Markets Amid War And ESG Investing

really cool guest with us now. Back in and the heat of the pandemic, we had KKR investing billions of dollars and credit strategies as most investors had dipped out. Now a person familiar tells me KKR invested more than five billion dollars in the last couple of months. Joining us now to talk about what KKR is doing is a director at the company tall reback. Thank you so much for joining us. Tell what are you buying right now? And why are you able to step in when others

are stepping out? He needs a lot of great opportunities being created, you know, albeit on the Vaultwible backdrop, and you know, we're starting to think that Hi, You'll is getting more attractives are in high quality pockets. Senior secured loan paper, there's a lot of interesting dispersion also being created, I would say interest sector, and you know, from an inflationary perspective, we've already known about that for quite some time.

So we've been really looking at durability of cash flows really using that as our true north and credit and downside protection as we look across the spectrum on what we want to lean into right now, what do you expect the FED to do? Um, And especially given your affiliation with the FED, I mean, you've you've got some really deep knowledge of how how they work. But they're in a difficult place right now because they're going to have to fight inflation and yet um, there are worries

about slowing growth. Absolutely, you know, I think our base cases that the FED has to continue to tighten again. We think that's something that the market has priced in and it should have been on investors minds for some time, but that we don't see a way that they can pivot away from that, you know, given all of the

moving parts in the market. So we do foresee the rate types taking place as that continues to unfold, making sure that we're as flexibly toggling between six and floating great assets really thinking about our portfolio construction and keeping in mind all of the geopolitical issues in the backdrop. When you look around you I know that you are finding opportunities, but where do you find big risks and the places that investors might lose a lot of money.

Oh it's a great question. You know. One thing that we've talked about a lot at KKR. Sometimes the market grapples with a concept we like to call perception versus reality, And in this current chapter of the market, we think duration risk is one thing to really highlight. Given the FED stepping in in twenty you know, conducive monetary backsdrop or borrowers or extending their liabilities, the longer end of the curve could see a little bit more volatility, which

we actually saw in January. So really mindful of that duration risk across our asset allocation. And you know, understanding that what was perceived once upon a time of safe for example, something like fixed income and I G that that may not be the best risk adjusted return right now.

So going a little bit sub i G is where we would play what are the effects of the war tal I mean, I know geopolitical uncertainty is hard to price in but now we know what Russia is going to do, has done, is doing um and you can see the effects of businesses around the world. Yeah, absolutely, you know, first and foremost our thoughts are with people

of Ukraine's during this tragic and terrible time. And you know, KKR is fortunate enough to have established the Kkeyre Global Institute over a decade ago, led by General Petraus, and we're staying very close to this and over communicating with our clients and portfolio companies. But we've we've incorporated into

our investment process geopolitical risk. So we're being extremely thoughtful, you know, intra day as the situations of our looks, and quite honestly, in Europe that's closer to the unfortunate conflict we could were being collective. You know, there could be growth slowing there, you know, the net effects and second and third derivatives of supply chain issues and commodities. So we're being extremely thoughtful. UM and we'll see, but we're you know, we're just staying on our toes like

everyone else. Yeah. Interesting, that's kind of like what me and met we're talking about earlier. Even though the stock market is up, that people are worried about those growth concerns. I'm wondering. You know, you mentioned General for Trayas and his work with KKR. How are you answering questions from clients? What are the biggest things on their mind as they

navigate this market here and broad? Yeah? Absolutely, you know, firstly, we're we're over communicating, and you know, from a business perspective, we have very limited indirect exposure to begin with, really in large part to our investment process, and our platform is so connected and global that we're constantly cross pollinating across our different disciplines. So we're just making sure we're ready in the veil doable. We're taking note of every

angle of the market. And one thing to say is, you know, we're in the market day and day out at very different verticals, so we're one team is seeing something where another is not. We're exchanging that information and making sure everyone is consistent on the same page. By the way, Nale was and I've been talking about the library OI spread for the past a few days and I see that you are responsible for um the firm's lie or transition effort. How how is that going to go?

You know, what what are we going to really see in a world without libor Yeah, no, you came to the right person on that. So I think it's it's really interesting to see the widening and o I s right now, particularly because most of those quotes are really coming from the panel bank, something that we call expert judgment. You're not seeing a whole lot of wholesale transactions, so there's a gauge on what that bank and credit risk

looks like. But if you look at the spots bread and you look how so for has the liquid and SOFA is really deep in. What we're seeing is, you know, a true adoption of the life after live boar, which I think is a net positive and as testament to all the work being done. But it is not, you know, notwithstanding something that highlights a few of the challenges we've seen with live brar historically, that it can start to get a bit wonky, especially in market environments like these

