Doug Braunstein on Investment Banking (Podcast)

managing partner of Hudson Executive Capital. UH. They are, for lack of a better word, an investment firm, private equity firm, a little bit of an activist firm. They manage about one point six billion dollars UH, and they have recently become quite the active spack underwriter. Their first spack UH did really well. It's up about twenty eight percent or so. UH. Their second spack launched last year, and their third spack

is coming out shortly. Dog has just a unique background in the world of finance and M and a um an incredible network. He's from First Boston to Merrill Lynch to more recently JP Morgan Chase. Just just an incredible network of of people in contacts and company executives and finance people. Gives him just a unique perch to look out at the world of what companies are attractively priced, where can mid sized companies find a way to obtain capital to turn around UH their fortunes, and how does

the spack structure work in in those areas. Really just a master class on the intersection of of corporate finance and company management and how to produce value for shareholders. I found this to be absolutely fascinating, wonky, UH and informative, and I think you will also so, with no further ado, my interview with Hudson Executive Capitals managing partner Doug Bronstein. This is Master's in Business with Barry Ridholts on Bloomberg Radio.

This week I have an extra special guest. His name is Doug Bronstein and he is the founder and managing partner of Hudson Executive Capital, a private investment firm that engages in private equity, public offerings activist investing, managing about one point six billion dollars. Previously, Doug was the chief financial officer for JP Morgan Chasing Company. Doug Bronstein, Welcome

to Bloomberg thanks, Berry. Good to be with you. So, in addition to being CFO of a major public bank, you were you were head of JP Morgan's American Investment banking group, you were head of the Global M and A group, you're a member of the executive committee. Tell us a little bit about where you began your career and how you rose to those positions at JP Morgan. Yeah, So, Barry, in some sense, it was a little bit circumstance. I was. Actually I went to law school and I had planned

actually be a law school professor. That was my objective. And UM, I read this remarkable article in the New York Times Sunday Business Sunday magazine section on lawyers becoming investment bankers. In it, it sparked my interest, and UH

that year was the first year. UH First Boston came to campus to recruit directly, and I dropped my resume into a box because that's what you did back in the ninety eighties, and UM, and I interviewed with a bunch of bankers in the M and A group at First Boston thought it sounded incredibly exciting, and so that's where I went. I spent close to eight years at First Boston, working originally for Bruce Wasserstein and Joe Prell in the M and A Group and UH, and just

had an extraordinary start to my career. Yeah, you could do a lot worse than cutting your teeth with with those two gentlemen. How did you end up at JP Morgan? Well, I took a my boss at the time at first Boston, who's running NAM and A Group, brought a bunch of us, about six senior bankers to Merrill Lynch to help build out their M and A practice. And I was there for you know, four very good years. UM. But I got a call actually from from the the late Jimmy

Lee and UH. He was at Chase and they wanted to build out their investment banking businesses and he and Bill Harrison convinced me that UM I could come and make a difference. So I joined that organization UH in UH in early to run at the then time their their healthcare investment banking practice and UH to co head their M and A group. And I think the year before I joined UM, the Chase M and A Group's

revenues were about thirty five million dollars UM. Yeah, I think, I think, actually Joe's Pizza Shop and M and A group probably ranked higher in the league tables. Um, and uh, you know, we we I had a wonderful We'll talk a little bit about it. I had a wonderful, close to twenty year career at JP Morgan. But you know, when when I left the role of the head of M and A, the business was doing about a billion

six M about seven or eight years later. So it was a remarkable run in building out that business with the firm. Yeah, say to say the least. And you know, it's funny coming from a legal background. You you went to Harvard Law and then you spend time doing banking. That's not the usual career path to CFO at a publicly traded company. Usually it's some combination of accounting and m b A and and that side of the company.

How did you end up at as JP Morgan Chase's CFO. Yeah, well, um, my first to be fair, my first exposure to Jamie was was I was helping Bill Harrison as advisor to JP Morgan in the merger discussions with Bank One and uh, actually I can I can remember distinctly, uh A quite a quite forceful conversation around the exchange ratio at a conference room table with what I knew would be my future boss, and you know, I think we UH we

got to know each other quite well during that process. UM, I was fortunate enough to be UH in addition to the advisor to the company, I had the opportunity to run a number of the important businesses in the investment banking business. So at the time I was running both M and A and the coverage units. UM. I later took on responsibility for running UH number of the capital markets businesses, and I think during that time frame, the

businesses I was working with did very well. You know, I think we had the opportunity to demonstrate a fairly high degree of rigor as a business matter, and I got to develop an even stronger relationship with Jamie and quite a number of the members of the Operating Committee and so UM I think when I was approached to do the CFO job, as you might expect, I spent a lot of time talking actually to my Kavanaugh, who was my predecessor in the role, speaking to literally all

of the operating Committee members UM before deciding that it would be a great opportunity for me and hopefully the right decision for the bank. Huh. And I assume it turned out to be your CFO not only of a giant company, but of a publicly traded one. What is that like? Being public gets a bad rep these days. What was it like being JP Morgan Chase's chief financial officer? Yeah, you know it. I mean, to be Fairberry, I think it was in aggregate are remarkable privilege to be the

