries. The places that employ large numbers of people. And for India, that means you've got to do everything. You've got to do factories. You got to do retail. You got to do large-scale agro. You've got to find ways to open up the labor markets, bring in foreign investment. It's all the traditional mechanisms that have allowed countries to grow by embracing markets, by embracing development, by embracing trade.

Fareed Zakaria: (38:47)
For India, you've got to a long way to go before you start having the problems of too much growth, too much development. So in India, I would say, really think of just opening up, and all the technology is good because it leapfrogs all kinds of ruin-ness and dysfunctional technology. So there's a 4G system in India that's been put in place, amazing for increasing productivity for farmers, for laborers, for anybody.

Fareed Zakaria: (39:16)
The US and the Western world faces a different problem, which is the traditional working class of these countries. The non-educated working class, by which I mean people without college degrees or even much technical training, and it's important to make that distinction. Workers with technical training, for example, electricians, plumbers, are doing fine, and they can adapt very well to the new economy. They can adapt to working on wind turbines or solar panels or whatever it is.

Fareed Zakaria: (39:46)
But it is a more traditional working class, the less skilled, what would have been called semi-skilled jobs that is much harder hit. For these people I think you just, as I was saying to Anthony, you got to spend more money. I mean, we've been very ... Obama gave a great speech once or some remarks where he talked about the signing of, I think it was the South Korean free trade deal. And he said, "We all know that the trade is good and more trade is good. It opens up, it grows the buy, but we always say, we understand that it dislocates some people and we should spend money on them, and then we never spend any money on them and then that resentment grows."

Fareed Zakaria: (40:25)
It was prophetic in a way, because that has been our principle problem. We know that there is going to be a period of dislocation, and there are going to be parts of the country that are dislocated. And in other words, this is not spread evenly throughout the country that you get all the benefits evenly and all the costs to people. The benefits are spread roughly evenly. The costs are highly concentrated in particular towns, in Pennsylvania, in Wisconsin, in Michigan, in Ohio. And you have to have a strategy that addresses that. And frankly, that helps these people.

Fareed Zakaria: (41:00)
Some of it is just cash. Some of it is retraining. Some of it is figuring out new apprenticeship programs. Well, we need something on the scale of the GI bill. The great thing about the GI bill was it was a very American and ingenious solution, which was, the federal government will pay, but it will not administer anything. The private sector, as it were, colleges, both state, religiously oriented, private would provide the service. So the deal was, if you'd been a GI and you presented your proof of it, you could go to any college for any degree of any kind and the federal government would pay.

Fareed Zakaria: (41:40)
I think that the federal government does very well writing checks. They know how to do that very well, but administrating stuff they're less good at. So try and find a similar, where maybe the private sector identifies the needs. Here's what we have. We need welders, we need whatever. The federal government provides the resources and the community colleges maybe, or state colleges do the training, some kind of triangle like that. And what stops you just to be clear is, it's not that we couldn't come up with the genius programs, What stops us is the resources. You'd have to spend a lot of money. I'm talking about tens of billions of dollars on this.

John Darsie: (42:19)
So you talk about, we're going to leave with one last question. You talk a lot about these trends, and in a lot of ways, the book is very depressing or concerning because you see so many things happening that are moving us in the wrong direction as a world. But let's imagine five, 10 years in the future. Let's say we have a change in administration in the United States. Vice president Biden wins the election as the poll seemed to indicate that he will.

John Darsie: (42:44)
Do you think this rise in nationalism and this attack on globalism is a permanent phenomenon that's going to continue, or if not permanent, at least a cyclical phenomenon that's going to continue for 10 to 20 years, and it's really going to erode our ability to fight things like climate change and global poverty? Or do you think that we can do a course correction right now at this moment in time and move back into a direction that is more stable in terms of global peace, global prosperity?

Fareed Zakaria: (43:13)
Look, I hope we can. I'll tell you why.

John Darsie: (43:15)
No problem.

Fareed Zakaria: (43:16)
You talk to any venture capitalists in Silicon Valley and you ask them, what do you want? What's the first kind of person you want? The first kind of person you want is like Elon Musk who succeeded at two or three different things. But let's say you can't get Elon Musk. You want somebody who failed, but who learned from that failure. I think that the key here is do we have the capacity to learn? We're going through some very tough stuff, but you only change when you fail. As a company, as an individual, as a country, it's easy to do nothing when times are good. But it's when times are hard, when you face dislocation already, when you're looking at failure, you now have the chance and the opportunity to change.

Fareed Zakaria: (44:03)
So I think we should view this and not sugarcoat it and say, look, we failed in our response to this pandemic. And by the way, a lot of countries failed, what can we learn? How do we do it better? We have the opportunity to embrace a different future because stuff is already so dislocated. People are open to the idea that we need to figure this out better. I look at the European Union, they started off their response to the pandemic was very much like ours, close, narrow, selfish, turn inward. The Italian started blaming the Germans. The Germans started blaming the Italians. And then there was a kind of come to Jesus moment where they thought to themselves, wait a minute, what are we doing here?

Fareed Zakaria: (44:43)
We're screwing up the entire European experiment. And instead what they did was they reversed course. And the Germans for the first time along with the French, essentially agreed to those, what was always called Euro bonds, basically to guarantee the debt of the poorer countries so that they could all get out of this. And doing that, they're also creating stronger bonds among the Europeans than they had before. So I predict that the European Union will come out of this crisis actually stronger than it was going into the crisis.

Fareed Zakaria: (45:16)
So in a way, why can't the world do the same? Because the truth is we've all been drawn inward, but we are all coming to realize you can only solve this together. It's a global pandemic by definition. We're not safe unless everybody is safe. We're not going to be safe either with climate change if we don't do it together. We're not going to be safe with space wars if we don't do it together. There're so many of these challenges that really require not global government, which that's a kind of bugaboo that people do to scare, but global governance. Agreements made by sovereign governments to cooperate.

Fareed Zakaria: (45:52)
And by the way, that's how human beings have survived. I mean, we've survived because of a strange mix of competition and cooperation, but the evolutionary biologists will tell you, the dominant trait was that we know how to cooperate. We know how to therefore operate at scale, and we know how to get to win wins. And what we need to do now for the world is get to a win-win.

John Darsie: (46:14)
All right. Well, that's a perfect place to leave it, an optimistic message. Thank you Fareed so much for joining us. It's an absolute pleasure. We would encourage everyone to go out and read your book. It's sitting right behind Fareed right now. Thanks again, everybody for joining us and thanks again Fareed for taking the time to sit down with us on SALT Talks.

Fareed Zakaria: (46:31)
A real pleasure. Take care, guys.

Marty Chavez: How Tech is Transforming the Financial Industry | SALT Talks #88

“The software has so much knowledge of markets, and data, and models, and risk, and positions, and trades that anything you could want to know about the markets and about our risk, you can just ask the software.”

R. Martin (“Marty”) Chavez is widely renowned as a trailblazer and leader who revolutionized the way that capital moves and works on Wall Street. Most recently, Marty served in a variety of senior roles at Goldman Sachs, including Chief Information Officer, Chief Financial Officer, and global co-head of the firm’s Securities Division. Chavez began his long and illustrious career breaking from tradition as an openly gay Latino working on Wall Street, an industry that had not yet earned a reputation as widely accepting.

In the 1980s, Goldman Sachs made one of its most important decisions in its company’s history when Lloyd Blankfein helped develop a computer-generated risk management system by integrating computer scientists and IT professionals with the trading desk. Chavez was the 12th member of this new age team, named SecDB, developing software that revolutionized Goldman’s ability to process data and inform risk management. “You can ask the software to run trillions of ‘what if's, hypothetical's, what if dollar-yen moves here, what if the fed does this to interest rates?’ And then you can start to ask, ‘Well, how much money would we make or lose?’"

Chavez is now applying the AI technology and ideas he helped develop in finance to the life sciences, his original passion. This includes a company that has created a digital microscope designed to outline cells and their tissue specimen to identify potentially cancerous properties.

LISTEN AND SUBSCRIBE

SPEAKER

Marty Chavez.jpeg

Marty Chavez

Chief Information Officer

Goldman Sachs (2014-2017)

MODERATOR

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Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darsie: (00:07)
Hello everyone. And welcome back to SALT Talks. My name is John Darsie, I'm the managing director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. SALT Talks are a digital interview series that we launched during the pandemic with leading investors, creators, and thinkers. And what we're trying to do during these SALT Talks is replicate the type of experience that we provide at our global conference series, the SALT Conference, which we unfortunately had to postpone in the wake of the pandemic, but are looking forward to resuming in 2021. And what we're really trying to do at the conferences and on the SALT Talks is to provide a window into the mind of subject matter experts, as well as to provide a platform for what we think are big ideas that are shaping the future.

John Darsie: (00:51)
And we're very excited today to welcome Marty Chavez to SALT Talks. Marty is widely renowned as a trailblazer and a leader who turned the Wall Street trading business into a software business, revolutionizing the way that capital moves and the way that capital works. Most recently Marty served in a variety of senior roles at Goldman Sachs, including Chief Information Officer, Chief Financial Officer, and the global co-head of the firm's securities division. Marty was also a partner and a member of the Goldman Sachs management committee. Marty has achieved singular acclaim in the financial services industry for his work on SecDB, an early platform that transformed the trading business into a software business. He's also known for bringing the front and back offices together.

John Darsie: (01:35)
Far from the stereotype of a banker, Marty is a disruptor at heart, and he was among the most senior Latinos on Wall Street during his time at Goldman, as well as the most senior openly gay executive at Goldman Sachs. In 2016 a New York Times profile describe Marty and his departure in sensibility from the button-down partners of Goldman LOR. Prior to joining Goldman Sachs, Marty was the CEO and the co-founder of Kiodex, which was acquired by SunGard in 2004. And he was also the Chief Technology Officer and co-founder of Quorum Software Systems. He holds an A.B magna cum laude in biochemical sciences and an S.M in computer science from Harvard and a PhD in medical information sciences from Stanford, specializing in architectures and algorithms for probabilistic expert systems.

