Willy Walker in conversation with Glenn Youngkin, Co-CEO of Carlyle

On May 6, Walker & Dunlop's CEO, Willy Walker, hosted another installment of the Walker Webcast, with featured guest Glenn Youngkin, the Co-CEO of The Carlyle Group.

Walker Webcast

Willy and Glenn provided insight into numerous topics, including:

  • An economic outlook and predictions for the year ahead
  • Where Carlyle is finding investment opportunities
  • A look into how the Chinese economy is rebounding
  • The importance of private/public partnerships to reignite the economy

A bit about each speaker:

Willy Walker
Willy Walker

Willy Walker is chairman and chief executive officer of Walker & Dunlop. Under Mr. Walker’s leadership, Walker & Dunlop has grown from a small, family-owned business to become one of the largest commercial real estate finance companies in the United States. Walker & Dunlop is listed on the New York Stock Exchange and in its first seven years as a public company has seen its shares appreciate 547%.

Glenn Youngkin
Glenn Youngkin

Glenn Youngkin currently serves as Co-Chief Executive Officer of Carlyle. Mr. Youngkin also serves on Carlyle’s Executive Group. Previously, Mr. Youngkin served as President and Chief Operating Officer from May 2015 to December 2017. From June 2014 to May 2015, Mr. Youngkin served as Co-President and Co-Chief Operating Officer. From March 2011 until June 2014, Mr. Youngkin served as Chief Operating Officer.  From October 2010 until March 2011, Mr. Youngkin served as Carlyle's interim principal financial officer. From 2005 to 2008, Mr. Youngkin was the Global Head of the Industrial Sector investment team. From 2000 to 2005, Mr. Youngkin led Carlyle's buyout activities in the United Kingdom, and from 1995 to 2000, he was a member of the U.S. buyout team.

If you have any comments or questions about the evolving economic landscape and how it is impacting the CRE space, our experts are available and fully operational to help. Additionally, if you have topics you would like covered during one of our future Wednesday webcasts, we would be happy to take your suggestions.

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Webcast Transcript

Willy Walker (WW): Thank you Susan and welcome to another Walker Wednesday webinar. It's a real pleasure to have my friend Glenn Youngkin with us today. Glenn is a friend of over 25 years, that dates both of us, but we were in business school together and have been friends ever since and it's an honor and a pleasure to have him join me today.

I'm going to start out with some comments on the commercial real estate industry as I typically do and then I'm going to turn it over and talk about private equity, Carlyle, how Glenn and his co-CEO are managing the firm today and what he sees as far as the outlook going forward for both private equity, the portfolio companies that Carlyle has invested in, and the overall economy.

Let me start in by always reiterating these are very, very challenging times for our world, our country and our communities. So, to all of you who are tuning in today, we send you and your families best wishes for safety and health during these difficult times.

We did earnings this morning at Walker & Dunlop and so I can now talk about a number of the things that we hadn't been able to talk about on previous webcasts.

We had a very, very strong Q1 but I think the more important data that we put out in our earnings call and script afterwards was what we've been seeing during the month of April.

Our Q1 origination numbers were at record highs and that was driven a lot by falling interest rates in March as well as tightening spreads once the Fed stepped in and started to buy Agency paper. As I have given people on this call an update over the past several weeks, agency spreads have remained very, very tight, they're now right around swaps plus 65. Freddie K deals are pricing a little bit inside of that and I know that the Freddie K deal that priced last week went off over-subscribed and inside from pricing standpoint of what they had published previous to the sale, so the agency CMBS market is functioning extremely well.

Before this call, Glenn and I got about 200 email questions that came in and one of the significant questions I saw a number of times, was what's happening in the CMBS world outside of agency CMBS. AAA CMBS is trading at about swaps plus 150 right now, that's come in quite a bit, that had widened out closer to swaps plus 200 so you are seeing some tightening there.

Some of you may have seen in the Starwood earnings call day before yesterday that Jeff DiModica mentioned that Starwood is actually looking at the CMBS market as quite promising to coming back and providing financing to the market. I would put forth that we need the VIX to chill out a little bit before we can really get any significant volume going in the CMBS world. A VIX that's bouncing around north of 25 makes it exceedingly difficult for even the best CMBS shops to actually price with any confidence that they're going to be able to deliver to the market the deals at any kind of pricing that makes them or their investors any money. So as long as the VIX is bouncing around I don't really care what happens to spreads, it's going to be hard for CMBS originators to do that. But once you get a little bit more stability in the markets I wouldn't be surprised if CMBS comes back and presents itself as a capital source for commercial real estate.

The other thing that we mentioned in our earnings call was just the amount of agency business that we did during the month of April and so we had a record Q1 sort of across the board in all executions. But in the month of April we did $1.9 billion of flow business predominantly on multifamily properties. We did do some financing in office, we did do some financing in retail, and we actually sold a couple properties in the month of April. But $1.9 billion of flow business for us in the quarter is a very, very active business and shows how active Fannie, Freddie and HUD are in the multifamily financing markets right now.

