The Money Tree for Biotech Startups Loses Its Leaves

on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or stream us live on YouTube and Bloomberg dot com. For a long time, biotech was a hot investment, as venture capital firms and investors really generally

poured tons of money to startups in the industry. Tim, it's a bit different today, Yeah, this especially as VC investments are on track for the sharpest drop in more than two decades, surpassing the declines of the dot com crash and the financial crisis. So the question is what's a biotech startup to do. This story in the upcoming

issue of Bloomberg Business Week. It's on newstands tomorrow, already online at Bloomberg dot com, slash Business week and on the Bloomberg with more, We've got Bloomberg News health care reporter Angelica Peoples on Zoom from Boston, along with the editor of the magazine, Joe Webber. He's right here in our Bloomberg Interactive, a broker's studio. So, Joel, we saw a VC investment really dry up compared to one the biotech UH in biotech VC investment in the US and

the UK UH really dried up as well. So what is and here comes exactly that's the question. What's what's a biotech to do? Yet? Uh? Hoard your cash and uh, you know, Ben hoarded some more and find ways to make that cash grow if you can. Um So confession. I reached out while Angelica was at the JP Morgan Healthcare conference in San Francisco recently, and my thesis was, boy,

the tech industry going through some stuff. Maybe maybe biotech is gonna be the big winner winner here And UH turns out no, right, Angelica, what'd you learn while you're out there? That's exactly right, Joel. Unfortunately biotech is taking a pretty big hit, just like tech stucks and other risky assets in this environment where we are um looking for safe Havens and this really started last year. U

ushered in this huge wave of euphoria. Everyone was looking for the next Maderna UM and trying to invest in a hot new biotech company, and unfortunately that changed last year. We saw a steep drop in UM adventure funding and we're of seeing it in the public markets to where the stocks are down pretty significantly and everyone's just looking for ways to spend their money wisely. And that means that companies are having to get creative on what they

do with their money. So what's the conversation like with with vcs, like when you were there and what's put your finger on the pulse? What what's the vibe? So it's interesting because I speak to a lot of specialist vcs and they say that nothing has changed fundamentally UM.

There's still a lot of great companies. There's a lot of great science out there, and that actually we kind of needed a reset because there were so many companies that we're getting started and easily finding money, and then it led to sort of this overheated market where anyone could get UM. You could fund a company based on a dream rather than data. So they're not really upset to see this. Of course, if you're a company, UM that can't find money, that's a bigger problem for you.

And there's always the risk that even the good companies won't be able to fundraise in this environment. So I like the idea that you know this is there's a silver lining to this, that there's an opportunity here. I'm wondering if you got the sense from some of these folks you talked to out at the JP Morgan conference in San Francisco that this is part of a normal economic cycle, or or if this downturn is any different. Yeah, that's what a lot of people say, especially the vcs.

They've been through these cycles before. It typically happens where there's a boom and a bust and it's nothing new. However, there are some differences this time around. There's this big new law, the Inflation Reduction Reduction Act, that could cap drug prices in a few years, and people are wondering what exactly that will mean. UM. We're ready hearing from some pharma companies that they are looking at um potentially less lucrative evaluations for companies that they might invest in,

partner with, or eventually acquire. So that's an unknown and also coming off this period where evaluations were so hot, and you know, how will companies go moving forward? One person I talked to describe it as this sugar rush and now that sugar rush is over and and it's really a new playbook. Yeah, that's definitely not a good thing. Maybe there maybe there needs to be some sort of like pharmaceutical to prevent desire for sugar. I don't know, Angelica.

