Welcome to another episode of Goldman Sachs' Exchanges Great Investors.
I'm Allison Mass, chairman of investment banking in Goldman Sachs' global banking and markets business and your host for today's episode.
Today, I have the great pleasure of sitting down with Don Mullen.
Don is the founder and CEO of Predium, a real estate -focused investment firm with about $57 billion in assets under management.
Before that, he spent about a decade here at Goldman Sachs, where he served as Head of our Securities Division's global credit and mortgage business.
Don and I have known each other for almost 40 years and I'm excited to - You look much better than I do having those 40 years.
Thank you, I will accept that compliment.
Don and I have known each other for almost 40 years and I'm excited to hear Don's views on the housing market and in particular, his predictions about the future of real estate as an asset class.
So Don, thanks so much for being here.
Thank you for having me and nice to be included in a great investors group.
That's very kind of you.
Well you're one of the greatest. Greatest. Very kind.
So let's start in 2012, when you left Goldman Sachs to create Predium.
What did you see at the time that made you want to take that risk?
Sure. I saw a couple of things.
I'd say that in those 40 years that we just referenced, I had the opportunity to see the savings and loan crisis, the tequila crisis, LTCM, long term capital management for those be holds enough to know, and the dot .com.
And so, each of those crises really ended up reshaping the market's regulatory environment and capitalism abit itself.
And so, when the global financial crisis happened, my view about that was that we were going to change the manner in which we lent money for mortgages, that we would be in a position that we had to move 10 million Americans at a home ownership and to a rentership and that the assets themselves were trading at a material discount.
I also had a view, quite frankly, that my time at Goldman Sachs was over, not because anybody asked me to go, because I was old enough that it was time to quite candidly either try to be in higher management at the firm, which I am politically completely incapable of executing and as a result thought it best that I move on to something that I might add more value than here.
So with that I will often viewed myself as the least successful member of my cohort of people.
So we were talking about partner cohorts.
My cohort includes successful fellows like Dave Taber and Mark Rowan and Tony Restler and I could go on and on of people that we both work with.
And I said you know, they did it as entrepreneurs, much more than working here.
So each of them, I think, benefited from either a great idea or a great market entry point, and I saw this as a generational event.
And despite my years in corporate credit and a small amount of time in mortgages, I thought the investment moment was all about single -family homes and mortgages, and it would be an investment an event, one of the greatest ones of my lifetime.
Well, it was certainly a great idea and perfect timing.
And it sounds like Pradium was formed in the shadow of the financial crisis, as you mentioned.
So how has the housing market changed since then?
Sure. So we've, as a country, made the decision that we wanted to substantially reduce systemic risk in the system.
So the first thing we did was to create the qualified mortgage, which is reduce the risk in underwriting and increased the speed quite frankly that you could underwrite a safe mortgage.
With that, we defined a box pretty narrowly, knowing full well that we would increase the number of people who are renters versus that.
Relative home ownership volatility is modest in the United States.
If we go back to the 1960s, I think we varied between 62 % home ownership and 69 % over the course of that almost 64 years.
So while the changes that we were making were significant in reducing systemic risk, we weren't changing the American dream in a way that it wasn't attainable for a majority of Americans.
So I think one of the most important parts of the housing crisis was the manner in which we rationalized the industry so we reduced home construction dramatically in the face of an oncoming tsunami of demographics.
You know, if you looked at the history, even at that time, you could tell that millennials were aging, that we are going to be in a position within a decade, we were going to be short a substantial number of houses.
That shortage is expected to last at least 2040, so we have years to go and we have a massive demographic imbalance between housing volume and prospective homeowners and home renters.
And so, as you can tell, we're building homes as fast as we possibly can today, but it's still not going to meet the needs of the American people today.
So we should expect a persistent and continued shortage of homes.
So with that as a backdrop, how is Predium capitalized on those opportunities you're talking about?
Sure. So we're the largest private owner operator of single -family homes in the country today.
We are also the fourth -largest manager of residential assets, both homes and apartment buildings in the United States today.