CFO JP Morgan. It is a I think one of the world's great companies, and obviously I got to work directly for what I believe is one of the world's

great business leaders in Jamie. Um. You know. It was The remarkable part about it is the what I believed was this in this awesome sense of personal responsibility because the company had, you know, two hundred and fifty thousand employees, and while we had you know, bankers and deal doers, you know, we had literally thousands of people in alert jobs and back office jobs, and the security teams that you know greeted you on your way into the office, and so you just you you came in every day, uh,

with this feeling of responsibility to make sure that the company was both safe and secure in a good place. For them to work. We had millions of consumer customers, you know, millions of small business customers, and obviously we were you know, banked to many of the largest businesses in the world. And then of course you have a two trillion dollar balance sheet and at the then time six independent lines of business. So it was you know,

it was a privilege to serve in that role. Um. You know, you worked every day to make sure that we were maintaining a Fortress balance sheet. Obviously, my responsibility in communicating with the external investors was to make sure that what we said was accurate, transparent, that we were clear and consistent with that reporting, both to the public

and obviously to our regulators. UM. And the last thing that was really fascinating about the job was, you know, I took on that role right on the heels of the implementation of Dodd Frank. So, you know, at the early days of you know, a post global financial crisis, if you will, you mentioned the Fortress balance sheet. JP Morgan Chase probably came through the financial crisis better than any other bank, certainly better than any major money center

bank you want, the CFO during the crisis. But I assume because of your role in M and A. Um, you were witnessed to what you know, that quick bear Sterns deal, did you pure? And what on earth was that? Like? Yeah, so it was it was Actually I did get to participate. It was an extraordinary experience. At the time I was, I was in my role of running banking and M and A, and so I ended up doing the what was a very short lead advisory assignment for our work

at the company. So we knew, you know, midweek that you know, bear Stearns was having uh what ended up being, you know, a devastating liquidity crisis, and um, we originally, as you may recall, we're called by the said to provide bear Stearns alone and then literally over the course of that you know, Friday, Saturday, Sunday, we I helped to organize and lead teams around diligence and then obviously helped Jamie and the senior management in the negotiation of

the actual transaction. So, you know, the process itself, given the time constraints and the risks involved, was you know, one of the most fascinated ones I've been involved with. I can imagine and then I assume a similar shotgun romance a year later with Washington Mutual. I assumed that was sort of similar, although given the overlap between regulators, I would imagine you're going into that with a little more confidence that there were no surprises than perhaps you

saw at bear Stearns. Yeah, I mean bear Stearns obviously we had you know, we had this weekend they had there were businesses we were quite familiar with. But but we knew in part that if we didn't act over the course of the weekend and bear Sterns filed for bankruptcy, which they were preparing to do, UM, that there would be this cascading effect that could potentially impact many others.

So were it was a counter party, right, Yeah, it was less, Yeah, there was, but that was less at issue actually for us um UH again because of the Fortress balance sheet and the vast amount of liquidity we had, you know, it had others incurred problems. We you know, we we thought we would be fine, but it wasn't necessarily a good thing for both UH, the economy and

the country. And so at the time there was there was a real sense that, you know, if we could do something that was good for our shareholders and also good for the for the country that we would do that Washington Mutual was was a different set of circumstances and a different process and different regulators, as you said, Barry, and is it is it? It turned out we had taken a hard look at Washington Mutual previously and it was also, to be fair, a simpler business um and

a less complicated balance sheet. And so that process was you know, less time constrained, though obviously important, and it was really run in a very different way. Interestingly at the time, if I'm recollecting correctly, the f d i C which round that process, they actually required you to bid over a fax machine, which you know, even even at the time was was unusual um. And so we actually had to put our bid bid letter in over

the fax machine. UM. And you know, both of those transactions, obviously the opportunity set arose because you know, we were a fortress balance sheet and we were able to take on those businesses and I think in hindsight both have created you know, a lot of value for the JP Morgan shareholders. Yeah, quite quite interesting. Let's talk a little bit about Hudson and what they do. What what motivated you after working in a series of giant banks, to

launch your own from UH, thanks for asking, Barry. It Actually, UM, it was a function of some of the most extraordinary people I had met over a thirty year career on Wall Street had been successful entrepreneurs. In fact, my wife had been a very successful entrepreneur, and and I thought that it would be an exciting and invigorating opportunity to to launch out at you know, and start my own business and UM and I wanted to do something different

and exciting and energizing. And I came up with the idea of building an investment firm around the notion that I could tap into this remarkable network of current and former chief executive officers and other senior executives that I had built over that thirty year career and try and offer that wisdom and expertise and mentoring and judgment UH two small and MidCap companies where we could make an investment and and try and help those companies to improve

their performance. So that was really it was. It was the excitement of doing something entrepreneurial and um and and really sort of leveraging those capabilities and relationships I had built over three decades. So so when I think of Hudson capital. I kind of think of it as one part private equity, one part underwriter, one part activist investor. Am I oversimplifying that? How would you describe it? You know?