I do wonder though, you know, a lot of money sometimes it gets used recklessly when there's what it's really kind of loose and money is cheap. But at the same time, it also provides the open opportunities I feel like for developments that really can change the way we're treated, whether it's health care or modalities. And I do wonder if the money isn't so easy, does it mean biotech really has to think hard about what they're going to

work on, And maybe that's not great for innovation. Definitely. We saw this boom of platform companies as they like to call themselves, so companies that were working on many different diseases or um all kinds of areas as opposed to just one drug for one disease. And that was sort of the hot beam of one and this year

already we're seeing the theme is prioritized. So one company Atitas, they're based here in Boston, the Boston area, and they said that they would stop the work that they've been doing on eye diseases and instead focus on blood disorders. And they're seeing that across the board, whether they're public companies are private, people are focusing on only the most important diseases or the drugs that have the biggest probability

of success. And of course that means that those other diseases, those other patients who are waiting for medicines for their diseases are going to have to wait. Okay, so things not good here? How uh what do they look like in the UK compared to here or anywhere else, just to get a sense of, uh what, you know, what the industry feels like around the world. Across the board, we saw funding dip this year or compared to one UM.

So it's not only the US, but of course the US and a lot of the companies I cover are focused here and so that's why particularly we're focused on and what's happening in this this part of the world. Okay, So Angelica if you know, the dominant theme over the last few years has been vaccines. What's what's kind of the most exciting thing to come out of or that biotech companies are thinking about right now. There's a lot of exciting stuff out there, so it's hard to pick

exactly UM specific areas. But some of the ones that we have been talking to a lot of people about our obesity people are really really focused on that. I mean, you think about how many people are out there, UM. That could be a have a huge impact on public health and of course could be a very lucrative area for drugmakers. So we heard a lot of companies focused

on obesity at the conference this year. UM an area that I'm really interested in, as well as gene therapy, so taking genetic diseases and actually potentially curing them UM by making permanent changes to someone's DNA. It sounds a little bit like science fiction, but it's actually reality UM. And then we're also seeing a lot of new technologies

and cancer UM. So we spoke to one company, Siegeon, that's been at the forefront um of a type of cancer drug called an a d C and UM we spoke to their new CEO who said that they're going to keep working on that, and they're also looking for lots of new technologies, so it's it's a busy time

out there. I actually think that the sector as a whole is again just like you know, one little big hit away from like everybody feeling like, you know, it's great, let's go back in and and you know, the big difference here versus like tech is it's so solutions, like all these things are people things that affect millions of people. Right, it's just ends up being a little bit of a crap shoot in terms of, um, what the r O

I can look like. I totally agree, right, like these developments, Um, such great reporting, such great insight, Angelica, Thank you so much. Angelica Peebles, healthcare reporter, Bloomberg News via zoom from Boston. Check out this story in the upcoming issue of Bloomberg Business Week on newstands tomorrow, online already and on the Bloomberg terminal. Our thanks. Ohay's to Joe Webber, editor of Bloomberg Business Week. This is Bloomberg Radio. These sees Bloomberg

Business Week with Carol Messer and Tim Stanovic on Bloomberg Radio. Well, as you know, the World Economic Forum's annual meeting at Davos. It continues. We've heard from a lot of politicians, well, not too many, because a lot of them I think held back because it concerns about the war and some of the political stories going on around the world. But also executives, investors, bankers, corporate types, academics, even former US

Treasury Secretary Larry Summers. Yeah ye highlighted branding aspects for the global economy, but also warned us political battles over the debt ceiling are concern also, they're lots of corporate executives and Bloomberg Quick Take correspondent Madison Mills joins us now via zoom from Davos. Madison, good to have you with us this afternoon, for us, this evening for you. First of all, what are you seeing, what are you hearing on the ground at Davos. Hey, guys, thank you

so much for having me. Great to chat with you. Uh, you know, it's a lot of the same things that are always on the agenda here at Davos. I was lucky enough to come here over the summer and it's eerily similar. Talking about, of course, that war in Ukraine, the Russian invasion there and the big economy question, right, are we going to have a recession in One thing that's been really interesting is hearing how cautiously optimistic people are.

Cities CEO Jane Fraser talk with David weston are very Own yesterday and she said she's very optimistic about the recession being short and not that deep because she's really betting on us households maintaining their own balance sheets in the face of that high services inflation that we are seeing.