There's been a lot of question marks as it relates to collections. As everybody knows April collections in the multifamily space were very strong. Most of the operators who Walker & Dunlop has lent to were in sort of the mid 90’s on the collections front and some all the way up towards 98-99 percent collected in the month of April. We've moved into May and from - this is all anecdotal, this is not a wide survey – but this is to six or seven of our largest clients which I think represent about 250,000 units across the country. May collections are at or ahead of April and in most instances of the seven, five of the seven were ahead of April collections in May as it relates to rents collected. And one of those sponsors who has about 30,000 units was a full ten percentage points ahead of collection numbers; they were at 85 percent after four days of May and they were only at 75 percent after four days of April. So far so good as it relates to payment of rent at the beginning of the month for May. We've all been focused on that as it relates to both the lending community and the owner community as far as multifamily and we will see how that plays out for the rest of May and into June.

A number of questions also that came in as it relates to retail and what's the future of retail. Some of you may have seen Sam Zell who was on Bloomberg yesterday and Zell came out basically he said sort of “malls are dead”. I would challenge Sam on that statement, I don't think malls are dead. I think that Americans have been trying to find a way to adapt to the current environment and still get out and circulate in larger spaces where they feel safe and I think that there's also going to be pent-up demand for retail spend and that people will get back to that. How long that takes, and to what degree we get recovery there, is obviously anyone’s guess, but I would just say that I don't think that broad-based comments such as malls are dead is probably right. And as I've said in previous calls, we've been seeing strip retail perform very well, particularly grocery anchored strip retail. And some of you may have seen some of the stories from the likes of Shake Shack who have really converted their restaurant business into more of a takeout business. Shake Shack stock has done exceedingly well over the last month as they have transformed more of a takeout business and I think Shake Shack is a leading indicator of the transformation that we're going to see in the retail world where restaurants and retail figure out how to adapt to the new normal, figure out how to meet client’s needs, and deliver their goods and services in a safe manner, and that we will see economic activity come back, we will see employment come back to those providers of services.

Final two before I get to my intro to Glenn and then sort of open the conversation up. On the student housing side, we have seen very good collections finishing out the 2019-2020 student cycle, if you will. There are many, many college students who are still living in their off-campus housing and doing their remote learning from those dorm rooms. And the fall is obviously binary. Some of you may have seen that schools like Purdue who have come out and said that they are intent on going back to school in the fall, although they haven't declared that. But they are also going to take a dormitory offline and hold it as a quarantine area and they're also likely going to take doubles and turn them into singles. If a school like Purdue opens up, and they take a certain amount of capacity offline for a quarantine area, and they take doubles on campus and turn them into singles, that is going to drive a huge demand for off campus student housing. So, while there are many people trying to figure out well we still need to hear that Perdue is going back to school in the fall, there should be a very healthy market for off campus student housing when and if, and unfortunately the “and if” is still in the statement, universities go back to school in the fall.

And then the final one is office. Clearly office has long term leases on it. That is not getting hit as it relates to clearly the vacancies that we're seeing in the hospitality and the retail world today, and at the same time there is no doubt that the office environment is going to be a changed environment when we all get back to it.

I've spoken to two of our clients over the past day who have both just gotten back into their offices. They've said that many of their workers are just thrilled to be back in an office environment. They're both smaller office environments so they're not having to deal with the hundreds of thousands of employees like Jay Carney last week talked about at Amazon, and clearly not to the degree of big corporate headquarters where there are hundreds of thousands of people walking around. But in both situations, they were both very specific about saying that people really loved getting back into the office and seeing their colleagues. And whether that's with PPE and having to wear masks and gloves, whether that's in a walled office environment versus a shared workspace, and whether they have problems getting in and out of the office buildings because of elevator banks and how many people are allowed into an elevator car at one given time, those are all issues that many, many of us are being challenged with as we think about going back into offices.

But I can find just as many people who say to me that people will never go back to offices as I can find people saying offices are going to do really well because they're going to need more square footage per employee and people will still want to go into offices and interact with one another. So, I think it's a little bit too early to make any declaratory statements about the office market but it's very good to see people getting back to work and starting to interact with one another on a small scale.

So, I'll now turn over to my guest Glenn Youngkin who, as I said, has been a friend for many years, holds the extremely important job of running Carlyle, one of the world's largest and most successful private equity firms. A little background on Glenn if you don't know it. He has a mechanical engineering degree from Rice University where he played basketball, and I will loop back to that a little bit later in this discussion. He went to Harvard Business School and was a Baker Scholar at HBS, and then when out of HBS after having previously been at McKinsey and Credit Suisse, both out of college and then between years at HBS, to Carlyle and was one of the very early people at Carlyle given the firm was only founded in 1987 and he joined them at the end of 1994.

And so, Glenn, I've got kind of two questions to start out on. The first one is that most people who are Baker Scholars at Harvard Business School end up going to places like McKinsey and spend their career studying a lot of things and using their big brains to solve other people's problems and not managing great firms like Carlyle. So, the first is how did you, if you will, avoid going back to McKinsey? And then the second thing is, tell us a little bit about Carlyle back in 1995 because it was a much smaller firm, it was one of the few buyout firms that wasn't based in New York at that time and everyone didn't think that Washington DC would be a hotbed of private equity as you all have made it out to be.