We're one of the largest lenders to people who renovate homes, investors who do what's called a fix and flip, so we're one of the largest lenders in that space.
We're also a top non -QM lender.
What's a non -QM for those listeners?
Non -qualified mortgages are people who don't fit in that box that I described earlier.
So ironically those are people like Ben Bernanke.
The non -qualified mortgage means that you don't get a W2, so you're not a regular employee.
So if you're a speaker's bureau person like Ben Bernanke, or an artist, or a consultant, or a person who owns a small business, a chain of dry cleaners, or drug stores, or gas stations, you're a non -QM mortgage.
Okay. So, many Americans.
And those have to be bespoke, underwritten.
So, I have a business that does that too.
It's been a terrific business and we're really very happy how many folks we've been able to lend till they can buy houses.
And we are also in the business of buying stressed and distressed mortgages for people who need to have help working them out so they can become re -performers.
So we have an ecosystem that touches almost every part of housing in the United States.
So you've talked about your unique investment approach as the company's both an asset manager and an operator of those underlying assets.
So does that give you certain advantages?
Sure. I think being in a position, it's a higher level of complexity.
So if you think about what we really like, it's high complexity.
And so whether it's serving single family homes, meaning owning, operating, leasing, repairing.
We do all that. We do the same thing in multifamily.
We originate mortgages, as I said, and we work on stressed and distressed mortgages and make those loans for fix -and -flip.
Let me give you a sense of why it's important to own the operating company.
The average unit size of what we're talking about is 300 ,000 to 400 ,000 dollars.
That's a lot of units, when you're managing almost 60 billion of them.
So that's a lot of units.
And so as a result of that, you're in a position that you need an operating company, that you can control its focus, make sure it makes the right investments in technology, optimize workflow, to deliver efficiency on behalf of your investors.
And so one of the unique things about the firm relative to what investing was like 20 years ago, is we take highly fragmented asset classes and are able to roll them up into investable scale global institutions.
And that's relatively unique, and that's why we have such a large cohort of operating companies to do it.
So, let's talk a little bit more about investing in single -family housing.
How far have we come in terms of making this asset class investable, and how much more progress do you think can be made?
Sure. So we as an industry still are in a position that the single -family rental business managed by institutions operate about let's call it three to four percent of the industry.
Multi -family is an industry that's had institutional investors since the early 1990s, you know, increasingly dominant in that space.
That was one of the moments we talked about.
The savings alone crisis, that industry moved into institutions and away from individuals.
So there's tremendous upside growth for investors in this space.
I strongly believe it benefits the residents in these assets because we're able to provide more services at the same cost as renting from an individual.
In addition to that, we've been able to have houses in, I would call it better communities, meaning our houses are predominantly in good school districts with low crime rates.
And the goal behind that is that helps folks who are renters get into better communities and helps in many cases break intergenerational poverty.
It's important to understand, you know, that if you look at the Harvard Housing Study on home ownership versus renterships, they point out that the most important thing to break intergenerational poverty is yes, owning a house, but the second best thing is renting a house in an ownership community.
In a good school district that services are rented by so not being in a rental only community and so while it's a challenge for many public policy people who are less understanding of this topic to think that house might have been owned by someone.
The family living in it it feels it's a blessing and so with so many Americans remember of all the homes in America almost a third are rented right and 41 percent are renting and of those people who are renting 70 percent of them would prefer to live in a house than an apartment building, but can't.
And one of the reasons why single family rental is actually declining as a choice.
It's down the only asset class over the last five years that's seen a decline in square footage is single family rentals.
Not because of - Why is that?
Because the moms and pops went through COVID and couldn't sustain the challenges of managing through that problem.
And so they've been big sellers of assets.
So it's the industry shrink not from the institutions, but from the individuals.
So is it an institutional investible asset class?
Yes. I have clients from Australia to Abu Dhabi.
Is the liquidity asset getting better?
It's yes. But real estate generally, as we know right now, is sticky as interest rates went up pretty dramatically, and that's created a dislocation in many forms of real estate, except for everything, maybe not data centers.
