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One of the more talked about topics at Milkin this year is, yes, we've been talking about the regional banks, but we've talked a lot and maybe even more so about what's going on in commercial real estate real estate in general. Yesterday I had an all star lineup on real estate, including this gentleman next to me. Sean Dobson is chairman, CEO and chief investment officer at Amherst. They've got seventeen point six billion in assets under manager. I
think that was at the end of last year. They're buying their renovating homes, they're investing in single family rentals, mortgage backed securities and commercial real estate. So, man, this is the person to talk to real estate.
I've built you up and it's expectations better than that.
Please go wherever you want to see you again.
Very good to see you.
So I know we're going to rehash some of the stuff we talked about it on our panel. But you know, coming out of the Great Financial Crisis, you took what was a difficult environment, but it was really opportunistic for you.
Correct, it was bull at your company.
Talk to us about that time and maybe is it you know, how you think about some of the crises people are talking about now?
Is it sure?
That's always the question, is this another two thousand and eight? So for us, it was interesting. The roots of our firm are actually in analyzing mortgages, which is pretty boring, so we can kind of put everyone to sleep talking about the.
Fixtrate mortgage, but with data is important.
But data is very important, and we tackled this sort of over twenty five years where we'd stopped thinking about the mortgage market in general and started thinking.
About each mortgage in each house.
And so now with you know, with the data and analytics and the scale of operation we can we can sort of weave to together the story of what's going on with the eighty to one hundred million real estate parcels in the world and then look at sort of
the larger, bigger trends. And so with the financial crisis, for us, it was all about understanding the level of credit risk that was built up in the market that was really heavily dippening on home prices continuing to outperform, and so we positioned our clients into sort of really asymmetric return trades that benefited from housing underperforming. Now, this is not two thousand and eight today, not at all,
not at all. You've got a very different infrastructure. But one of the things that came out of two thousand and eight was very difficult for the average American family to get a mortgage. So we were sitting around the table in two thousand and nine kind of exhausted from anticipating it and then you know the mess that it occurred, and we thought about what is the next And this is what Amherst does. We don't do sort of run
in and buy something and hope it appreciates. For like, what's the next thing that we can do to provide a lot of service to a lot of people for a trade that's very durable. And we thought about what's going to happen to all these homes. Families still need to live in the home. They need the type of amenities that a home presents the local, the school district, and that type of thing the things that multi family maybe doesn't do a great job providing. They need this
type of real estate. But if they can't get a mortgage, are how are they going to live in this in this real estate? So around post financial crisis is okay, let's figure it out. And so we built a national platform that does all of the basics that leverage off of all of our technology. We already were pricing the home and thinking about the home as a as an investment, and so we said, okay, how do we activate this investment when really it's a lot of grander decisions of
an acquisition and underwrite repair. So we built a national general contracting I never thought that Amherstond end up owning trucks with people running around fixing the air conditions.
Well that's what's interesting, right, I mean, because it's rental.
It's rental.
Right, Yeah, So in the US about two thirds of people own their home, which is pretty good for a global comparison of home ownership versus rentorship. But that means about a third of American families are living in a home that they're leasing. And I spent the first sort of two thirds of my career helping and participating in the mortgage market and.
Helping people own.
And I spent about the last third of my career, the most recent third, hopefully not the last third, but the most recent third of my career, focus on that rental segment that you know, there's so such a big market.
You're talking about.
Fifteen million families live in a separately detached home that they're leasing from an owner operator. And of those, there's only like half a dozen of us that are big owner operators. The rest of them are owned by individual investments.
Does that continue in terms of the amount of people that are in rental? And you know, some of the things that came up on the panel show, and I thought was really interesting. We talked about demographics. Right, older folks, they're not leaving their homes. They don't want to have that three percent mortgage or four percent or whatever, you know, let low mortgage. But there are some things going on. So does that stay? Does that continue where people don't buy a home?
I think it does.
I think it's here to stay. I think that there's a little lot consumer preference at stake here. Owning a home means sort of committing to stay in one location for a longer period of time. We see less that about a quarter of our residents move out every year.
Wow.
So some of this is it's not time to buy.