So interesting to hear that kind of positive tone from a lot of the CEOs at Davos, while you know, we report all the time on individuals back in the US who are still struggling with those incredibly high prices on things like um, eggs. You know, I was at the grocery store here in Davos tonight and noticed that eggs are actually the only thing that's cheaper in Switzerland that I can are yelling hitting it's I mean, the

prices here, Carol would blow your mind. It's it's incredibly expensive, but eggs, I think because of I'm not acent on this, but I think because the Avian flu impact is lower in Europe than it is in the US only five dollars for a dozen eggs in Switzerland's the only thing

I could find that's cheaper here. You know, I do feel like Maddie like some of these big events that brings UH leaders from different walks of life, politicians, UM, the corporate community, you know, all kinds of you know, think tanks, academics, just like something like a milk in or some other events. UM. I do wonder, you know, what the major trends are beyond the overall mood and thought. You know, what do you picking up on your someone who really like, you know, kind of seizes on some

of the interesting innovations that are going on there. What are you seeing? Yeah, you know one story that I feel like isn't necessarily making headlines that I'm hearing a lot of the c e O s and UM decision makers talk about sort of off the record, is this idea and sort of this anger towards younger employees and the people who are a little bit hesitant to get back to work are Yeah, we heard from our Bloomberg Opinions Alison Schrager. She's moderating a ton of panels this week,

and she also told me that um. She was speaking with executives from Sony yesterday who all just said, you know, even in in countries where high work ethic across all age ranges is really valued, they're starting to have a lot of trouble getting younger employees in the office. And they're also experiencing a lot of ghosting. So gen Z employees will sign contracts at these companies and then just won't show up for the their first day of work

and we'll never contact the company again. So I'm really hearing a lot of anger from CEO is about younger employees not getting back to work and not necessarily working as hard. But does that lead to a shift, Maddie in the way that that companies are thinking about compensation or the way the companies are thinking about work. I mean, certainly that that's not the theme of Davos this year, but getting people back to the office is certainly a theme here in the United States, and we're seeing it

from a lot of individual companies. Is that discussion happening at all? I think it's critical, and I feel like quiet quitting is also something that's coming up a lot. But what's interesting is at the same time they're talking about the struggles with younger employees, but then they talk about also needing to source the on employees, and in this kind of dichotomy of like, I'm struggling to get them in the office, but I also genuinely want to

hire younger people and want to involve them. So, um, it's interesting to kind of hear that struggle there. I spoke with the CEO of ernst In earlier today, Carmine de Cibio, and one thing that he pointed out that that was a lesson to me was that, um, he not necessarily seen a huge amount of talent emerging from all of those big tech layoffs that we talked about.

He was saying he's still struggling to get coders and engineers in the door, and he feels like if the layoffs were as bad as they potentially seem like they are, he wouldn't be struggling as much to get that talent. So I thought that was also really really interesting. All right, everybody,

we're talking to blueber Crick Take correspondent Madison Mills. She is in Davo, Switzerland for the World Economic Forum annual meeting, which is being held again in the winter for the first time was it, Mattie three years that this is because of the pandemic. It's a long time. Um. One thing I want to get to and it's something you guys at Quick take cover a lot. I know Tim covers it, loves it and that has to be anything to do with space. And you caught up with a

particular CEO. Give us a little bit of background about Dylan Taylor and his company. Yeah, Dylan Taylor is and Tim, I can't wait to talk to you about this mind back, because I feel like you would love this guy. Uh. Dylan Taylor runs space Voyager. They do a lot of investment and get investment in the future of commercial space travel.

And he really believes something that some people push back against here at Davos, the idea that commercial space travel is just as good for the climate as anything we can do on Earth. UM. He was lucky enough to be able to go to space as part of one of Jeff Bezos Blue Origin trips, and he said that that overview effect is really critical and real that when you're able to look down at at planet Earth, it can just change your life and change your perspective and

make you realize the importance of climate. I think we have some sound from Dylan Taylor that I I want us to take a listen to. I think the biggest space story in three uh, you know, just to pick a couple. I think will likely get another all private astronaut mission to the Space Station, so that'll be an