where there's lacking liquidity. Teal great having you on. Thank you so much for joining us, and thanks to Chinali um for for booking or tal reback their director at KKR. Now I told you we're gonna talk to Will Naskovitz. He's the chairman and CEO of Heartland Advisors, and UM, great day to have you on, Will, thanks so much for joining us. What do you think about this bounce back we're seeing? Um, even after we heard UM, you know,

the US is going to embargo Russian oil. That's gonna put some real um put put some Americans in real difficulty as prices are rising. In fact, Jeff Gunlock said, maybe even ten inflation. Why are we up today? Well, thanks for having me. I think it's this volatility is going to be with us for some time. And I'm certainly not trying to diminish the significance or the gravity of the situation in Ukraine, but for some perspective, I

think is worthwhile. And we've had hundreds of crises, you know, going in, dozens of prices going back the hundred years or so, and you know, typically your post the event, whether it's at a war or terrorist attack or some type of financial panic, the market is up. So I don't know that this circumstance is going to play out like that, but I do. I think it feeds the should of trying to capitalize on some of the opportunities

that are presenting. Two investors and that's what you know, we're going to continue to do at here at Hartman. We're gonna continue to apply our our ten principles of value investing and look at this specific risks and outlooks

in any particular company. I mean, what we're finding here in this sell off, and this is perhaps why we're seeing buying day, is that in many cases, the valuations of companies have really disconnected from you know, their fundamentals that they're going to be seen over over the longer term, notwithstanding all the uncertainties that are out there. So what are you recommending to clients? What do you do? Do you buy amid the volatility or do you sit on

the sidelines? Well, I think you just have to be aware of it, all right. You can't just be laser

focused on the macro and all the geopolitical. You have to do that in conjunction with adhering to your process and I referenced earlier us remaining focused on the specific company risks and opportunities out there and looking at it a case by case basis, where perhaps the valuations look really compelling because the market overestimated some of these risks, risks or at the very least taking a very short term view. I mean, I think a good example, maybe

get a little more specifics on this. The health care sector was not a great place to be last year. We're all familiar with with COVID and all the protocols and the labor challenges that really damp in the sidures that companies and hospitals experience. You know, that's presenting opportunities in that space here today because we think those procedures

come back in the evaluations aren't reflecting it. So I think you just have to be very choosy, very specific in your work and be you know, entrepreneurial and an active investor. Here, let's get over Tom Stringfellow and ask him those questions. He's the chief investment Strategies at Argent Financial Group. Tom Um, thanks for joining us. We've been talking about these big inflation predictions and warnings from good luck and think what do you think? Well, I appreciate

the opportunity, and you have the ten percent number. Yeah, that's kind of a scary number and it's certainly not one that I'm looking at at this point in time, you know, and you know, just thinking back to the charts that were just mentioned, absolutely correct. Everything is is, you know, it's just escalated and elevating. And I put that, you know, kind of a momentum rush right now that I don't think it's sustainable in inflation if you start

talking about ten. But I wouldn't be surprised if we don't get hit with something just shy of north of eight percent, you know, with this coming month. Uh, you know, in terms of CPI and maybe core somewhere around six and a half percent. Either way, those are still well here high. With Texas Intermedia trading at a hundred and seventeen dollars a barrel um. You know, yesterday it looked like we were gonna get closer to one thirty. That's gotta that's got either brought under control or I mean,

how do you see that from Texas? Well, you know, good point from Texas. You know, we kind of look at it, and you know, if you're a mental owner, you gotta love oil. Uh, if you're driving back and forth, you know, that changes the perspective. And and you know there is some thought that maybe you know, these higher wall prices at the pump or somewhat deflationary because it's taken money away from you know, what might be spent on endurables, you know, by consumers over the next several months.

But you know, if you believe prices are going to higher in the oil business, you've got to also believe that the Ukraine situation gets much much worse and continues to be an absolute uh channel blocker on the oil industry. And and you know that's the question. What happens over there certainly has a lot of impact on how inflationary we're going to be, you know, not only at the at the fuel pump, but also at the grocery store.

You know, it's not it's really not just oil though, right real quick here, I mean, how much are these price increases going to float through the economy? Well, and yeah, that's that's a great point. And you know, right now we started to see companies uh starting to raise prices, and you know, I think that's inevitable. You know, they're going to have to continue trying to keep you know,

reasonable target margin for you know, their operations. So it is definitely going to bleed through, especially you know, anything that's resource based. You know, these prices are going to have to flow through to the market. And you know, I don't know that we have seen that kind of pricing yet into the underlying financials and the into the

market itself. Investors I think are focusing on you know, the impact on interest rates and inflation and you know, what's that going to do based on prior history, But I don't see that having been priced into the market. Yeah, what we're seeing today I think is just natural for a volatile, uncertain market. You know, we're in a pendulum swing right now that just keeps to it seems to you know, go from one extream to another. That's that's how I view this. But this volatility has also given