Some of this it's very difficult to buy, and we have to provide them the type of services that they're accustomed to. Coming out of multi family, we have a lot more professional management, so I think there will be a lot more growth in the rental segment. One of the things that to point out, you just point out something super important that most people didn't haven't really fully adjusted for yet. I don't think so. My dad is eighty five years old. He's fantastic. He's still the smartest
guy in the room. When my father was born in nineteen thirty seven, the life expectancy for a male in the US and the UK was sixty three years.
So he's outperformed, which we love. But today Dad go Dad.
So today a male born in the US or UK has a life expectancy of eighty three years.
So that twenty year.
Expansion life expectancy is a third and that changes everything. And one of the things that changed was how real estate gets recycled.
Back into the market.
So the US, you have a decade of underinvesting in real estate, and then we have the use case extending extending, and then on the front side we have more people choosing to rent or requiring to rent. What happened to the GFC, So you can just kind of see there's a lot of tailwinds behind the asset class.
This is what I find fascinating about housing, Like the supply demand.
It's so basic, but it really it's.
Not that complicated that you have to have the demand the supply where people want to demand.
This is another issue. Yeah, another big issue is the age.
Of our housing stock. The average home United States built in nineteen seventy seven. It's got less than eight foot ceilings and it's got one bathroom for every three bedroom.
I grew up in a house in the nineteen fifties, don't even know.
Well, that's not the product that people want today. And so we have this unbelievable business that takes that home and modernizes it and basically recycles it.
Well, I guess what I'm also curious about is what happened to the oversupply of housing coming off the Great Financial Crisis where people were talking about blowing up houses, you know, increasing immigration, so that immigrants could buy home, Like what happened to that oversupply?
We bought it?
We did because it wasn't the supply demanding balance that they thought about them was geez, we lost a lot of our consumers that were going to buy. But we realized is that you didn't lose the fact that people want to live there. But someone has to institutionalize the equity.
Supply to that home.
So how do you get scaled equity into these micro assets?
And so that's the challenge that we took on. That's kind of thing we like to do.
So what do you do with home? Like, so talk about the building side of it. So, all right, if we need more supply. I think one of the things that also came up on the panels that there's not workers there that you need to necessarily build these.
Yeah, there are so many multiple variables that make housing so expensive to manufacture. About two thirds or maybe sixty percent of a home that's built on site cost is labor. We like to we point out to people that there are more barrels of oil in a home than there are sticks and timber. So what do you mean just transportation cost of all the materials and the people, and so you have to form up this construction site every day and then take it down.
When you're building homes on site.
So we've really gone deep in trying to understand what can we do to bring down the cost of housing. One of the things we're doing or innovating is a new type of factory where we it's the same home you would build on site, but it's built modually. Yeah, and then we so our labor pool is quite different. We have tradesmen that are you know, they are really able to perfect what they do to build the home, and then we can sort of, if you will, export the labor cost of a small town into the real
estate market of a big town. So it really unlocks it brings to American manufacturing jobs. It allows us to create really good, high paying jobs right towns of that maybe don't have as much opportunity.
How much of that is going on, that's fascinating.
It's been around for a long time.
Moduls's aroun a long time, but we think that we've uncovered a little bit of our of what's happened to the market. But the industry is to build a home and sell it, or preferably sell a home and then build it right, so they don't have a long demand function for their manufacturing base. So imagine if BMW or General Motors waited for you to order a car.
Before they started the factory every day. That's how the US housing market works.
There's no they don't have an elongated demand cycle, and there's a lot of price risk in the asset itself as we're seeing today. So what we think we can do by having an opportunity to either sell the home or provide the home as a rental and have capital for that asset available for years in advance, we were striking capital relationships with global investors that last five, seven, ten years. So now we can create a really reliable long term capital base for the asset before it's built.
Rental the business of being in renting homes versus building and selling what's more profitable.
It depends on where you are on the cycle.
The big thing that we point out to people is that you need to have a monetization.
Strategy that moves with interest rates.
Yeah, and if you're just building them to sell and like you're in, affordability is really a difficult thing. Right now, all of a sudden, the home builder gets concerned about their takeout and they have to shrink their capacity. So I think that the winning strategy is going to be get manufacturing right and then let the capital markets provide you a longer term, more stable exit price for your product.
All right.