Glenn Youngkin (GY): Great. Well first Willy thank you for having me and I just really appreciate everybody gathering together here during your lunch hour. I do want to just express our thankfulness for all the folks that are on the front lines right now. It continues to be an hour by hour, minute by minute fight, and there's some folks that are doing just incredible work and so I think all of us should just be hugely appreciative to all of them.

And Willy what a place to start. Back in 1994-1995, you know when I joined Carlyle - I met David Rubenstein very early on. I was introduced to him when, I must say I was actually working at McKinsey, I worked at McKinsey right after school for a short period of time. And when I met David he said well why don't you meet my partners, we're doing some interesting things, and I was really captivated by the way these three gentlemen were really seeing the future, the way they did business, they're just three really good men. And, so I remember coming home and speaking to my wife and saying I think I'm going leave McKinsey and go work at this small startup - at the time Carlyle had less than 30 people - and it was just an extraordinary time in the industry. So, I just look back as being incredibly fortunate to have a chance to get in at the ground level at a firm like Carlyle. Over the last 25 years it has been just a fabulous evolution of not just the industry but our firm, and I couldn't imagine being any place else, I feel like I have the greatest job in the world.

WW: So, talk to me for a moment about Carlyle's position in Washington, because you know your headquarters sit between the Treasury Building and the Capitol building. I think a lot of people, when Carlyle was first founded in DC, a lot of people thought that Carlyle was going to use, if you will, access to the corridors of Washington as a differentiator in the way that the firm would raise capital and deploy capital. And as the firm has grown and grown and grown I would think that sort of, if you will, the center of the firm has moved further away from the Capitol building and closer to the Treasury building as it relates to just a massive provider of capital to markets. Talk about it, am I correct on that Glenn, or do you still view being in Washington as a differentiator as it relates to access to deal flow and also the types of companies that you all invest in?

GY: Well just for context, and I think it's a really interesting question, Willy, because as the firm evolved over really the last 25 years since I've been there we did go from having one office and really being very Washington centric, not just from a policy standpoint, but the kinds of businesses we invested in were generally near us. To today, 30 offices around the world in more than 20 countries. We have nearly 1,800 employees with really investment activities ranging from private equity to private real estate to private energy and infrastructure and credit all over the world. And what that has really reflected is just a very global view of where investment opportunities are. Yes, being in Washington has continued to always be a differentiator, although we have a big office in New York today, but being headquartered in Washington I think just gives us a different position, a different perspective on things. Many of our investors do appreciate the fact that sometimes we have some unique insights into what's happening in Washington but as the firm has grown we have become quite global, and what's going on in London ,and what's going on in New York, and what's going on in Beijing and Hong Kong and Tokyo are equally important, and so I think our roots really did give us a great foundation but today we're a global investment firm and we really do rely on our global perspectives more so than anything else today.

WW: So, let me dive in for a moment to both the four strategies that you all are on and get your thoughts as it relates to it at this time. So you all I think have about $224 billion dollars of total AUM and in that you've got your corporate private equity business, you've got your real estate business, you've got a global credit business, and then you've got your investment solutions business.

Can you talk for a moment, Glenn, given where we are in the cycle, what you're seeing both across the portfolios in each one of those different, if you will, areas of focus or discrete investment strategies. As you look at it, what are you seeing right now as far as opportunities? Is there more opportunity on the corporate private equity side, on the real estate/infrastructure side, global credit or investment solutions and why. Is it because you've got capital for it today or you see opportunities for it today?

GY: So, Willy, that's a big question. So, let me just do a quick table setting on where we see the economy right now and I think that will lead to I think a good backdrop on each one of the segments. So, where we are in the cycle - boy that's a tough one. I think we're at the bottom of the cycle today and that has I think been something we've been preparing for. I don't think anybody expected to be in a global pandemic with, at one point or another, the entire world shutting down. I had a friend who runs a very large bank tell me that their disaster recovery plan was targeted towards the idea that one of their big buildings went out and the idea that all of them would go out at the same time was beyond their belief. So, I do think where we find ourselves today is so far beyond what anybody would have anticipated. But we were expecting that we were in late cycle and we had felt it in pricing, in opportunity and the risk reward trade-off, and so our portfolio construction across the whole business had been migrating over the last year plus.

For example, and I'll just take real estate while I'm here with you Willy. I mean over the course of the last few years our real estate teams had migrated away from most demographic driven real estate investing and so in our U.S. portfolio today, which is our largest portfolio, we have two percent across the whole portfolio in hotel, two percent in traditional office and one percent in retail, and that's just because those have been in for a while, it wasn't anything we did recently. And similarly, across our private equity business we spend enormous amount of time making sure that the portfolios are diversified but we also didn't chase a lot of the trends over the course of the last year. So, we have a low level of retail, we don't have any real hotel, we have I think one percent hotel in our broad private equity portfolios. We do have a bit of, we have about five or six percent of aerospace, but we're really well diversified. And, so I think the first stop on this is just having been a little bit prepared for an economic reset, nothing like we've seen, I think was at least in the planning.