John Darsie: (02:26)
So Anthony, our moderator today, Anthony Scaramucci, the founder and managing partner of SkyBridge Capital, he overlaps a little bit in terms of Harvard and Goldman Sachs with Marty. But I would say they took slightly different paths. I don't know if Anthony has his degree in biochemical sciences or that long architecture is algorithms and probabilistic expert systems, but he's a pretty smart guy and we're looking forward to a conversation between Anthony and Marty. And reminder, Anthony is also the chairman of SALT, Anthony with that, I'm going to turn it over to you for the interview.

Anthony Scaramucci: (02:57)
Marty, after he blasted me with H.R. McMaster, reminded everybody that I got fired after 11 days and McMaster threw me a farewell party just right at the Adam's apple with the karate chap, he's bringing up the fact that you are way smarter than me, right? And the reason he's doing this is because I threatened to fire him last time. And of course it was a hollow and very shallow threat, Marty. And so now here we are again, we're stuck with him [crosstalk 00:03:24] the next 45 minutes. So I'm sorry about that, Marty, but you know what, what can we do? We got to get millennial traffic on SALT Talk and so John is our millennial magnet.

Marty Chavez: (03:35)
Okay. Seems to be working.

Anthony Scaramucci: (03:37)
It's great to have you on. And in all seriousness, you are a true pioneer and you've done many things for our industry. But also, the way you've lived your life and your openness is to me, it's a very gratifying thing. And so I'm usually appreciative of you joining us, but I want to talk about your personal and professional background because, why did you go into investment banking, how did you lead there? And when you were a kid, did you think you were going to go in that direction? And if you didn't think you were going to go in that direction, what direction did you think you were going to go in?

Marty Chavez: (04:12)
Well, actually, paradoxically, the only reason I ended up on Wall Street is because it was not part of my plan. And what I mean by that is as college class of 85, and I remember in my graduating class, it seemed like almost everybody was going to Wall Street, if they weren't going into consulting. And well, something happened in October of 1987, and there are so few people from the class of 85 on Wall Street as a result. And so I took a different path. I'm a computer scientist, and I'm really just a computer geek and always interested in applying computer math software modeling analytics to real-world problems and I've been interested in a lot of different real-world problems. And my first job was actually assigned at the times, it was when I was in prep school and it was a summer job at the Air Force Weapons Laboratory. And I was writing Fortran programs to simulate explosions of neutron bombs. That was sort of a thing you could do in New Mexico at that time.

Marty Chavez: (05:23)
Turns out the math is pretty much the same math used all over the place, including on Wall Street for modelings, [inaudible 00:05:30] partial differential equations. So who knew that would eventually be useful, but I went off in a different direction. I studied biochem in college simply because one of my professors said, "The future of life sciences is computational," which seems obvious today. It was not obvious in 1981. So I was at Stanford Medical School, and I was doing this MD-PhD program and doing some work on machine learning, early work, early groups of people saying, "Hey, can we get machines to figure out how to do diagnosis of sick people just like doctors do?"

Marty Chavez: (06:10)
The problem though, the scope and the complexity of problems in medicine are so much greater than what the computers were able to do at that time. So my PhD research was, well, can we get approximate answers really fast with the low compute power we've got, but it honestly, wasn't really working. And that time, the early nineties is now we look back and we say, "That was a nuclear winter of AI and machine learning." We stopped using the term AI because what we were able to do was so far away from the aspirations of artificial intelligence, it was almost an embarrassment. So in the middle of that, a Wall Street firm that I had never heard of, told the head hunter, "Go to Silicon Valley and give us a list of entrepreneurs in Silicon Valley with PhDs from Stanford in computer science and ship them in for an interview."

Marty Chavez: (07:11)
And so I thought it was a joke. I thought it was taking this bank really scamming them for a free trip to New York, hanging out with my college roommates, see shows, have a good time go to an interview. And so I went to the interview and one thing led to another, and a week later I moved to New York and that's how I got on Wall Street, entirely serendipitous. I had the background they were looking for but I had no idea what my background was going to lead to, it just happened.

Anthony Scaramucci: (07:43)
That was a fascinating story, and you started in J. Aron and if I remember correctly from your bio, and so you know Lloyd and Gary who are personal friends of mine.

Marty Chavez: (07:54)
Since I was a kid.

Anthony Scaramucci: (07:54)
Like Tim O'Neill, who moved on [crosstalk 00:07:56] Goldman geography, but I want to take you back to those days. I joined Goldman in 1989, and I can't remember the Chief Technology Officer, I think his first name was Rick, but I can't remember his last name.

Marty Chavez: (08:08)
Taking me back. I wouldn't be even remembered back then.

Anthony Scaramucci: (08:11)
Okay. But there was something that happened in the mid eighties at Goldman, where they made a mainframe decision that they felt was the incorrect one.

Marty Chavez: (08:21)
Yes.

Anthony Scaramucci: (08:21)
Do you remember this part of the story?

Marty Chavez: (08:23)
Yeah, I do remember.

Anthony Scaramucci: (08:24)
And so I think they chose digital when they probably should have chosen IBM and gone with the more robust and so there was a big technology commotion. And the reason I'm bringing this up is that I still feel it's 30 years later or 35 years later from that decision and C-suite people still have a problem in technology in terms of understanding where to go, why to go where to go. And so what would you say to those people that are listening in to us right now about what you've learned in your career and how to guide people that are not as technologically proficient as you are, but have to make these really big macro decisions for their companies?

Marty Chavez: (09:06)
Well, I think that everyone can learn a lot from [inaudible 00:09:11]. So what happened in response to the episode you described is that Lloyd and the other J. Aron partners effectively began seceding from the IT decisions of the firm. And you'll know, Anthony, that J. Aron had just become a part of Goldman Sachs a few years earlier. So it always had this independent streak and Lloyd would go to the IT division of Goldman Sachs and he'd say, "I want a risk management system." And they go and do a bunch of work for a year and then they'd be very excited. And they'd presents what they had done to Lloyd and you know Lloyd so I'll paraphrase. He said, "This is not at all what I had in mind." Though he might've said it more vigorously and they kept going back and forth.

Marty Chavez: (10:04)
And so Lloyd had what today I think is one of the most brilliant brainwaves that any leader has ever had and he is not a computer scientist or mathematician. He said, "The problem is we have this far away IT division, and they do their thing and they know a lot about computers. But over here on the trading floor, I got a different reality and different problems. I know a lot about trading and I don't know about computers. We're talking past each other, we're speaking different languages, we are not communicating. So when I say, I want a risk management system, I know what I have in mind, but they're not hearing me and they're looking for functional specification, but I don't know how to write functional specifications. And so this is going to go on forever, it's nobody's fault.

Marty Chavez: (10:53)
So Lloyd's thought was, once he had the awareness, he said, "Well, what am I going to do about it? I'm going to go across the river to where you find computer geeks." And in those days, you went to Bell Labs, close to New York, cross the river. And he said, "I'm going to get my very own computer geek and I'm going to put that person in the chair next to me. And I'm going to treat him really well, like a professional on the trading desk, even though he is not at all like the salespeople and the traders. And I'm going to order the salespeople and the traders to work with him and listen to him, and I'm going to run everything by him. And we're going to do that and see how it works."

Marty Chavez: (11:32)
Well, that's the guy, Armen Avanessians, he's still at Goldman, he hired me. He's the one who said, "Hey, what we need here is a piece of software that becomes the trading business. The software has so much knowledge of markets, and data, and models, and risk, and positions, and trades that anything you could want to know about the markets and about our risk, you can just ask the software. You can ask the software what it is right now, but with software, you can do something that you can't do anywhere else. You can ask the software to run trillions of what if's, hypothetical's, what if dollar-yen moves here, what if the fed does this to interest rates?" And then you can start to ask, "Well, how much money would we make or lose?"

Marty Chavez: (12:17)
So this was Armen's brainwaves in response to Lloyd's. And then Armen says, "Well, I got to go shopping for computer scientists and Stanford, Silicon Valley seems like a good place to get them." And then that is the SecDB project. So I just had the incredible fortune of being an early person in this group, which Armen called strategists are strat for short. I was maybe the 12th person and now it's several thousand. And having people like that and bringing them into your business and not treating them as tech support, "Can you help me turn my computer on and off?" But, "We've got some problems in this business on the scientific process. As partners, let's collaborate on solving them." When you invite computer scientists, data scientists, machine learning people, into your business, and you treat them as first-class citizens, you get an amazing result. And that would be my counsel to any leader, you do not need to be a computer scientist to run that playbook.

Anthony Scaramucci: (13:23)
Well, I think it's great advice and it's basically to be less intimidated and be more communicative, I think is the real thing. I mean, sometimes people do to their insecurities and the fact that they're intimidated, they overshoot, or they try to pretend that they know more than they do as well. So I think you're giving really good advice to C-suite people. Let's talk about AI for a second, because I'd like to get your thoughts on AI philosophically. The brain right now, the human brain is probably learning more quickly than a computer at this point. Is that fair to say, or not necessarily true at this point?

Marty Chavez: (14:01)
Anthony, there are some things that human brains do really, really fast, and the computers are making progress, but they're still not where human brains are. So let's say you're a human being evolving on the savanna, and you're looking for predators on the horizon.

Anthony Scaramucci: (14:24)
Pay attention Darsie. This is you by the way, that you're evolving on the savanna. So pay attention, Darsie, okay? I think we're going to get a few shots in, Chavez. I mean, after the way he started this thing. Okay. So we're back on the savanna, we're all evolving together. Go ahead.

Marty Chavez: (14:39)
And we're watching out for predators. Human beings and human brains are really, really fast at predator detection, do I stay here or do I run? And that's something that computers are getting very much better at very, very fast. But then here's something that human brains are actually pretty terrible at. So no matter how smart you are, if I asked you to multiply two, 10 digit numbers, any $10 calculator is going to be faster and more reliable than any human being by a really long shot. So human brains just work in very, very different ways and there's been a lot of research, right? We seem to have a cognitive system that makes very fast decisions using a lot of approximations and guesses and pattern matching based on experience that helped us avoid getting eaten by predators.

