Chuck Yates Needs A Job

0:00 Anyway, so I made just because I've kind of turned into a social media guy, I made a cute little video about OMD and all that and just texted it to her, kind of, hey, you're gonna go with me and

0:12 all this sort of stuff. The 30 year olds around here? Oh my god, that's so cringe dude. She's never gonna call you back. And now here's my what is OMD is banned? OMD is a ban, yes. What kind

0:24 of music? They are kind of poppy, British 80s. You've heard, you've heard,

0:34 if you leave, don't leave now. No? Possibly. Okay, who do you listen to? I'm like, I'm like, the contemporary bands are like, I had a jazz fest weekend where it was like Avid brothers and

0:48 Mumford and sons. Like, aging white guy, cool folk rock. It was like, it was, that was like, my, it was in heaven. Like, you know, to see them both back to back. Funny, you know, it's

0:58 like, now I'm like, you know, I'm just.

1:01 Yeah, so it's like that and, you know, but, and then, you know, definitely miss Stella. You know, I have to do my playlist for my 50th birthday party on Saturday night. So I'm - What's the

1:12 song that's gonna get the party going? What is your go to? And I will fess up first, since we've been friends so long. I'll fess up the Uber. I still break out into chills when I hear the riff

1:23 from Talk Dirty to Me by Poison. Nah, nah, nah, nah, nah, nah, nah, nah I mean, that's, I mean, the crazy thing about that is like, we remember are you like, Poison was thought of as like,

1:32 hard rock, yeah, nah, nah, nah, nah, nah, nah, nah, nah. It's like, it's so edgy or like, Bon Jovi. Like, those guys are, I mean, those guys, like heavy metal. Yeah, heavy, I was

1:41 like, ah, yeah, you look at it now. It's like, it's the most gentle pop. Like, you can imagine, but I think, you know, it's probably talking heads are gonna get people, get people going,

1:50 you know, that kind of, that kind of thing, whatever. Yeah, maybe, maybe some, what else will get people You know, I mean, you know, there's, there's, there's like Taylor Swift ads. you

2:01 know, that will be in that crowd, unfortunately, you know, as a 50 year old birthday party. So that, you know, she's gonna get people, what else is gonna get people?

2:11 There, did you hear this, like, the new basement tapes? It was like, they found some Dylan lyrics and wrote some - Oh, really, no. wrote some, sort of like

2:21 they did it for that Woody Guthrie album. It's like a whole bunch of people, like My Morning Jacket and Marcus Mumford did like new songs just some like random like scratched off lyrics that Dylan

2:33 never recorded songs to. Oh, wow. And there's a song that's gotten a lot of play, Kansas City that Mumford, Marcus Mumford did. That's pretty awesome. Oh, I even saw Mumford and Son. Didn't

2:42 have a drummer. That was kind of wild. Marcus got back up there and played drums on a couple of songs, but yeah. Yeah, we saw him at jazz fest. It was pretty awesome. And then they had like he

2:54 did a House of the Rising Sun Yeah. Yeah.

3:00 and like trombone shorty at the end. It was like pretty fun. Yeah, like trombone short. That was pretty awesome. I guess he has done House of the Rising Sun before. It's like been part of his

3:09 shtick for a while. But you know, it's like New Orleans, you feel like, you know, you're edgy, you're edgy, you're edgy, you're edgy before having a house in New Orleans. You're very cool.

3:17 So Gary, my mom actually watches this podcast. Okay. So tell mom who you are. My name's Gary Cernavitz. I'm a Mizziates, still Mizziates Still Mizziates, okay. I'm Gary Cernavitz, Mizziates.

3:32 I've had kind of two professions of my life. One is I've been working at Lime Rock for 19 years on an energy private equity firm, doing fundraising, business development, investor relations, a

3:44 lot of other things. Before that, I was at Goldman Sachs with the founders of Lime Rock, but also that time I've been a writer all the, you know, so this is a fourth book coming out. There have

3:54 been three novels, one nonfiction book about energy and then articles for. New Yorker website, Wall Street Journal, New York Times, you know, on and off. So it's kind of been two professions,

4:06 as I joke, neither of them as successful as I want to be. And so I'm not sure if I failed at two professions or half succeeded at two professions. There you go. You're getting a long plus one as

4:15 two, maybe. Or less, yeah. And then from, you know, born in Milwaukee, Wisconsin, lived in New York City from a week I graduated college till, where'd you go to college? Cornell. Cornell.

4:30 And just sort of flowed into

4:34 Wall Street with no interest in it whatsoever. That was like a major flux right there. I went to Wall Street, even though I didn't just say, you know, you're a few years older, but you

4:44 understand, like that's a very different generation where I was a European history major. You know, you put a physical resume in a box at Cornell. I didn't get called back. at all, and that was

4:57 the only Wall Street job I applied to. So I didn't get called back at all until April. And like the jobs were like, I was gonna go, I got a job offer to be a speech writer in New York City for the

5:07 Parks Commissioner, who is like a kind of a real comical asshole. Sorry, Miss Yates. Sally Yates raised me, we're all good. Okay, I'm, it's proved. You know, I was gonna go to California

5:21 with some buddies. And then this job I get called back in April from the

5:28 head of equity research, kind of administration at Goldman Sachs and like had obviously been through the A resumes of like people they actually wanted to hire and found these others like stack of

5:39 them. And I had very good grades, but you know, clearly hit you in no interest in a career in finance and brought me down in April. And they walk you around to various senior analysts in the

5:51 equity research So it's like chemicals, pharmaceuticals. I'm a guy Todd Bergman, and there was two senior oil and gas analyst at Goldman Sachs. Todd Bergman's guy Don Textur, and Todd was, at

6:04 that time, thought he was, we had this conversation. He thought he was like ancient beyond imagination, because he's probably younger than I am today. And he was like, someone had given him very

6:15 short notice to go on. He wanted to go to, at that time, Russia, at the kind of opening of finance in Russia, and he needed someone in two months, and he's like, Conversation was that So I

6:24 don't know anything about finance, and he's like, Do you know how to use a computer? I was like, Yeah, I know how to use a computer. It's like, I don't really know any advancements. He's like,

6:32 Do you know arithmetic? He's like, I know arithmetic, and he hired me in a very, you know, sort of. I think I would have been hired by maybe others, but it was like a very. So you go one for

6:43 one, and land Goldman Sachs. And,

6:47 but the. Yeah, but the coincidence is like, Reynolds and Farber were there in the equity research department, '85 Broad Street Right. So and they have a very similar story of like. Farber was

6:57 actually given a choice to be the package good, goods junior analyst, or oil and gas. And package goods analyst was like a very woman. No, me guess, like a very big star at Goldman Sachs. Gonna

7:08 call the earnings report on Nabisco. That was like a huge deal. And he chose oil and gas. But all three of us had like this very similar

7:17 time where a liberal arts degree or general economics degree, it just wasn't what it is today where middle schoolers were getting internships at Goldman Sachs in order to get a job. And so it was

7:29 like,

7:31 I got a lot of things in life. It was luck, demographic luck, 50 years ago. Here's a fun fact for you. Was the lowest live births in American history from 1949. Till today, boomers, there's 4

7:48 million. Now there's about 4 million. There's like 31 million. You got kind of bottom ticked in 1973. Oh, really? And so, it's not that hard to get college, it's not that hard, it relative

7:58 hard to get into jobs. I mean, all the things you think about it, there's a third more people competing for these limited spots than kids born in 1973. I mean, it was Watergate, a lot of other

8:08 reasons why it was, you know, Roe vs. Wade was 1972, you know, something. There's, there's, there's, we will not go down there, but there's, you know, maybe, yeah, yeah, yeah, yeah.

8:17 I'd never heard that, yeah. So it's like, it was, yeah, it was like an easier time to kind of, you know, and like parents weren't fretting about like, you know, even, you know, getting a

8:28 job or you're gonna move that, you know, it's just like, my parents like, now, the one thing about that job and John Robinson and I joke about it, he had gotten an offer at like UBS and Goldman

8:41 Sachs. And UBS was like 31, 000 and Goldman Sachs was like 28, 000 I'm taking the UBS job. That's 3, 000 more.

8:53 And his dad, who's, you know, work for, you know, kind of a role in, you know, kind of sales role, kind of in at phone companies. Like, John, you live your life how you want to live it,

9:05 but I would advise you.