As I go through each one of the businesses, our corporate private equity business, which is our largest business, and it's just around $85 billion of assets under management today, its global, and it really benefits from being global. We have portfolio companies in China, India, in South America, of course the United States and Europe, and Africa. And I think that perspective has been incredibly helpful as we've gone into this pandemic. Of course it started in Asia, and I think we all forget that while we're sitting in shelter-in-place, all of our Chinese colleagues were doing this back in January, and so that gave us a chance as a firm to really begin to prepare and I think it gave us a little bit of a head start. And what that has resulted in, I think, is good preparation in preparing our portfolio, which I said is very diverse, for what is an extraordinary economic shock. And Willy we can talk about where things stand economically a bit later.

WW: And Glenn, just for a second, have you seen anything as it relates to, since you have such extensive investments in China and Asia, what have you seen as it relates to the recovery there because a lot of people have been sort of looking over there to sort of say is that a model to the recovery in the U.S. What are early signs - because you saw early signs of it, of the crisis coming to America - what has it done now kind of on the other side of them bending the curve and getting back to work?

GY: I think there's some encouraging data out of China and I think what that data would suggest is that industry and capacity can stand back up reasonably quickly. China has got a unique system and therefore their ability I think to uniformly manage things was incredibly helpful. But we've seen capacity in restaurants, capacity in port operations, pick way back up to the point where it's not quite where it was pre COVID-19 but it really is from a capacity standpoint pretty darn close.

I think the big observation has been certain parts of the Chinese economy have rebounded well and other parts have been sticky slow and that's understandable. So, the parts that have rebounded well are the parts that you would anticipate – so consumer demand in staples, consumers do want to get out, so we've seen a real rebound in the more basic consumption. What we haven't seen is a big rebound in buying really heavy goods or things associated with material capital spending in businesses. And I think there's just a continued concern about the pace of the recovery and safety. And I think health concerns will be the biggest issue in this recovery coming out.

One last interesting observation is auto sales in China have rebounded substantially. In fact, expectation is there will be growth year over year. Not growth from February to March and March to April but a few weeks here where there's been growth year over year and that really does reflect a meaningful shift from wanting to ride mass transit, or fly and, in fact, translate that into driving. We're watching traffic patterns in particularly Beijing increase substantially. There's 11 percent more traffic during rush hour in Beijing today versus last year.

And so, Willy, the short answer after a long description is we're seeing some reasonably I'd say good data out of China recovery but I think the areas that we all expect to be tough are tough and they all relate to consumer confidence particularly around big purchases which require financial stability, travel which requires safety expectations, and companies who have dialed CapEx way back turning that CapEx back on.

WW: So, trying to stay sort of on the series of events and looking at Asia and China specifically as somewhat of an allegory for us, have you all found opportunities to deploy fresh capital into that market or is it still too early and the long-term impacts haven't really started to show themselves to present opportunities for you all to go in and buy new portfolio companies and make investments or provide a huge amount of debt capital in the market because it’s needed?

GY: So, Willy, as we were just two minutes ago, the private equity business has got its own characteristics, I’ll come back to that in two seconds. Our private credit business which is just about $50 billion and cuts across a whole bunch of strategies is our busiest area today. And then our real assets business, which is energy infrastructure and real estate, all private, has got of course different dynamics in each one of those sectors. And then our portfolio construction business, which is about $50 billion as well, continues again to be active in particular areas and let me cover them.

So, the tip of the spear in investment activity today is credit, and credit is where the first opportunities in recoveries tend to present themselves, its first dislocation. And, by the way, the dislocation closed very quickly - your opening comments of course around what's happened in spreads. As soon as the federal government came in and provided an enormous amount of liquidity support for all of these markets, a lot of the initial distress trade went away, it went away very quickly. But what we are seeing in the world of credit is real needs for companies to actually meet some liquidity issues but then also as they see the recovery coming they're preparing to invest in both CapEx and working capital and growth, and we view that as a real opportunity for a lender like Carlyle. It gives us a chance to structure it particularly for a company's needs, there's good capital availability and we see lots of opportunities there. So, this is what we call opportunistic credit and I think that really is the most active area.

Similarly, across the platform we see this exact same liquidity need as opposed to traditional big private equity deals presenting itself in almost every asset class. And in private equity people refer to pipes or structured investments into private companies – in infrastructure it's the same and, indeed, in real estate it's the same.

And then, finally, I would tell you that we're seeing an enormous amount of activity in our investor solutions business and that business, it's one of the largest and fastest growing areas, is actually in secondary purchases of other investors interests. And, again, in a world where there's liquidity constraints with investors and there is a deep understanding of what's happening in the market, our team there has been pretty active as well. So, I think we're going to see this progress Willy over the course of the next six to nine months as today its credit, secondaries, it's going to move into liquidity solutions for companies that come from private equity style structures but across all the asset categories, and it really won't be for a while to where we see the traditional private equity style purchases that, you know buy a whole company or take a company private kind of structure.

My last quick comment is of course Asia is ahead of everybody and so I think the opportunities in Asia are presenting themselves earlier than of course they are in the United States and Europe.