And so what we see right now is that is we think that we're in a position that we get a more understandable rate on interest. I think right people don't understand right now where interest rates are going because we have the challenge of public policy around tariffs and immigration.
As soon as we have a better understanding where rates will go, I think you'll see real estate start to trade more aggressively.
But yes, this asset class is institutional and it's happening right now.
Well, we talked about this a little bit earlier.
But when you think about the future of housing in America, will owning a home be as important as it's been historically, or do you think long -term renting is going to become more common?
Well, if you travel the world, so we can look at data from around the world, and some of the highest homeownership rates in Europe are in Greece and Italy, ironically.
I don't think that'd be on anybody's list. And some of the lowest are in Germany, and Denmark and some of the other countries that are viewed as, you know, historically engines of growth in Europe.
The United States, I don't think, should be as concerned if rentership grows because it improves labor mobility, which is an important thing that's an important part of GDP growth is being in a position that the workforce can move around, and certainly the most recent increase in interest rates from a very low number to a more normalized number has slowed labor mobility.
But I'd also say there's alternative ways for people to save. And the tax advantages of owning a home have not been as attractive because of the standard deduction versus the itemized deduction, not to geek out.
But then, last but not least, as I showed you a chart earlier, it's actually cheaper to rent a house than to own a house right now.
And so there are different periods of time that I think it makes more sense to rent versus own.
This is one of those moments.
I think that there, a lot of people would have been better off during certain periods if they had rented a house and invested in the stock market.
So I'm not going to take one side or the other of that story.
I think we should leave people the opportunity to make those choices.
Again, someone with the 6 -20 FICO score, where there's a lot of Americans with $40 to $60 ,000 of debt, be that student debt or auto debt, they can not buy a house in this country.
They need to be able to rent a house.
And so unless we're going to be in a position to say those folks don't have the right to live in a house.
We need an industry that rents them houses.
By the way, you and I grew up in our business lifetimes, mostly in a zero interest rate environment.
we're very fortunate, a lot of our career was in a zero interest rate environment, which is interesting.
I want to talk a little bit about how interest rates impact your business, and I imagine that there are a range of implications, perhaps some positive and some negative, and you've built this business through highs and lows now as you say more normalized.
So talk a little bit about that.
Sure. We've lived through a pretty unconventional period when I first started raising money and I was talking to investors and the most common question was, well if we have such a large imbalance of demand versus available supply of houses, and so many people with lower FICO scores, what could go wrong?
And my answer was having worked here at Goldman Saks and not on my resume as I help run the life insurance company that we had at the time, and we used to have a thing called the Spanish Flu Stress Test. What is that?
That was when the Spanish Flu hit and how many policies would you have to pay out versus your liquidity and assets when you had a large cohort of people become sick and dying.
So I would say to people during the period that I was raising money, something like a pandemic would be very bad for house prices.
So I bring that up as a self -deprecating common because clearly I was wildly wrong and that a pandemic drove up house prices rather dramatically.
And let me bring that to what that means with interest rates.
Because if you had asked people what was going to happen when rates went up, people would have said to you that house prices would sag.
But because we went so quickly up in interest rates of such a low level, what we did was we destroyed, not the demand function, as much as we destroyed the supply function.
So while homebuilders are building at pretty rapid rates, we have a 70 % to 80 % decline of homeowners selling their home and moving on.
So the net available of supply of houses available are down.
Demand is down less than supply is down.
So, higher interest rates actually caused some increase in home prices.
Very unexpected by the Fed and everyone overall, just like a pandemic, causing increase in prices and no one expected that.
Alright, so I want to pivot to talk about your path into finance, understanding whether you saw yourself having this type of career, and then I want to go back to your time at Drexel Bernard -Baer, where we actually worked together in first met.
Well so I grew up in New Jersey and my dad was an elevator repairman and I didn't really know what job I was gonna have so my mom likes to tell the story and I've recovered from the trauma of my mom telling this story.
That the first job I had wanted was to be a detective because I read a book called Encyclopedia Brown.
Yeah I love that book.
When I was a kid and I actually I was the only kid, instead of a lemonade stand, I had a detective agency.