important milestone. But probably the most important would be SpaceX making orbit, hopefully with their new Starship, which is their new generation rocket, which if it works and if it makes orbit, which I believe it will, it could completely change the game and reduce the launch costs by another

order of magnitude. So, of course, my follow up question was are you concerned at all about Elon Musk and the impact he could have on the potential of future space travel coming out of SpaceX, And he said he's not concerned at all. That there are a lot of executives at SpaceX doing a lot of great work who are not related to you On Musk in anyway. So he's he's really optimistic about SpaceX and the impact SpaceX

could have on space travel heading into this year. Yeah, I mean, what has shown, Maddie is that private companies can now do what governments were only able to do just a few years ago, and I think it's remarkable to see the private investment in the industry. Of course, these companies, we should remember, still rely on government contracts for much of the funding, so it is still taxpayer

money that is supporting many of these launches. At the same time, it's remarkable to see, Carol, what the private sector has done. Yeah, I think about it. You know, you guys have heard it. I just when my dad was involved in the sixties, you know, in the space program, it was all government run and government initiatives, and it's really I think he'd be fascinated to see, you know, the role of the private sector so aggressively and so successfully, Maddie,

you know, really carrying the baton if you will. Um. And I think it's a good thing, you know, moving out of the government sector in the public sector. Yeah, it's so interesting. He wants to fund and build the first commercial space station, and he really believes in the ability for that to exist alongside a government funded space station as well. His point is like why I not

have multiple going on up there, you know. So it's it's really interesting to see and um, something that I'm excited for us to continue to cover all right, Uh, Mattie, Before we let you go, I want to talk a little crypto. We did report the Bloomberg News team that the crypto firm Genesis is said to plant bankruptcy filing could come sometime this week, according to our team here

at bloom Broke News. What are you hearing on the ground there about crypto regulation just in the last minute that we have with you, you know, Tim, I can't tell if it's just kind of talk because it's something that people can agree on. It's not a superpartisan topic. But um, everyone seems really excited to talk about crypto regulation and agree on the idea that regulation is needed.

But I haven't heard anyone talk about crypto being dead. Um. I was able to speak with the chief policy officer of coin Base, and he met with the congressional delegation of d C lawmakers who are here at Davos and pitched the same thing to them that it was you know, a bad actor in sam Maigmund freedom f t X, that the industry is not bad and so he's really hopeful that crypto is going to have a rebound in All right, what's a cup of coffee cost? Cost? Come on?

I got nice coffee when I landed with Carol was nine dollars, nine dollars, nine dollars. It is Switzerland. I am saving those receipts, guys, it is it is when your boss is like, come on, Maddie, what is this? Um? Sorry to my boss is in advance. All right, looking forward to more of your reporting. Of course, our Maddie Mills and Bloomberg cricktake on the ground in Davos, Switzerland at the World Economic Form. You can catch all of

our coverage just head to Bloomberg dot com. These sees Bloomberg Business Week with Carol Messer and Tim Stanovic on Bloomberg Radio. We've got a great guest with us, well known voice for the investment community and certainly the Bloomberg audience. Howard Marks is with us, the co chairman co founder of oak Tree Capital Group, known for his investing in distressed securities. The firm has some one hundred sixty three billion dollars in assets under management and joints. Tim and

myself here in our interactive broker's studio. How are you. I'm very good, Thank you. How are you doing well? Looking at your research? We looked over it and I've got to say, it's all about sea change. I'm a sailor and I know, and I have been for years. See change it can be a good thing and it can be a bad thing. Tell us about your thinking here. Well, the point is that the sea change is something more fundamental than a minor cyclical fluctuation. UH. It suggests a

total transformation that will be somewhat long lasting. And the does and by definition it doesn't happen often. UH. But the point of the memo was that ever since the global financial crisis, the FED put in emergency measures direct rescue the economy and the markets. UH, and they worked, but they were continued for a long time. Zero rates were the rule for seven years, which I was stunned to find out when I researched it. UH and UH that kind of conditioned the markets to depend on ultra

low rates, which was unrealistic. And then when they tried in sixteen seventeen eighteen to raise rates, they got a lot of pushback. The fourth quarter of eighteen, you may recall they took a ten year to UH, the FED funds rate hit three and a quarter and the fourth quarter of eighteen was the worst fourth quarter in history as a consequence, So, uh, they were in a low return trap. And lenders likewise were in a low return trap.