I think the way to think about it is, I think we try to take a private equity like approach to public market investing. And what I mean by that is we we invest in companies where we think we can add value by helping them from an operational standpoint. We can add you by helping them allocate capital efficiently. And that doesn't, by the way, means share repurchases are dividend. That means for small companies, you know, how do I put a dollar of investment to work in my business

to optimize my return on investment for my shareholders. We we look at how to help the company reposition themselves in the capital markets, attract better long term investors, get better coverage from research analysts, tell their stories succinctly and clearly, and then perhaps the most important thing we end up

doing is helping the company position themselves strategically. For a lot of these small companies, you know, they participate in businesses where scale ultimately can be a real competitive advantage and and oftentimes our investments, and the companies we invest in end up being acquired by a much larger strategic partners.

So that's the that's the way our philosophical approach. It is very active, UM, but much of what we do, almost all of what we do is typically behind the scenes, UM, you know, out of public view, UH, consultative with both the CEO and the management team and the board UM. And we find if we can do that, it usually gets to the the place we want to get too faster UM and more efficiently, and it ends up working

out much better for the shareholders. Interesting. So I'm going to guess with your background and your experience doing M and A for all these you know, August companies that have fantastic reputations, you develop a sense for what makes for a good acquisition and what deals work out well. Where is the value hidden that perhaps the market um

is missing. But the thing that makes it even more interesting these days is then you then take that background and say you use this spack structure as the shell to make acquisitions. Hopefully that brings unlocked some of that value from the marketplace. Why SPACs. Yeah, it's it's a great question, Barry, And you know I began Hutson a little under six years ago, and we were simply you know,

investing principally in public companies. Companies are already public where we could go and acquire their their shares, and and I was to be fairer. Over the last several years, I was somewhat skeptical of SPACs. The history for me with spacks was, you know, one that typically involved very

troubled companies. And and UM, some very dear banker friends of mine worked very hard to convince me that this market was changing and that the skills that I just described that we use in Hudson to help position public companies would be directly applicable to these private companies and

the spack structure um in going public. So UM, we launched our first spack in June of so right on the heels of you know, the turnaround in the markets following the pandemics, uh, you know, initial impact, and UM, we've been very fortunate. We we announced a merger for that first spack early in January with a company H called talk Space, which we're really excited about right that that deal is now up more than since uh spack

was launched. Talk Us through the experience. What is the process like looking to emerge a company into a SPAC compared to the traditional M and A type of transaction. Yeah, it's it's actually remarkably similar in many ways to a

traditional emit a transaction. So the the the important part of UH ultimately finding a successful transaction is identifying businesses in our view that have long term sustainable competitive advantage, right, because you're going to be merging with a company that ultimately, for us, we think we want to we want to look out and be successful shareholders not just at the transaction but two years, five years, ten years out right.

So it's important as part of an M and A process to identify companies that you think are going to create long term value. The second piece of it is you actually have to find a great management team right to help execute that vision um. And then the third piece is is this a business that you can be an effective partner with? Right? And do you do you share a common vision, do you share a common mission? Do you think about how to build that business and

create value for shareholders consistent with the management team? And you know in talk space, we you know we found each of those three opportunity sets were fantastically filled by the company. Both it's it's management, the core business, which I'll happily talk a little bit about, and UM, you know, and our shared vision of what the opportunity said is

for the shareholders over time. So so you mentioned, um the first SPAC h g I one was filed in June, the second version, a g I two, came out later in the year, and you just filed for h G I three for a five million dollars back. Is there something to the rhythm of this, uh to keep a full pipeline of future SPACs tied up? Or is this just you know, a land rush these days and everybody is uh looking to do what they can do. Yeah, you know, I it is. Certainly there's a lot of activity.

I can't speak to the logic behind others. For us, you know, one of the things that we have found is that our business model has created uh really even for me, I thought it would be a good level of transaction flow, it's been an extraordinary level of transaction flow. And we we source the businesses from really a multitude of sources. We have this network of my founding CEO partners almost thirty five executives that are out looking for

opportunities for us to to merge with. In the back, we have a full research team that's doing bottoms up work UM that's part of the Hudson Executive Investment Team. We have what turns out to have been, you know, the benefit of thirty years on Wall Street is, you know, we've got wonderful relationships with the m and a banker community on Wall Streets, so we are getting more than

our fair share of opportunities that we look at. And then my partner and I, Doug Burger on we've we've got you know, longstanding historical relationships on both the East and the West coast into the venture community, in the private equity community. So for us, raising capital is really reflective of the opportunity set we see in front of us.