I love that. On the industry.
I love that. That is a great story.
And my mom loves to tell that story and I've gotten over the embarrassment.
By the way, it's not too late to get it.
The Magnum PI version.
Right. I can get a nice car too.
But with that, so, I never thought of finance.
Nobody in my house read The New York Times, other Wall Street Journal.
My dad didn't go to college and near than my mom.
They got married when they were 20 and 19.
And my dad was in the military, and then became, as I said, an elevator repairman.
My dad's only rule growing up is that you have to go to college.
It's a good rule. Because he was the only one in his family, his brother and sister one.
So with that, I had a ironic twist in life, which people find hard to believe.
And our old friend Harvey Schwartz makes fun of me when I say it.
Which is, I think I'm the only person ever in the history of the university system in the United States who was rejected at Rutgers and accepted a Yale.
That is funny. I think I'm the only person.
That is really funny.
I think the odds are pretty much I'm probably the only person.
Probably. That's hilarious actually.
Yes. So with that - Rutgers lost by the way.
That's very lost. And so I ended up having a new perspective.
and I started as an English major in college, which, and then I realized how little money English professors make, and the odds of me actually becoming a great writer was low, and so then I made the transition into Economics and got a summer job and I still had absolutely no idea what upholstery was.
Was the summer job at Drexelbone?
No, my summer job was at First Boston, Wow.
And I was, it was pre -exhale spreadsheets for those of you who don't know what that was like.
So it was green accounting paper that you had a hand write?
Uh -huh, and I made spreadsheets with a big piece of, we used to call it Oak Tag, you know, those big poster boards with a pencil and Whiteout.
That's amazing. And then I would photograph them, you know, like in the big printers to make spreadsheets for our research reports that we sent out.
I'm sure our listeners do not know what Whiteout is, but that was a classic of the 80s.
That was, that was.
So, yes, I didn't know what I was doing and when I was hiring a fixed -income research, and I thought that meant I was investigating or analyzing social security payments.
And little did I know, it was the bond market.
So talking about Drexel Burnham, what did you take away from that time in your career and what have you learned about building an organization?
Sure. Well, that's podcast all by itself.
So from Drexel Burnham, I'd say the most important thing that I learned was cash flow.
Liquidity. Not just the liquidity for the company you work at itself, which was important, right?
But the world having spent time doing corporate analysis before I went there, you know, my background was research for, let's call it, six, seven years before I got into the high yield marketplace.
Credit research? Yup.
I was a credit research analyst. Any particular industry or just?
I first started out in the electric utility industry, which sounds really tedious.
I was just gonna say, fascinating!
Except it was the period we were building nuclear power plants, and the industry almost went completely bankrupt, and the reason was because of a thing called AFUDC, which I won't give you what the acronym means, but I'll tell you what it is, capitalized interest. And so, what it was is that people who were doing the research because the industry of quality fixed income research was so new, didn't know to subtract, I actually didn't know, they had back AFUDC.
They just subtracted it, so they saw interest coverage ratios and debt service capability far in excess of the company's true ability to service.
And so, several utility companies went bankrupt and it was the beginning of distressed investing after Penn Central.
So with that, I became very focused on learning about real accounting, not just reported GAAP.
and so as a result became a better bond trader bond salesman because I actually understood the financial statements and I understood cash flow and that's why Trex'll hired me and everybody there was about cash flow.
So I want to go back to the second part of my question which is what have you learned about building an organization having founded Pretium and you built it to where it is today?
Sure. I have the incredible benefit so over those 40 years we just talked about I I did a pretty good tour of Wall Street, and I worked at First Boston, as we said, I worked at Drexel, I worked at Solomon Brothers, I worked at Bear Stearns, I worked at Goldman Sachs.
So, you get to spend longtime places, and it doesn't mean that I skipped around.
It just means I'm old.
And so with that, each organization really gave you the opportunity to get a perspective both on the different cultures, as well as thoughts thoughts on risk management, how important people are to a successful organization, and I think most importantly, the work ethic that it takes for an organization to succeed.