You know. I I gave a speech for eight years entitled investing in a low return World, and and it wasn't fun because how do you get a good return in a low return world? You either, uh, you either accept the low returns or you take on more risk to try to get a high return. And that may not be a great idea either. So there is no easy out. And and we labored in the in the wilderness for a decade with low yields prevalent, and I think that that's not going to be the case to

the same degree going forward. It's not just you know, low yields not being prevalent as being part of this sea change. What else do you see, which, by the way, you are this is only the third sea change you've seen in your career? Yes, well, in the in the the seventies, I saw the adoption of risk return thinking. You know, before that a professional money manager of fiduciary, the rules were this is okay to do, this is

not okay to do. But with the advent of hyo bond issuance, in the late seventies, people started to think, well, it may be risky, but I'm well paid to do it, so I'm gonna do it. It makes sense And that has become the rule and been the rule ever since. And I think that was a very good change. Most of the things that we see in the financial world

today are the result of that calculus. Then in the early eighties, of course, to UH to fight the UH, the inflation that was prevalent in the US reaching mid teens, UH, Vulker took the Fed funds rate to twenty and that that UH, you know, eventually killed off UH inflation and inflationary expectation. It kind of killed the economy UH in the process. UH. But then you know, I had a rate loan outstanding from a bank in eight and I got a slip saying the rate is now two and

a quarter. Uh. Forty years later, I was able to borrow money at two and a quarter. So we had a two thousand basis point decline and interest rates And that was a major event. That was probably the biggest single financial event of the last half century. But nobody talks about it. How when do you want to ask you and it's in your research. Note. You know you talk about you know, when you see both rising asset values as well as a very low rate environment, and

what that does in terms of leverage. Um, tell us how that maybe creates ultimately I'm assuming opportunities for you ultimately, we hope. But you know, look, the government doesn't make anything. It doesn't add to GDP, It doesn't create anything. Oh it does is takes money in and puts money out, and it policy benefits some hurts others. So the policies of the last fourteen years that I'm talking about benefited asset owners and borrowers and penalized uh lenders and savers

um and uh. But it was a boon for anybody who owned assets and for anybody who borrowed. And what about people who did both, who owned assets on borrowed money, a double bonanza, um and um. You know the problem is that a the success of that depends somewhat on

the persistence of that environment. And number two, Uh, environments that produced high profits usually encourage people to push the limits further and to go out and do riskier things because of the absence of of risk aversion which usually ends up badly. Uh. So you know, we've gone through an easy period for the last fourteen years different and I believe that the coming period will be a harder period,

not a cataclysm, not a depression. But you know, I think that people don't recognize that the last fourteen years have been unusually easy and that I have to believe that the coming years will not be similarly easy. So it opens up the question about where specifically you would see opportunities for distress, debt and beyond. Sure. Well, uh, first of all, I think we might see something, and that would be a change you know in the in

the very benevolent environment that we had. Uh over that period, it was very hard to default. It was very hard to go bankrupt. In fact, you had to have something seriously wrong to do that, because most companies that just burned money every quarter could borrow more. We just talked about the biotech sectors. Yes, so so, but when when risk aversion rears its head and you go into it more now, somebody might say, you know what, you're just

burning money. We're not going to give anymore. So we're and I think it was November you talked with our team and you said, great bargains coming as recession looms, So we're specifically I know we've been you know, is it energy, is it real estate? Is it where is it? Well? You know, uh, I'd never get down to that granular level. And uh we our activities are kind of not planned. Uh. And we're opportunistic. When something pops up and we and and and some company has to roll over its debt

and suddenly is unable, you know, we mobilize. Uh. So you know the point is we're not we're not laying plans in advance. Well, do we do we take something like Elon Musk and all the debt he took on for Twitter? Do we take a bed bath and beyond? Another retailer fall into the wayside. I'm trying to think party,