So affordability is tough right now right, and lot of people can't afford a home. You've got higher mortgage rates, which dampens buying. So give me an idea of what you're anticipating, like the dynamics that are sometimes conflicting, the strange that are out there, What does it mean for the residential housing market in the next six to twelve months. Yeah, terms of demand and pricing and sure, and I know it's location location.
We have our view, Yeah, exactly, it's location dependent for sure.
But the thing I get you can think about is incomes grew a lot and that really grew affordability. Now interest rates have risen a lot, and that takes away affordability. What we think about this is that the marginal home sale is what determines the price. You have the stock
of homes, then you have the flow of homes. The flow is down fifty percent because about seventy percent of us homeowners went out and were able to refinance into a mortgage that was sub four percent, So that means that's seventy percent of the sixty percent of homes, so maybe forty fifty percent.
Of all the homes in the country.
The person living there would literally have to double their mortgage payment to replace the same home. So in the mortgage world, we call this the lock and effect when a group of homeowners are really disincentivized from moving. So think about what that does is supply it brings down, So we can't really see home prices fall just because rates went up, because there's really no homes for sale.
In the meantime, I think overall we may be underestimating how much incomes grew, so houses may not be as unaffordable as they were. But there's definitely a case of a strange statistic today that even we can't tell you what the how this is going to turn out. But ordinarily, if you were to lease a home versus buying the home, you would your monthly payment would be a little bit higher, and that's because the person leasing the home has to take on repairs and maintenance.
So if you buy the home, you take on the responsibilities.
So your principal interest, tax and assurance will be slightly lower than your rental payment. That's inverted now it's inverted significant. It's way cheaper to rent than it is to buy because you just had this shot to the system. So we think that that probably you will correct itself over time. It may correct from rents rising. But you mentioned before about sort of locations and location and pricing. One of the things that we're really really after this is like,
not exactly ingenious. People need to be able to afford the product. No, yeah, so our rents are sort of below twenty five percent of law does this school the first year exactly, I try try to sell something your customers can afford.
Ding Ding.
So for us, we're sort of enthused by the fact that our rents are about a quarter of the family's gross income and that makes them really sustainable and it means they can float as income trix.
It's interesting.
So let me go back to all right, so then what worries you about the outlook?
Well, look, you have this crazy cross current now to where we're in our view, there was too much fiscal support to.
The economy of an overreaction.
Now you have the Federal Reserve sort of counterblinance that with what we would argue was way too fast of reaction in monetary policy. So what this does is it just slows down the velocity of capital. So we think in ten twenty thirty year cycles, we think about affordability, we think about rent growth, income growth, national growth, what happens to each city.
And now you just have a point in time where everyone.
Is a little bit nervous to make it a big decision because you only get to capitalize your investment in these things once and you're not sure are they going to be less expensive tomorrow or more expensive tomorrow. And when you just have this much uncertainty in the market, you can see it in quoted volatility, you can see it in the shape of the e Oeld curve.
What the real result of all this is people just don't do anything.
So I think the thing that concerns this is just if capital becomes there's really no longer a penalty for not being invested, and so it just slows down long term capital formation.
We've just got about forty five seconds left here. So you're the residential guy that was on the panel, I mean, you guys do mortgage backs, securities. Should you do some commercial I'm just curious your take on office since you're.
Yeah, so we're in there. We we have a portfolio loans, we have some loans that have.
Defaulted, and we've taken some properties over, and I sent the last year really working closely with our team to understand what the alternative use cases are for office. Suburban office probably has more flexibility than urban office, okay, and so the suburban offices, we're taking some down and putting back logistics centers, and so it's.
Really like logistics center, it's too.
Much supply and it's real estate. We can take it down.
Does the data tell you that there's more more pain to come, a lot more pain to come, a lot more pain to about.
Well, I mean a lot of the pains already hear. The only question is how long before we all reckon?
But is it again like the lower tier we talked about on the panel.
There's like the top one percent of the office market. Everyone dyings about No. One vandor belt and two in all rents. That's interesting but not really important.
Thank you. So see it flew and you kept your voice.
Thank you, Thank you so much.
Fun to have you on the panel.
Fun to have you back here, Shundabs and Chairman, CEO and Chief Investment officer at Amherst.
Right here on Bloomberg, you're listening to the Bloomberg Business Week Podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business App, or watch us live on YouTube.