9:08 3, 000 seems like a lot of money to you at the time. I mean, I mean, coming out of business school, so not just undergrad. My job offer from Stevens, and it was the only Wall Street job offer I

9:21 get, and I put that in quotes, 26, 000 a year. And it was crazy because I'm sure, and that was in Iraq. And I was grateful. No, I was in here. It was in Houston. I wanted to do well, but

9:33 not well enough to get promoted to a lot of talk. That was kind of the way I walked it. 'Cause the crazy thing, like,

9:42 you know, just thinking about like generational differences is like I got the job ago. I'm younger, I'm three years younger than you. You don't know about the same age. So by that time, Goldman

9:51 Sachs Jr. and us were making 34, 000 a year. And like people getting jobs and publishing or advertising were making 24, but they're probably still making 40. And Goldman Sachs making 150, 000.

10:04 So it's like you're still part of like this undifferentiated scrum of young people, you know, kind of working, you know, kind of, but it was not like you were on a different path than it is today

10:16 So it was, you know, and, you know, I live with two roommates. We had like a, in the city, we had a temporary wall to put in. So we had a three bedroom instead of a, well, it was effectively

10:25 a two bedroom, such as like classic, like young people versus like, you know, you get out of college and you deserve to be rich and get out of the Wall Street, which seems to be, seems to be

10:34 what people want today. So a year and a half later, I got promoted to associate.

10:42 'Cause I started as an analyst, even though I had an MBA, it was like, Man, that was my shot in the door. Got a promoted diss, does it? Sour got bumped to 65, 000 a year. What'd you do with

10:52 it? What'd you do with all that money? Literally, all the excess amount in my paycheck went to me buying a brand new BMW Z3. Bonskar. Oh yeah. Very young Houston, Houston finance oil problem.

11:07 That was not, that was not an original. I was married. God bless King to Kim's credit. Kim let me do it, because I wanted Bonskar. So anyway, that was cool So do this, you've been at Lime Rock

11:19 for 19 years. So level set energy investors. Where are we right now? And I think it'd be great if

11:34 you put some context into things like, well, two years ago it was here, 19 years ago it was here. And I'll go to the bathroom, go get another Coke, go get a tacos or whatever and let you talk

11:40 for the next 30 minutes, but I'd loved it. I'd love to give the audience just kind of where we are today because I think of all the things that us outside of finance or that people outside of

11:54 finance don't appreciate is just how dynamic it is, how investors think. It's the opaque black box of folks. Yeah, I mean, you were there, Lime Rock was there, Quantum, the 25-year-old from,

12:09 you know, kind of 98. So 98, Lime Rock was founded. John and John asked me to join him as their first investment team associate. I left, said, I'm done with Wall Street forever. Good luck with

12:23 this crazy stupid thing called oil and gas private equity. I'll never see it. Yeah, I'll see again, but maybe not. And so they went on to their first two funds. They brought me back. In 2004,

12:34 I saw him at a wedding in Sweden of a guy who took the job that they offered me another guy. We worked with that Goldman and his wedding. Hey, we had had like one investor relations woman who they

12:46 let go and they offered me, I think it was like 1, 000 a week to write their fund three PPM, which is like, I don't know what a PPM is. They're like, you know how hard you've written two books

12:58 Gary, you can take the fund two PPM. It's like, it was a very strange ass. And it was a,

13:08 yeah, you know, and then they, and I did that and they said, can you work part-time till the end of the year and, you know, it's like the classic frog or lobster in a pod. Here I am 19 years

13:16 later. And you know, Lime Rocks raised 10 billion. So it's like, joke, from 2004 to 2008, it was a wonderful time to be, have my job. It was like, there was the China super cycle. Energy

13:28 private equity was still not really an industry. There were few firms, all those funds, you know, before that do the great financial crisis did great And there was this period, and the shale

13:40 revolution saw part of it, where it. the initial purpose of energy private equity going back to David Swenson was like real assets, uncorrelated, you know, it kind of gives you, you know,

13:50 diversity in your diversification, your portfolio inflation, all that stuff, you know, that there were there've been a couple periods where that combined with you got three X funds for X funds.

14:02 It's like awesome. This is your safe bet that sits next to your real estate, but in fact, giving you venture capital or, you know, private equity returns. And so there was a period based on 300

14:13 million Chinese peasants going to work, you know, and starting to consume a lot of oil and minerals and things like that, China super cycle, where it was people were underinvested in energy, the

14:23 funds were doing great, the funds had done great, and it was very, very easy to raise capital. So I talk about that period because I joined Caine in 2002, March, 2002, and I tell people about

14:37 that period, the single greatest thing that happened, that in retrospect, realized was happening at the time is, you know, 98 went farber and Wilvin low and Ken Hirsch and those guys there in

14:51 there in the private capital buckets sitting there going, no energy, it's better than biotech or buyout and all that. That was hard. Yeah. We became an allocation during the period of your time.

15:01 And then it was just like, why me versus Lime Rock? And I used to always say, you should do both. Yeah, and people were. And people, I mean, people were the Lime Rock resources strategy was

15:13 founded in 2005, because people came to us and said, there's only merit and interest doing this. We need a third option. Like, so strategies were being brought into being based on investor demand

15:24 for more, put more capital work. Because, you know, it was, and you remember, not only was energy under-invested, 2008, Matt Simmons, always 140, there's a census going to 300, 400, and

15:38 like people were, you know, and this comes in, generally in energy investing, there's always all investing, but specifically in oil gas, there's the greed and the fear departments. And you can

15:49 race a lot of money very easily when you hit both the greed and the fear.

15:53 I fear my portfolio being exposed to 200 oil price, and I really want to make money, maybe make money doing that. So my first four years, you know, and we had Lime Rocket extraordinarily good

16:05 returns on our funds. It's a team that, you know, I've always been very proud to be part of it. It's been very easy all 19 years to like sell the product, if you will, because these are people I

16:15 care about. This is investment strategy. I like, but for those first four years, it was like, I, you know, CalPERS, like we want to put 250 million in your fund. And like John John, like

16:26 Gary, you just handle whatever you say.

16:31 We don't really have room for 250 million, but thank you for asking. Thank you for asking And so it was like there was then for the next 15 years.

16:41 It has been a very, very different market. Now some of that is Lime Rock going through like a natural evolution of any private equity firm. But a lot of that has been, you know, saturation of the

16:52 market. So you went from, you know, I mean, there's six OGs, cane, Lime Rock, NGP,

16:60 NCAP, quantum SCF, you know, then a first reserve in Riverstone, we're kind of there, but I've kind of gone, gone, gone that, you know, it came 35, 40 firms, all the bulge bracket guys

17:12 doing it. So it became extraordinarily crowded. And then obviously the shale revolution hat was the greatest thing ever happened in the sector and the worst thing ever happened in the sector. Well,

17:22 you had, you had the, you had the whole beta story that you were talking about earlier. Yeah. Now you were able to go in and pitch alpha too Oh, Michelle, we're going to be even outperformed.

17:32 Yeah. And it's, and this is one of the most objectively speaking, one of the most. important things ever to happen to industrial United States in terms of this kind of miracle of of US becoming a

17:45 dominant oil and gas producer again. And obviously it had some very big wins. And then the two things that also happen is deflationary for the entire sector. So that fear element, if you think

17:58 about it,

18:00 shale had the opposite effect. Instead of inflation protection, I joke with the Christian busking your number one fan that instead of inflation protection, you got deflation exposure, which was

18:12 oil and gas private equity. And then you got

18:16 just, so all your conventional assets were worth a lot less. And then obviously there was the casino element to the industry trying to delineate new areas. Some doing it sincerely, some doing it

18:30 sincerely, some, you know, you're at a casino and just having fun and putting more chips on the board. on the roulette wheel and so that led to a decade of very very poor returns for public and

18:41 private and That coincided with like a narrative in the market, which was This is judgment, you know, I was sector for oil and gas You know and and so 2, 000 so there's like a lot of funds raised

18:58 in 2018 2019 and those funds were still raised pretty straight-forwardly I think that that last in like 2019 2020 you saw just sort of this narrative written of It was easy For and every institution

19:16 was hit by a four horseman of the apocalypse. I call Politics, you know some sort of divestment bad returns Extraordinary highly volatile and bad returns. So it wasn't even just a straight like

19:29 that And then like lack of liquidity. I mean still funds I mean, as you know, institutional investors have. pacing models, and that based on you're gonna return the capital I give you in four to

19:39 seven years, and that works in private equity and venture and things. It broke in oil and gas. So every institution had. I didn't, you know, that's interesting. I don't know that I fully

19:49 appreciate it, 'cause I've always kind of boiled it down. We had the red problem, the losses, and the green problem, you know, the politics you're talking about, but it really did grind to a

19:58 halt. Yeah. Now that you say that, 'cause we weren't sending the money back. I mean. And yeah, even people He's still like, what is wrong with this company? We've had it 18 months and we

20:08 haven't sold yet. Yeah, no, I mean, it's, you know, and, you know, and it kind of, so you had all four of those and you really had 2021, you know, there's COVID obviously in 2020. It was

20:19 just, it was kind of like in Buryam. Cringe, it was cringe to a new bastard in an oil and gas private equity fund, you know, and you've gotten through that

20:31 in a way

20:34 way. So. You know, this year will be the best year for energy private equity capital raising since 2018, 2019 with, you know, quantum is already raised to an F billion. Cambridge just had a

20:44 billion dollar fund where clipping along between our two strategies probably have 600 million. It's like a very, it's going to be a very good, the problem is

20:55 everyone's basically trying to raise that. So there's not going to be enough for everyone. And this is going to be survival of the fittest moment. So some of these firms are not going to come on

21:03 the other side It does feel like we have a dead man walking. Oh, yeah. And then you're going to - and you've heard about a few who've already kind of given up, suspended. And you're going to get

21:13 folks the other side. And there's some very unfortunate things that can happen to

21:20 their LPs, zombie funds, milk assets for as long as they can. Because I'm never going to raise a fund, and I'm making 12 million of your management fees. So I should do that as long as I can.