party City. Um, I feel like you could name any crypto firm over the last and these these signs that are you're talking, Well, let me let me just say without getting too specific, which I always try to avoid, that's okay, Um, that our our mantra is good company, bad balance sheet, a company a good company that has gotten over levered and that leverage level has turned out to be excessive for the environment that has unfolded. Uh,

you can fix that by delivering the company. Maybe you take it through a bankruptcy in which you reject a lot of debt. But it's easy too. If you can delever a good company, it goes on to success or, or certainly it's it's reinstated. Uh. Bad companies are hard to fix as opposed to a good company with bad balance sheet. So you you you propose a list, you figure out which companies on that list you know are are important to stay in business for the next ten years.

You mentioned a couple of retailers, Carol, which makes me question if you're any industries or sectors you would avoid historically. UM, we're okay with retail, although one has to be cognizant of the changing business model. Uh. You know, we're we're mostly active in in what I would call the basic industries, the traditional industries. Uh, the ones with assets like energy, like like energy, yes, manufacturing, distribution, transportation, Uh, even retail

under the right circumstances. Uh. You know where we historically have not been active has been, for example, technology, because there you need a higher level of expertise with regard to the subject matter, UM, intellectual property, style, fashion, things like that. Um, this environment. This see change. We only have about thirty seconds left. How long does it stay with us? In your view? Because as you say, these

don't happen a lot, but they do stick. Well. You know, I don't make forecasts, and I don't believe forecasts, especially my own. Having said that, you know, I'm not talking about six months or a year, and I don't ever venture a thought to ten years. So I would say something in between, but I mean, this is material, and I would say a few or several years. Well, And I do feel like it mirrors some of the conversations we've had that this low rate environment of a generation

who has never seen anything. But could we see a fourth sea change in your career? I hope I live long enough. We hope you too. To thank you, Howard Marks, thank you so much for finding times, the co chairman of Oaktree Capital Management. I'm bro journal. Yeah, but you let me drive? Oh no, no, no, no, who's going home? All right? Please? I'll do the right gravels. I want to drive. It's good question. Drive. This is the drive

to the clothes. Bloomberg Radio TikTok, everybody. Seventeen minutes left in today's trading session, It's been an interesting day, certainly on the equity front. Charlie Chriss breaking down the markets. But really I think the story largely, and we've talked about this, is the disappointing economic news tim and certainly the pressure that we've seen when it comes to rates. I mean ten year, three thirty seven right now to your note with the yield of four oh eight, So

we've really seen him move down. Uh, and when it comes to the rate picture. Yeah, and it was kind of green until we saw that economic data hit at ties. Right, Yeah, that's right, all right, So let's talk about it. Let's get to the drive to the clothes. Brian Frank is back with U s c i O at Frank Capital Partners here in our Bloomberg Interactive Broker studio. The Frank Value Fund up nearly eight percent in the past month, putting it in the nine percentile according to our data.

In the past one year, the fund games six and a half percent, so beating just about all of its peers. For the past five years, the fund has returned on average annually about five percent, again according to our data. As you know, it's not been easy being a value guy, has it it's never easy. But the last five years where like fire and Brimstone, Happy new Year, Happy New Year. Is it going to be a happy year for value?

Howard Marks talking about sea changes in the investment environment don't happen often, but he's saying this low rate environment, people loading up on leverage, you know, could potentially mean opportunities for him in the distressed area. What does it mean for value? Yeah, certainly. I mean to hear someone of Howard Marks cyliber say that, because that's what we've

been thinking in the value shop as well. Um, like you said, it's been a miserable environment for value investors over the last few years, But in the early two thousands, two thousand one, two thousand two, it was the golden age. And that's what it feels like today, another golden nage of value. You have rates going up, you have the growth company suffering, and you have phenomenal value companies available not only at good valuations, but many of them, at