So at most of the organizations, I would say the successful ones in particular, incredible work ethic, optimism is critically important, pessimism is an important thing to be aware of.
It's a tool to use in risk management but it can't be a dominant factor in the culture.
Bear Cerns had a, a little excess pessimism in the way they approach things and therefore didn't take enough risk to succeed and we can have another podcast that talks about why they did fail.
It wasn't about their risk taking on their trading desk as much as people think.
Goldman Sachs was filled with optimism and confidence.
Still is. Yeah and I think it's a critical part of its culture.
And I think that you need to be optimistic, again, hard -working, high -quality people who want the organization to succeed is critical, a bonding of people to try to accomplish that.
And growth is critical because when people feel like they're on a shared mission to grow something, they take great pleasure out of it.
But working really hard to go sideways grinds people down.
It's not a lot of fun.
So hopefully that was helpful.
Very much so. And I'm sure you can spend another hour talking about what you've learned about building organizations.
So, before you joined Goldman Sachs in 2001, which by the way, is the same year I joined, you actually discussed Work -Life Balance with Lloyd Blankfein, our CEO at the time.
So tell us that story.
Right. So I won't say that I have the view of Work -Life Balance the way it's discussed currently.
I had recently gotten divorced.
And I had the wonderful benefit of joint custody.
And so, I had my daughters every other week for the full week.
And it doesn't matter of all the things I've had the great opportunity to do, which is, he'd hit the White House with a bunch of Presidents, or be on the board of a bunch of companies, or have great colleagues during financial crises where we made money when other people lost money.
I can go through the list of bands I've seen, concerts I've been to, it doesn't matter.
The most joyful moments are being with your children and having them have joy and accomplishing or doing something.
So when Lloyd was trying to hire me, I said, I have just one rule.
And he said, what? I said, every other week, I am home for dinner.
Every single night.
Every night and that doesn't matter.
And how did he react to that?
He looked at me like I was a martian at first and in only the way he can he thought of a way to commercialize it and decided to make me a figurehead of work -life balance which no other person on earth would ever have thought of me as a work -life balance person because on the other weeks I worked.
Right. 24 -7. 24 -7 and he still would call me on vacation with my daughters and ask me, what the hell just happened on something.
But it's important because it's the opportunity to spend time with your children and watch them grow is one of the best experiences any person can have. And so I think we should all try to find the opportunity for people to have that.
So I'm gonna go off of script for a minute.
You mentioned that your mom had one role that you had to go to college.
My dad, my dad. Or your dad, okay, I had a role.
My mom, a God lover, used to say it was too stressful for me.
I shouldn't go. All right, so your dad had this rule that you had to go to college, do you have rules for your children?
And what are they? Sure.
And they didn't listen to me.
So the first thing I said was, please should we not get tattoos before college?
That's a good rule.
I said this like and I said, listen, because in college, I have no control anymore anyhow, so that didn't work.
They just hid them until they were in college.
So yeah, then I had pretty rigid times you had to come home.
Did that work that did work though?
because I had more control over that.
I'd be standing at the door and they all complained.
But I used to say when you're 16 years old, there's nothing good happening after 11 o 'clock and 17 could be midnight.
And maybe senior year you got to 1 a .m. on Saturday nights, but that was about it.
So yes, we had good rules.
But there were also academic rules that there were no TV during the week.
There was, you know, that was completely defeated by social media Yeah, on your laptop though, but I had extensive rules and I was known as the strict dad among their group of peers.
Okay, by the way, my husband always says and said to Argus in high school, nothing good happens after midnight.
Yes. That was his rule, so.
And they'll still think it's true.
Yeah, no absolutely.
So let's continue on with your life outside of work.
You're also a passionate art enthusiast. In fact, I'm not sure how widely known this is, but you're instrumental in bringing art to the High Line, which for those of you not in New York is an elevated freight rail line that's been transformed into a public park.
So talk about that experience and why art has played such an important role in your life.
Sure. I took my first art history class in senior year of college and I was completely overwhelmed by just the experience that once I started making some, a little bit of money and being in a position that had a little bit of free time, I spent a lot of time at museums and starting then to think you could actually collect things which I was just never occurred to me.