21:30 And you can always talk yourself into a year from now, one and a half percent more, therefore, I'm justified in holding it. Exactly. And so you, you have like a thing where, you know, a few

21:43 things changed. Um, um, you have, you know, greed came back in, um, in terms of the values post COVID, like some people did some pretty amazing deals in 2020, 2021. So as an industry telling

22:00 people, like, Hey, this wasn't, Hey, we found this corner of Picos County that we're going to drill seven wells and flip. It was, we bought this for two times cashflow and it came with the,

22:10 you know, so you had, you had a greed element at it then. And then especially a year ago you had fear because the same narrative is that you really hadn't heard since 2008 of, you know, Russia is

22:22 going to drop two and a half million barrels a day out of their 11 million oil is going to 200, 300 or the broader revenge of the old economy thesis that you're going to have

22:34 away from tech and financial services to energy and mining and then like you had a lot of people like worried that my portfolio is not going to have what's going to be the market leader for the 2020s.

22:47 So that's interesting because you know when you have a podcast you say things just kind of controversial so that people plus I kind of always do it anyway whatever Chuck yeah it's always funny I

22:59 sometimes people come up to me I remember when you said that I said that you got what an idiot but so I've kind of jokingly said we're not gonna see what you're calling fear until a CIO can be a

23:12 former CIO because they didn't have exposure to energy you actually you actually felt that in the market a little I mean yeah I mean because you know at five percent of the SP 500 even if you miss the

23:25 best performer you really risked your job oh yeah and you you didn't feel like no one was getting yelled at then. but you had conversations in an endowment and like people who are on, where every

23:37 endowment or foundation or public pension fund usually has a politically diverse board. Right. And when oil and gas was an underperforming sector, when you had students giving you petitions or

23:50 pensioners giving you petitions, the guy who sort of liked oil and gas, which is like, I'm not gonna cock up here. You know, I'm just not gonna get my opinion. 'Cause like in very, you know,

23:60 you know, I think now you've got conversations had reached neutral, it's like, hey, that guy's speaking up, it's like, listen, we have not made an investment in this sector for eight or nine

24:09 years or about four or five years, more likely, should we be thinking about it? That was the first step. And you did have a little bit, no one fired, but there was like a very interesting

24:20 Harvard management's fiscal year 2022 letter came out in October and in college endowments have a June 30th fiscal year and it's It's only got two or three page letter, but above the fold on the

24:35 first page, you know, an old newspaper talk, was a paragraph about how we didn't have oil and gas exposure, and that's what we underperformed versus those earth-hating endowments who did better.

24:47 And it was like, you know, benign, but like the fact that that was so prominent, the sixth paragraph, I think it was, in the first half page you read, was a sign that like, the fear was coming

24:59 out. That was a good warning side Fear is coming in the market. Over the last this year, greed and fear have dissipated a lot. As oil's gone to more benign, it's now rising into the '80s again,

25:10 but it was in the '70s, but

25:16 it's getting to the '80s 'cause Saudis were striking production. And the other thing is like, the market, you know, for new deals, is interesting, but it's not like 2021, where, you know,

25:27 there were just like, street of Houston that you could pick up, because there is capital out there, and sellers, if you're pitch is like, you should sell them this at three times cashflow,

25:36 'cause I think oil's gonna be 105 years. They're like, well, it's three times cashflow, and I have seven pumpers. I'll just sell it in five years when I was 100. So you have some properties

25:46 transacting, but it's not, it's reasonable prices, but it's not a market where I think energy private equity can go and say, this is the easy, easy, easy time to raise capital. That's been my

26:00 sense is that most bids lose out to,

26:05 I just don't want to sell. Because you've cleaned up your balance sheet, so you're not the walking dead anymore. You really don't have that kind of shiny, sparkly use of proceeds to go do. You

26:21 know, nobody wants me drilling that much. So I don't need to sell this field the capital there. One unnamed private equity firm has a pitch deck that you get to see these kind of things

26:34 occasionally. We have

26:37 these X number of companies that are generating billions of dollars, a free cash flow, but give us billions of dollars

26:45 as those platforms. They don't actually need your new money to your point. They're doing very well. If they wanted to buy properties or drill new well, it'd be more actually a creative to your

26:55 initial equity investors and just have go do it if there's if there's these opportunities. So there is there is sort of a and so it's you know, the business on the new capital side, still

27:04 opportunities. There's always competition in every investment sector. So it's not like there's ever going to be this like miraculous 10 year period where every private equity firm is going to easily

27:13 make money. It shouldn't, you know, yeah, I think there's a Charlie Munger quote like this is exactly it, but like investing isn't supposed to be easy Right. Yeah, you know, which is like,

27:22 you know, it's not that that's not going to be the case, but you do have now sort of. firm, it's sort of, it's a grind, but it's better than it was a few years ago. I mean, infinitely better

27:32 than it was a few years ago where it was like, you know, firms had made very conscious decisions to end being in the oil and gas business. I think Lime Rock were very happy that we kept Lime Rock

27:45 partners, Lime Rock resources doing exactly, they've always done, we started an energy transition, growth equity strategy, doing like EV charging installation, that kind of stuff But we, I call

27:56 it like the Norway model. Like those guys, different team, they're wake up every day, how do we accelerate the energy transition and stop the use of oil and gas? Wow, the oil and gas strategy is

28:06 like, we're gonna invest money and oil and gas to make our investors money. Norway exports a billion and a half, million and a half barrels a day of oil, but they have, whatever, 60 penetration

28:17 of EV. It's like, God will judge the Norwegians in Lime Rock. I'm

28:23 like, you know, we did so the. as we were talking to the car on the way over, the girlfriend's British and she has passed. Your girlfriend's British. My girlfriend's British. Just so my wife is

28:34 the one that I want

28:36 to clarify. Let's clarify. And she's chastised us on big digital energy because we talk about Europe as a Uniblock. And she's like, It is 25 to 30 countries, we're all different So what we

28:50 started doing on BDE is we would actually deep dive a country each week and go through energy use, et cetera. And when we went through Norway, what's fascinating about it is you're right, they've

29:03 got all the soil, they've got all this money, they've, electric vehicles are 60, 70, they're actually using as much oil as they can. Yeah. I mean, that's the dirty little secret of, yeah.

29:15 And like they're no ones stopping exporting it too So yeah, so I think, you know, what we, you know, so back to the market today. So there, you know, they're clearly most of energy capital

29:26 raising is like, it is open for re-up with your existing partners, you know? So I think that is pretty standard now. And there, there's a little bit of, you know,

29:37 unjust serendipity involved, because what happened with divestment, what happened with the Four Horsemen of the Apocalypse, it isn't necessarily your fault. University of Michigan, you know,

29:49 longstanding public investor in, I think, Cain Wright and Lymeron, they had students, you know, on the, you know, at the regents meeting, like banging on their car, not letting them go to

30:02 vote to divest, they have come out with a policy, not to sell, but just never invest again. They were our largest investor in the last fund, you know, versus, you know, a state of Florida, a

30:12 Texas pension where actually has the opposite pressures of like, DeSantis or Abbott or like,

30:20 private equity commitments is good for my political reality. I was like, Thank God, though, I would like to have more of those. So there's a little bit of sort of luck involved. But I think

30:29 re-ups are clearly happening with happy investors. And generally, I think most private equity firms, on average, are about half of your 2018-2019 fund, if you're a responsible deliverer well,

30:44 and our funds have been very good over the last those periods, and you know, in a vague way, SCC.