Carol Masser along with Jess Mettin, She's back at our Bloomberg Interactive Broker's studio. I'm here live in Beverly Hills at the Milkin Institute Global Conference. I'm reading from a book, and here's what it says. Those first weeks that United were a frenzy of NonStop activity, from the moment I walked into the office on my first day to the
moment my heart stopped thirty seven days later. This book is called Turnaround Time, Uniting an Airline and its employees in the Friendly Skies, and it's written by Oscar Munios. He's the former CEO of United Airlines, which then became United Continental and then back to United. He was also executive chairman at United. Oscar, it is so wonderful I wish I was back in our studio with you, and I know you're there with Jess. Congratulations on the book.
It's very personal, and you talk about your time at United. Tell us a little bit about when you landed No pun intended as CEO in twenty fifteen. It was five years after their merger. What was top of mind? What were you seeing?
Oh, well, thanks, thanks for having me, both of you.
It's great to see you. And I listened to you guys quite a bit, so it's good to see you personally. You know, I think we you know, I had a lot of insight into the business only because I was on the board, but as we all know, being on the board and needing something is a very different situation.
So even in a short few days as I met Tonight traveled, I could I could sense, you know, there were smiles and nagulation and people wanting him to say hello, but there was always this kind of this lingering, holding on to a sleeve sort of thing and look at like, almost without being dramatic, you know, help me, help us
sort of thing. So I could send something and I think my first my first interview, I use the terms I'm finding our team disillusion disenfranchised, and disengaged, you know, the three d's, just because they had And I also said, I'm a little embarrassed as a board member that we didn't see this before. And so that's what I found to your question. And then, of course, lots of things happened. Everybody wants to know what you're gonna do first, and I thought I would ask my team rather than myself.
All right, there's a lot, I'm sure of conversations and talking to your team one month in though you did suffer in your fatal heart attack, I can't even imagine some of the things that you were dealing with personally, professionally.
Give us a little bit of what that was like.
I read a little bit of a passage from your book, but I just can't even imagine.
Take us again back there.
You know.
It's it's every time I begin to talk about it, or someally, when I write about all of that comes back to you. Because heart disease is the biggest killer in America by far. The symptoms are varied and wide difference between men and women, and unfortunately, what a lot of people do is they just ignore those signs. And you know, we take a shower, we lay down, and
of course never to be done. So I was fortunate to have a good friend who was a cardiologist, who I did a lot of Again, I trained for you know, we we ran marathons, we did long bike rides.
I mean, so I was fit. I was a vegan.
But he'd always kind of warned us that heart diseases is not optics, it's internal plumbing.
And one day in particular, he said something to the degree that listen, if.
You ever feel anything weird, call nine one one. The worst you can be is embarrassed. And then he added something that I've remembered those a couple of years later when I had my event, when he said, when when you call nine one one, immediately tell him where you are, which like, duh, of course that makes sense. But then he added, because you may not make it past the phone call. And I remember exact where I was, and
I'm like, okay, that's a little dramatic. But two years later, I'm sitting there having my vegan protein shake after a run, and my phone buzzes and I got to move it and my legs sort of give out. I feel clammy, and his words came rushing back I crawled over to the landline some of you may know what that is and called nine on one and told him immediately where
I was. So thirty seven days into the job, and again in the story you really can't make up, thirty seven minutes later, Wow, as in the hospital and I was on life support on a heart artificial heart lung machine because I had my heart had gotten pretty blown up.
And how did this end up basically transforming your career as well as how you ended up managing United through what Carol was just talking about, this huge transformation between twenty fifteen up until early in the pandemic when you were still CEO.
So you know, the few days, the thirty seven days before the events the heart of it. And I got a chance to meet a lot of the people that united what became pretty immediately my family. And so to your question, there's two things that happened, not quite transformational, but certainly ratifying. The outpouring of love, support, kindness, food, flowers, cards from all over the world from the United Family
was amazing. My kids would read those notes every day, So you know, I confirmed what I had seen out there. These these are wonderful people, but they're sort of wandering nomad's in the desert and there's no North star for that. By the way, North starts Plaris, And if you fly us, you know there's a history and a tie into everything. So the people were amazing. The second thing for all of us out here, you know, this concept of mind over body and all that sort of stuff. I never
once thought I was never coming back. I never once thought I was in any kind.