Marty Chavez: (15:34)
And we have a much more complex system that is mathematically based, where we can reason about how to make correct decisions under uncertainty and that system, however, is not instinctual. It gets amazing answers, but it's slow. And the answers will often be different from the answers our gut gives us and understanding the difference between those two is super important.

Anthony Scaramucci: (15:59)
So then the follow-up question is an obvious one. When does that sort of stuff converge between the human and the computer?

Marty Chavez: (16:08)
Yes. So we don't know, there's a lot of opinions. I I'll say a couple of things, first of all, there's something incredibly powerful about anything, you know this is from finance, anything that compounds, compounded growth over time is exponential. And it might seem really, really slow, 2%, 3% growth, but you look at it over 20 and 50 years and it starts being extraordinary, right? And so something like Moore's Law, which says compute power is increasing exponentially. Well, back in the fifties, it didn't seem so great, seemed to be going pretty slowly. But now we're onto the proverbial second half of the chess board where you've been doubling, and doubling, and doubling, and suddenly it's starting to be really meaningful. And so computers are getting so much faster and they've been doing it for a long time and we don't really see any end in sight.

Marty Chavez: (17:12)
And so it seems like at a certain point, they'll just be enough computing power that you could simulate a human brain. You could simulate all of those neurons spirally. And so that will be one way that you get automatic or artificial general intelligence, that seems like it's going to happen. Who knows when? But one thing is very important to say, is that there's been a breakthrough and we're really seeing the fruits of that breakthrough in these last 10 years. Here's the breakthrough. If you can take a problem and you can frame it in the following way, "Here are a billion examples of my problem." Let's say my problem is recognizing whether there's a cat in this picture, right? Here's a billion images and human beings for some reason, love talking about cats and posting pictures of their cats on the internet. So we got lots of pictures out there on the internet.

Anthony Scaramucci: (18:10)
Wasn't the internet invented for that thought, Marty? [crosstalk 00:18:16] and so forth, right?

Marty Chavez: (18:19)
Well, as silly as the example is, it's really powerful because there's billions of images out there on the internet. And people have said, "Hey, look at my cat." And so now a computer can look at all these images and say, "Oh, a human being has told us, 'These 500 million images contain a cat, these 500 million images do not.'" If you can frame a problem that way it's been labeled so that these ones are cats, these ones are not cats. Using techniques that are standard deep leaning, we can train up a deep learning network and we can give it a new image that it's never seen before and ask, "Is this a cat?" And it will give us a highly reliable answer.

Marty Chavez: (19:00)
But it's gone beyond that, Anthony in that now you can show it an image of a cat. It'll tell you how many cats there are, where they are, what breed of cat, how old the cat is like, it'll tell you an awful lot by looking at the image. Now, that is amazing because now think of some real problems like translating from one language to another. If we have out there on the internet, billions of documents that have been translated from English to all these other languages, we can shove them into a neural net and it can now translate between languages. So any problem that can be framed in that way, the techniques we have now are so amazing that they're going to be better than any human being at that problem.

Marty Chavez: (19:45)
But here's the punchline. A lot of things that we do, and our having general intelligence, we don't think can be framed in that way. There is no sample set of a billion cats and a billion not cats. And because that doesn't exist, these techniques don't work. And for us to really have artificial general intelligence, we're going to need another big breakthrough. And if that breakthrough has happened in some lab somewhere, I'm not aware of it.

Anthony Scaramucci: (20:16)
But it's a fascinating discussion. And so ultimately, and I'm sort of leading you, but I'd like to get your opinion. You're optimistic about future innovation and you're optimistic about the unleashing of the prosperity that that will afford human beings in civilization.

Marty Chavez: (20:34)
Absolutely. Yes, sir.

Anthony Scaramucci: (20:35)
And so then the secondary question is, well, we have to figure out a way to make sure that there's some level of equal distribution so that it just doesn't become some top heavy, would that be fair logic?

Marty Chavez: (20:44)
I agree 100%, I think with these exponential technologies, you see a power law behavior in the distribution of wealth, right? So we're all familiar with the bell curve, right? There's people certain height, that's the median, finding someone who's three feet above the median height is going to be surpassingly rare, essentially zero probability. But wealth to your point is not distributed that way, almost no matter who you are, there's someone who's 10 times richer, right? Eventually you get to Jeff Bezos, but the people who are just sort of unfathomably richer than everybody else. And it seems that these exponential technologies are increasing that winner takes all dynamic.

Marty Chavez: (21:33)
So I am a huge advocate. We have to do something about this because while these technologies will make the planet better and will make life better, they pose many problems. There's existential problems about work, what will we need human beings to do? And about retraining people whose jobs go away, not so much because they've gone to China or India, but because they've gone to computers and robots. And how do we retrain them for new things and how do we do that in a timeframe where society doesn't break down? And so I am a firm proponent that there will always be interesting things for human beings to do and human beings are always better than machines at doing. I don't see that changing, but during any 10 to 20 year period, you can have some huge dislocations. So I'm all in when it comes to universal basic income, what would that actually look like, how do we get it done? Those are the hard questions.

Anthony Scaramucci: (22:38)
Right. And also a package of, I think you and I probably share a similar faith you and I. I did Andrew Yang's podcast and I am a believer in UBI, but I would also say I am a believer in uneven outcomes, Marty, but I want there to be more equal opportunity. Because I was a product of the good public school system and two blue collar parents that didn't go to college. But without that good public school system, I couldn't have catapulted into Tufts and Harvard and ultimately to Goldman Sachs. And so we recognize some of our success in life is providential, but it would be nice if we could come up with the right policies, not necessarily left or right policies, but the right policies that could flatten that playing field.

Anthony Scaramucci: (23:21)
But one thing that human beings are not great at, Marty, and maybe machines can help us with this is that we have this narrative going between socialism and capitalism and there stark narratives. And perhaps there's something more subtle in between that we can synthesize and make people understand that you can have unlimited outcomes, but you need some base level of equal opportunity. But that's for day and another SALT Talk. I want to go back to what you're doing right now and how you have used all of this wonderful life experience that you have to do what you're doing today. Tell us what you're doing.

Marty Chavez: (23:59)
Well, if you wait long enough, all kinds of amazing things happen. So I took essentially a 25, maybe more, 25 year call it detour, away from the life sciences and computation and life sciences, the intersection of those two things. And with the progress of software and technology and chips getting faster, that 25 years has been amazing. And so problems that we couldn't begin to solve in 1990 now look like they might be solvable, maybe not today, but we can see a path. And so almost everything that I'm doing these days is at that intersection of computation and life sciences, can we take a scientific process that is often, for instance, in the case of discovering new medicines, also a business process. And can we do to that process, what I and many of us at Goldman worked on for the trading business?

Marty Chavez: (25:07)
Turns out that the trading business, as hard as it was, is actually a really easy problem to solve compared to say, simulating a human organism or a human population. How many things do you need to know about a foreign exchange forward trade, two currencies, the exchange rate, the delivery date, party A, party B, you've now fully specified it. Imagine what it would take to fully specify a human being or even a single cell inside a human being. Well, the computers have made so much progress that you can actually begin to tackle these problems. And so I'm advising working with an array of companies and they are doing fascinating things.

Marty Chavez: (25:52)
I'll give you a couple of examples, paige.ai, as the first board I joined after I retired from Goldman. And I had heard about it from my friend, Jim Pryor, a legendary investor who was their first investor. And here's what they're doing, think of it as creating a new microscope to give to pathologists, except this microscope is digital. And this microscope has the unbelievable property that it outlines cells that you're looking at in the tissue specimen and says, "I think these cells are cancerous and here's the cancer I think these cells represent. And here's the treatment protocol that I would recommend." Not replacing the pathologist, but a second set of eyes on the problem with amazing results.

Marty Chavez: (26:44)
Another company, I'll give you an example of, Recursion in Salt Lake City, doing amazing things where they are building up a library of images of cells, and we're talking vast numbers of images. And here's what the cell looks like by itself. And now if we perturbed the cell a little bit with some molecule there might be a drug candidate or a [inaudible 00:27:09] with a CRISPR mutation, change its genetic code a little bit. Here's what the cell looks like now. And we're capturing how the cells metabolism changes, and we're doing this over and over again, and then we're throwing machine learning at it. And so we're then using the models that come out of this process to guide drug discovery.

Marty Chavez: (27:31)
So drug discovery has mostly been throw a million molecules at a cell and see what they do. And then eventually scale it up to mice and eventually human clinical trials, very expensive, very high failure rate. If we can do anything in software to fail earlier say, "Stop, don't even run any more experiments here, that's not going to work." And to find more promising candidates earlier, this would transform drug discovery. So those are the kinds of things I'm working on.

Anthony Scaramucci: (28:01)
Well, it's fascinating. I'm thrilled that we have you and your mind working on these things for all of us. I want to switch the topic abruptly. John's going to come in here in a second and ask the questions. We've got lots of questions in the queue. I want to talk about digital currency for a second, because you have a view there, you have a philosophical opinion there. And just wondering what you think of crypto currency, the ongoing digitization trends that's impacting us, there's also an EOS coin. Some of us don't even know what that is, myself included. And I was wondering if you could talk a little bit about that and what your opinions are in crypto.

Marty Chavez: (28:40)
I love talking about crypto. I worked on some of the techniques, some of these cryptographic techniques when I was a grad student and they're powerful and they're fascinating. And when I first heard about Bitcoin, I got really excited because actually Bitcoin is a solution to an old problem in computer science. It's called the Byzantine Generals Problem, but it's really an old problem of, we've got a noisy world full of unreliable information and disloyal people. In the face of that, how do all the loyal people come to a decision, how do we all agree on something? Well, this is the core of what the Bitcoin protocol does, which is how do we all agree that this is a real transaction where party A sent this many Bitcoin to party B, that that is what the blockchain does.