And we've been very purposeful in sizing those two SPACs quite differently to reflect the different size of the opportunities, so that we've got you know, the appropriate level of sponsor capital UH to really help effectuate you know, smaller and larger transactions. So for us, you know, we think this is this is a new and I think long lasting corporate finance tool that private companies are going to

look to utilize. It won't be perfect for all companies, but it will be really an excellent capital market solution for many. And we think we're going to be you know, we're we're built to be successful in this asset class. So so I have two more questions on SPACs. The first is, I think it was last month I saw a column on tech Front that asked, could giant SPACs be next? Raises the question how big spacts get? Are we going to see a billion or a multibillion dollars

spack coming down the pipe? Yes, so Verry, there have already been several that are a billion or multi billion that have have been launched, and there is no question that there's the investor appetite for that, you know. To me, it's it's you want to have the right tool in

your tool kit for the right opportunity set. And what what's really exciting for us is, you know, SPACs in that too fifty to seven fifty range plus the ability to raise capital through pipe gives you an enormous flexibility to really optimize the number of potential UH merger partners

out there. You know, the larger you get, the shorter, the list comes of eligible transactions, and so we'd matter, you know, to us, it's less about the headline you grab, and it's more about finding really good businesses that generate a lot of value for our investors and for the shareholders. And that leads to the related question, at what size does an I p O make much more sense than a speck? And you sort of hinted at that a little bit. Yeah, it's it's honestly, it's less about size.

And it's so let me, let me just step back for a second, and you know, from our perspective, what I've I've come to firmly believe is there are some very significant competitive advantages of a spack over an I p O. Right, it's a faster process, so speed can sometimes be important. It's actually a more certain process in terms of pricing, because you don't actually end up announcing the transaction, the actual merger, until you've raised the pipe

and the pipe confirms the price. Right, so you've pre sold at that given price, um, and so you know in a relatively short period of time, not only you're going to effectuate the with the go public, but you know the price structurally. The spack gives you, I think a greater degree of flexibility to raise both more primary and secondary capital in most instances. And then the last

piece is the actual disclosures of a proxy. A merger proxy versus an I p O filing means that you can actually provide your investors with projections and it allows particularly for growth companies, it allows them to tell a much more fulsome story to the investor and and the corresponding popper tunity as the investor gets a lot more

information when making that investment decision. So those characteristics are offset by a SPACK can be marginally higher in terms of its cost of capital than an I p O. And you're actually a SPAC means you're choosing a partner and in an I p O you don't have to do that. So you know, each company that goes through this evaluation has to decide to the benefits outweigh the cost.

For Hudson, what we articulate to our SPAC partners, and we did this with talk Space quite effectively, is our partnership because of this network of executives and our experiences, actually accelerates growth and adds value to the company. And therefore, over time, you know, the shareholders should be better off with that partnership. So we we think that's you know, and I go back to you know, the your question

about is a spack like a merger. At the end of the day, many many mergers are successful or fail on the chemistry and interaction of the two companies. So this partnership concept actually matters as much, if not more, oftentimes than the underlying economics of a deal. So, Doug, I was reading a quote of yours that I really am intrigued by. You had said, quote, we like to apply a private equity approach to investing in public markets. Unquote.

Explain what you mean by applying private equity to public markets, Yeah, Barry, it's it is a combination at the front and of rigorous due diligence. So before we make an investment, um it oftentimes it takes us, you know, four to six months to complete our work. So we'll we'll be following a company for a long period of time and we we try to dig in as deep as possible to

that business. Now, we're aided by the fact that, you know, we have this network of current informer chief executive officers that have you know, lifetimes of experience and domain knowledge in the industries in which we invest, and so we often rely on them and their networks to help us analyze the businesses that we invest in. We you know, we only make three to five investments per year. We're very concentrated, and so we have to make sure know, when you make very few bets, you want to make

sure that those bets are are good ones. Um. The other piece is after we've made the investment, how involved

we are with the companies. So um, we will be involved assisting the management, providing advice, mentoring as it relates to their operational execution, as it relates to the how they position themselves in the capital markets, as it relates to how they allocate the shareholders capital to optimize value and returns, and ultimately how they position the company strategically, and so we will often get our We we will often go on boards of the companies that we invest in,

will often make recommendations for board members we think bring lots of value to the company. We will, in many is actually sign n d as nondisclosure agreements and actually work side by side with the management for periods of time. We presented to all of the company boards that we invest in UM to give the board members of perspective on how shareholders view their companies. So we're, you know, we're kind of roll up your sleeves kind of investors.

I will tell you it's it's not. We think it not only creates a lot of value, but it's actually personally quite rewarding to work with some of these companies and you know, see them doing a better job delivering for their customers, for their employees, and ultimately for their shareholders. Very very interesting. You have mentioned several time your limited partners and your the investors. Tell us a little bit

about out these folks. It sounds like you have not only a network of ready sources of capital, but what I only could describe as smart money. Yeah, it's it's I would actually say, you're you're if you met these folks, UH, smart wouldn't do justice to the extraordinary capabilities of these individuals.

So I had, you know, the the remarkable opportunity having worked, you know, running banking at JP Morgan is I got to work with many of the world great companies UM, and I developed relationships over those uh you know, thirty years with UH a lot of chief executive officers CFOs who became CEOs, heads of corporate development and UM. When I started Hudson, the first two fifty million capital that I raised was principally from that group of executives and UM.