I don't know why. And I began a contemporary art collection and it was around that time that the other Golden Sex partners were getting very involved in the Highline.
So lots of folks here were big in helping.
The founders helped create the park and that group of folks asked me if I would like to Get involved.
So I met Robbie and Josh who were the founders.
The real catalysts behind it and they asked me to sponsor the garbage collection program, the garbage collection program.
Oh yeah. So this was really both the true story and somewhat unfortunate, but uh, all the guys from from Goldman had gotten the opportunity to sponsor like these beautiful ends of the park, this sitting area, these trees, this cafe, and I was getting the garbage collection, which I really did feel was typical of my role on management committee and FIC, that I could put my name on the garbage cans.
There was not going to be a banker who was collecting the garbage...
it's definitely a FIC.
So, I said, not sure I really want to do that.
But I said, Robbie and Josh, what do you guys think about your art program?
What's your program going to be?
And they said, we don't have an art program and we will not have an art program.
I said, that's not possible.
You're running one of the great public parks in the world, you're renovating an extraordinary early 20th century piece of infrastructure and making it into one of the most successful, unique pieces of city architecture and park in the world.
And all the galleries are on our either side of it.
You have to have an art program.
And they said, no, we're not going to have an art program.
And I said, just tell me why you're not going to have an art program, not to make this long window.
They go, we can't afford it.
We have so much money that we have to raise for the park itself that we can't afford any mission outside the park itself.
I said, that makes perfect sense.
I understand that. Well, if you change your mind, call me back.
They called me about a year later.
In classic, like a sitcom, they said, we have good news and we have bad news.
I said, OK, what is it?
The good news is we're going to do an art program.
And I said, that's terrific.
what's the bad news?
There can't be any bad news.
You're going to pay for it.
You're going to sponsor the whole thing.
I said, well, that's not a problem.
We'll talk to my friends at Goldman.
No, you have to pay for 100 % of every piece of art that we do on the High Line for at least the next five years.
Wow. It's a big commitment.
And I was like, oh, OK.
Let me think about that.
Yeah, I'll do that.
And it's been one of the, you know, like I said, your kids are the most important thing to you, being in a position to be involved with the High Line in an art program was something that I've been very lucky that they made that decision and I'm very thankful that they gave me the opportunity to be involved and the money is irrelevant.
It was wonderful. It's still wonderful.
It's extraordinary.
I mean, New York is one of the greatest cities in the world objectively speaking of course.
And I think the high line is number one or two thing you're supposed to see when you're in New York in terms of tourist attraction.
Yeah, I think it's a top two or three visited site now.
It wasn't designed for that, which is why it's so crowded.
The original surveys when it was designed but they would have almost one tenth the tourist visits that it does.
That's amazing. So, and it's become catalytic around the world where other people come to study it to see what they can do with their old infrastructure in cities and not just tear it down but you out renovated in a way that brings more life to those communities.
I think it's already accomplished a lot of that.
So before we move to the lightning round, which I'd like to do, I want to end with a question on how you see predium evolving.
You were early in finding a new way to invest in real estate.
So what are some potential new investment categories that we could see?
Sure. So I mentioned in passing what we do in residential credit more broadly and real estate.
And so we lend money to, I mentioned, fix and flip folks who renovate houses and make them for consumers to buy.
And so that's a way we need to renovate housing stock in America.
And you know we have the oldest age of housing stock in American history now.
And so we have a massive renovation need as a country to be in a position that folks can purchase houses that were not really of contemporary nature.
I won't go down the rabbit hole, but I will say that in changing the mortgage system that we did in 2008, we changed it, so it's harder for a consumer to do that themselves.
And so as a result, we need this intermediary of investor to renovate houses.
So what you'll see us do is continue to grow by helping facilitate renovation in building houses.
We're fast -growing, and to be one of the largest lenders to home builders in the United States.
You're going to see that occur because banks are exiting that field.