Marty Chavez: (29:38)
And so when I first heard about Bitcoin, I thought, "Okay, is super incredibly interesting. I got to get really up to speed on this because I can see all kinds of applications." But immediately the skeptical part of me sets in. So I've got two huge skepticisms that remain, though I'm open of course, to changing my view with new data. Here's one part of skepticism, these techniques to achieve fault tolerance agreement, like agree in the face of 50% of the network being hacked, they're very expensive, right? I did an analysis for a class I taught at Stanford and I remember at the time I taught the class in February. The amount of electricity consumed by all the Bitcoin mining ratings was equal to the entire energy consumption of Switzerland, right?

Marty Chavez: (30:31)
So just running the Bitcoin protocol, that is very expensive. And so I wonder, do you really need that kind of super expensive computation for most applications or is this maybe a kind of overkill? That's one skepticism? The second skepticism is I have never believed for one split second that Bitcoin or Libra or any of these things is going to replace the US dollar. I think that is an absolutely preposterous idea. And the reason for that, is really when you think of what money is, right? Money fundamentally, especially fiat money and legal tender, all relate to something very deep and political philosophy.

Marty Chavez: (31:18)
Which is, if we are in the boundaries of the US and I owe you a dollar, and I give you a dollar bill which says, "This note is legal tender for all debts public and private." And you reject it. It doesn't matter whether you accept or reject my dollar bill. My debt is forgiven, it's extinguished. I tendered the bill to you, doesn't matter if you accept it, the debt is gone. And the US backs that extinguishment with its monopoly on the use of force within its boundaries. It can put people in jail for not paying its taxes, it can seize their property, right? That is something that's not going away anytime soon. And so the idea that Bitcoin and a bunch of people running computers would just replace the sovereign seems to me like something that's not happening in our short-term reality, or even the medium or long-term.

Marty Chavez: (32:08)
So those are my skepticisms. But can we take the US dollar and use the techniques being developed here in digital assets such as Bitcoin, and continue the dematerialization of the dollar. It's already mostly electronic, right? We've got these paper bills, but most dollars are not represented that way, they're in bank accounts. And we can talk about what bank accounts are, right? That digital journey of the US dollar has been going on since the 1950s, my view is it will continue and it will adopt all of these techniques. And you will have a digital US dollar. You would have heard about it during the pandemic. There were discussions in the Congress that were super exciting.

Marty Chavez: (32:54)
"Hey, we're going to order the Federal Reserve to create a digital US dollar. And then we're going to distribute the stimulus money directly to Americans with this new digital US dollar." It is a fantastic idea. But when I read that I thought, "Okay, I'll sit down and I'll code up a digital US dollar over the weekend. Yeah right, like that's going to happen." It's a vast project, you don't order the Federal Reserve to get on it this week, right? It's something that will evolve, my view, must evolve to stay competitive with the Yuan. The Chinese are very aggressively turning that into a digital asset. I think we absolutely have to, as a matter of sovereign might and wealth and diplomatic policy and maintaining the dollar as the global reserve currency, it must digitize, it must become a cryptocurrency itself.

Anthony Scaramucci: (33:45)
And what is EOS?

Marty Chavez: (33:46)
So EOS is a company I've known about. It's a coin [inaudible 00:33:52] associated with a company called Block.One. And I've known the founders of Block.One for a few years, one of their investors is a friend of mine for many years. And so I've always followed with interest what they're doing. And yes, they have this currency, but what they're most excited about is building distributed applications for finance, for social media that are based on this currency and also creating a new fabric for computing, where you can do very complicated, distributed calculations across millions of machines and do them reliably even if the computers are going up and down and the communication links are failing. I think that technology of a distributed global computer is super important and I'm happy to work on that with them as well.

Anthony Scaramucci: (34:45)
Well, fascinating stuff, Marty. I'm going to turn it over to John. He's got questions from our audience and we really appreciate you being on today.

Marty Chavez: (34:53)
Sure. Thank you, Anthony.

Anthony Scaramucci: (34:55)
[crosstalk 00:34:55] Don't be asking about the skateboard, okay? I know you're thinking of the skateboard Darsie. Just stick to the facts, okay?

John Darsie: (35:02)
We're going to have to do an entirely separate SALT Talk about the idea of a blockchain US dollar digital currency. Because, I think that's a fascinating topic. And like you mentioned, it's something that China has announced their intentions to aggressively digitize their currency. It's almost already digitized on an app like WeChat where people are exchanging currency in an app that is the dominant app in China, despite that currency not technically being the sovereign currency, so it's a fascinating topic. I want to switch gears a little bit. So there's a problem on Wall Street as there are in a lot of industries and it's a diversity problem.

John Darsie: (35:38)
And you are a Latino, you're an openly gay man, so you occupy a very rarefied space on Wall Street. How did that experience shape your time? You're working at Goldman and on Wall Street, is Wall Street a friendly place to work for someone who is openly gay and someone who might not fit the archetype of what the average worker at one of these banks look like, and how much did you fight yourself trying to blend in versus being yourself and being openly representing your identity within the firm?

Marty Chavez: (36:10)
So I had a bit of an unusual story, which is I came from Silicon Valley to Wall Street in 93. As I mentioned to Anthony, I really wasn't planning a career on Wall Street, I was looking for a free trip to New York. And I was out in Silicon Valley at the time and I remember going to venture capitalists meetings with my co-founder and he would actually tell me to kind of do it up a little bit, "Go ahead and wear that Queer Nation t-shirt to the meeting, I'll think that's cool." And so here I have a Wall Street and I didn't know anything about Wall Street. I'd only heard that it had a reputation for being homophobic. So they put the offer in front of me instead of saying, "Yeah, this is great." I was just silent and I was silent because I'm thinking, "Wow, am I going to go back into the closet just for a different job, I don't really need or want this job, particularly I'm happy in Silicon Valley."

Marty Chavez: (37:11)
And so as I sat there, I just blurted it out to the gentlemen who was hiring me, "I think I need to tell you that I'm gay." And this was 1993. Suffice it to say that that kind of experience had never happened to him and I'm not sure it had ever happened to anywhere in Wall Street back in 93. And so he didn't know what to say. And so all he could think of to say was, "Hey, do you have a boyfriend?" Which is, I think maybe not the response you would have in 2020, but I took that to mean, "Well, this must be a gay friendly place." I think it would have been more accurate for me to have concluded that this was a place that didn't care if I was straight or gay, it just cared that I was good at math and software. And for me, that has always been enough, for me personally.

Marty Chavez: (38:09)
I don't want anybody to do anything special for me, but neither do I want my being me to be a liability. And if it is a liability, I'll go somewhere else. Now that kind of open-mindedness over the years became more sophisticated at Goldman Sachs and elsewhere. And we began to understand that diversity of your workforce was like diversification of your portfolio. The only free lunch available, you get a different perspective. You avoid missing things by making it a place where lots of people want to come. So Wall Street has definitely made that evolution. I've always been almost always the only one or two of people like me in the room. And been super fortunate that I had a lot of straight white Jewish males who were my mentors and brought my career along at every step of the way.

Marty Chavez: (39:12)
If I had been waiting for a Latin mentor or an LGBT mentor, or God forbid, one who was both Latin and LGBT, I'd still be out there waiting. My philosophy from growing up, and this is something my mother drummed into our skulls, growing up in Albuquerque, New Mexico where Hispanics were the majority by numbers, but not the majority in any way by economic clout. And my mom would say, "You're Hispanic. You'll have to work twice as hard to get half as far. So no moping about that, you better get busy." And so that while it's rather brutal advice and wouldn't be for everybody, and it's unfortunate that someone has to give it, I'm grateful to her for that as well.

John Darsie: (40:03)
Well, it's a really inspiring story and I have to give Anthony credit too. He's made SkyBridge a place that is very much like that. We have several openly gay members of our workforce and he's worked very hard on LGBTQ issues. And I think he's part of the solution as well. And I think for you, you've now created that role model for people who, whether it's a non-traditional path or a traditional path to Wall Street that young Latinos, young-

Anthony Scaramucci: (40:29)
Nice speed you've got, Marty. See how he's buttering me up. [inaudible 00:40:31].

John Darsie: (40:31)
I do have to give Anthony credit.

Anthony Scaramucci: (40:35)
He took the ballpoint pen and stabbed it into my jugular as we started, but now he's foaming and... keep going Darsie.

John Darsie: (40:43)
I got to make sure I keep my job. We opened this in a very rocky fashion, right?

Marty Chavez: (40:48)
I understand that.

John Darsie: (40:49)
But it's just an inspirational story. And hopefully you've become that role model for a lot of young people who-

Anthony Scaramucci: (40:55)
But in all seriousness to Marty, it is truly inspirational. And so I've always believed that life, liberty and pursuit of happiness, maybe they thought it was supposed to be for just straight people, but it's not, it's for everybody. And you are a living example of that and a role model for that. And one of the things I worked on with vice president Biden a few years ago, actually was in Davos, expanding the human rights about sexual preference not just the United States, but around the world. So we're making progress, thank God. And it's because of people like you willing to be out there taking a stand.

Marty Chavez: (41:31)
Well, I'd like to say I was some kind of a hero, for me it was really more pragmatic than that. I just thought, I'm not going to go backwards in my life. I hated being in the closet and I'm not going to do that. So it was almost a kind of expedience, but I guess it doesn't matter however-

Anthony Scaramucci: (41:48)
No, I think you're not giving yourself enough credit because we're both contemporaries. And I know a lot of my friends, I'm born in 1964. A lot of my friends born in the sixties had great difficulty opening up, particularly if they grew up in a Latino community, or an Italian community where the parents are very Roman Catholic, okay, and there's a lot of blocking and block-headed thinking that goes on. So it took a lot of risks. You deserve the credit for being the role model that you are. Go ahead, John. I know you spoke-

Marty Chavez: (42:20)
And 64 was a good year. Anyway, I was born in 64 too.

Anthony Scaramucci: (42:23)
Were you? Yeah. So see, there you go. See that's a-

John Darsie: (42:25)
Now he's going to get into an astrology thing with you.

