Carlyle Says Oil Investment Key for Transition: Bloomberg Invest

The Bloomberg Invest conference resumed Thursday with some of the most influential leaders in finance gathering in New York for conversations on a wide range of topics, including artificial intelligence, cryptocurrencies and venture capital.

(Bloomberg) — The Bloomberg Invest conference resumed Thursday with some of the most influential leaders in finance gathering in New York for conversations on a wide range of topics, including artificial intelligence, cryptocurrencies and venture capital.

For the full agenda, click here. For a wrap-up of Wednesday’s events, including discussions with Coinbase Global Inc. Chief Executive Officer Brian Armstrong and Bank of America Corp. CEO Brian Moynihan, click here.

Carlyle Sees Oil Investment as Critical for Energy Transition (2 p.m. ET)

For Carlyle Group Inc., the key to energy transition is not divesting from carbon-intensive businesses, a view that runs counter to some investors who have sworn off the oil and gas industry.

“Divesting out of a carbon-intensive investment is just a portfolio allocation issue,” Pooja Goyal, the firm’s chief investment officer for infrastructure, said at the Bloomberg Invest conference in New York on Thursday. “It doesn’t actually eliminate a single molecule of carbon from the atmosphere.”

The investment firm sees “undervalued potential” by investing in existing companies that generate “really interesting returns” as you work to decarbonize them over time, she said. 

Charles Baillie, co-president of Quantum Energy Partners, said at the conference that prices are so low in the oil and gas sector due to a lack of capital that investors could buy an existing business, quadruple the returns over a decade and then shut the business down.

Publicly traded shale companies are reaping historic profits thanks to unprecedented spending discipline as investors demand greater returns. Meanwhile, closely held US oil companies are generally ramping up growth in order to catch the acquisitive eye of their public peers and exit private equity investments.

Wie West Says Players Should Have Had Louder Voice on LIV (1:30 p.m. ET)

Retired LPGA golfer Michelle Wie West said she was shocked at the partnership deal made between the PGA Tour and Saudi-backed LIV Golf. 

“We just don’t have the right amount of information to make a decision on it,” Wie West said at the conference. “Players needed to have the loudest voice and I think unfortunately in this situation that wasn’t the case. It’s going to take the next couple months to figure out how exactly this is going to play out.”

Wie West sat alongside Mark Patricof, the founder of Patricof Co., an athlete investment and advisory platform, at the conference. Aside from the former LPGA golfer, Patricof advises athletes such as Dwyane Wade, Carmelo Anthony, Blake Griffin and J.J. Watt.

“Thought leadership should come from people who actually build the sport,” Patricof said. 

Stifel’s Donlin Sees More Investors Using Options (12:40 p.m. ET)

Stifel Nicolaus & Co.’s head of options and equity derivative strategy is seeing more investors who haven’t traditionally used options, both retail and institutional participants, getting involved with the instruments.

“A long-short tech portfolio manager is not trying to forecast interest-rate policy but he’s forced to have a macro view from a risk perspective,” Stifel’s Brian Donlin said at the conference. “Using options is a really good way to be there without being overexposed and getting involved too deeply in areas that aren’t your core expertise.” 

Options with zero days to expiry also give more investors the ability to hedge event risk amid questions around the macroeconomic outlook, Donlin said. 

Joe Mazzola, director of trading and education at Charles Schwab & Co., echoed that options provide flexibility, but he cautioned that traders need to make sure they understand the risks involved if they’re not closing positions out before they expire.

Guggenheim’s Walsh Sees Opportunities in Credit (11:35 a.m. ET)

When it comes to deploying cash in the markets right now, Anne Walsh at Guggenheim Partners Investment Management is optimistic about credit. 

“The good thing is there is likely to be, in the short run, a fairly good performance from credit,” the firm’s chief investment officer said at the conference. She added that there were “value opportunities” in investment-grade debt, private credit and higher-rated parts of the structured credit market. 

She’s avoiding the lowest-rated credit, particularly those without covenant protection.

Meanwhile, Sonal Desai, chief investment officer for Franklin Templeton Fixed Income, is neutral on duration or risk for the time being, citing “cognitive dissonance” in the high-yield market.

Desai expects an economic slowdown, but “it might not be as dramatic and as sharp as the fear of the recession,” she said. Walsh also doesn’t expect a recession as severe as the pandemic-era slowdown or the Global Financial Crisis. 

TCW’s Koch Sees Potential Hard Landing Ahead (11:10 a.m. ET)

TCW Group Inc.’s chief executive officer expects a potentially severe recession emerging in the US that will create opportunities in private credit and real estate.

“I think there’s 100% certainty we’re going to have a recession,” Katie Koch said at the conference. “We are going to have a medium-to-hard landing.”

“The longer the recovery,” she added, “the longer the excess we have to work out of the system.”