30:52 But you know, I think re-ups is kind of that, that, and then the issue is like the war of all against all for the very rare investor who's like, doesn't have exposure to oil and gas and wants it,

31:06 andor like wants to add groups, because most people, even if they're re-upping, they're actually quietly, you know, taking the unfavourite child and like putting a pillow over its face,

31:16 re-upping with their one or two favourite ones, but like the.

31:19 joke of it. I've been in this business for a long time, and I'm friends with a lot of my competitors, people do the same role, and it's like, you get a couple beers with them, and you're like,

31:31 ah, yeah, you're going to the same cities. It's like, it's 70, 80, kind of real institutions that may put one new name in the portfolio this year. And they're the prettiest girl at the dance,

31:44 and they know it. Yeah, and then they also, I mean, I was joking. And then there's a lot of like sort of family offices that for, you know, had liquidity events and kind of have a reason to

31:54 want to be an oil and gas. But, you know, and that's a lot of the new source of capital. But those folks, as I was joking to someone yesterday, giving up all my standard jokes here right now,

32:03 I'll have to come up with new ones. That's all podcasting is. I'm milking. I'm milking a lifetime of materials. Like, you know, my job is like, I'm selling like delta one tickets to Europe,

32:14 like flatbeds of meat. Yeah, I've never been on Delta 1 to Europe, but I assume I'm from from my seats, I think they look very nice. And I'm like selling very, very nice long stuff, all the

32:25 good things about Lime Rock and things I believe in is like, you know, this is gonna be the best time you're ever gonna get to Europe on this flight. And some of these like 34 billion family

32:34 offices, it's not the principal, but even the, you know, Chief Investment Office, like, we don't really fly commercial here. A rich guy family office, like, we don't, we have so like a blind

32:44 pool fund is Delta One, you know, to Europe where they're wanting like, you have a secondary forest or a co-investment for us or some side deal for us. And then maybe, yeah, so I think the

32:55 challenges of those names doing it, there's a certain edgy contrarian miss to those names that kind of want to come into this market. And I think there's, those guys also have a kind of an edgy

33:07 contrarian, this against private equity in general, which is like, you know, where, you know, have all the, you know, it's just not cool, right, to be enough to be in a blind pool vehicle.

33:19 with a state pension fund, and it's like probably even those state pension funds have done better performance than you have a real history by not trying to be cool and still, there's still that

33:29 agency problem as David Swenson kind of made famous. So the discussion with existing today, and I'll just ask the question and you can answer or politely decline and tell another one of your jokes,

33:43 but are we seeing, I would think we're seeing existing investors go, okay, where am I on energy? Where am I allocated? And so if historically an investor did 100, they may be coming to you

34:00 and saying, well, we only want 15, because we actually have so allocation, I think it's a big issue talking to existence. Any pressures on fees? Is that playing into it? Or I can't believe

34:11 you'd ask me that Chuck. I mean, I think people, I mean, I think that is done more through non-blind pool stuff.

34:20 So amortizing fees with co-investments or secondary. So it's done last of like, you know, you should charge one in 10 for a blind pool fund. Then, hey, what can we do besides this to have over

34:33 our complete experience of Lime Rock? You know, a kind of a lower fee burden. And I think the groups, there have groups that have been tried to do like accordion funds and things like this, which

34:42 is like do 50 in this fund and then 50 in this other fund that has no fees and carry And it's like, well, what is the difference between the two? Yeah, I do,

34:52 I do have discussions with some powers that be in LA. So I was like, we need to do this it's, like car in August. I'd rather just cut the fees. Yeah, yeah, exactly. Yeah, so if that's what's

35:02 stopping us from raising money, let's just cut the fees. And I think for a lot of it is just, yeah, a lot of discussions with existing investors has been really, it's not, you know, they're

35:13 happy customers. It's just like, hey,

35:21 what is our allocation to energy? And sometimes it's because of their allocation of Lime Rock.

35:25 And we have to get it down to six, seven percent from the leading endowment at eight percent energy is like way out versus probably three percent, probably now more standard. So I think some of it

35:39 would be - I mean, in the heyday, did we hit 12, 13? Yeah, I think - It felt like we did. I mean, I think there was like, yeah, for real assets, but most of that real assets was oil and gas,

35:48 yeah, so I think that was definitely, yeah, and all the other thing is like a lot, there's a turnover of people too, 'cause endowments always in foundations and pension funds are always getting

36:02 new, it's a relatively high turnover business, they're always getting new CIOs, and generally they have a new team, and a lot of times they're like, Well, I have the magic director of public

36:10 markets, private markets, or maybe sometimes credit, sometimes real estate, it's like, There's the enter what what? Why do I have a magic director of energy? Well, that was gonna be a question

36:20 I was gonna ask is I mean, when we went into shale revolution the glory days you're talking about, I mean, you had real assets person and they were an energy person. And I mean, there's some

36:31 folks out there that, I mean, we're full-time energy folks and really understood the business really well, does that job exist today? Very rarely. I mean, generally that person, I mean, people

36:44 are learning on the job, but generally,

36:49 yeah, very rarely does like a big endowment have someone, especially oil and gas, like almost none has it to even, even like your alma mater, you know, John Lawrence, you know, does other

37:01 things, you know, besides oil and gas now, you know, in terms of, but probably the leading sort of, you know, given his background and stuff in that, but very, very rarely. 'Cause you think

37:10 about that, I mean, Michelle Everard, you're tired. Amy Diamonds, no, C and so. I mean, there was definitely like a sense of like, I did you go to Michelle's retirement party in a? No, I

37:22 could not make it. I was so bummed that I didn't mean to. Yeah, there was definitely a sense of like, you know, like, you know, Fredo, I know it was you. Kind of like, it was actually over,

37:33 you know, sort of like the real assets oiling gas. Like, everyone was there, everyone was in the room. Like, it's all okay. It's all okay. Yeah, and God. Bernard Kissedamia. Fredo, I know,

37:41 no, who knows what would happen, but it was definitely like looking back on that moment of like sort of a, it was 2018 dozen. It was like the peak of the sort of like happy things where there's a

37:51 lot of exits in 2018, 2019, and then just sort of like peak happiness before COVID and before like a sector really turned over in a lot of the investment. 'Cause I talked to Werner Quo last week,

38:02 and I probably talked to her for about an hour. And we talked to my dating life the whole time. We didn't even talk energy.

38:10 No, it's not, it's very simple to talk about. Sweetie, I only have eyes for you. Yes, yeah, no. Sweetie, meaning the girlfriend, not Verna. Verna, yeah, no, I mean, you know, it's.

38:20 But yeah, so I think it's, you know, I think it's a good - So does that pitch or those discussions, I guess it entails some re-education in terms of things? And I think the one thing that, you

38:35 know, there's a very clean story that I think a lot of our peers are telling, which is like the oil and gas business is like devoid of capital and oil is gonna go to 200, you know, sort of like,

38:48 and it's like, and then occasionally the investors will recognize, like didn't Exxon report record earnings last year and don't they have more money than they know what to do with in terms of free

38:56 cash flow that they're not earning back public market, you know, enthusiasm through dividends and share buybacks and like every CEO of every public trade oil company is like, I've done everything

39:07 you've asked and you still don't love me. But it's not because the oil business doesn't have oil, it's the financial markets still discount that cash flow at a

39:19 crazy amount. But so I think you have, our pitch is like, it's not just this like, we are not as an industry supplying enough oil and gas that the world needs. Saudi keeps on cutting back

39:33 production because we're supplying too much as an industry to do it. So it's the education, and this is, always have this, and I'm sure you remember this, you always have this like challenge in

39:42 this, in this job of let a conversation take the simplest form. So it can move on to other things, or try to get very subtle where the complexities around why there's value and energy are not just,

39:58 it's not really, it's cashflow use, it's strategy, it's geology, it's service availability, it's some energy transition. but it's also in the future because there's not a limit of supply right

40:10 now or really limit of capital investment necessary, you know, even that could happen next year. It could happen, you know, five years from now, no one really knows. So I think there's

40:21 definitely a re-education on that 'cause, you know, interesting a lot of the people who come to us incoming, still have that greed and fear, like, high that they're like doing a market mapping.