Of serious situation. My doctors didn't agree with me.
I mean, I'm surprised to hear you were a vegan and this happened.
Typically to think that would be allbviously more healthy lifestyle.
Again, you know, heart disease is a genetic aspect. I didn't know my biological father, so I didn't have any of that history. So it's what's important for all of us get You know, an EKG doesn't do anything stress tests do. There's more invasive process and there's a lot of great new technology that's coming out that's going to be if you think about breast cancer and the old way we used to you know, women used to do it.
Now mimography comes in. There's new as a company called Clearly that I'm involved with that does.
In essence, mimmography for the heart. So there's a lot of waste to do that.
But you know, the transformation was partly that and partly the fact of I was, you know, I just I love this United team, and we knew we had to do something about it, and.
Didn't change who I was, didn't change how I led.
But of course there's a level of gratitude that comes with surviving something.
Link Now, so how.
Did you create a culture that was better for employees, better for the company overall, and better for those who flew United.
This will be a shocking revelation. I did nothing but actually listen and learn from the tens of thousands of people that we have out in the field that take care of you, the people you see and the people that you don't see below the wing and in the maintenance facilities. The thirty seven days before I was on a massive listening tour and nothing, nothing structured, nothing deeply you know, academic or intellectual. It was just a human conversation.
It's like, just tell me how it's going, tell me what you can think. And I heard lots of different things, and in a very pivotal moment for the turnaround, in United It was on a flight with a flight attendant and I was on a flight and I went and met and talked with the flights at high oscure, and she clearly did not want to talk to me.
Oh that's how far we had disengaged our folks. It's like, I don't want to listen. You know, why am I going to waste my breath?
Right?
Over time, we had.
Had I don't know, five six CEOs in the last few years. What she said to me when I finally got her to open up, she just said, Oscar, I'm just tired of always having to say I'm sorry, I'm sorry the coffee section, I'm sorry, we're late. And if you think about an individual that works with such a large global company, who we embodied this concept of friendly skies, but everything was broken and they are the ones that had to, in essence, you know, apologize. That's how you
lose human engagement. And so to your question, how we built the culture is just from that perspective, is just telling them like, okay, employees, you don't have to do anything. I and this team have to regain your trust and from that we're going to build what you.
See now in United.
So I am curious.
You know, we're all flying around. People want to go out and experience things.
The industry today it can be stressful.
Again, what is it that you think we could do better in the airline industry? And I think, I know there's things you've talked about in terms of the type of fuel that's being used, because it certainly has a carbon imprint. We just have about a minute left. How do you think it can go to the next level.
If you will.
I think two things.
I think from a broader perspective, air traffic control in America is outdated and obsolete. If we don't start getting it fixed soon, like a lot of the other infrastructure, we're going to pay the price. I know it's easy to blame the airlines for a lot of the delays. We are often hampered by the fact that we can't put a lot of airplanes in the air because we can effectively and safety monitor them without slowing everything down A and B. You know, a little caring goes a
long way. You're not the only one that has something important to go to. And if you just kind of lay back a little bit, you know, have a little care. If somebody is in a wheelchair. You know they're in a worse state than you, and I know they're holding you up, but it wouldn't be.
A bad thing if you just show it to a little love and care.
Well, we're going to leave it on that note.
Just great words in a world where I think it's very trying on a lot of people. We certainly see it from the financial perspective, but just in general, there's a lot coming at people and great to hear your story and to see you know what you personally and professionally have achieved. So Oscar, thank you so much for for spending some time with us. Oscar Munnos He is of course the former CEO of United Airlines executive chairman as well, and his new book is Turnaround Time Uniting
an Airline and it's employees in the Friendly Sky. So some really, you know, just logical about how we can.
Make things better.
And it's amazing when you start listening to people what you can find out. All right, Oscar, thank you so much.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business app and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
The world's largest companies poise to face a fifteen percent minimum tax under a twenty twenty one deal to overhaul global tax rules as more countries begin to implement the measures. We're talking about more than around one hundred and forty countries, So we wanted to get to some of the implications of it, and we're delighted to have with us Marna Ricker. She's Global vice chair of Tax at the Consulting and Advisory from EY here at MILK, and I.
Do want to talk about that.