WW: So on that, as it relates to opportunities there was a question that came in beforehand on where the stock market is today in the United States and the fact that the equity markets at 24,000 on the Dow really haven't fallen off that much and is the worst behind us? So, to your point as it relates to the opportunities haven't really presented themselves in Asia, what's your, as far as the U.S. economy is concerned, the question is sort of saying if the equity markets are where they are that means that the worst is behind us and is there going to be the opportunity to deploy capital. And you may have seen over the weekend Warren Buffett at their annual meeting said we're having a hard time finding opportunities to invest in and I think in Sam Zell’s interview yesterday in Bloomberg, he said a similar thing. Is it fair to say, A.) it's too early to tell and then, B.) give me your thought as it relates to kind of the trough that we're going to be in here between what appears to be the advent of the crisis and then when we start to see GDP kick back in.

GY: So, the first component of this is what does the economic recovery curve look like and that's the hardest thing to answer. And I do think that our general view is it’s a U, not a V, and how long the bottom of the U is, it's hard to tell right now. I think that's the biggest factor into deployment and capital opportunities. Why?

First, the longer it stretches out the more opportunities there are going to be for liquidity solutions, really good companies that just need capital in order to either prepare for the recovery or meet a gap in liquidity in this U and I think that is the disconnect between the public markets and the private markets today. I think we generally have seen a very quick rebound in public markets, and I think that reflects public markets ability to look past the disruption. I think our view is that the recovery will take longer, and it will be filled with fits and starts. So, our sense is that will correspond to a fair amount of volatility in the public markets as the expectations get recalibrated along the way. I would say, Willy, if it ends up being a V from an economic recovery then we're all going to cheer and be really happy. I think the idea of trying to race in and do that fabulous deal that makes a career, that's just not what Carlyle is about. We're about trying to make very thoughtful investments right now. And, as I said, we're trying to use our capital and our network, and I think our global platform to really have great perspective on this.

Last quick comment is that it is this shape of the recovery and how long it's going to take that will in fact define which industries particularly present the best opportunities. And I just want to make sure I was clear. We're actually starting to see opportunities in Asia today as we see that recovery but they're in the kinds of sectors that you would expect. We've seen innovative healthcare, we've seen technology. We've actually seen many parts of the financial services sector really be quite robust during this time period and we think have great growth. And, in fact, some areas even in core manufacturing and industrial land have been quite resilient. So, there will be a big segmentation of sectors and business models that will really differentiate the real true winners that come out of this and companies that are going to come out a little more sluggish.

WW: Can you talk for a moment about your investor base. You all obviously, right now, manage well over $200 billion. You have long-standing relationships with the largest providers in institutional capital around the globe. What's on their mind? Are they looking to put more money to work, are they pulling back, and how much liquidity is there out there on the private capital side of things?

GY: So, the global institutional investor base went in - and to talk about it as this kind of homogeneous investor base is of course wrong because each investor has its own dynamic.

WW: I won't ask you specifically about the Saudi government. I was trying to make it broad without going specifically to investors.

GY: What's most interesting is that comparing this pandemic, you know true financial disruption and economic disruption to what we saw back in the great financial crisis, the investor community, the institutional investor community, is in a very different place. The investor community today has a much better handle over what's in their portfolio, what their liquidity needs are and, therefore, when the big disruption happened with the huge market fall off in March and the big questions around what was this going to mean from an economic standpoint where you had literally data coming out of Heathrow Airport where they were running at 97 percent down on capacity. Investors were quickly searching for information, how are things, how are things performing, what are you seeing in your portfolio so that they could get a real, a much better balance of what they've got and, therefore, assess how they want to move forward.

Our general take is, that in general, there will be of course a reduction in fundraising activity across the industry this year as the institutional investor community kind of catches its breath. With that said, I think there will be some very important commitments in fundraising and investing done this year from this investor community as they of course invest behind credit opportunities and dislocation driven opportunities, but also as they lean in to some of their longest term relationships and partner through this. So, I think there will be fundraising activity, it'll be just down from what it has been historically.

And I guess lastly, there's been a remarkable increase in interaction and information flow as a result of the ability to use Zoom in order to really cut down what used to be travel time and you physically had to see each other. And, all of a sudden, we've been able to establish a cadence and data flow and sharing of ideas with our global investor base in a way that we never really could believe right now. And so I will say that one of the big shifts that I foresee as a result of this is the sustained use even after were through this pandemic of this kind of technology to enable just a much deeper interaction with investors but in a very efficient way.

WW: So, on that, you bring up the fact of travel and Heathrow volumes off 98 percent. I know you guys have a big infrastructure project going on at JFK Airport right now. You guys have been long-standing investors, very long, the energy markets, aerospace as well. As you look at the various sectors right now, Glenn, clearly certain things are working other things aren't working. I’m particularly interested in energy just because of where oil prices are right now and sort of everything kind of drives off of that, if you will. You guys have made lots of investments in both, if you will, traditional energy as well as new energy of renewables. With oil where it is right now what are you feeling good about in the energy space and what are you sort of saying it's going to be a slog out of this given where oil prices are right now?