40:33 It's like, yeah, I heard things are two times cash flow You don't have to underwrite terminal value. And, like, the industry's bound to be 100 oil, you know, at the end of the year, I was like,

40:43 Let it be so, sister. Let it be

40:46 so, you know what I'm saying? But it's, like, more complicated than that in reality. And so I think the, and so I think the conversation now are re-ups, you know, kind of a good partner. It

40:55 is a good time to be investing in this sector, even if it's not, even if there's still competition for an asset, it's still a market that's trading at three to four times instead of seven to eight

41:03 times They're still cash flow versus adjust. you know, sort of selling enterprise value or locations or delineation or things like that. So there is clearly de-risk, less leverage, there's a lot

41:13 that, but it's, at this point, it's making that case, sort of like a solid, you know, this is a solid investment opportunity. This isn't like not the greed and fear or not. This is not like

41:25 we're offering you seven X's or you're gonna get fired if you don't do this. And then I think at the end, the issue is like of these groups that are still looking to put in it, they're like, are

41:35 you closing tomorrow?

41:37 Yeah, or let's wait till we have to make a decision and see if someone hits me with a co-investment or hits me with, you know, yes, you know, a fund that already has a pending exit that week and

41:48 week and week. That was the most amazing fund raise. Yeah,

41:54 baby, that's gonna be on your tombstone. We were at 900 million in six and a half weeks 'cause of the front page article about Silver Hill for sale. Yeah, no, so I think you know, so I think

42:06 Yeah, and that's a very rational thing to do because the nice thing about private equity as an LP is you can be in the final close and there's some economic impacts of it, but you can also in

42:19 certain cases if it's gone on, have a view into a portfolio that you otherwise couldn't and have some fun of sort of a media write up and stuff. We used to, what happened to

42:30 us to give the impetus 'cause I think we wound up giving a 50 basis point hit or reduction of fees for the first two years if you'd be part of the first close. Yeah, that's, yeah. I mean, we had

42:44 to put stuff like that out there 'cause people were like, Well, I wanna see what you invest in. I don't have any money. Yeah. So it's really kind of hard. Yeah, no, no, that's a kind of hard.

42:55 Yeah, the nice thing about doing this for so long is

43:02 there is turnover, but there's a lot of people still been doing it, and you could be honest. Why should I do it? Well, it's good for me.

43:09 It's good for my job easier, not good for me personally, but it would, you know, we've been good partners and to make our life easier if you do it. I think a lot of times we're like, okay, we

43:16 understand. And then you have some economic incentive, but you kind of need that in this business. So on the scale of

43:26 the bar, just opening,

43:32 which is kind of like everything's tame, quiet, nothing happening. You drunken sailors at two in the morning. Where are we fundraising? Is it maybe 10 o'clock people have had a drink? I think

43:45 I'm mixed metaphors. I was doing one through 10. So the bar's all bar over the bar is a bar. So the bar's opening is a bar. The bar opening is one.

43:55 10 is drunken sailors at two in the morning being kicked out. Where are we fundraising wise? I mean, I think five through 10 will never happen again Okay, so that's like. It's like three, two

44:07 and a half, three. So it's like, people are ordering drinks. People are ordering drinks. But it's more, they're at tables. And it's like 70 year old couple ordering an expensive glass of wine,

44:19 rather than people thinking, and again, and then the one thing probably on this story that I joke to people is a one nice thing is energy, private equities, relative difficulty compared to general

44:34 private equity has not been this narrow in a very long time. And that's because energy private equity has come off from impossible to just annoying. And general private equity has come down a lot.

44:46 And that's come down, the denominator effect, who knows, public markets have rebounded, so who knows, but that's also like what general private equity did to LPs during COVID

44:58 and before that of like, Tiger Global, like they're raising a fund, and then they're actually talking about the fund. They're gonna come back with seven months later while they're raising a fund.

45:08 Like you can be in this fund, but if you're in this fund, you can be in another fund in seven months that we're coming in like, and like just the amount of commitments that general, general LPs

45:18 did to private equity that have now not been called a lot because the markets, you know, IPOs haven't been good and there's just not a lot of activity in MA is that it's actually quite difficult in

45:30 private equity. We're seeing that a little more in kind of renewables Like, you know, you come off a sort of this, you know, amazing, sort of, you know, desperate need to be in it. You know,

45:39 maybe that was the drunken in the bar and kind of renewable power three years ago, which we're not in, but that sort of sub-sector. And so you now have energy private equity, like we're waking up

45:51 or like, you know, like, yeah, trying to extend a bar metagame.

45:57 I just came out of that, I just came out of rehab, I'm not presentable, I have the scars on my face, I've showered, I'm ready folks and you come in the bar and it's like a third full versus the

46:11 bar you, before you went to rehab, you kind of realized was always full and that's just because

46:17 it's roughly speaking half of private equity commitments that are going to be, you know, for an average investor than they did before, just because of overall portfolio dynamics and energy is no

46:30 longer, you know, it's now like, you'll do energy along, you know, a lot of them are best athletes or just kind of general private markets, you're just kind of in the scrum that everyone else.

46:41 And so back to where Ken Hirsch was in '96. Yeah, yeah, it's like, it's like a thing. It's like a weird sector, but like people do litigation finance, like there's a weird shit people do in

46:51 private markets and, you that's one of them and so but in that it's you know. people are trying to shrink their capital, you know, I'm not not to, you know, in terms of deployments. And we'll

47:03 see what happens if people feel confident about this public market rebound. And suddenly, like we haven't done a commitment as much, you know, you could enter a period where people have to play a

47:14 little catch up. But that would also be depending also on public, general private equity exits

47:23 So do this. You always have the standing invite to come on the podcast, but we'll for sure do this five to seven years from now. Okay. What are we going to be talking about in five to seven years

47:36 from now that maybe people aren't thinking about today? I'm forcing you to look into your crystal ball. And I'll go one. Okay. I'll go one on this so you can have time to thank and plus, you know,

47:49 I don't mind embarrassing myself. I think,

47:54 and I've become fascinated with This is an investment thesis and I talked to Verna. That's actually what I called Verna. I actually think we're gonna see kind of the rise of power, electricity as

48:07 kind of the oil of the last 50 years if you want. All the things you were saying about oil, it's your inflation hedge, it's driver of the economy, fear, you've got to have this. I think we're

48:21 gonna see the same thing with power rising because if you think of electricity, we use just over 4 trillion kilowatts a year and it's grown, it's up 14X since 1950. But if you look at it kind of

48:39 since 2000, if you look at the slope from 1950 to 2000, it was like this, the slope's been a lot less. It's grown over the last 20 years I think one that was just. We spent a lot of money getting

48:56 Y2K stuff done. So you kind of advanced, you pulled forward some of the demand. Number two, we just got, you know, we spent a lot of time during the

49:08 2000s, making machines way more efficient, a lot of stuff. The Bitcoin miners won't admit this, but the machines, they haven't gotten any more efficient over the last two years. So I think that

49:17 stuff's gone and I'll throw one stat at you. If you run a Google search, and I do a hundred of those a day, right, one kilowatt, if you run an AI search, the same thing, five kilowatts or no,

49:32 no, no, I'm sorry, one watt for Google search, yeah, five watts for an AI driven search to train that AI language model to be able to run that anywhere from a hundred Watts to a thousand Watts.

49:47 AI is going to be embedded in everything we do going forward So I, you know, when you look. I think McKinsey says by the year and I'll get this wrong. I think it's 2045. We're going to use two X

49:59 amount of electricity. Blonde must says three X,

50:04 PGE's official report is 70 up. I think we're going to have time period until 2045.

50:12 I think we're blowing through all that. I think it's 10 X through that because it's just, and it's going to wind up being the thing that you and the portfolio, that's your fear. Oh my God, 'cause

50:24 yeah, say what you want about oil, we can always drill oil in Texas. I always drill oil in Oklahoma. Power, we got to build a power plant. We got to connect it. They're engineering issues to

50:34 get it on the grid. Regulatory issues, anyway. So that's my thing I think we're going to be talking about. You know, I mean, we have some insight into that through like our Lime Rock New Energy,

50:44 two of the portfolio companies were kind of grid modernization businesses One thing we, you know, I've learned because I'm, you know, by accident. like an oil and gas guy. And, you know, and I

50:56 feel like

50:59 the BP statistical review, which is not the BP statistical review, but the statistical review of oil, when that opens up, it's like, this is fun. Like I've been looking at you for 19 years. I

51:06 love going, like I have like this intuitive sense of oil or if someone tells me a dollar per acre number, like this sector, which I've had to learn over the four, like I've had to learn it. And

51:17 you realize I'm also a lot older than, you know, 25 or 27 years ago when I started learning oil, I guess, it takes a while. One thing I've learned in there is how unusually fragmented it works in

51:29 the oil and gas business that may not be as applicable to power. 'Cause you think about it like an average cane, Anderson, EP company, 30 people. Oh, five guys in a rusty pickup truck. Yeah,

51:41 yeah, yeah. And if they drill some wells, they have 25 pumpers, right? Yeah, exactly, yeah. Yeah, and then service like, you know, The amount of like different levels of service companies

51:50 like I don't want to use Schlumberger. They're not gonna ignore me or I'm gonna Yeah, so there's like, there's like a level of entrepreneurship. There's a level of fragmentation, a level of kind

51:60 of on some virtual companies that you have with an EP company in particular. That power is really, there is an advantage, especially it's dominated by utilities, especially the capital cost.