First of all, welcome, thank you, thanks for having me. Carol.
Great to have you here.
But you know, before we started getting going, we were talking a little bit about what's being talked about at MILK and you said, there's been some really interesting panels. What's jumped out at you?
Yeah, I have to tell you there's you know, I sort of feel like at the end of the day, things are going to get greener, right, we're looking for economic inefficient or efficiency, not inefficiency efficiency, right, you know, I think that trade is going to be really interesting to see who emerges ultimately, what countries emerge, India, Mina, Africa, Right.
It's moving around.
The least conversation I just had was the same thing that globalization isn't going away.
Now it's going to be different. That's exactly right. I really love that of you know, China. You know, you were hearing people say to coupling from China. Now you're hearing them say de risking, you know, or or navigating with China. You know, you can't cut off trade right through with some of the largest economies in the world. And so I just I feel I think I said to you, I feel a lot of optimism, frankly, more optimism maybe.
That I expected you go to any Paris on real estate or on banking.
I stayed. I went to banking, I stayed out of real estate. I want predict there.
Well, talk to us about the implications, because another thing is, you know, I don't know that we've talked tons about corporate tax stuff, structure and strategy, but it's a it's a big deal.
It is, So talk to us a little bit about this rule.
And my companies that have joined on, or the countries that have joined on, and the implications of it.
Yep, for sure, I am so. I love good tax policy, and so you know, I do. Look at it's called bad.
Love a person who loves good tex I do.
It's an I look, I think it's a force for good and I think it has the ability to drive you know, behavioral change. And so what's interesting I think about.
This is good leveling the playing fit globally.
Yes, it is. That's exactly right.
And so when you look at Pep's pillar two, that's what we're talking about here, ultimately starting in financial statements in one one twenty four. So for calendar your companies are going to get it under their rate. It is it really literally is about what does the minimum tax around the world look like? And so what are those tax collections going to look like?
You know?
And I also look at it with pillar one, which is much more about digital you know, digital customer based market rates to taxation.
I look at that.
This is all about modernizing the tax code. Right, we have a century old tax code. It is a you know, it is a bricks and industrial type tax code. And we'ren't a really modern society that's extraordinarily digital.
When you say that are you just talking about the corporate or are you also talking about.
Just overall corporate really about corporate.
As an individual. Yeah, we got to do something.
Yeah we got to do that too.
But we'll talk about on bebs first. So what are the implications.
Then for companies for multinationals right who operate the around the world, and they have to be fair, have gone to countries that have had lower corporate tax rates to their benefits. So as that changes, what's the impact on their balance you what's the impact on the taxes they are paying?
So it's a great common I you know, the the obviously taxes are a big line item ultimately the P and L and your and your balance sheet to your point into ferds and so you know, I do look at this when you look overall what you hear from most companies, it's more of a shifting of where they're playing taxes, right, But I would contrast that to what the OECD is saying. So their estimates on pillar two roughly we're one hundred and fifty billion dollars of new
tax collection ultimately. Okay, that has been revised now up another seventy billion dollars to two hundred and twenty billion. Okay, So again there's a little bit of I think reconciliation that's going to happen in between the companies and obviously what the OECD is expected at.
So you know, morena net net companies multinationals are going to be paying more at that.
That's where it's going. It's going to be different exactly.
You've got it, and so I think that's what'll be interesting to see shift. I think one of the big items too, I want to make sure I'm flagging for companies and for our listeners ultimately is credits and incentives. So subsidies and credits and incentives that you were just talking about whether those are green you know, green climate things.
That were seeing me about that because I was looking at a little bit of it.
You know, when it comes to sustainability goal, when it comes to your supply chains, like we know that that is certainly coming in the United States.
You know, you want to build something great, but you know.
You've got to make sure that the goods are here in the US, like you know, alternative energy, green energy, that's not always so easy to do.
So that is an unanswered question.
So that I look, I think that's probably the biggest issue on companies' minds, and I think the OECD is going to have to get that settled. So how you will treat credits and incentives and subsidies. Europe tends to use more subsidies, right, you know, I'd say the US and more developed countries are using more credit type systems, and so that's not reconciled yet on whether that's in the base for your calculation of this corporate alternative Mentoye, can.