Anthony Scaramucci: (42:29)
It was a great year, okay? Go ahead, Darsie, continue.

John Darsie: (42:34)
All right. I want to talk about the pandemic for a moment. So you've now shifted back into maybe what was your original passion in life sciences, but you pay attention to tech trends across a wide spectrum of industries. What do you think the pandemic in terms of long-term consequences or results of the pandemic that are here to stay in terms of digital trends and the way we think about work, think about living. What trends do you think have been accelerated by the pandemic that are here and that people particularly investors, for example, should pay close attention to?

Marty Chavez: (43:07)
Sure. So I think my view would almost at this point, be the consensus view or the emerging consensus view, but maybe I got to it a bit ahead of time. But the idea is that the pandemic with all its terrible cataclysmic consequences has in the sense of a chemistry reaction, it's a catalyst. It isn't making things happen that it was just not sensible for them to happen, it's speeding up in a dramatic way, things that were already happening, but they might've been happening too slowly for us to really observe them, right? And there's some aphorism about 10 decades of progress in 10 months, right, and then you have other decades where it seems like nothing happens. Well, we've had one of those 10 months, 10 decade kind of periods. And so I don't know where all this is going to go to shake out, but there's a few things that I'm highly confident about.

Marty Chavez: (44:09)
First, the digitization of finance, right? The idea that we have these little pieces of paper that we still write things on, right, or little pieces of paper that say US Federal Reserve Note on them. It's so cute, it's so quaint. It's kind of ridiculous, right? And think of all the things that we write on little pieces of paper, here's a particularly horrible example. If you've ever bought an apartment, you know how many pieces of paper come together for that, right? So all of those things are going away. I had some experiences during the pandemic of people requiring notarized documents and everything that we had to go through to cause a document, a physical document to be notarized in the depths of a pandemic, right? So, that's changing.

Marty Chavez: (45:00)
And we're just going to look at all these cumbersome workflows that have lots of paper steps and lots of manual intervention and anything that doesn't need to be there like, why are you swiping a card? That is also kind of silly and quaint and signing some piece of paper even more so. So you can see all those things as gone. And it's just a matter of months. I think another thing that you're seeing iS some restrictions that no longer made any sense. So for instance, if you're a pathologist in a clinic or hospital, there's been a requirement you have to be in a clinic or a hospital. They're looking at your microscope, looking at those slides, but you know what? No, you don't like, who said that, right? There just weren't the tools.

Marty Chavez: (45:48)
So one of the interesting things that Paige, which I mentioned to you has been doing is, in the process of constructing this AI and machine learning enabled technology that spots cancer cells, you can make the entire workflow of a pathologist go digital. No need to be in a lab, no need to have a microscope, no need to be in any particular place. So this trend of telemedicine, maybe you could just have a Zoom with your doctor and stick out your tongue, that's happening and there's not going to be going back. There'll be some things that you still have to be present for but there's a ton of things that you don't, and those are not coming back.

Marty Chavez: (46:31)
And people are working really hard on making those kinds of unnecessary in-person interactions go away. The really big question, which we don't have the answer on is, what will happen to the office? Now I'm a computer scientist, I'm an engineer. I've been building virtual communities since I was 10. I do occasionally like being in a physical space with people, but actually I'm more productive at work if I'm not surrounded by people bugging me. And so going virtual for me, I've just told everybody who wants to do some kind of collaboration with me, "I'm all in. And think of me as a permanently virtual person." There will be times when we get together, but I'm in boards meetings and people say, "Oh, this would be so much better if it were in person, I can't wait to go back to the way things were."

Marty Chavez: (47:30)
And I will always say, "You know what? I am very interested to hear that it's, you think it would be better for you if it were in person, I'm totally fine. This is great for me. I didn't have to travel across the pond to be in this meeting and I'm loving that." Right? So I think we're going to see the same thing happening with the world of work. There's going to be a regular cadence where people want to get together in an office or something that maybe looks a little bit like an office. But I don't think it's going to be 9:00 to 5:00, Monday through Friday, that is a relic of the industrial revolution and that rigid construct is going away. It will be replaced by something much more flexible and will vary by role and will vary over time. And we don't know exactly what that's going to look like, but we're starting to see the outlines.

John Darsie: (48:21)
Well, I think that's a fascinating masterclass in where we're headed. And I think Anthony and I have experienced that. We have young kids at home, it's been nice to be able to spend time with your family. You go into the office a couple of days a week, and then you feel like I can be just as productive at home and so it becomes more of a blended life. But you have so many great answers to so many great questions. You're not just a nerdy computer scientist, you understand the social elements of all this. You talked about universal basic income. You worked on Wall Street, so you understand the money part of it and you're a civically engaged type of person.

John Darsie: (48:51)
Do you ever see yourself? And I'm hoping the answer is yes. But do you ever see yourself serving in an appointed position or an elective office down the road, if vice president Biden wins, Anthony's going to be calling his future Chief of Staff and telling him that, "You got to call Marty Chavez to digitize the dollar and fix a lot of other problems we have." But is that something that you've thought about and want to do?

Marty Chavez: (49:14)
If asked to do something that I could be effective at, given that constraint, that I'm a mostly virtual guy, right? Then-

John Darsie: (49:25)
The government should be the same way. It's like if they can't sit down in the same room, they can't pass the stimulus bill. They want to send everybody $1,200 checks. And that becomes a big ordeal when you could digitize the whole thing and it could happen in an instant.

Marty Chavez: (49:36)
I would be up for something that didn't require me to move and something where this combination sort of weird intersection of experiences and skills that I've had would be useful. I'd have to think hard about it.

John Darsie: (49:53)
I was trying to think of what job would be the best fit for you. And then one came to mind and it was president of the United States.

Marty Chavez: (50:01)
Yeah. I think you have to move to Washington for that one.

John Darsie: (50:04)
Yeah, maybe not. Maybe in five or eight years, whatever it may be, maybe that'll change and we can have more digital president Chavez.

Marty Chavez: (50:12)
Yeah. Well, you're very kind. And I do believe in giving back, I don't know exactly what forms that will take over time. For me, it's mostly been philanthropic I'm president of the Harvard Board of Overseers this year, and that's something I'm really passionate about. But you never know where where the path will take us.

John Darsie: (50:35)
So we say that we would like to have our guests back in the future on a lot of shows, but this is one, we actually mean it. I feel like we could talk about so many different topics for such greater length, but it was great to have you on, we even went into overtime a little bit here. But thank you so much for joining us. It was a pleasure, Anthony, you have any final words for Marty before we go.

Anthony Scaramucci: (50:52)
Yeah, because I mean, you just blew us up on every other guests that came on [inaudible 00:50:56].

John Darsie: (50:56)
I didn't say which ones I was lying about.

Anthony Scaramucci: (51:00)
Now we got to call every person that came on to SALT Talks, "No, we really did mean that we [inaudible 00:51:03]." It's okay, [inaudible 00:51:09], we're surviving the pandemic. Marty, great to have you on, it's a real pleasure. And I hope and we both really do mean this, hope we can get you at one of our live events at some point.

Marty Chavez: (51:20)
That would be fun. And like a cryptocurrency thing, that I'd definitely say yes to that if it ever makes sense [crosstalk 00:51:26].

Anthony Scaramucci: (51:26)
Well, we certainly want to do that as well. And wish you the best of luck with what you're doing and hopefully we can connect soon.

Marty Chavez: (51:33)
All right. Thank you.

Anthony Scaramucci: (51:34)
Thank you for joining SALT Talk.

Marty Chavez: (51:35)
Be well. My pleasure. Take care.

Michelle Williams: Public Health is "Undervalued & Underinvested" | SALT Talks #87

“The richest country in the world, we spend more money on health than anyone else, but we consistently rank in the bottom for all of the population health metrics.”

Michelle Williams is Dean of the Faculty for the Harvard Chan School of Public Health as well as the Angelopoulos Professor in Public Health and International Development, which is a joint faculty appointment at the Harvard Chan School as well as the Harvard Kennedy School. Dean Williams is an internationally renowned epidemiologist and public health scientist, an award-winning educator and a widely recognized academic leader. She was elected to the National Academy of Medicine in 2016.

The failures of the United States’ COVID response can be connected to a distinct lack of leadership and institutional distrust of science, but that’s only part of the problem. Long-term problems existed before the pandemic, due to chronic underinvestment, that have been exposed by the pandemic. While it’s highlighted the problems, it also presents an opportunity to renew the call for impactful and long-term public health investment. “Public health for far too long has been sort of unseen and undervalued and underinvested.”

Private sector CEOs now recognize that they are in the public health industry because we see the effects on business when public health institutions are not supported. Organizations across industries and fields are starting to de-silo and come together to promote the core fundamental principles of disease prevention, health promotion, protection and preservation of health.

LISTEN AND SUBSCRIBE

SPEAKER

Michelle A. Williams.jpg

Michelle Williams

Dean

Harvard T.H. Chan School of Public Health

MODERATOR

anthony_scaramucci.jpeg

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darsie: (00:07)
Hello everyone and 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 digital interview series that we launched during this work from home period, with leading investors, creators, and thinkers. What were trying to do on these SALT Talks, is replicate the experience that we provide at our global conferences, the SALT Conference, and that's really to provide our audience a window into the mind of subject matter experts as well as provide a platform for what we think are big ideas that are shaping the future. We're very excited today to welcome Dean Michelle Williams to Salt Talks.

John Darsie: (00:47)
Dean Williams is the dean of Faculty for the Harvard Chan School of Public Health as well as the Angelopoulos Professor in Public Health and International Development, which is a joint faculty appointment at the Harvard Chan School as well as the Harvard Kennedy School. Dean Williams is an internationally renown epidemiologist and public health scientist, an award winning educator and a widely recognized academic leader. Prior to becoming dean, she was a professor and chair of the Department of Epidemiology at Harvard Chan and program leader of the population health and health disparities research programs at Harvard's Clinical and Translational Sciences Center. Dean Williams previous had a distinguished career at the University of Washington School of Public Health. Her scientific work places special emphasis in the areas of reproductive, perinatal, pediatric, and molecular epidemiology. She was elected to the National Academy of Medicine in 2016.