52:12 There isn't a, like, is this a great sector for private equity? Think about deep water offshore, is that, that's exactly what I was sitting there? That's the question for us, and like, not as

52:23 like human beings, like what are we going to do, but as like investors, there is something well suited for super fragmented, also volatile, if you can, if you're on the right side of volatile,

52:35 that's either fatal, a good way to make money, about what you can do with that, that I, you know, you just kind of, you know, utilities have other things besides making money, for, as a

52:46 consumer, you want them to, Grandmother stays alive during the winter. Yeah, yeah, and like, you know, and,

52:55 you know, and also there's issues of fairness and pricing where I have rooftop solar in my house, which, but like the poor guy in Louisiana in the apartment, you know, it's effectively buying my

53:04 net meter or they effectively helping to pay for, you know, so there's like issues that, you know,

53:11 and their app, you know, utilities, it's, you know, they're every, they're what you think they are, you know, in terms of, you know, their bureaucratic, slow moving, conservative

53:18 businesses, but the issue in like power, where's the hustle and then the other thing is like, you know, this is not gonna be a perfect,

53:29 like, are we gonna sort of socialize reliability in a way where the hustler can put up a wind farm or a battery and that utility is the one who's gonna have to make sure the lights are on by this

53:42 gas-peaker plant and that So how do you manage like societies, you know,

53:48 kind of ability, because that's like the fundamental, like, and it just drives me crazy, debate about like levelized cost of electricity, where the green guys are like, it's, you know,

53:59 incrementally cheaper. So, like, it's a no brainer. The oil and gas guys are like, yeah, but you're relying on an existing grid and existing, you know, intermittency solutions and gaspeaker.

54:13 And then, so that isn't really your cost, because you're just sort of free riding on that. But then the green guy's like, well, that already exists. You know, we don't yeah. So it's like,

54:21 it's a very challenging thing. So I think, I mean, there's probably a reason why to date, there have been 80 oil and gas private equity firms, some are IP, but like, five power private equity

54:34 firms, you know, in terms like pure pure play. And so this is, this is fascinating talking this. And I may why I actually want to tell the audience, I may wind up doing something here, because

54:45 I've been thinking a lot about it is I actually I think the product that needs to be available to folks is pure just beta power price. I had Tim Kramer, I don't know if you've ever met Tim, Tim has

55:04 the only ETF or mutual fund that has direct exposure to power prices.

55:13 Oh yeah, I have met him, he's actually been on my porch in New Orleans He came on the

55:20 podcast, we talked about that, and we've actually killed way too many brain cells over too many glasses of wine thinking about it. But I think he's right, I mean, because of all this, what I'll

55:31 call stickiness, you just said of how we're going to get more power under the grid and actually get it to people, I mean, higher prices, the only thing that does that And I think the flip side is

55:43 if power prices don't go up, electricity prices don't go up, you're going to have the economic.

55:49 boom of all time, you know, if we're actually able to feed the electricity to everyone. But yeah, I mean, I think one thing of the shale revolution that's been the only probably disappointing

55:60 besides equity returns to oil and gas company holders is like, reindustrialization of the United States, you know, has not happened what I think people thought 10 years ago. Yeah. And that's one

56:12 of the reasons energy use has gone down the United States because, you know, this microphone is built in China and, you know, where it used to be, the energy used to build this microphone now to

56:21 run the microphone is state of Texas, but it used to be to manufacture it. So I know we had the chance to do that. And instead we just send Amazon bands three times a day to our house. Yeah. And

56:31 that's what we did with the shale revolution. Yeah. Interesting. So, all right. So your crystal ball, what are we talking about in five to seven years? I think much more international. Okay Um,

56:46 like there's no question. the shale revolution has matured and there's no question that if oil and gas meets even slightly declining demand, it's not coming much more. There'll be an active thing

57:02 in the United States, but United States is maturing, consolidating, and really where the entrepreneurial energy will be is internationally, and it's really difficult, because you know, resource

57:16 ownership, corruption, it's ENP internationally. I mean, we've tried. This is so true. I've done a deal in California. It's

57:27 horrible. And so, yeah,

57:30 so I think that's going to have to be part of, yeah, and does the international, you know, what has to happen will happen, you know, it's sort of cliché, like at some point, if we're going to

57:40 use 100 million barrels a day of oil and, you know, and 350 BCF. a day of gas, that has to come.

57:49 from international unconventionals at some point. Yeah, we've hit everything I think in the United States, every rock formation with the bigger hammer. And I don't see a technology out there that

58:02 I could kind of draw a straight line to, oh yeah, this will increase production dramatically. I don't see it, maybe there is one. The technology you see it on your Bloomberg, which is like 110

58:13 oil, right? Yeah, exactly. So that means, so there is like a scenario where that the incremental risk you need to do, I mean, I just make up a country. Peruvian shale, you know, it proved

58:26 exist, just I didn't make up Peru, but Peruvian shale. Yeah, probably the Potter River Basin is gonna be working if, you know, 'cause it was 110 a barrel for risk. So I think internationally is

58:36 gonna be

58:39 much, much more important. I think the industry's gonna be a lot smaller, for 2002 to probably return gonna it's think I And. sure,

58:48 where it's finding value and very localized pockets of growth

58:56 that is gonna be most of it. The big question that no one has solved, and whether it makes sense in a public market, whether it makes sense in a private market, is like, who's gonna be the

59:09 terminal owner of the shale revolution in the United States? And is it the Lime Rock resources, the merits that it's like, we're gonna change the business model to own it forever, the scouts,

59:22 things like that. Is it, you know, just take care of our vehicle? I think it's Contango now or whatever, where it's like public, you know, to avoid the MLP, Matt Messiness, but do that. But

59:32 I think that's also a huge thing that, you know, it just could be throwing out a huge amount of cash flow. And the one question is, does Exxon just wanna own it? 'Cause Exxon's gonna be like,

59:42 Philip Morris. It's like, we're just gonna give out high dividends and keep it flat We're gonna have enough people are gonna like it that we're gonna We're gonna make a lot of happy investors or

59:49 does that have a shift towards private hands unclear? And maybe it's a supply-demand capital issue. Yeah, I'm not sure. Yeah, that's an interesting point 'cause that is the one thing that I've

1:00:07 heard from folks out fundraising that I never heard when I was in the game is there's a real discussion and when Eric came and spoke at our Empower Conference, Eric and I talked about it on stage,

1:00:20 is do investors really talk about tails and not being valued and potentially regulated out of business? And that's a real thing. And in terms of at least a discussion point that never before. I

1:00:34 mean, yeah, clearly the public market is not valuing their tail, they're valuing it three times, five times, four and a half times cashless. They're clearly saying this is worthless if it's

1:00:42 worthless, you know, to end you and does, you know, as an average, as Kanako want tens of thousands of, you know, stripper wells, you know, five years from now, probably not, you know,

1:00:54 that's interesting. So all right, I want to hear about the new book. Yes. And you were kind enough to send me a copy to it. I read it when I was in Sardinia laying on the beach in between bottles

1:01:07 of wine, not even glasses of wine. Each, each copy comes with a free trip to Sardinia and I'm limited wine just to get through it. Exactly So give me the thumbnail on the book. Tell the readers

1:01:19 or tell the listeners what the book's about and

1:01:23 then I got questions. Okay. It is a novel about the chief investment officer of a kind of an unnamed and imaginary college endowment and it is trying through a very, very

1:01:36 difficult months of his life in a novel set exclusively, almost of trustees. of asset managers, of hedge funds, of his employees, set in conference rooms on telephone calls. It is trying to get

1:01:54 where investing is not like the background of the novel, but investing is really like the moral drama of the novel. And as this person's wondering, how do I succeed? How do I

1:02:06 fulfill my purposes of person? You know, and like all good novelist, I'm just torturing him with the kind of kind of bad news and challenges, and then it ends - The hero's journey. I mean, it's

1:02:19 classic hero. Joseph Campbell's hero is journey. And it ends in like a very, very long scene where he meets with this college's most famous finance alumni, one of these like big 100th richest men

1:02:33 in the world, hedge fund guys. He's a very reclusive guy, and it ends with like a very, you know, kind of pattern a bit after the grand inquisitor scene that the brothers care miles off, it's

1:02:42 like trying to be like a, you know, you know, the essentials and like an unresolvable essentials of what it means to be investing, to be alive, to care and all that kind of stuff. So I may be

1:02:55 reading my own biases into this, but I'm gonna say some stuff and tell me if I picked up on this or no, I was making it up. The one thing I think you did really well in the story that I don't think

1:03:09 people appreciate, particularly within the cone of the energy sector, is you make the point that investing's a relative thing. Right? I mean, I hear all the time, well, I can buy PDP at PV15

1:03:25 today. That's great. And I'm like, well, if Apple stock doubles next year, that's not great. And you did that. Did I pick up on that right? Were you trying to say that? Yeah, I mean, you

1:03:35 know, maybe the only audience will be people in energy private equity, but hopefully we'll get at least 100 more readers.