So, like they've exited a lot of other businesses and created the growth of private credit they're exiting lending to home builders, they're exiting lending to land development, they're exiting lending to lot finance, they're exiting lending to multifamily construction and we and others are taking over that.
So, you should see us be very large in that space over the coming years.
We continue to see opportunities in what we call residential credit, which is our stressed, distressed MSRs, all the mortgage universe of assets.
It's a pretty resilient all -weather strategy that we continue to grow.
And we're very excited about the opportunities in the coming years, and we think right now is in fact one of the best times to invest in that category.
You also will see us become international.
I but deliberately did not choose the word global but international.
Because the problems that the United States faces are not unique.
Longevity is something that's happening worldwide.
So people are staying in their houses longer.
Immigration is something that most countries need as some dose of.
We can all debate what's the right amount.
But because birth rates have been flat to down, we need immigration.
So, the UK's short houses, Canada's short houses, Australia's way short houses.
The banking system's not up to the task of lending in all these places, so there's need for the same banking products and renovation products that we've talked about.
So, I would expect our firm to be international as we think of the coming years with the same set of products, multifamily, single -family, home -builder lending, and mortgages.
And that I think you'll also continue to see us look for adjacencies so that we can continue to be in a position that people look at as hard to go to firm in residential assets internationally and domestically.
All right. So we'd like to end these sessions with a lightning round.
So we're going to run through a couple of questions and just get a quick answer.
That's hard for me, but I'll do my best. Okay.
What was your first investment?
I always think my first investment was my studio apartment at 77 Bleecker Street as That but I like my investment do by the way well Well, but I would say that my first financial investment separate from a house Was buying long bonds when interest rates were at 14 % on whether do you remember I think when I started I think the prime rate was 20, Mm -hmm in like the early 80s for sure the crazy time All right, you talked about music a couple of times in concerts.
Who's your favorite musician?
Well, I have lots of favorite musicians and at the current moment, I will say that my daughters like to make fun of me because I'm a big Chaperone fan.
Love Chaperone. And the Charlie XCX , and I might be trying to say that right, but I love those are my two current favorites.
And then I have a New Wave group of favorites.
I'm a blondie fan, and the psychedelic furs, and the talking heads.
And then, obviously, some of the best concerts I've ever been to are Rolling Stones concerts who I've been to well over 20.
I had the pleasure at a Rolling Stones concert.
It must be their third or fourth retirement tour, and I was at the Prudential Center, and I was with my daughter, my middle daughter, who is a huge Stones fan.
And we're sitting there, and this is a blonde woman sitting next to us, all by herself.
and she was very charming and chatting with everyone and pa -pa -pa -pa -pa, and then the Stones had Bruce Springsteen come out.
Wow. And it was great.
And then he went back and then they said, our next guest is Lady Gaga.
And so my daughter and I looked up and left and the seat was empty.
No way. And so she performed and then she came back and said she goes, like, how'd that go?
Oh my gosh. That's amazing.
I cannot believe we were sitting with Lady Gaga.
I didn't know who it was.
And we're both Gaga fans.
That's great. My new favorite is Shaboozy.
Oh, yeah. Which my daughter teases me about, who I think is fantastic.
All right. Back to our business lightning round.
So what do you think your greatest strength is as an investor?
I've had guys call it pattern recognition, which is what a lot of folks do in this space.
I've never had what I would call short to intermediate term pattern recognition skills.
So there's a lot of great stock investors.
That's one of the things that they can do.
I'm more of a pattern recognition, long arc, as we've talked about.
Like it was so obvious to me in 2008 that we would change the shape of the mortgage market.
And that if you were early capital into it, you could be in a position to forge a business out of that.
And so I constantly look for that.
And I think that's, you know, the value It doesn't mean I'm always first. but I try once we make a decision to go into it, we become very successful at it.
And so I think it's that understanding when businesses are dislocated.
In many ways, what I would characterize, which you said earlier, what did I learn from these other firms?
It was less about investing and more how to build a business that invests.
So it's not like I'm some folks who would wake up in the morning very successfully, like Dave Tepper and look at a stock And he understands where it's going to go.