I ask you the higher taxes that essentially corporations will have to pay, And I would say that there are a fair amount of people out there saying, well, it's finally.
That the corporation should be doing it. But that's a whole different argument.
That is.
But what I do wonder is it manageable in an environment where there's lots of questions about the outlook, about growth, about you know, pressure on balance sheets.
I do think it's manageable, you know, I think it's a journey worth taking. I do like good tax policy, like consistency. Certainly are you know, clients and taxpayers are looking for they're really looking for certainty, right, you know? How do they how do they plan.
Their operations there.
What do I have to do?
These are huge capital investments companies are making, and they need to know that when they make those, right, they're going to have the outcome that they expected ultimately from a tax person.
What are you hearing from your clients?
Though?
Then?
Ultimately will they be shifting around where they have operations because of this?
Yeah?
So they'll always not because of this, they will always you know, look, I've been in this business for thirty years and companies, you know, tax does and drive business. Business drives business, right, They're always going to make good, good business decisions. But again they're going to want to be tax efficient about how they make those investments.
But that is so interesting because there's often the argument of no, no, no, the people you know, tax policies does determine business decisions.
Yeah, that's not necessarily.
I'd say it differently.
I don't think you're ever going to make a just reframe it, right, I don't think you're ever going to make a business decision solely on tax. Right, But there is no doubt right that if governments are trying to incent you know, onshoing or near shoring right now as an example, and you know sustainable, really self sufficient, secure supply chains.
Right, they're going to.
Encourage behavior around that, right.
So we see that with the chips act on semiconductors as an example, and obviously we're seeing it with IRA right now on climate.
One thing I wanted to ask you just got about thirty seconds.
Left aiest for some reason, I've got to believe that that's going to simplify to some extent, big extent your world.
Absolutely, I'm so excited about it.
Are you?
Oh, we're doubling and down on it.
It's you know, when you think about it, we want to be data enable, tech enabled, right, and we want to be playing to our highest level degrees, at our highest level thinking. And so the ability of chat GPT four in particular to come in in a rules based database system and really push our thinking upwards and let us do judgment and you know, and the nuances around.
It, I think is extraordinary.
I love it super actively, like we are on it.
We are on it.
Have you been at it before the Microsoft news? We absolutely were see like the Microsoft I got this, No.
We're with them.
I'm totally oh yeah, this was really fun me too.
I enjoyed talking to you.
We did too safe travels home. Thank you, Werner Rickers.
He's global vice chair of tax at EUI, of course, the global consulting and advisory firm. Here at Milkin, you are listening and watching Bloomberg BusinessWeek, and this is Bloomberg Radio.
This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Kay con seals with US President CEO of Churchill Asset Management with a sixteen dollars private Cabalihild of new being here at Milkin, And I'm just gonna put it out because he was just talking about his own personal story and he sat down and talked about it with Barry Ridtholt. So I highly recommend everybody get the podcast because unfortunately so you can just have to come back and maybe tell my audience about it. It is interesting. All I
want to do is talk about your personal story. Okay, we won't do that.
It's a pretty funny story.
Talk does.
It's a great story. It's like gives me hope it gives me hope about life well inspired.
You know, if your story inspires people, if you can inspire even one person, then it's great to tell it. And I never used to tell it. And I had one of our folks, actually, Jen Prosek, who works with you know his ones our firm, founded our PR firm, and she said, you know, I heard your story from someone else and she's like, you got to tell it, You got to tell your story. And I'm like, really,
do I really want to go to tell this? And she said, you absolutely should tell it, And so I have not all the time, but I do tell it, and I think that it does inspire people, you know, when they hear that you maybe have come from adversity or a background that is not kind of not traditional, you know. I think there is an element to you know, inspiring people. And so now you know, I tell it more off on HG.
Well and like I said, go to Barrier Hills's podcast. No, but I do think there is somebody there about people who I've interviewed a lot of successful people who've done very well in life, and often their beginnings they were living in a car at one point or just never lived in a car Okay are large families, lots of poverty, and it's amazing what you can do.
And I do I do believe it gives hope. But I'm gonna yelled at if I don't ask you about You do have an interesting background, you have an interesting career.
You've been in the financial world for a long time, going back to I feel like some of the iconic.