John Darsie: (01:45)
A reminder, if you have any questions for Dean Williams during today, you can enter them in the Q & A box on the bottom of your video screen on Zoom, and hosting today's talk is Anthony Scaramucci, who's the founder and managing partner of SkyBridge Capital. He's also the chairman of SALT. And with that, I'll turn it over to Anthony for the interview.

Anthony Scaramucci: (02:02)
John, thank you. Dean Williams it's just a great honor to have you on. The rumor has it, I've learned from mutual friends that you're from Queens, is that true?

Michelle A. Williams: (02:12)
That's right. I'm from Queens Village.

Anthony Scaramucci: (02:14)
All right, so are we a Met or a Yankee fan?

Michelle A. Williams: (02:17)
I am a Met fan.

Anthony Scaramucci: (02:18)
Okay, so this could be easy interview-

Michelle A. Williams: (02:20)
I grew up a Met fan.

Anthony Scaramucci: (02:22)
... for you then. I had two separate sets of questions. If you said, "Yankee fan," we were going with the really rough stuff. Now, I'm putting the rough stuff down, we're going with the layup questions. Okay?

Michelle A. Williams: (02:31)
All right.

Anthony Scaramucci: (02:32)
Because you've suffered enough Dean, you've suffered enough, let's face it. We've lived in a house of pain for four decades. All right, well, terrific. Thank you for being on. How did you start this amazing career? Let's go from Queens Village to where you are today, and what were you thinking about as a kid? And how did you end up where you are?

Michelle A. Williams: (02:51)
Thanks for asking that question. I'm an immigrant kid. My parents immigrated to the United States when I was seven, and my father did that because he understood that education was really the social driver that lifts all boats, and while he wasn't afforded that opportunity, he wanted his kids, three girls, to have that. We ended up in Queens. Queens, New York, Cambria Heights Queens Village in public schools. I got noticed by really good teachers, who recognized my talent and always worked to get me in the right classrooms at the right time. This is a great country where a immigrant kid can go to public schools in New York and end up at Ivy League education. I know, Anthony, that's no so dissimilar from your own background.

Anthony Scaramucci: (03:46)
My mother thought it was Hartford Law School, Dean. When I was packing the car up for Labor Day weekend, 1986, my mother had the map out. She was heading for Hartford. I said, "Ma, no, it's by Tufts, it's up in..." "Why would they call it Hartford Law School if it's not in Hartford?" That has been a standing joke in our family for the last 34 years. No, I get it, but it's a real tribute to you, tribute to your family, and obviously, we both have a great fondness for the university.

Anthony Scaramucci: (04:16)
The United States is in a pretty difficult time. We're in the middle of, I would probably say it's the worse pandemic since... Some people are comparing it the Hong Kong Flu in the mid to late '60s, but I think it's more like Spanish Flu [inaudible 00:04:31]. Feels that way to me, but you're the epidemiologist. Tell me what we're doing wrong. What would you suggest that we would do to have better mortality rates, get them more consistent with places like south Korea, curb the spread of the virus like Germany? What would you like to see done if you could wave the magic wand and you could be the epidemiological czar the COVID-19 crisis?

Michelle A. Williams: (04:58)
That's a great question, and I'm going to try to approach it from a core fundamental place. Because, Anthony, this problem stems... our lack of capacity to respond, stems from some acute issues around lack of leadership and lack of trust and appropriated appreciation for science and scientist's voices. But there are also some long-term problems that lead us to this place, and that is a chronic underinvestment in public health.

Michelle A. Williams: (05:31)
Public health for far too long has been sort of unseen and undervalued and underinvested. We, for too long, have not had the appropriate investment in the public health workforce, the public health infrastructure, and the public tools. The riches country in the world, we spend more money on health than anyone else, but we consistently rank in the bottom for all of the population health metrics. We've got to do better. I think, what we've learned from COVID is public health is a primary factor in our civic life. It's a primary player that undergirds our economic security and our national security.

Michelle A. Williams: (06:18)
One of the things that went wrong, we can correct right now, and I think we have an opportunity to do that, because there is an acute awareness now of the primacy of public health in society, in our business, and in our life and in our national security. Rather than dwell on what we have gotten wrong, we need to seize this moment and turn it into a movement, where the mission is to invest in public health, in the tools, the people, and the partnerships. One of the things that I've seen happen, and we hope will continue to happen, is de-siloing the systems that we have. Academics should be working closely with government, should be working with philanthropists, should be working with the private sector, because we're all in this together.

Michelle A. Williams: (07:11)
The private sector are now really fully realizing that they're in the public health business, and so it's one of the reasons we've created a program that brings CEO leaders of the biggest and smallest companies, a full range of them, into the public health space, where we can start to work together on infusing decisions around sustainable workforce, sustainable environment, building that trust with consumers by educating them with the core fundamental principles of disease prevention, health promotion, protection and preservation of health. And that happens through using data wisely to prepare for disasters, natural and manmade, and to have a response system that's robust.

Anthony Scaramucci: (08:06)
Well, all that's right, and I want to get into the course, the C-suites, course in a second, but I want to ask you two follow-up questions. The first one is related to this safety net in United States, because I think we both grew up in certain areas of the country and have empathy for people that may not have done as well, frankly, as you and I have done, from those areas of the country, and now a pandemic upon us, we realize our health system maybe as weak as the weakest link in our health system.

Anthony Scaramucci: (08:39)
So I could be sitting here with a Cadillac health insurance policy, but now, I've got people in my neighborhood that may not be doing as well, which would lead to sickness in my family. It's sort of pervasive thing, and I'm wondering if this is going to create the awareness necessary to have something that is more sturdy at the bottom than even Obamacare, frankly. Again, I'm not calling for single healthcare paying, I believe that we should have a hybrid, more or less as the vice president as expressed, but what are your thoughts on that? Do you think that this is a breakthrough moment for us politically on the healthcare and public healthcare side? Or do you think it's going to be status quo going forward?

Michelle A. Williams: (09:24)
It can't be status quo going forward. I'm going to be a strategic optimist and I'm going to say that more of us across all sectors are learning that there is a huge cost that we are all paying, whether we are aware of it or not, by not having a good solid safety net. Citi just release a report that put dollars to that problem of indifference around a social safety net, and that is driven in large part by our 401 years of inequality passed on race and racism. Citi basically reported, just a week or two ago, that our GDP has been hammered at the order of $16 billion, by our inattentiveness to inequality, which is a very bog factor around the issues of inequity and really poor health disparity outcomes that we see in the neighborhoods that we're familiar with and that you started to allude to.

Michelle A. Williams: (10:28)
I think that there is an increasing awareness that there is a cost to our indifference about the most vulnerable in our society, and it's not sustainable nor is it wise economically for us to have a blind eye to this problem. I am seeing many different people across sectors step up and take on responsibility in building capacity in communities that have been historically deprived, investing in schools, creating opportunities for meaningful jobs, and economic employment for people who have been left behind. I hope we can be really strategic in capturing the best lessons learned from these kinds of investments, and bring them forward so that they can be brought to scale in communities that really need help.

Anthony Scaramucci: (11:27)
I think it's very well said. You're also combating... Again, this is my opinion, I'm editorializing a little, and if you disagree, please chime in, but I think we're also battling some level of information crisis, it's a misinformation crisis almost. We've got conflicting ideas about wearing masks versus not wearing masks. We have doctors inside the White House that say, "It's okay not to wear one." We have someone like Anthony Fauci insisting that it's important too or Dr. Birx insisting that it's important too. How do you, at your level, combat that misinformation? What would you recommend to the average citizen to get more educated? What would you recommend to [inaudible 00:12:07]? We seemed have politicized, now, science, which has me very, very concerned.

Michelle A. Williams: (12:12)
Yeah. Now, Anthony, that's a very important question, and I think the first thing we have to recognize is this is not new. That misinformation has been a challenge and a threat to public health for a very long time, but I think because we have had, now, several institutions be challenged because of the politicization of global health and public health, it does begin to feel like an existential threat, and indeed it is.

Michelle A. Williams: (12:42)
I think the first thing that people have to recognize is if it sounds too good to be true, get your information from trusted sources. Academics are still regarded as a trusted source for information, and one of the things that we have to do in the academy is to make sure that we are as deeply engaged in the national conversations and global conversations as we can be, and we should bring that information down to the level where people are at. I think it's going to take whole society and all of our sectors to be very mindful, strategic, and proactive about seeking out those sources of misinformation and breaking the chain of dissemination of this information. And we're going to have to do some science, Anthony, because like all useful tools, sometimes they're going to be used for good and sometimes they're going to be used for bad, and we're going to have to develop appropriate policies that protect rights and freedom of speech, but also protect the public from harmful, misleading information.

Anthony Scaramucci: (13:55)
How can businesses help in this area? How can they help prepare us better?

Michelle A. Williams: (14:02)
That's a great question. I don't have an immediate answer, but I will tell you what's really important, because I've seen business and leaders stand up and take a pro public health position. Just speaking about how masks... Masks, very basic, very important instrument, public health instrument for breaking the chain of COVID-19 transmission, and for me, as an academic my entire professional life, to see C-suite executives for some of the biggest companies across different sectors stand up and make a clear statement to promote the use of masks, was powerful.

Michelle A. Williams: (14:47)
And I think ever student of public health, every person in our nation and in the world, should begin to recognize that it is an unfortunate, past perception that business bad, not business good. That false dichotomy has in a way robbed us of the opportunity to work together collectively to have leaders in business be part of the narrative of a public health forward way of thinking and doing. I think if we breakdown silos and continue to engage in a conversation in the narrative about what is good for public health is also good in the overall conceptualization of society, we'll be a healthier place. Because we are in this together, and if COVID did anything for us, it made that so clear to all of us that one should not get caught up in the false dichotomy of trading business or wealth for health. They are intimately intertwined and they have to work together in order to bring forward an equitable society. CEOs play a big role in that.