What I asked of them was not only for their capital, but I asked them to help UH to identify opportunities to invest, to help provide mentorship and guidance to the companies that we invested in, to make recommendations for board members or for management team members, and really to be actively involved. And so we use that group. They've been with me for six years as an investor. We use that group for all aspects of identifying opportunities and diligence

and then execution and UM. You know, we've talked a little bit about our our new and growing spack business. They are all UM actively involved than that as well. So it's it's an extraordinary group of professionals. And you know, literally many of them have have helped build and run and create some of the world's best companies. So, so

let's talk about some of your other non spack investments. UH. At one point in time, you owned a nine steak in card Tronics to where where is that investment are you? Are you still active with them? Uh? And that's a pretty substantial chunk. Tell us a little bit about that deal it is and and maybe I'll actually step back. So we we and we still do own that steak. UM.

We acquired that steake a little over three years ago. UM. And the logic behind it card Tronics is it's one of these, you know, interesting small companies that many people have never heard of, but have a marketable market position. They are the leading provider of a t M machines independent a t M operators UM in the world. They don't make the machines, they actually run and manage a network of almost forty thousand a t M s in

the United States and many outside the United States. And what's unique about them is that they're in seven of the ten largest retail locations. So if you go into a CBS or Walgreens, or a Target or a speedway and you see an a t M in there, that a t M is owned and operated by Cartronics. And the company at the time we invested was struggling. They had just made two very large acquisitions, levered their balance sheet,

operating performance had gone south. They had lost their largest customer, UM, and you know, we invested in the company based on again months of diligence, using our network of chief executive officers and our relationships and obviously my own personal background UM in the banking industry, and worked with the then new CEO to help reposition the company and change its

strategic focus. And over the last several years that CEO and his management team have done an extraordinary job in repositioning the company in the In the pandemic, the stock UH took a very significant hit, despite the fact that the company operated exceptionally well through the pandemic, and as a result of what I thought was a ongoing long term opportunity but a short term disruption, UM I partnered with Apollo Global Management UH private equity firm and actually

made an offer which was ultimately accepted by the board to take the company private. And when you made when you had made that offer, it attracted the attention I believe of one of the big manufacturers of a T M S N c R who got involved. How did their role UM come about and how did that resolve? Well? As you know, Barry, I mean in UH both card

Tronics is headquartered Uh. In the UK, UM. You know, public company boards have a fiduciary responsibility when selling a company to demise value, and and after our transaction was announced, UM, the board received a series of inbound inquiries from a whole host of companies, and at the end of a process that they ran, the board made the determination that the NCR offer, which was nine dollars versus our thirty five dollar offer, was superior and they therefore recommended that

to the shareholders and that transaction. Now the vote and the transaction remains pending. Let's talk a little bit about the pandemic and the opportunities the market crash might have created last year. Uh. Normally, when you get a crash like we saw in the value, investors get a opportunity to go out and pick their favorite targets on the cheap. But it seemed like this was over. If you blinked, you missed it. How was last year as an environment

to find either discounted or distressed assets that looked attractive? Yeah? No, it actually is remarkably different in tone nature, and I would argue over time, UM, the impact of the pandemic on the way companies do business. I think it will will be far long, far more long lasting, um and different than the global financial crisis. So the the speed at which the market recovered I think created a very small,

brief opportunity for folks brave enough to step in. In some sense, it's it was similar to you know, March nine of UH two thousand and nine, right, if you if you put money into the market on the tenth and walked away, you would have done extraordinarily well. But investing isn't you know, there are some folks who are market timing investors. We really are focusing on, you know, fundamentals of businesses that have that long lasting, sustainable competitive advantage.

And what is clear is that the pandemic has accelerated and highlighted trends that will make for different winners and losers in the market going forward. So on a long term basis, I think it has really changed the nature of how companies will compete effectively and be successful. And you see that for example in healthcare, in the digital

delivery and acceleration of digital healthcare. So, Barry, we talked about our investment in talk Space, which is a digital behavioral health company that business in many ways is now the future of behavioral healthcare, whereas pre pandemic it was an important vehicle but not but it wasn't as clear that it will ultimately be a winner as it is today. And so I think it's really the pandemic I think forces value investors and individual stock pickers to reassess the

strategic positioning for many companies. And that's what I think the long term consequence is going to be of the pandemic. So so let's talk about a specific company. Hudson took a three point one stake in German banking giant Deutsche Bank back in October. Tell us a little bit about what attracted you to Deutsche Bank. They've had a recent history of some regulatory problems going back to library and a whole run of things. What what makes them an

attractive investment here? So Deutsche Bank is a really interesting um investment. And when we made the investment back in you know, we were clearly quite the contrarian investor. But you know, with the benefit now of two years of execution, in hindsight, I think the management continues, the new management continues to take this company in the direction we think is going to create lots of value for shareholders. Today.