1:03:42 But you know, I think it was very systematic. to try for both dramatic purposes, but also try for this to be kind of like a primer for like the guy who was coming out of college knowing nothing

1:03:53 about finance, of like trying to give an exposure. Here's venture capital, here's hedge funds. Here's - Real estate. Yeah, here's, and here's like, and because that's like pretty interesting

1:04:04 about investing where it's not just, hey, and there's like a very brief scene with our minerals fund in there pitching them, but it's like minerals fund Yeah, well, what about like, just like

1:04:17 having exposure to the Indian consumer through public stocks? Like that's what they're thinking about. Now, sometimes, and this is purposely a smaller endowment. It's about 6 billion, and I play

1:04:29 a lot of games that amuse myself. It's like people are like, oh, that must be brown. It's like nice, you can't be brown, 'cause I mentioned it's not brown, or it's a coral, rice, or UVA, or

1:04:38 things like that, but it's like a smaller team specifically So the organizing brain in it. the team is small, so they're constantly having to compare, Hey, this guy says an early scene, private

1:04:52 credit, it can deliver low-risk credit for, you know, deliver 10 returns, 2 origination fees, 8 interest rates, and he'll never lose. You know, and like, and it's like, I think every

1:05:05 investor always has this thing where you're out there pitching two and a half, three X funds, but then someone's like, If you were given a button and you could generate 10 zero risk returns for the

1:05:16 rest of your life. Most people would push that button. Oh, heck yeah. Yeah. And, you know, so it's like, it's sort of trying to get that in that drama in, but also have it so just like people

1:05:27 understand like what this life is and how these same themes resonate. And they're not just themes of specific investments, right? This person honest, this person hungry, is this person, do we

1:05:39 tolerate that he's an asshole? Do we like it that he's an asshole. You know, do we do we? you know, do we, you know, is he, do we like that? He's a windbag. Is it, you know, and is he just,

1:05:50 and then the big one, as you know, is he just fucking lucky? Yeah. Is he, is he, is he, is he, is he? My mom. Yeah, is he, is he just lucky, you know? So real quick, real quick on Sally

1:06:01 Yates. We're sitting there at dinner one night with, and I'd just gone and seen a comedian with my brother and my sister-in-law. We're telling mom about the comedian And my sister-in-law was like,

1:06:15 yeah, I mean, the comedian was funny, but just cussed way too much for me and all that. And I just, I really hate the use of the C word. That's not great. My dear sweet mom goes, My God, he

1:06:29 said crap.

1:06:32 True story. But,

1:06:35 'cause, so the first podcast I ever did, I had two anonymous folks on from Energy Finance, Twitter and they were giving me grief about. You guys just didn't make that much money. You know, you

1:06:47 invest all those dollars you didn't. And I don't think they appreciated that, hey, a CIO is sitting there going, I've run the scenario where oil prices collapse. I've run the scenario where oil

1:07:01 prices triple. I need X amount of exposure. So I don't want to sit there and say, you know, I'm so great and all that sort of stuff, but my job was to get them that exposure. That was a key

1:07:13 element to it You want to make money. And they said, no, you shouldn't want to make money on every investment you make. And I go, do you want to make money off life insurance? Yeah. You know,

1:07:23 I'm being serious. Yeah, and it's hard. And that's like the one thing. But you - I'm cutting you off, and I'm sorry. But you really did a good job of the CIO grappling with that. And I think

1:07:33 that would be valuable for people to pick up from the book. Yeah, and

1:07:38 there's like an organizing - And that's maybe just my own ethics.

1:07:44 our just point of view to it's less pretentious. You know, it's wanna be more pretentious occasion, but it's like - I'd love to be pretentious, just one day. We're gonna talk the rest of this

1:07:54 podcast. Look at this. So

1:07:57 the British girlfriend, her line is, we invented your language and we really don't like what you Texans have done with it. Oh! So hello, okay. Oh, let's hear your British accent. That's

1:08:07 horrible. Yeah, that's horrible. Okay, got it. It sounds Australian.

1:08:12 I think, so, you know, the novels about Wall Street

1:08:18 have like a very specific lane. They're thrillers, there's a lot of Russians, there's a lot of cocaine, there's a lot of prostitutes, and there's always some murder. And it's like, it's attempt

1:08:30 to glamorize it, is one lane. And then general novels tend to have get rich people in it and they have to have jobs, right? You know, so like a novel about New York City rich people. Of course,

1:08:43 there's gonna be guys in finance and the author's gonna do research. So he usually will sound kind of like 40 off, but at least he's 60 right to saying, Global investment ink,

1:08:57 you know, the guy is a, you know, and I once read a novel of a friend who asked me to do this head of character. I was like, This guy is like an investment banker hedge fund private private

1:09:05 equity group. It's like, he's the best of Wall Street. Like you have no idea, this guy does not have a defined job. You just throw random words You think you know about, so I think one of the

1:09:15 purposes of the novel was, and it's almost like self-defeating, was like, de-glamorize the business in a way. And, you know, there's very, and there's no scandals. I mean, I think if, as I

1:09:31 think about things I regret, like the worst people are kind of assholes and windbags, but not actually grifters, I mean, maybe one. But that's actually probably, closer to reality. Oh yeah, no,

1:09:41 that's 100. Yeah, 100. 100. But it's like, as, you know, when you go to a New York City publisher, we want the grifters. We want Adam Newman and we want Bernie Madoff. Like this is what we

1:09:55 think. And like this has to be a page turner of just, and then we want them to be in Sardinia, you know, at the Gucci store, you know, buying a drop in a 75, 000 or sandals, you know, or a

1:10:10 bag dust or the cocaine, you know? So it was like, you know, so I think part of the novel, it's, you know, I mean, I think it's, you know, it's trying to be funny, short, it's like fast,

1:10:19 but it's like, you know, the challenge that had been is like an economic entity as it kind of doesn't really play into the expectations people have of what they want, which is like rich people

1:10:32 unfairly giving their money kind of by cutting corners and then behaving badly. This is about generally speaking. just sort of like, you know, a difficult thing of a guy who takes his job

1:10:45 seriously with no easy answers, you know? And, and,

1:10:51 I had one other thought that came out while I was, while I was reading this story because like we just talked about CIO, since Aaron goes macro wise, I need exposure to the Indian consumer. I need

1:11:06 this, that, and kind of lays it out And then within that, it's how do I play this? Which manager do I go with? And I don't know if you made this point or if I just, again, kind of read my own

1:11:19 bias into it. It felt like the, 'cause he said, I want, you know, I want to generate some alpha within my beta bets. Ie, I want a top half or a top quartile manager within it. It almost felt

1:11:34 like you might have been saying in the background. Chasing alpha is leading you to take more risk and you might be damaging your beta bet. Did you say that or did, or did I kind of read that into?

1:11:47 I mean, there's like a very specific case where, yeah, in that one manager and again, this is not like, I think I have one Chinese ETF that I don't even know. I have just like, yeah, but it's

1:11:58 not like I'm an expert on Asian

1:12:01 long short strategies or no, anyone who does it actually. But it was like, yeah, there is a scene in there where it's like, hey, I know this is, when you think about a pool of capital, that'll

1:12:12 be around for hundreds of years. Like most college endowments probably will. I should have exposure to the Chinese, you know, Chinese and Indian consumer. But I did it before with some guy who

1:12:22 made wrong bets. Yeah. And it turned out that I was in that case, you know, he was just talking that. And again, this is, the book was written, you know, there was a period where like, it

1:12:32 was sort of like the fang equivalent in the US all the market appreciation was going to big names.