us some great buys. Yeah, Tom, we're gonna have to get the check back in with you later on those buying opportunities, But appreciate your time today, Tom string Fellow, Chief Investment Strategy, Argent Financially. Just get over to Caroline Bresson right now, Managing director of the Open Road Alliance and the Open Road Impact Fund. UM. Caroline, Caroline talked to us about what exactly you do with the Open Road Alliance. Sure, and thanks mat intionally for for having

me today. So open Road steps up at critical moments and UM, there's some sort of delay or or there's kind of an acceleration for an impact first company that addressing climate change or inequality. Uh So, for example, we actually just funded a company that provides a warning system for air strikes against civilians. They give seven to ten minutes warning um and and serve over two million people across Syria and Yemen. So we're hoping Hollow Systems can

provide their services soon in Ukraine. Um. But our investment helps them, uh, you know, accelerate their growth and continue to keep their their impact on track when they had some snags in their fundraising. Well that's just the thing about impact investing. If you're if your impact invest so you need to kind of stick in it for the long road. What are some of the challenges along the way. Yeah, so, um, you know, open road plays a very specific role. We

we do bridge financing. So unfortunately, UM, my dad's an economist. So if you say, we have a very inefficient impact investing sector where funds are committed, but they're often not dispersed into the hands of entrepreneurs for you know, sometimes twelve months um and so when you think about all that red tape in particular, if you're getting an investment from a government or something like that. Um, people, entrepreneurs are just sitting on their hands waiting for for cash

to come in the door. So Open Road provides these bridge loans that solve for those one time, discrete moments of cash crunch. What does a raising rate environment mean to you? Yeah, good question. So it's interesting. The impact sector is a bit you know, government funds and so I believe that rates will go up um on on the debt side, just as as you would see in

in any financial market. However, there is a lot of downward pressure from you know, philanthropic funds and and government funds that might keep the cost of capital lower for these impacts focused on entrepreneurs. Now, when you think about kind of what's happening in the world and and the fight over oil and the investment that might go into energy into the United States, I mean, how does that start to complicate a lot of the big E s

G investments that have been brewing for so long. Yeah, well, you know, E s G is really just a framework, and so what it does is it identifies risks up front. It doesn't say that, you know, you should avoid it. It means that the price should reflect the risk. Um. But but I think you know, what's going on with Russian oil right now really is a great moment for green energy. And we've seen that Germany already has, you know, UH moved up their target to five to get into

full green energy. So I'm hopeful that it'll just mean a recommitment to getting towards those climate goals sooner. Difficult though for the American consumer, for the everyday person here right when you see gas prices at six seven dollars of barrel, I have noticed that even I, UH as as an incredible car lover, have thought, you know what, maybe I should take the train. Um. That kind of demand instruction is probably good for the transition, right. Yeah. Absolutely.

You know, I'm jealous of my neighbor down the streets that bought a Tesla UM, and I think it will just accelerate. Um. You know, the investment into UH into electric cars, UM, the companies out there uponnding the pavement to to raise new funds hopefully. UM. You know, the more money they get, the quicker they can invest, the more they can bring down costs on electric cars and similar technologies that will hopefully show up in the hands

of consumers and into solar. Um. You know, because when you have your neighbor probably doesn't want to be powering his or her tesla with dirty coal electricity. Would be much better to put solar panels on the roof and charge it up that way. Is that something that you think is going to pick up? Because it wasn't the Open Road Alliance. Um, it wasn't that a big part

of the of the start of Open Road. Yeah. So about half of our portfolio is in in renewable energy, and UM, we just see more and more, you know, funds being started to help accelerate that. Um. But when you look at some states are kind of already ahead of the curve. I think Washington State, Um, over the energy produced is is via hyperpower. California, well over half of the energy is solar. And so we should see that,

you know, reliance on oil coming down. Um. It just depends on how much your state's invested in that technology to date. On one hand, and we just have about a minute left here. You say that it's inefficient sometimes to invest this way, but I can really show up in times of an emergency. How's that working now? Yeah? You know, when we think about how these large climate

commitments are translated into impact. It's it's obvious that individual companies must receive capital from those large commitments to get their climate mitigating work started. You know, salaries must be paid, inventory ordered, et cetera. And so the demand is higher than ever for Open Road UM. You know, we are providing our bridge loans at a at a breakneck pace, trying to meet the demands of companies that are working

towards this climate transition. All right, really interesting stuff, Caroline, Thanks so much for joining us, Caroline Brassan. They're managing director of Open Road Alliance and Open Road Impact. Fun talking to us about UM their business. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three

on false Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.