I'm not that person.
But I can look at trends and fundamental trends, regulatory trends, GDP trends, and things like that, and have a sense of where we're going to go, and then try to manufacture an enterprise that will capture the opportunity from those changes.
Yeah, well, as you said, pattern recognition.
Yeah. So, what's the best piece of advice you've ever received?
well I give credit I had a colleague here named Pablo Salome and like all partners at Goldman Sachs and feck we were all competing with each other every minute and so we were very parsimonious with our compliments to each other but we had some rough times and Pablo was very kind to say don't doubt your confidence in your ability for pattern recognition.
It's very extraordinary.
So that was an insight and a compliment that at times you needed.
So I give Pablo credit for that.
Advice I'd say more from my dad who more or less said you have no control over where you're born, who you're born to, whether you have hair or don't have hair, whether you're just charming, if you're handsome or not.
But you do have control over how hard you work and so you may not be, you might not be able to outsmart someone, but you cannot work.
That's been one of the most important things someone told me.
So you've talked about David Tepper and some others, but which investor do you admire most?
Well, I think there's lots of people that I look at them and I admire them for things they've created, so he's an extraordinary investor right, David Tepper, I would say that Mark Rowan's an extraordinary business builder.
I would agree. An extraordinary business builder.
And so I look at people for different skills and what they've accomplished in doing those things in the space that I know the best. And so Mark's pretty high up there on Alt Sky's.
I think that I'd say that having been here, I give a lot of credit to both Lloyd and David, this is a not fun place to run and I know everybody thinks it's a fun place to run.
It's not fun every day, but it's probably fun.
I will tell you my happiest day is when I realized I would never run this place and I thought I was gonna be sad and I was relieved.
I don't it's, I think it's really hard. I'm sure of this.
And I think they earned every nickel they get.
It's a really hard job.
So I admire them for their contributions and the hard work they put into to deal with it.
But I would go back like one of the best investors I ever saw was Tepper and one of the best business brothers was Rowan.
Okay, so where do you spend your time outside of the office now?
Well, I still spend time on art I still spend time looking for pattern recognition more in books as I get older rather than the Wall Street Journal because Things like the Wall Street Journal and research I always feel like I'm reading something that everyone knows already It's not new right.
What books do you read mom?
I'm reading books on AI now because I'm trying to understand And what's really going to happen, because we don't need large language models to change the world.
It wasn't too many years ago.
We called this machine learning, I think, correctly.
And so I already see the beginnings of its impact on what I do, and not just in investing, but you're going to see it even in a computer does a better job handling resident inquiries for challenges with a house and a human being does.
So I think we'll see a lot of that.
And one of the reasons I'm optimistic, despite these volatile times both socially, and politically, and economically, is I think we will end up with an error of unprecedented labor productivity coming up.
So similar to the 90s, though, even more extreme, and I think that will allow us to improve GDP per person so significantly that I'm less worried about our high level of federal debt, quite frankly.
So I spent time on things like that, is I know that's weird. I like doing that as a thing to do.
I still like collecting art.
I have a five -year -old, so I have the blessings of a 32, 31 and a 30 and a five -year -old.
And that is one of the greatest gifts I could have ever received.
So I'm going to watch him do ice hockey because he's a big ice hockey fan.
It's extraordinarily fun.
And I like working, right?
So yes, I do things that I work but.
Of all the things you said that you asked, let me tell you one that you didn't ask.
Would I have ever imagined that it's 66 years old?
I would still love working 60 hours a week doing what I'm doing and I never would have imagined that I'm the guy whose dream was that at 45, I would buy a bar and say, Bart's, right?
And live there year -round, instead here I am, Here you are.
But you're having more fun than you've ever had in your life.
That's great. Don, thank you so much for being here.
Thank you all for listening to this episode of Goldman Sachs exchanges, Great Investors, which was recorded on February 19, 2025.
I'm Alison Mass and if you enjoyed the show, we hope you'll follow us on Apple Podcasts, Spotify, or YouTube or wherever you listen to your podcasts, and leave us a rating and a comment.
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