GY: Can I start with JFK?

WW: Yeah.

GY: So, one of things that I think we're most proud of is the fact that the redevelopment of JFK, and our piece of JFK is the new Terminal 1 which is the international terminal. That work has continued. And one of the great developments there has been the coming together of our union investors - the unions are a great partner for us in this project - the Port Authority, the banks, and the airlines to come together and recognize that this is really a construction project over many years and, in fact, the passenger dependency of JFK for our project doesn't really start for four plus years, because we actually have to build a new terminal. But to watch everybody come together and recognize how important this project is for New York, for the country, and most importantly at this time, has been great. So, we continue to progress that project, we are moving through the last stages of contracts and all that kind of very important detail, but that project is one that is important to move forward in.

WW: Before we jump to energy then, just on that as it relates to infrastructure. Given Carlyle’s both physical presence in Washington D.C. and all that's going on do you know, Glenn, whether there's been any talk about a significant infrastructure bill? Because as you think about the daunting challenge - and I know you're working on this right now as it relates to putting people, getting retraining in Virginia to put people back to work when the economy comes back, and so, first of all, I salute you for your efforts on that - but what I think has been missing from the conversation about the Cares Act and Cares Act II, III and IV and everything else has been some type of infrastructure bill to put people back to work exactly as those workers are looking to redo Terminal 1 at JFK right now. Do you know if there's any infrastructure bill being contemplated and has Carlyle kind of raised their hand saying, guess what, we understand this stuff and we know how to invest in public private partnerships and you ought to put together some type of package to put people back to work.

GY: So, Willy, the biggest component of all of that right now is the recognition that Congress and the administration are incredibly focused on the management of the pandemic, the health crisis and supporting the economy and it seems that, of course that has the vast majority of their attention. I think an infrastructure bill would be great. To be honest, I think it's going to be tough to get one done in this environment just given all the other things on their plate. With that said, you know we were always an advocate of infrastructure support that actually included the private sector. The kinds of things that we have been able to progress at JFK, I think are incredibly innovative, and really do bring to bear a lot of the learnings from around the world on how to develop infrastructure. So, while we'd be supportive and hopeful of an infrastructure bill, I just think there's so much on everybody's plate in Washington right now that we don't expect one.

WW: So, on the energy piece, I know you, I listened to an interview you did probably about a year or so ago where you talked about the fact that investing in renewables is something that Carlyle is very focused on, that as 80 percent of the world's energy comes from fossil fuels and as that moves down towards 70 percent just as a matter of technology and going from sort of coal-based electricity to alternatives-based electricity, that Carlyle is going to be in that space. So, given where oil prices have moved, given where the cost of renewable energy has moved, what's the outlook now? Because you guys are deep in these markets and I think it would be very telling to people not only where there is opportunities as far as investments but then also where oil is having just a dramatic impact on every sector pretty much right now. So, talk energy for a moment if you would.

GY: Sure. So, what's happened in the energy markets over the course of the last three months has actually been a double Black Swan event so there's been two things that have happened. One is, of course, the tremendous demand contraction as a result of the global economy effectively shutting down. And the expectation is in the month of April and into May that there was about a 30 percent reduction in demand for crude, and that may be a little light with airlines grounded and industry closed and transportation way down. What we also saw at the same time of course was some really difficult moments on the supply side as the agreements around what to do with supply started out in the wrong direction- let's put more supply in the market, and it took a while for the industry and particularly OPEC plus Russia to come together and agree to actually constrain the supply.

Meanwhile market forces are doing exactly what market forces do. One of the great adages in the energy business is that the best solution for low prices is low prices and of course what's happening is production is in fact being shut in because it's not economic to produce oil and sell it at these prices today. So I think the expectation is in the United States that where we had been producing 13 million barrels a day, that over the course of the year that production will come way down as much as four million barrels a day down, which is just a substantial reduction in supply into the market.

Of course, the long-term issue here is going to be the pace of the recovery. We're already seeing in China automobile traffic increasing and therefore demand for gasoline etcetera increasing, and we're seeing the exact same thing happen in Europe. Even early days, one week into the European gradual opening, particularly with Germany leading the way, you see demand for diesel and for petrol up 5-7 percent, so we'll see a rebound in demand. I think the big issue for energy on a go-forward basis is in fact going to be where the supply and demand settle out. Our sense is it will take into next year for it to recalibrate and rebalance. However the market is I think pretty actively in front of that, you can see oil prices today are really low and in fact the forward curve which tends to overreact in these circumstances has oil rebounding over the next two three four years, you know, $25-30 so this will still play out over a period of time as the supply demand corrects itself.

One of the interesting developments - and back to your comment around this energy transition - is in fact the role of both natural gas and renewables in the transition for power production. And with natural gas prices incredibly low and expected to stay low for a long period of time and the ability to construct and contract wind and solar predominantly at overall costs of energy delivery that are comparable with a new bill in a fossil fuel, we really do expect to see over the next, you know call it 10-20 years, a substantial replacement of higher carbon content power generation with lower carbon content or zero carbon content. And that evolution where we're gas plus renewables, and a large part of it renewables, we think is a very interesting long-term trend which is why we think particularly renewables are a great place to invest right now.