Anthony Scaramucci: (16:05)
Well, and I appreciate you sharing that with us. This is more of a meta-question, actually, this is something I've been thinking about, David Quammen, in 2012, wrote a book called Spillover and in the book he basically is saying that we are now spilling over into the animal kingdom, because the size and the scale of the human population, a result of which, and you'll have to forgive me because I never pronounce things right, but I think it's called zoonotic or zootropic [crosstalk 00:16:33], zoonotic transfers of diseases. You can get a virus in a bat, a horseshoe bat, or get a virus in a pangolin or something like that, and all of a sudden, it jumps into the human species, and we're not biologically prepared for it, from an immunological perspective, is that going to happen more and more?

Anthony Scaramucci: (16:52)
His contention, and he wrote the book in 2012, what that it would happen more, and he more or less predicted what unfolded in 2020. Is this something we need to be worried about?

Michelle A. Williams: (17:05)
That's a very important question, and I'll say that this is something from the perspective of understanding how climate change impacts human health. This is a very big question, and it is one of the primary pressing challenges to human health going forward, and it's why, at the Harvard Chan School, we are focused very much on understanding how climate change, the many different ways climate change impacts human health. And this incrosion of zoonotic infections into the lives and livelihood of populations is in part a downstream consequence of changes in our physical environment. Changes brought about largely by how we live, work, and interact with our environment.

Michelle A. Williams: (17:58)
How those changes contribute to alterations in our ecosystem that puts animals and pathogens more in line of our path, and this is where emerging and reemerging infections as a result of climate change, is one of our big challenges. Lime disease is an example, as our environment changes and as vectors that carry these pathogens commingle in spaces where we are, we well end up with a higher likelihood of exposure and risk. One of the things about public health, Anthony, is it's about connecting dots, and it's about understanding how how we live and work and operate in our environment, changes the environment in ways that either mitigate or amplify environmental risks to human health, and that's what he's getting at in the book.

Anthony Scaramucci: (19:00)
Yeah, and it's a very interesting point. Fareed Zakaria, who were going to be interviewing on Monday, just wrote a book about the 10 lessons in the post pandemic world, and in the book, he writes something that I wanted to ask you about, which is the butterfly effect. Something is happening on one side of the world, it seems like a minor thing, but it's having a deep impact on the rest of the world. And one thing that is happening as our societies are getting more western in terms of their consumption-based style of capitalism, they're eating more meat, more meat products, the result of which, we're raising more animals to slaughter to create the consumption of meat, the introduction of antibiotics and other things to, excuse me, help this process, is it affecting the ecosystem in the way that it's also contributing to the situation we're living in now, like COVID-19?

Anthony Scaramucci: (19:56)
Or will other situations sprout up from this? Or is this something not to worry about? If you talk to the farmers, they're dead set against it, but they are self-interested, they tell you not to worry about it. But if we talk to some biologists, they say, "Boy we should really be worried about this disruption." What's your opinion?

Michelle A. Williams: (20:13)
Anthony, this is really important. I got to tell you, because it touches on very many key topics. Let's just talk about-

Anthony Scaramucci: (20:22)
If you said you were a Yankee fan, I wouldn't be asking these questions, but since you said you were a Met fan, I went in this direction.

Michelle A. Williams: (20:28)
It's all right, it's all right. I have to say, I went to Bayside High School, and our colors were Mets colors-

Anthony Scaramucci: (20:33)
I bet.

Michelle A. Williams: (20:34)
... and the Mets played right outside of... they were right there. It's where I went to high school.

Anthony Scaramucci: (20:40)
You got me at hello Dean. You got me at hello. I'm sending you the virtual hug, the one that doesn't give you disease.

Michelle A. Williams: (20:48)
So you know [crosstalk 00:20:49] the orange and blue, I'm an orange and blue girl.

Anthony Scaramucci: (20:52)
What do you think about that question? Where do you think we are?

Michelle A. Williams: (20:54)
I think it's really an important question, and I wish and I hope that more people get into this conversation, because just think about, we're in this together, we've got one planet, and the health of that planet is important to all of us. The fires that are happening out West right now, we on the East coast, we're like, "Whoa, is they. Whoa, are they because they're dealing with these fires and the smokes." But just think about on any given day, the jet stream can bring that smoke right here on the East coast, and it has already, and impact the respiratory function of all us, those who are close as well as those who are distant.

Michelle A. Williams: (21:41)
Anti-microbial resistance, this is where some of public health and medicine's best tools for lifesaving against infectious disease, we're running out of medications to help protect us from emerging and reemerging infections, because of overuse of antibiotics, and we can't say it's their problem because they're over there overusing antibiotics. If there is a problem in part of the world, it's everybody's problem, and I think it's really fundamentally important for us to use this moment to educate people that this everybody's problem. When we were watching COVID shut down the East coast cities, cities where we grew up and where we still live, I knew that our friends in the southeast, in the rural communities, were going to get hammered.

Michelle A. Williams: (22:44)
And the idea was, "Let's communicate to them now that we're all in this together. It's an infectious disease, it is a contagion, and it's only a matter of time before it hits your communities, so let's work collectively, collaboratively in preventing the spread of this disease." We have to get to a place, where people understand that we are all part of a social contract to each other for our own sustainability and for the sustainability for the planet that we want to live on and we want our children and their children to thrive. It's fundamental that we have more people understand that we have a collective responsibility to protect our physical environment and do so in a way that is sustainable and equitable.

Anthony Scaramucci: (23:38)
I have a few more questions. John, has obviously got a ton of questions that are queuing up from our audience participation Dean, and I think it's well said, but I want to get the central idea for public health and public safety. Let's go across the spectrum. Everybody needs healthcare, in a rich country like ours, yes or no?

Michelle A. Williams: (24:05)
Yes, but can I just say, it's not just about healthcare. 80 to 90% of what we call health and wellness, happens up stream and outside of the healthcare delivery system. Health and wellness is driven by factors that are not in hospitals, they're driven by equitable educational opportunities, living wage, secure housing, healthy foods, a place to live, learn, work, and play that supports the enable of our mental health and wellness as well as our physical health. We have to get society to understand that health doesn't begin in a hospital, it begins long before that and it's intergenerational.

Anthony Scaramucci: (24:57)
Yeah, and the way we eat and drink, obviously, and smoke has a big impact on this stuff, so we agree, but you are saying we do need a healthcare system that provides coverage for all of us, I think we would agree on that-

Michelle A. Williams: (25:15)
Yes.

Anthony Scaramucci: (25:15)
... but I want to hear it from you.

Michelle A. Williams: (25:16)
Yes.

Anthony Scaramucci: (25:16)
And then the secondary thing, I guess, I have for you is related to what your statement is about the prevention of poor health, and that is creating a platform of equal opportunity. You obviously got raised in a middle class neighborhood or lower middle class neighborhood, like I did, but you had some good teaching, maybe, some great parents, a combination of different things, and well, you're now where you are. How do we try to create that platform of opportunity for people that were similarly situated? And it seems like it's tougher today, Dean, based on my observation and my travels around the United States, it's tougher today. What do we have to do?

Michelle A. Williams: (26:02)
I think having a conversation like this is key. I think we have to communicate that building these platforms, sustaining these platforms that enable the thriving of populations is good for business. I think it's important to recognize that having a public safety net is not charity, it is essential, it is the bedrock for doing good business, because having the public health values of health promotion and prevention of diseases built into your business plan, ensures that you've got a healthy and thriving workforce, that is present at work. And it ensures that the consumers have the security and the enthusiasm about engaging in civil society and in commerce, and we need to have that virtuous cycle of health, wellness, and the investment in sustaining that health and wellness, to keep the workforce, the human capacity, both on the production side as well as the commerce side going.

Michelle A. Williams: (27:12)
Public health is fundamental to our economic as well as national security. The idea here is to point out, whenever possible and to everybody, the returns on investment for securing, supporting, and enabling populations to develop healthfully across the life course, is good for business, it's good for society, and one should to have to be put in a position to choose wealth over health, they are inextricably intertwined in ways that we have to appreciate and support.

Anthony Scaramucci: (27:53)
Well, it's very well said. I think one of the big issues and something happened, we can talk about this, but we probably need some sociological help as well, but we're starting to care more about ourselves and less about each other. The result of which now, we're moving away from each other, and we're stockading each other, but you can't do that, because you don't want to be, like I said, living in that McMansion while your fellow neighbor is suffering. We have to figure out how to... Again, I'm obviously a capitalist, my capitalist friends don't get it, if they don't start acting now, through the C-suite, through the corporations, it's going to be mandated upon them by the government, and that's going to create a misallocation of resources. As opposed to having a private/public partnership to get it done, which would probably be more efficient, offer greater economic utility to everybody.

Anthony Scaramucci: (28:52)
Well, Dean, this has been terrific, I really appreciate the opportunity for you to speak with us. I've got a ton more questions, we always at this point in our conversation, we flip it over to the audience. And so I'm going to turn it over to John Darsie, who's trying to outshine us with that stupid bookcase of his, but that's okay. I'm in the Beverly Hills Hotel, but I just want everybody to know, when this SALT cast is over, I'm going out to the cabana by the pool. It won't necessarily be on room rater, but I'm going to have a better room rating than both of you guys in about an hour. I just wanted everybody to know that. Go ahead, John.

John Darsie: (29:26)
I can't argue with that. Hopefully, the fumes from those fires and things are filtering down to the Beverly Hills Hotel Anthony.

Anthony Scaramucci: (29:33)
Pretty air quality today [crosstalk 00:29:34]-

John Darsie: (29:34)
We pray for your good health. Dean, I want to you talk about... I understand there's a course that you have launched for C-suite executives to educate people in business about what they can do to keep their employees and customers healthy and contribute to a lot of the public health issues that you've spoken about on this call. Can you tell us more about that course? Why you launched it? And Why it's so important today that we get business leaders more educated about these topics?