1:12:40 If you did that in China, India, when the same thing was happening or Brazil, you would lose out all of these things you want,

1:12:48 and so there's a lot of sympathy for having to do that. There's also a through line through the whole book, which is maybe

1:12:58 you should do nothing

1:13:02 And the one true scene in there is Jack Bogle meeting when the CIO meets it, like I once sat 45 minutes in Jack Bogle's office with John Reynolds, and so that's the one and it's not perfectly

1:13:17 accurate because I didn't take notes or anything, but pretty memorable, but just sort of like that of like, Well, we have figured this out, finance

1:13:27 We're sort of passive broad exposure works, you know, and like, What do you guys do for a living? Oh, yeah, yeah, yeah. Yeah, yeah, yeah. You're basically trying to undermine what I've been

1:13:37 proving for 50 years to be the case, passive broad exposure works. And I, 'cause I liked that point in the book and I will go ahead and since it was such a funny line, your buddy, John Farber, I

1:13:49 made that point one time. I said, you know, when I think about energy private equity and chasing of alpha, I think it led us to take more risks than we should have and maybe destroyed the beta

1:13:60 benefit and he just said, Well Chuck, you've never generated alpha, so you wouldn't know.

1:14:05 Seriously? Thank you. Really appreciate that All right, one of the most mortifying things on the planet is when my dad retired, he started writing novels and the novels have sex scenes. So, I

1:14:20 will - Pod him and your father or like, I don't know. He's kind of got, his stuff is kind of John Grisham lying. He's got this small town lawyer and it's based on Richmond, Texas, where we live

1:14:31 and all. Spoiler alert, there's no sex scene in your book, But one of the questions I kept asking, because I'd had too many bottles of wine. Did the CIO and Emily sleep together? No, no. They

1:14:45 didn't, no. Okay. That was definitely two of mine. That was definitely read into. No, they never even crossed my mind. No one else has brought that up. Okay, so that's just me. I would just

1:14:54 doubt it. That was you desperately searching for what every novel should, every novel should have sex.

1:14:60 And this novel was very, I mean, what you read in the final draft was much more open than the first vision of the novel, which was even more austere Which was like, there's like a scene outside.

1:15:13 There's like a scenes of like him mashing a computer. But in like the first draft, it was like almost all dialogue, very little he said, she said, just person come in and just like, and you know,

1:15:25 and there's like some precedence. There's a contemporary novels, Rachel Cusk, who does that about sort of broader life. There's a very hard to read novel called JR. by this guy, William Gaddis,

1:15:35 that was all this. So it's like a very, very sort of, I set myself like this tight box. I was like, not even like a heartbeat. It was just all like brains talking about, you know, kind of

1:15:45 chasing alpha and doing it. And then it's kind of gotten more human. But I still, you know, there's not a lot about his home life. It's kind of implied. It kind of comes in there. But again,

1:15:56 there's, you know, it was literary critic James Wood who talked about another book who said it was like, book was set in Botswana. Like, that's why I was the fabric, not the backdrop of the

1:16:06 novel. Like this one I wanted to invest in to be the fabric, not the backdrop, just 'cause resisting, you know, the novels, like literary thrillers that happen to have a Wall Street, you know,

1:16:19 kind of character in 'em. Right. And I'm like, you know, it's like, there's plenty of those books out there and you don't need me to write that for you. 'Cause the reason I ask that is, you

1:16:31 know, if you listen to Brene Brown or read her stuff, you know, pressure point for a woman is always body image, pressure point for a man, as can he fix. And when we can't fix things, that

1:16:43 leads to shame, our self-destructive behavior. And I really kind of lived that, you know, during what our industry went through with the pandemic. I mean, a jokingly say I became the Oprah of

1:16:54 the oil and gas business and I really did because I'd go on the podcast, I'd have my priest talk about all the therapy I go through. So the reason I ask if you had the affair is you do a very good

1:17:05 job of humanizing the CIO and I related to him. I mean, just the pressures of the job, the self-doubt, he couldn't fix it. What are the quarterly numbers going to be? So it wouldn't have, I was

1:17:19 waiting for potentially Emily to say, well, you shouldn't have slept with me that night, you know, because I mean, he is verge of the bad behavior. The shame brings out all of us, unfortunately

1:17:31 And yeah, and again, like,

1:17:36 but it has all, you know, it's like, has every human being. There's always someone more successful, right? There's always someone and you always think like, sometimes is he smarter than me or

1:17:46 did he just get lucky? You know, being lucky did, you know, and private equity had that kind of an easy fundraise and writing like, this guy's had a career as a novelist, despite, you know,

1:17:57 maybe not being as good of a novelist as many of you know. That is the career I hear she has had that I've wanted. So there's a sense of like trying to really embody at a motion of like,

1:18:09 you know, I'm not a bad person. I'm, it's a lot, it may be it's ego, but it's also trying to contribute to the world and the world doesn't really care. You know, sometimes, you know, it's

1:18:20 like the world can be mean, the world can be, and especially on the investing side. You know, and I think, you know, I'm probably, you know, you kind of ham up, you know, sort of like the

1:18:30 industry during the days, but it was like, We're still trying to generate good returns for your investor. Yeah, being a very responsible person. Like sometimes it's. So when we signed the sale

1:18:43 and purchase agreement for Silver Hill to buy the offsetting acreage that we bought that was Silver Hill too. Yeah. I was sitting there staring at a model that showed a 50 rate of return, tripling,

1:18:58 quadrupling my money But it took 4000 oil and oil was at 3125 when we signed that PSA and I threw up that night. I mean, I really did not alcohol-induced, like literally stress-induced. It's a

1:19:13 real thing. Yeah. So I really connected with the guy. Yeah. I know it's, yeah. And they're just trying. Yeah. So that's purpose of, you know, and people have read the book who are, you know,

1:19:22 one of the interesting things about the response to the book is there are some who are just like, and it's, there's like new scenes that have been added to the front end to try to you into it, but

1:19:34 like in its first austere phase, like you're just like thrown into a pitch and it's like, some people read it are like, this does not make any, this is not even in English. I guess like a private

1:19:44 credit manager hotshot who worked at Apollo pitching a fun, which is now like the third scene or something, but it's like the first scene. And you know, and I try to, it's like you watch shows

1:19:53 all the time, where you don't know what's going on immediately, or you watch, listen to music.

1:20:02 And there's like a depth of creativity that you have no idea, like what even the instruments are playing, or like how that's done, and you still appreciate it. And so the one interesting reaction

1:20:11 is there has been, because it's set in finance, like, I cannot read this certain reactions. It's like, you can, or it's like, I don't get, like my mother.

1:20:20 Stop reading it.

1:20:23 She's like, I just don't. I was like,

1:20:26 I really don't. Yeah, it's like, that's fine. It's like, but it's like, I didn't want to say it. It's like, I'm sure you could. read it, you know? And it's like, so try to open up to a

1:20:36 different language to that. And people who do get through it have said, Hey, I didn't, I still don't understand. It's like, it's okay, I don't understand 15 of it. I don't understand 50 of

1:20:46 most things I read, you know, truly, but like people who've come from outside of finance are like, not only do I kind of understand this better, but also it applies to my life in, you know,

1:20:59 very universal ways And I'll say it this way, and I'm not just blowing smoke at you. I think you did a nice enough job with it. It's like somebody that watches Sean White snowboard for the first

1:21:10 time. You don't know what the rules are. You don't know what that, you do know that dude is better than anyone else. And that was the whole thing. I mean, you were connecting with the CIO. You

1:21:19 felt the pain he was going through. And the finance stuff in there is simple enough that you can pick up enough of, oh, this guy's a blow heart. Okay, this guy's real. So title of the book,

1:21:32 where can people get it? It's called The Counting House. It's not available

1:21:39 until November 15th, but you can buy it now, Amazon, Barnes Noble, books, like any go online, just type Gary Cinerans, The Counting House, and you can pre-order it, so you can be the first to

1:21:49 hit your Kindle For the second, it's available and for 18, basically for 18, it can be, can it? You were cool to come on the podcast. Thank you. I really appreciate you doing it. The one thing

1:22:03 I'm going to say, though, I'm kind of pissed off. I didn't pick this phone with you because I wanted it. You used real live finance people names in your fiction book, and yet there's no Yeats

1:22:15 capital. sequel sequel

1:22:19 all be about Yates Capitol be the implosion of a of a of a once my idea once my financial powerhouse recrimination self-loathing and all that it'll be I've seen the I've seen that we're you know maybe

1:22:32 I'll just like steal lines from it and perfect it'll be a long lawsuit about life rights that I've stolen your life rights by nice exactly that's awesome Gary thanks for coming thanks for having me

1:22:43 appreciate it