What was compelling about Deutsche Bank is it is, you know, the largest bank in one of the world's largest economies UM and and viously one of the most important economies in Europe, with a number of businesses that, if executed properly, were leaders in their in their space, and the bank was troubled by a variety of shortcomings and mistakes of prior managements UM, a lack of cultural focus, a lack of investment and leadership, and ultimately trying to compete head

to head on all fronts with companies like JP Morgan when that wasn't really their strategic direction. And so um I invested. After Christian Seething was named the new chief executive officer, we were actively involved with the company in helping them think through their strategic repositioning UM and we have been working actively with the company for the last several years as they have both rolled out that repositioning

and now UM executed on it. And what Deutsche Bank UM really focuses in on from an investor standpoint is, in a world in which the macro environment is very challenging for banks, much of the operating performance improvement of Deutsche Bank is driven by self help, and we believe that Christian and his management team, who have now successfully executed on their plan for close to two years, is really on a path to returning this company to both

substantial profitability and UM generating a lot of excess capital they can ultimately be returned to the shareholders. So that's for us UM in an environment that's otherwise challenging for large banks given the interest rate environment we live in today. Much of this opportunity set is driven by self help UH for Deutsche Bank, meaning management knows what they need to do to get the bank on the right path. You are clearly not the only one who sees Deutsche

Bank this way. Capital Group just took a three percent stake. There are rumors of other people kicking around taking a chunk. Do you like to be early or do do you not think in those terms of UM having to be the first one to turn over the rock and see all the critters underneath. Yeah, well, sometimes, unfortunately you you realize that and the rock is turned over. There are lots of critters. This one, the critters had already been

released UM. The question was whether or not the management was up to the task, and that's where the work that I talked about that we do on the front end leads us to you know, make investments based on the confidence of that deep due diligence and domain knowledge and expertise. So we don't we don't want to be we don't need to be the earliest, We don't need to be the first. What we don't know is whether

we'll pick the bottom. But because we're long term investors, Barry, where we know when we're investing, we're not taking the top. And that to us is the important part. So you know this, this is a big, complicated global institution that had to go through a fundamental change, uh in leadership, in management and culture, and in strategic positioning. And that

takes time. But if you're a patient and you've made the right bets in you know, the early parts of an investment, it ends up being, uh, you know, a very rewarding experience. So so let me stay with your expertise at Giant Money Center banks. UH. Clearly, JP Morgan Chase is a Siffy is a systemically important financial institution. I have to imagine that in Germany they're perceived as their version of Ciffy or a national champion or whatever.

You wanna call the hometown giant money center bank. Um, what is going to happen across the globe with with these sorts of banks? So are we going to continue to see consolidation? We I look in France at Society General and BNP, I look in at Switzerland at Credit Swiss and ubs. Are we just going to end up with a handful of giant banks in each and every country.

It's it's a great question, Barry, and I want to step back and say one of the real you know, if there are benefits that came out of the global financial crisis, is the standards that were put in place, whether it was you know, the FED stress tests and capital requirements, the Bossel three requirements, all of these designations

that you mentioned, you know, systemically important financial institutions. Means that today those large banks start from a position of relative strength both in terms of their capital and liquidity. So the good news today is the in the in the course of what has been a very challenging economic environment and the pandemic, the banking system is far stronger, far more resilient um than it was a decade ago.

Having said that, there is no question that there remains what I would characterize as excess capacity or suboptimal returns

UM that could certainly be enhanced through mergers. And so, you know, my expectation, I think others expectation is is that there will be another round of consolidation UM and that may very well, uh, you know, it may take some time to get there, but there is no question that for a number of these large banks, gaining more scale, creating more efficiencies will ultimately over time both you know, improve returns for the investors and actually build capital from

a regulatory standpoint to keep these banks safer. So yes, so I'm not sure last today, but we will see it. Interesting. So so that makes me think of two specific things. Well, we'll go backwards and and currently um, currently there's a ton of consolidation going on on the asset management side. We have SWAB taking over t d H, Morgan Stanley doing a few acquisitions, Franklin Resources and invest go. What are your thoughts on that side of the finance sector.

Are the same forces driving consolidation on the asset management half? Street Berry is unique and different, and I think the forces that are driving consolidation in the asset management side is really the prevalence and the amount of capital that has gone to passive investing with far lower cost structure. And so the traditional asset management model of active management

and fees associated with active management has been squeezed. And when profits and margins are squeezed, one of the things that a company can do is look to improve that profitability or margin by merging and taking out excess costs. So what you see happening in asset management is that's a different driving force than what we talked about for

the global financial institutions. By the way, you know, if you think about the investments that I make in some of these small or mid sized businesses, they all they're they're targets of larger companies because there is a driving

force that benefits through scale. So we've owned a number of medical device companies, great product, but it costs an enormous amount of money to run a sales and marketing organization globally, and large medical device companies have those sales and marketing organizations in place, so they're able to take a great product and put it into their channel and

distribute it. So, you know, and what I will say is asset management is no different than large financial institutions is no different than medical device which is these businesses over time are increasingly global and the benefits of scale matter. And quite frankly, if you you know, you want to take the paradigmatic example of the benefits of scale, you know, my old employer, JP Morgan is the perfect example of that. They are, you know, they're a dominant player in the