least in our fund, are less cyclical as well. Because it looks like there's some pretty bad economic data on the horizon. So if this is indeed, and you know, we talked to Howard Marks earlier about a quote unquote see change if that is indeed happening. Uh, do you see the era of value continuing? I mean, is this a long term bet given that interest rates could be high for quite a while. I think so. And even without those interest rates, I mean, the bond market clearly

disagrees with the Fed right now. But I in either direction, you're going to have trouble for growth companies. You're seeing layoffs at Microsoft today. UM. I think Google and Facebook are actually cyclical advertising companies instead of technology companies, and the market needs to figure that out and completely revalue those companies for what's ahead. But on the other side of the coin, Energy, one of the best performers last year,

is actually priced for a recession. These companies are still very cheap, but they have much better balance, it's than in the past. I believe energy as a sector is going to have net cash pretty soon, if not already, And there's still a supply issue out there even if we get demand destruction. So yes, I think the golden age of value is here and can continue. What kind

of positioning or reposition have you been doing? Uh? If at all, Brian and your portfolio, Um, we've slowly been selling some of those energy companies that have become fully valued, but we're still very overweight energy. Our best performer last year was HNR Block, which certainly is not an exciting company several times and we love what he's done with the place. Yeah, they've been shifting right too much more be kind of a hub for for individuals, and we're

talking about not necessarily the high end, right. I feel like everybody goes aback up to after wealth management, but kind of everyday people, right and the services that they need. That's right, there's some meat in the middle there, and that's what H and R block is going after. But it was a tremendous value about a year and a half ago. Um, we're up about a hundred and fifty percent on it. But we did actually take the game last year because not because of strategy or anything like that,

which we totally agree with. It just became fully valued and with a four percent risk free rate. Now there's a pretty high hurdle to investing in any kind of risk in my opinion, So you have to choose your spots well, so fixed income versus equity, Like, are you more inclined to play in that fixed income space because they yield not so shabby. Now, we also do private wealth management, and we've definitely taken clients much towards the

fixed incomes side as rates have come up. We've still kept duration um tight short because there are still some pretty smart people out there saying that listen to the Fed and don't listen to the bond market. Maybe inflation will surprise on the upside um. And with the Value Fund, we're about eight percent invested, which is our maximum amount of cash largely equity. That right, largely equity. That one. That one has to be equities, and that's typically add

percent invested in equities. But we can hold some cash if there aren't opportunities there. And that cash is making four percent, which is great. So where are you seeing opportunities on the equity side now? Um? We we've recently have gotten into the restaurant business. UM. I can't talk about a specific name there, but generally with restaurants, inflation really bit hard and they weren't able to raise their

prices fast enough to cover those costs. But I think if you get some good operators there and some great brand names, they'll eventually catch up and those margins will come back. We're actually worried about margins as a whole for equities, especially going into a recession, but we think maybe the restaurant business can kind of buck that trend. Tell us about your number one holding. UM. Our number one holding is something called Calumet Specialty Products, which you

probably won't find in any other mutual fund. UM. This is around a two billion dollar company that essentially runs a refiner out of Montana, and they're converting their refinery to renewable diesel, and then after that they're going to convert it to sustainable aviation fuel. So those types of green energy investments typically command a big multiple because the majors want to buy them for the tax write offs and for the carbon write offs. And nobody's recognizing Calumet,

probably because it's a limited partnership UM. Their actual core business is industrial lubricants, which isn't exactly exciting to talk about, but necessary. It's certainly and UM again, we're not making more of this stuff, We're not making more refineries. Cal you Met, as small as it is, is set up to be the biggest producer of sustainable aviation fuel over the next two years in the US. So It's a nice, interesting little market um and the valuations pretty cheap on

this thing. We love it, really appreciate it. Brian Frank. He's chief investment officer at Frank Capital Partners. As we mentioned that Frank Value Fund has been beating just about all of its peers in the past year, up about six point five percent in a year that we know Tim not many things. We're showing positive return. Yes, since he was last year, you know and change. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud,

or Bloomberg dot com. You can also listen to our radio show at two pm Eastern on Bloomberg Radio or stream us live on YouTube and Blueberg dot com.