Firms and most folks here, you know, I mean Drexel Tracksil started my career here and going to dinner tonight, Mike Milkin does a reunion dinner every of that. So we all get together and we're all frozen, like you know, you're right back, yeah, oh yeah, totally. Everybody. Everybody resumes the position they were in when like nineteen eighty nine, you know. So it's it's kind of interesting.
It is like from a large family where you never get like the pecking order. You're always either the youngest or the.
Oldest, and we all know what each other is doing, right, and we're all, you know, I would say, largely cheerleaders for each other. You know, we kind of like, wow, that's fantastic, look what he did. That's interesting. Maybe there's an element here of I should that I should be looking at so you try to learn, right, And so we were an incredibly interesting time, right Mike was obviously leading all of that, and look what he's done here
at the conference, and it's absolutely amazing. It's a great American story.
Well, how do you look at the financial markets where I think about I often say this, you know, when Mike, you know, the high yield market, junk bonds, like it was considered you know, creative and something different, and now it's just part of the normal financial way, if you will. And now we look at some other different things direct running, Yeah, exactly exactly.
You know, it's it's you know, every I would say, you know, each one of those has had their time. Right. First, it was really the high yield bond market because the banks really dominated, you know, the actual lending business. Then it became more of a syndicated loan market, right, So institutional investors ultimately got involved in in buying and investing in in leverage loans, and that marketer grew up out of the basically the banks offloading a lot of their risk.
Right.
So they were syndicating and I like to call that the moving business. Right, So they were in the moving business. First they were in the storage business. Right, It's like, oh, we make a loan, we own the loan. Then it became over, you know, we're gonna get we're too big. Now we're in investment banks. We're going to get big business, right, so they sell the mutual funds and colos and everything,
and and it's kind of funny. We've come full circles so that the latest iteration, which is obviously our business, is direct lending, and so we've kind of taken over from the banks, right. I mean, if you think about that business today, it now we as the largest asset managers are basically you know, the banks are really not in our business today in any any material way, and we are, you know, the ones that are actually doing the direct loans to regular way fantastic, we hope middle
market companies, and that's what we do. So you know, we annually as a firm invest about twelve billion dollars in US mid size companies. Yeah. I like to say that we actually do what the banks used to do.
The middle market that so often has gotten.
Which is a huge economy by the way, it's the third largest economy in the world, and ironically, you know, the regular way banks today are really not lending to it. You know, it's interesting. I mean, the regional lenders now are really focusing more on mortgages and you know, car
loans and all that stuff. Credit cards, and the large scale banks are really in the moving business, right They're in the business of originating to distribute, and asset management and other business doesn't make sense for them, So it's left us.
In this huge market like, okay, thank you.
Right.
So, direct lending today is a one point four one point five trillion dollar market. It is dominated by a dozen or so of the largest asset man direct lenders, many of them affiliated with or part of larger public publicly traded companies. And you know, we're you know, very much in the mix, and we all kind of have our unique strategies. I mean everybody's. I mean, we compete, but in some cases we actually don't compete. I mean, there are very large direct lenders that we never really
compete with at all. People ask us, all, would you know those guys, and I'm like, actually no, So how do you ranimize risk? Though?
Then if you are kind of all specializing in a certain area, does that make you a little bit vulnerable.
I don't think so.
I mean, I think if you think about the model, okay, and you know, I think this is one way where regulation actually accomplished. I think something very very very good.
If you think about the GFC that the banks were certainly prior to that and even during that, the bank's were actually holding a lot of loans on their balance sheet, right and so they might do it, do a four hundred million dollars five hundred million dollars deal and hold five hundred million dollars on their own balance sheet right now. They're in the moving business now and everything is being sold.
But what did is it really pushed the banks away from you know, holding such large amounts of capital on their balance sheet. And what's happened is, if you look at our business, you.
Only have about twenty five seconds. Yeah, sorry, go ahead.
We managed four We managed capital for six hundred plus institutional investors, and we distribute it to those investors. So in that sense we mitigate rest Well, we can.
Come back, come back, and then maybe we'll share it.
I can't now, yeah, but come back on air, because I'd love to continue this conversation, because I do think this is a very important advantage point.
In terms of what's going on. Great, fantastic, We're leaving them wanting more.
Absolutely kick it's out presidence of Churchill Asset Management right here on.
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