space in part because of the scale. It makes a lot of sense since you were at JP Morgan during the crisis, and we talked about Washington Mutual, we talked about bear Stearns. I feel like I would not be completing the whole set of collectibles if I didn't ask you about either Lehman Brothers or a I G. Tell us a little bit about what you might have seen late oh nine when everything was on fire. Did you guys look at either of those companies and what was

your takeaway? Yeah? So, I think because JP Morgan was you know, a bank, if you will, to so many other banks, UM, we had you know, the either the benefit or the challenge of being you know, having a front row seat to almost every large financial institution and how they went through the financial crisis. Um, we actually were called to to to evaluate Lehman and that was a you know, a short discussion. It really didn't fit

what we were doing strategically. A I G. On the other hand, actually called us to help them try and find a solution. And you know, it was one of those examples during the financial crisis. I was actually, you know, happily on my way to work one morning and I got a call from Jamie and he asked me to reroute downtown to A I G. S offices. And you know, we spent quite a few weeks working with the management team and the board to try and find a private

market solution. Ultimately, we weren't able to do that in the government, as you know, had to step in. But you know, we were we were both looking at businesses as a potent to acquirer and we were actively engaged um with businesses as an advisor to try and help them manage through the crisis. See I see A I g Um as having some real value outside of their

financial products division. That blew up The question with Lehman Brothers always seemed to be that everybody who to use my private to use my previous metaphor everybody who flipped over that rock said, oh, these this is just a disaster. We can't get involved in this. And it sort of looked like the FED had the same attitude. They were comfortable in letting them, you know, do the full face plants into the pavement. What what was your perspective on Lehman? Yeah,

you know, to be fair, I was busy. Lehman and an A I G. Kind of those bombs went off at about the same time. So so, uh, it was quite an interesting period of time because there was a group down at the FED trying to find a solution for Lehman, and and many of those individuals weren't aware um that you know, literally a block or so away there was another, you know, quite frankly larger financial institution that was also in massive distress. UM. I think you know,

in hindsight, UM, the markets. The Lehman bankruptcy UM obviously sent the markets into a material tail spin, which accelerated the issues at A I G. And a number of other companies. UM. And and you know, at the end of the day, uh, you know, the Federal Reserve decided to and the Treasury decided to step in an A I G. To try and put the finger and the die. It ended up being very important. Um and ultimately uh you know, financially uh uh, not necessarily successful, but at

least financially neutral to the government. UM. But you know, part of the lesson Barry in all of this is, you know, financial institutions run it's financial institutions are a little bit like marathoners right there in you know that they're in great shape, and that shape is their capital base, right how how how prepared are they to weather a crisis, But they also need liquidity and matching the duration of

your assets and liabilities is critically important. And for a marathon runner, it's the oxygen they take in in the race. And you know, you could be in the best shape of your life, but someone puts a pillow over your head at night and you can't breathe. It's not going to end well. And for many of these financial institutions, they they believed capital was sufficient and in the engineed both capital and liquidity, and you know, they the system starved them of the oxygen they needed at the time

they needed it most. Yeah, that makes sense that the world looks differently um at mile one than it does at right. The world looks differently during normal times than it does in a liquidly crisis exactly. And if you aren't prepared for both, you know you're not going to

be successful in the race. And I get back to you know, the the remarkable position and seat we all sat in a JP Morgan is you know we had both the capital and the liquid d to manage through this, and you know the our ability to try and help the system through the financial crisis was you know for me, you know one of the parts of my career I'm most proud of. Huh. Quite quite interesting. I know I

only have you for a limited amount of time. Let's jump to our favorite questions that we ask all of our guests, starting with tell us what you're streaming these days? What are you doing to keep yourself entertained with either Netflix or podcasts? What do you what do you um? What's entertaining you? What's entertaining me? So um I am. I will tell you to be fair, I am happiest, happiest at work, and I will tell you that I spend the vast preponderance of my time, uh looking for

SPAC candidates and investment opportunities. Now having at that, when I do have a moment Um, I loved the Queen's gambit and my my children would be very upset if I didn't also say that I kind of have a hankering for the Great British Baking Show. So that's that's, that's, that's what I do watch in moments of relaxation, you know, and on the on the podcast side, Berry, you know, I love your show. Um. I am a sucker for

Michael Symbolists. I on the market from JP Morgan. I think he just he has a really innovative approach to uh two big global questions. So when I do have a moment here or there, that's what I try to listen to. Good stuff. Let's talk a little bit about your mentors and and dear lord, that's quite a list you've already mentioned already. Tell us who helped to shape your career. Yeah, so, um, I'm a big believer by the way, the for young people, the importance of mendership.