WW: Yeah, that's such an interesting comment as it relates to, if you will, some of the positive impacts of this crisis and how its transforming things. I read an article in the New York Times day before yesterday about the fact that April was the first month that more electricity in the electric grid in America came from renewables than came from coal. And in that article, it said that only 15.2 percent of electricity generated in the United States in the month of April came from coal.

The data point that caught my eye was that that is down from 50 percent in 2008. So, although April is lower than most because of a number of market dynamics, as you just pointed out, as it relates to the cost of renewables at this time it is just stunning that we've gone from 50 percent of our electricity being generated by coal in the United States to in the month of April 15.2, and I believe in January it was at 20 percent. So, it's just a wholesale change as it relates to the energy sector in the United States and who's providing the source of energy.

GY: Yes, and I think what will be interesting to watch is what happens when offices begin to open back up and air conditioners get turned back on. And I think that – one thing about power is it is a light switch, so we're going to end up watching this recovery really have a meaningful impact on the power grid itself. And how it’s brought back up because, you know, it's not like the power grid has shut down. What's happened over the course of the last two months is we’ve seen anything from 2 to 5 to 10 percent reduction in the overall demand for power, and that's with industrial and commercial demand coming down and residential demand as we all work from home go up. And as we begin to move back into our office setting to some degree, we'll begin to see that shift again and I think we’ll end up getting both. We’ll be getting both commercial, industrial, and office demand and a continued amount of residential demand. So, I think, of course depending on weather over the summer and how hot it is and how high the air conditioners go, I think we'll see a rather interesting case study in what happens when economies throttle up and down on overall demand for electricity.

WW: Let’s talk for a moment, Glenn, about your leadership position on ESG. Carlyle has been a real, has been a real leader, not just in the private equity space but across your portfolio companies, as it relates to ESG standards. I was amazed and extremely pleased to see that 50 percent of your AUM is managed by females. Can you talk for a moment about what got you so focused on ESG and I can only imagine that Carlyle’s leadership position there has been extremely beneficial to your fundraising efforts.

GY: Yes. So one of the clear recognitions is that - and I'm going to use the word impact and ESG and diversity in different buckets because there are significant, significantly important components to each one, but I'm going to throw it all together for impact right out of the box here.

One of the recognitions is that impact is not an investment strategy. Willy, there's a lot of folks who say we have an impact fund and I don't know, does that mean the rest of their businesses aren't in it, you know don't do any of it? That I’ve never quite really got my head around. But what we believe is that if you invest for impact then you will take a good business and it will become a better business. And if you in fact embed into your assessment process criteria that you're going to not only diligence these topics, but there are companies that in fact you can take a company that's not so great at it and make it much better on an ESG scorecard and you create value. You can take a business that in fact the whole business plan is around some very innovative ESG strategy.

There's a company we own called Jeanologia which is in Spain that basically makes jeans look acid-washed, but they've come up with this really cool technology that reduces the amount of water and doesn't use a lot of chemicals and it's just a spectacularly fast-growing company. And, by the way, they've done some great things during the COVID-19 epidemic to use their capacity to really help their communities. But that kind of investing is not, again, it's not an impact strategy, it's just a really good company.

And, similarly, when we take a business - and I'll go back to energy – you take a business that, one of our businesses is Neptune which has a lot of North Sea production, and we can actually reduce the carbon footprint per barrel because you electrify the rigs, you do a much better job with flaring. You do all the things that you need to do in order to fundamentally reduce the carbon footprint and then, all of a sudden, you can take good businesses and they can become great businesses. So that's step one and I think it's important that it be, it just has become part of our dialogue at Carlyle, how do we take a good company and make it great? ESG is a primary factor into that to do it really well.

I think our second big moment was, you know we all recognize that if we sit with a group of people that all look the same, that went to the same school - and Willy and I are guilty - went to the same school and have had the same training and the same experiences, you’re going to get very similar answers. And what is clear is when you have diverse teams, that have diverse experiences, and you create an environment where that kind of experience is brought to bear to make a better decision, then all of a sudden your investment outcomes are improved and that's just clear - the data, the research, is overwhelmingly in support of that.

So, we felt that one of the big steps we needed to take was to make diversity and inclusion not a program at Carlyle but to embed it in the way we think about how to grow Carlyle. We were really fortunate, gosh a year and a half ago now to be able to bring in just a rock star Chief Diversity Inclusion Officer, a woman named Kara Helander, and she joined us and really we've just systematically gone through our whole firm and spent time thinking about how to do a much better job at this. And I will tell you, as an industry and at Carlyle, we've still got a long way to go, but I think we've made really, really good progress.

And the key to this is, it's about diversity of experience and diversity of thought, not box-ticking. And, so we look at it today and we've got, we think a pretty representative group of folks that join us every year. About half of the folks that joined Carlyle last year were women. We have a good set of senior women at Carlyle that, as you said, manage a lot of the AUM. We just think that makes us better investors. So, both at the portfolio and at the firm level this is about just building a better business and recognizing that when you actually embrace a lot of the basic inputs of diversity of thought, lowering carbon footprint, thinking about how to save energy, trying to increase efficiency, you just get better outcomes.