Michelle A. Williams: (30:01)
Sure, John, thanks for that. The course came about through a number of conversations I was having with the CEOs from a number about companies across different sectors. These conversations started around, "We've got a novel virus that is threatening the globe, and I've got workers and I've consumers who have questions. And the questions are around, how do we respond during a time of crisis, in a way that is ensuring public safety?" These conversations, the pattern was, how do we bring public health, how do we bring risk management and risk mitigation principles into the business plan going forward, while we manage COVID and after COVID?

Michelle A. Williams: (30:56)
The conversations across multiple sectors with a number of CEOs, lead us to creating a course. The course is really to bring the foundational knowledge of public health, which is prevention, preparedness, and response oriented to being with, into the modeling and business planning across different sectors, so that's what we're doing. I think my colleagues gave you a link to the website. The goal here is to put together academic and private and public partnerships in a way where we share knowledge, actionable knowledge that allows one to address concerns that would impact the health and wellness and safety of a workforce and would address concerns that consumers will have about what safety protocols are put into place, and how those protocols are designed to really allow for a safe way to reengage in commerce.

Michelle A. Williams: (32:01)
It's been an incredible opportunity to de-silo the work that we do in the business sector and the academic sector, and it's creating an opportunity to put public health really into the bedrock of business planning.

John Darsie: (32:19)
It's interesting, you talk about that decoupling. I think we've all experienced a coming together of our work life and our home life, and you talked about the important need to create a social safety net and to create environments at home for people, so they can become more educated about public health, so they can reinforce good habits. How do you think the pandemic, long-term, is going to affect the workplace, the workforce, and how we blend our personal life and business life? Again, going back to Anthony's question about solutions for preventive healthcare, what types of measures would you like to see put in place that could solve a lot of those things, with a view towards post-pandemic workplace and workforce?

Michelle A. Williams: (32:59)
Well, I think work is going to be defined differently, what is work is now constantly being evaluated. First of all, the health and safety of the workforce is now more front and center than before. If you've noticed, when do you start to define and end the definition of essential workers? The pandemic has forced us to realize just how incredibly important our workforce is across all of the different domains, and the fact is, the challenge to identify a part of the workforce that's not essential is almost impossible.

Michelle A. Williams: (33:40)
People are now seeing how low wage, low income earners are so fundamental to the way our society has to operate. Where we work and where we have to work, is also being upended. We have all learned that we could use technology to adapt to working remotely and to have some very big benefits, where we are adding hours back to our life, because we're not commuting as much, and the physical environment is being improved because carbon emissions are brought down, because we are not zipping across the continents for a half day meeting and zipping back. We are learning through these natural experiments that we can conduct our business without as much travel and without as much place-based embeddedness as before, pre-COVID.

Michelle A. Williams: (34:43)
Now, there are going to be some challenges. The mental health burden that is being illustrated across all sectors as a result of the uncertainty and the physical threats of this pandemic, not to mention the economic fall out that so many people are suffering, from job loss, has brought forward a very high burden of mental health illnesses that we have to take care of. As a public health person who connects the dots, I can go on about the many good things that we've learned as a result of COVID around what the workforce can look like and what the workplace can be defined going forward, and some of the bad things.

Michelle A. Williams: (35:27)
Just one other point, the fact that we can now use a telemedicine platform to deliver healthcare, should be a very important lesson for those of us who live in communities where the ratio of medical specialists to the need are not in a good space or place for healthcare delivery. And we have learned some important lessons about the adoption and the reception and how enthusiastically patients receive telemedicine, to think about how we can use that platform to better provide high quality, primary care at lower costs and at greater levels of accessibility.

John Darsie: (36:14)
To your point, my brother's a radiologist, and there's a dearth of qualified radiologists around the country, but they've found ways to use technology. Some people talk about how things like AI could replace certain elements of physical doctors, but really it's a tool to enhance and scale quality healthcare, so it's a really exciting development.

Michelle A. Williams: (36:35)
Yeah.

John Darsie: (36:36)
I want to talk about global cooperation. We've talked about the United States, how individually, we've had a difficult time containing the virus. Some other countries have done better, and they've adopted different policies that have allowed them to, not maybe fully extinguish the virus, but limit the spread and limit the mortality rate. The World Health Organization has come under some criticism for its slow response early on in the pandemic and some of the steps that it took, but without really diving necessarily into the WHO, what are ways, globally, that we can do a better job of coordinating responses, and not just responses, coordinating prevention of the spread of pathological diseases as well as general public health issues?

Michelle A. Williams: (37:17)
No, thank you for that question. I would say, the World Health Organization, the FDA, the Centers for Disease Control, these are vitally important institutions that support our public health and global health agendas, and they've all been challenges for local and global reasons. The World Health Organization has a very difficult and complex mandate, and that is to anticipate and to respond to threats to human health globally. And that requires leadership and a commitment of leadership to collaborating and being thoughtful about local and global government's issues.

Michelle A. Williams: (38:12)
I have to say, as an institution, I'm hopeful that we will get back to a place where the US is appropriately involved and engaged as a global citizen, as a leader in positioning the World Health Organization to be responsible to our needs. It's as I was saying to Anthony earlier, the threats to humanity, know no boundaries and COVID makes that very clear. Antimicrobial resistance, air pollution, the issues around climate change, these are threats that are global in scope, and we have to find ways to have public, private, global governance engaged and committed to collaboration, to problem solving.

Michelle A. Williams: (39:08)
I think academic leaders, like myself and others across the country, have to use our voices to promote to populations everywhere that decisions around leadership have to include leadership that is invested in a public health and a global health mission, because the challenges are enormous, but we do have the talent and the capacity, if we choose to work together to address these problems. And it can't be an isolated solution, it's got to be where the global good of these solutions are appreciated and there's a commitment to make them a global good.

Michelle A. Williams: (39:52)
For example, for us to get back to a sense of normal, post-COVID, we will need for leaders to recognize that safe and efficacious vaccines have to be managed as a global good. That is the quintessential challenge in front of all of us right now. It is a public health and global health challenge, and the CDC, FDA, WHO are all needed to be strong institutions to help us operationalize on that global good.

John Darsie: (40:31)
Yeah, it's one of the disheartening things that you see is that people... Take polio as an example, we've eradicated, basically, polio from our society, but you have people today who say, "Well, the disease has been eradicated, we don't need to take the vaccine anymore. We don't need to vaccinate our children, and you're starting actually to see an uptick in cases of polio, because people are unwilling to get their children vaccinated for personal reasons, but really it's more about the public good. It's difficult in a society like the United States, which values freedom and personal choice, to ensure that people make those decisions that are part of the greater good.

Michelle A. Williams: (41:06)
Yeah, I think it's incumbent on us to educate. I don't mean to preach and I don't mean judge-

John Darsie: (41:14)
Right, please, do preach. Please, do preach.

Michelle A. Williams: (41:17)
... but I think it's incumbent of us to share the public health values, and to illustrate how this issue of a social contract that we all have for each other, for our family members, for our communities, for our society, and for the planet brings us together as a human race, that we have to find ways to work together. And to think that it's not just the individual, because we are, I over use this word but, we're so deeply interconnected, even more so now, because of the technology and our ease of travel.

John Darsie: (41:59)
Right. Well, Dean Williams, we're so thankful for you taking the time to speak with us. I know in the middle of a global pandemic, you're as busy as anybody in the world, right now, not just managing all of your academic responsibilities, but also trying to help solve some of these social issues.So we're very grateful. And we want to remind everyone about that course at the Harvard Chan School of Public Health. We're going to send a link around to everyone who registered for this talk, and also we're going to send the link on all of our social media outlets as well, to that course, where can go online and learn more about it. We're going to try and get Anthony involved in that as well, so we can make sure that our SkyBridge staff is not just healthy in the pandemic, but reinforces strong public health principles going forward.

Michelle A. Williams: (42:41)
Awesome.

Anthony Scaramucci: (42:41)
He's eating a lot junk food, Dean. He's taking advantage of his youth, so he's [crosstalk 00:42:46], I just want you to know that. I'm only eating junk food 16 hours a day, John is eating it 24. I just wanted everybody to know. I'm down to 16 hours a day of junk food Dean.

Michelle A. Williams: (43:01)
Well, listen, I went to your restaurant, I took my son for a special dinner, at the-

Anthony Scaramucci: (43:08)
Oh, great.

Michelle A. Williams: (43:10)
... is it the Fish-

Anthony Scaramucci: (43:10)
Hunt & Fish.

Michelle A. Williams: (43:10)
... Hunt & Fish Club, love the food. I-

Anthony Scaramucci: (43:13)
Oh, great. I had no idea, I would have... Well, next time, I'll... We can't open until Broadway opens, unfortunately, but we'll be back.

Michelle A. Williams: (43:22)
I know. I know. But it was one of my most memorable dinners. It was mom taking her son out to a fancy dinner, and we had a great time. I wanted to-

Anthony Scaramucci: (43:28)
Okay, well, good.

Michelle A. Williams: (43:28)
... thank you for that.

Anthony Scaramucci: (43:31)
All right, well, thank you so much for doing that, and of course, there's no shortage of desserts at the Hunt & Fish Club. But in any event, you were terrific Dean. I hope we can get you back, after the election and talk about the future of public health and awareness for people in the United States. Thank you so much... for people around the world, for that matter.

Michelle A. Williams: (43:48)
Thank you Anthony, appreciate the opportunity [crosstalk 00:43:50]-

Anthony Scaramucci: (43:50)
All the best. I hope I can get up there and see you at some point, if they let me back on campus. We'll have to see if they'll let me back on.

Michelle A. Williams: (43:56)
Well, you've got to come over to the School of Public Health campus, you're welcome anytime.

Anthony Scaramucci: (44:01)
Okay, all right, because I think they put an electric fence around Harvard Law School after I went to word for Trump. I don't if I'd get electrocuted on the way in, but I'll come over to Public Health School anytime.

Michelle A. Williams: (44:12)
All right.

Anthony Scaramucci: (44:13)
All right, be well.

Michelle A. Williams: (44:14)
Be well, thank you. Bye-bye, Anthony. Bye-bye, John.

John Darsie: (44:17)
Bye.