While TCW has concerns about the fate of the office market, Koch said a downturn will create opportunities in certain parts of real estate. Still, office real estate will need to adjust to the new reality of hybrid work by cutting square footage, she said.

“It’s going to need to adjust like retail did,” added Koch, who also said private credit will create an “epic opportunity” for investors.

TCW is also bullish on securitized real estate, particularly residential, due to the under-supplied market and high likelihood that homeowners will stay in their houses because of rising interest rates. 

Universa’s Taleb Says Higher Rates Are Here to Stay (10:25 a.m. ET)

Investors will have to live with higher interest rates regardless of inflation’s trajectory, Nassim Nicholas Taleb, distinguished scientific adviser at Universa Investments LP, said at the conference.

“The central banks messed things up because of a lack of understanding of how reactive the world is. They didn’t see inflation coming,” he said. “They should not be changing interest rates in the future if you have a crisis as fast as they did in 2008.”

With a generation of traders unaccustomed to higher rates, the aftershocks of the sudden tightening are still rippling through markets, according to Taleb. He singled out real estate and what he called “pseudo technology” as being the most vulnerable.

“Even negative cash flow businesses were selling you future cash flow,” he said. “They’re selling you funding. It resembles a Ponzi.”

Taleb also took a swipe at Bitcoin, calling it a “brain tumor” that isn’t even good for money laundering because the transactions are too traceable.

Bearish and occasionally provocative views are par for the course for Taleb. Universa is a tail-risk hedge fund, which effectively buys portfolio insurance that pays off in market catastrophes.

Ex-NSA Boss Rogers Says Firms Should Engage With US on China (10 a.m. ET)

US business leaders should flag concerns about rising geopolitical tension with China to the US government, former US National Security Agency Director Mike Rogers said at the conference.

“The importance of conversation and dialogue between government and the private sector is going to be more important,” Rogers, a four-star admiral, said. “Engage with government, help the US government understand what your concerns are, don’t assume that Washington has in-depth expertise on your particular market sector.” 

The remark comes amid growing geopolitical tensions between China and the US, especially around business and technology. 

“The relationship is not in a good place, and it’s not what we want it to be,” Rogers said. 

Chinese authorities announced in late May that US chipmaker Micron Technology Inc. failed a cybersecurity review and warned operators of critical infrastructure in the country against buying Micron’s products. The Commerce Department also expanded its blacklist to highlight more than 600 Chinese entities, including large companies such as computer-server maker Inspur Group and chipmaker Semiconductor Manufacturing International Corp.

Rogers is a senior adviser at Brunswick Group, a critical issues advisory firm that has offices across the world, including in Beijing.

Citi’s Liu Says Gen Z Wants Investments to Do Good (9:30 a.m. ET)

Millennial and Generation Z investors are more focused on doing good with their money, said Ida Liu, global head of Citigroup Inc.’s private bank.

“I believe in the future that we’re not going to be talking about ESG or impact investing as a separate class,” Liu said at the conference, referring to environmental, social and governance investing. “It’s not going to be a separate product — it’s just going to be part of the core portfolio.” 

Citigroup’s younger clients are investing in green and housing bonds, for example, she said. “We had a client that said that they thought plastics were the nuclear waste of the century — we built a portfolio around that.”  

Wealth-management firms are working to cater to the younger generation and keep them as clients. Wealth transfers to heirs will total almost $73 trillion in the US through 2045, according to estimates from research and consulting firm Cerulli Associates. 

Saira Malik, chief investment officer at TIAA’s Nuveen LLC investment-management firm, said at the conference that the industry should improve diversity among its employees. Less than a third of Latinos, for example, use a financial product or account, she said.

Goldman’s Waldron Says ‘Mini Stagflation’ Possible (9 a.m. ET)

The US may yet avoid a recession but still faces the possibility of “mini stagflation,” Goldman Sachs Group Inc. President and Chief Operating Officer John Waldron said at the conference.

“This is the best predicted recession that hasn’t happened yet and may not happen,” Waldron said. “I often ask myself late at night, Can we actually have a recession with 3.5% unemployment? Seems unlikely.”

One outcome the firm is preparing for is a “mini stagflationary scenario,” he said. “That’s not going to be a called a recession, but that’s not going to feel great” because it “could persist for a while where you just get sluggish growth.”

Many economists have been predicting a recession is coming as the Federal Reserve aggressively raises interest rates to slow the economy and counter rising inflation. US companies announced more layoffs in the first five months of 2023 than in all of last year, and applications for US unemployment benefits jumped last week to the highest level since October 2021.

–With assistance from Allison McNeely, Yiqin Shen, Allison Nicole Smith, Sonali Basak, Sridhar Natarajan, Tanaz Meghjani, Kailey Leinz, Amanda Albright, Justina Lee, Diana Li, Randall Williams and Joe Carroll.

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