WW: So, we've got about five minutes left and I want to talk a little bit about where you see the world a year from now and then I also have my final basketball question for you at the very end which I teed up at the beginning. But if you look out a year, Glenn, where's the equity market a year from now, where’s the ten year a year from now? There was an Elliott Capital letter that came out, you may have seen it this past week, that was a very long letter, it was about 30 pages. It talked about a lot of different things but one of the things that they were talking about is the fact that inflation is going to start to hit our economy. And I read it and I sat there, and I just said where's the inflationary pressure going to come from? It's not going to come from the cost of fuel, it's not going to come from the cost of labor, the only thing that's going to drive inflationary pressure is the amount of money we're printing right now. And right now it appears that as long as people continue to buy 10-year bonds at, I think the ten years at 70 basis points today, we'll be able to print as much money as we need to get ourselves out of this crisis and I just don't see inflation coming in. So, 10 year, a year from now, is there inflationary pressure, what do the equity markets look like? What's your outlook just a year from now, don't go further out than that unless you want to.

GY: So, I am always hesitant to disagree with Paul Singer.

WW: I hear you - this is you and me doing the group think from both having gone to the same business school together.

GY: Exactly. So, I first just have to acknowledge it's incredibly difficult to think one year out - it's easier to think five years out and it's easier to think a month out, but it's really hard to think one year out and it goes back to a lot of the really difficult reopening challenges. And, of course, into that one year equation has to go, well, have we made progress with a vaccine? Do we have therapies that people trust? Have we seen reinfection really force big cities to reclose? What's happened in the southern hemisphere? And so, those inputs make really having any kind of prospective view for one year really hard.

What do we think can happen over the course of the next year? As I said, we think this is going to take longer as opposed to shorter, so it's a U. It’s going to have fits and starts. The fits and starts are going to in fact disrupt and cause a fair amount of volatility in the markets because people have to reset expectations each time and I think expectations in the public markets today are a bit optimistic on how quick we can move through this to an economic recovery. With that said, and this is just borrowing a quote from Warren Buffett, never bet against America. I think the progress that we can make with regards to innovation around a vaccine, innovation around therapy, innovation around how we treat patients will potentially provide some upside on the health side of all of this, which will of course then help the economy.

WW: So, let me let me try and push you a little bit on that. The Dow is closer to 30 thousand or 20 thousand?

GY: You know, Willy, I'm going to keep it being very evasive because the good thing about this is, we're not public company investors. Do I think that investing in companies today you can find good acquisition opportunities? I think prices are going to still be high, you know sellers and buyers, mark-to-market at a different rate, so sellers still have expectations their companies are worth a lot, or properties are worth a lot. But I do think that if things that are invested in in 2020 and 2021 - are we going to be happy we invested in them as long as we did our work correctly in 2024 and 2025, you bet. And it really is just going to be a meaningfully volatile kind of 9 to 12 months in front of us. I have to say, I think that the- recently the IMF outlook was that we would at the end of 2021 be at levels of GDP that we had at the end of 2019 and that's a longer recovery than I think most people are thinking. But, you know, that's a realistic outlook.

WW: The luxury of being a private investor.

GY: It is.

WW: So, we are at the bottom of the hour and so I want to I want to finish with one final thing which was, as I was doing my research on you, Glenn, you are the quintessential successful steady leader. You embody everything that one would think of as somebody who is both steady in their thinking, looking to the future etc. etc. But when I went back and looked at your stats from your Rice basketball career your free-throw percentage was only 41 percent and I'm just wondering how a guy who's been steady-Eddie had a free-throw percentage at 41 percent?

GY: So, Willy, I am stunned you were able to even find stats. I was one of those one folks that had really high ambitions when I went to college that I was going to play in the NBA, although I went to Rice and so there's a, you know there's a reality there, and I learned each year in college that the most important thing I was going to do was graduate with a good degree and go get a job.

I will say, just a quick note, we were playing Marquette in the first tournament that was played at the new arena up in Milwaukee. And I didn't play that much but this game I happened to get a chance to play in. And it was in the first half and there's 16,000 fans in the place and I got fouled. And I went to the free-throw line and I air-balled the first one by about four feet and it bounced before it went out of bounds and all 16,000 people yelled and screamed. And then the second one I switched, and so I was my normal kind of 50 percent from the foul line. And then play happened and whatever and I got subbed out a few minutes later and I went running over to the bench and the head coach looked at me said what happened on that first free throw, and I said if I only had more pancakes for breakfast I would have made the first one too. But I will say that shooting free-throws in an arena stacked with 16,000 people, I was happy to go one for two.

WW: Well it's all been swooshes ever since. Glenn, I want to thank you for taking the time to join me today to give your insights into the markets. As I said at the top, it's a real honor and a pleasure to have you join me, and I know that all of your comments were very well received and very informative to everyone who tuned in so thank you my friend. To everyone who joined us today thanks and we'll be back next week with another one. Have a good week and stay safe and stay healthy. Thanks.

GY: Willy thank you.

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