I think, but for the mentors I had, you know, my career in life would have been really different. I actually go back to college. I had an extraordinary professor in college. Guy's been the name of Sam back Iraq, who really changed the trajectory of my academic and uh development. I worked for him for a number of years in

research and it was just it was great training. Um. And then when I you know, went to First Boston, I had the privilege of actually working for both Bruce Wasserstein and Joe Perella, my longtime boss who ran the M and a group Mike Konicky. I think all three of them gave me great advice and more importantly, they kind of put me in positions where uh, you know, I had a swim on my own, and every once in a while they would, you know, give you a nudge one way or the other. But they just gave

me great opportunities to develop as a professional. And obviously I've talked a little bit of JP Morgan about, you know, the extraordinary experience of working with Jamie. But you know, I started my career working for Bill Harrison, and you know, I think he had an enormous influence on on my development professionally. So I've had a I've had a string of great folks to work for. Yeah, that's that's an amazing, amazing list. Let's talk a little bit about books. What

are you reading currently and what are some of your favorites. Yeah, so right now. Actually, I haven't read a book in the last couple of months. It's just been really busy, I would say on the favorites front, Um, probably my all time favorite book is UM Team of Rivals by uh Uh Doris Kern's Goodwin. I love the story behind Lincoln building out the cabinet. It's just it's extraordinary lessons in leadership. I have to give a shout out to

UM Andrew Sorkin for Too Big to Fail. Um. You know, we spent a lot of time talking about the global financial crisis, and having had a front seat to most of it, I think Andrew did a remarkable job with that. And then I am kind of a sucker for, you know, a bunch of Michael Lewis books I love. I love Moneyball for example, and Uh. I try to read uh periodically books that my children are are are reading so

we can have some interesting discussions. So you know, I probably have to give a shout out the Lord of the Rings. That's one of those. So that's a that's a good list, and you could add to your list. I believe Michael Lewis's book on the Pandemic comes out in May or June of this year. That'll be interesting. I'm excited. I'm excited to read it. I have to be fair. I have a pile of book sitting next to my bedside that I haven't cracked in about four

or five months. I there's lots of uh downside, but the ability to be active and efficient remotely has really changed the work day in a way, no doubt, doesn't let me get to very many books these days. Right. There was a study out not too long ago that showed that the average white collar professional is working something like two hours more a week or a day. I don't remember it was, but it was a big uptick

in time. When when you don't have to commute, shower, get dressed, you just roll out of bed and you're at your desk. It's a whole different, uh experience. It is a different experience, you know, And in the other pieces, the typical boundaries between you know, work and home get eroded. Yeah. So was no complaints though, because it's you know, obviously a lot of fun for me. Um. What sort of advice would you give to a recent college graduate who was interested in a career in either h M and

a finance underwriting. What would your career advice be to them? So so I would you know, obviously, at JP Morgan, we literally recruited hundreds of college grads and graduate school students every year. You know what I would say, First of all, I think the training and experience uh that you get in any of these large programs I think is extraordinary and and and I think that is true of you know, many many of the large companies UM

in both in finance and healthcare, in technology. I really encourage young people to spend a couple of years in one of these well run companies, to learn the processes that make these companies successful UM, and to be around senior talent that they can train and develop behind. But then ultimately, I think you to be successful, you have to do things that you're passionate about. UM. You know, work is hard, and you want to do something that's

not only hard, but what you enjoy doing. So really, you know, spend the time I'm figuring out what makes you happy, because that that allows you to put your very best foot forward. And then the last thing I encourage people to do is look to go to organizations that reward performance. UM. You know, I think it's really important that you know, young people work hard, put their head down, do do as good a job at the

things they're asked to do. And but the the reciprocal requirement is that you know, the companies they work for recognize that and you know, promote UM and compensate them for that performance. So and that's not true across the board. And you know, you want to be in an environment

that you know rewards that strong performance. And our final question, what do you know about the world of testing, mergers, M and A today that you wish you knew thirty years ago or so when you were first getting started. UM Well out on the on the investing front, UM, I'm gonna go back to the duration of your capital can be a remarkable competitive advantage. And and the reason I say that is, you know what I've learned over the last thirty years is it often takes time to

build a successful company. It's hard to really manage these businesses and build them and grow them and you know, create competitive advantage. And capital needs to be long in duration in order to to see that. Why cycle through UM And so for me, it's it's all about matching the asset and liability duration in In this particular instance, you know you're investing in companies is the asset and you want to have capital um that's long a duration

to match the life cycle of that investment. Thanks Doug for being so generous with your time. We've been speaking with Doug Bradstein. He is the founder and managing partner at Hudson Executive Capital, which runs about one point six billion dollars in assets. If you enjoy this conversation, well be sure and check out any of the other previous three hundred and seventy two such discussions we've had over

the past seven or so years. You can find that at iTunes or Spotify or wherever you feed your podcast fixed. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Please le give us a review at Apple iTunes. You can sign up for our daily Reads. You'll find that at dhlts dot com. Check out my weekly column at Bloomberg dot com slash Opinion. Follow me on Twitter at rid Halts.

I would be remiss if I did not thank the crack staff that helps with these conversations together each week. Reggie Brazil is my audio engineer. Michael Boyle is my producer. Attica val Brun is our project manager. Michael Batnick is my head of research. I'm Barry rid Halts. You've been listening to Masters in Business on Bloomberg Radio.