Investing at the Forefront of Renewables

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00:06 - 00:53

Welcome to Women and Wealth. I'm Beata Kirr, co-head of investment strategies at Bernstein, and this show aims to educate, inspire women to make the right choices for their wealth. Investors are increasingly investing with sustainability in mind. And one of the interesting things around it is that gender differences have clearly emerged. According to a recent NY Global Wealth report, women are much likelier than men to now have goals related to sustainability for their portfolios. 82% of women said they were interested in investing this way, compared to 77% of men. The same study also found that investors with these goals are twice as likely to use alternative investments.

00:54 - 01:32

So at this crossover point, I am so excited to be joined here today by one of my new colleagues, Jody Gunderson, who is a managing principal of now called AB CarVal and Jody has and CarVal has a 35 year track record investing in undervalued and credit intensive assets globally. AB acquired CarVal early last year and CarVal is now part of a private investment platform, so I'm really excited to talk to Jody today about her career and her insights really in three decades investing in the credit sector and really as a leader in the clean energy space. So Jody, thank you so much for making time for me today.

01:33 - 01:36

Thank you so much for having me. I'm excited to participate.

01:36 - 01:43

We have lots to talk about. And it's also been great to be working more closely with CarVal under the AB umbrella.

01:43 - 02:32

So let's get started because I know our topics are really wide ranging in this channel and women and wealth. We always try to focus on what's of particular interest and also highlight our women portfolio manager voices. So I'm really thrilled with this acquisition. To add you to the roster of female PMs that we have at AB. So let's get beyond the gender differences that I'm focused on and talk about some other very big trends in the market really in the last couple of years. Of course, Russia's invasion of Ukraine last year and then later followed by the Inflation Reduction Act, the clean energy sector and energy broadly has commanded a lot of attention in 2022 and is going to continue to command attention this year and many years forward. So it's going to be a big area of focus for us.

02:32 - 02:57

But before we talk about clean energy specifically, I want to give our listeners a chance to really get to know you better. You've been investing for so many decades. You have a clear passion for it. Every time I talk to you, I can see how excited you are about the deals, the win and the performance success. So can you just give us some color on your career and some of the things that have really kept you going for this long in this specific space?

02:58 - 03:31

Okay. Happy to be out. And I do love it. And I have I've always loved it, actually. And it's just been an incredible experience. And I think for me, the thing that has kept it exciting all these years is our multi-strategy approach to investing and the global investment scope and mandate that we have. It's really an incredible sandbox for an investment professional and we just see a lot of things just to give you a sense of the range of things.

03:32 - 04:09

One day we might find ourselves investing in a restructuring of an India steel company. The next day we might be trying to buy some high risk assets from a bank in Spain, and the next day we might be making a more plain vanilla investment in investment grade corporate bonds in the US in the midst of a dislocation. And so it's the ever changing element of the markets. And. Whereas, the opportunity and the broad scope of investment activity here at the firm, it just requires a global perspective. And that's a dimension that I've always loved about it.

04:10 - 04:25

And I want to just push on one point because I think especially in the alternatives world, there's just so much jargon out there. And we know in finance in general, there's so much jargon. I kind of want to zoom out and just say really high level at the end of the day, what is out do?

04:26 - 05:23

Yeah, we invest in credit across a wide range of asset classes. So I think when most people think about credit, they think about corporate credit and corporate securities. And when we think about it, we think about all of that, certainly. But then all the other credit asset classes like consumer credit, residential mortgage credit, commercial real estate debt and clean energy financing, which is a form of credit. So for us, that definition is quite broad and covers the developed markets and also the emerging markets. So we invest across the spectrum from performing credit all the way through stress and distressed credit across all those asset classes, and then also invest in hard assets, have a long history of investing in assets like real estate and aviation assets and in otherwise clean energy projects.

05:23 - 05:31

And that makes it all clearer. And then just to clarify, are you investing at all in the public bond markets? Or is this all private financing?

05:32 - 06:07

It's a mix theatre. And that is also part of the thing I've loved about the platform here over the years. We invest in both the trade and public markets and the private markets, and having both tools in our toolbox is incredibly helpful because sometimes the traded markets are more interesting and we see more value there. And oftentimes we see the opposite where really the private market strategies are the more compelling. And it's just nice to be able to ebb and flow as we're investing our funds across both the traded and the private.

06:08 - 06:45

Yeah, and as I've gotten to know CarVal, I think I've heard you say things like you're really an opportunistic financing provider that you can be there in whatever way the companies need you best and that obviously the investment opportunities evolve. And I think that's really interesting and exciting. So I can see how you've been there such a long time because it's not a narrow market and it's like you said, a global market. So just wanted to clarify all of that for our listeners because obviously we have some portfolios that are very specific and other portfolios that are much broader. And clearly CarVal has made a name for itself across these different asset classes and these decades.

06:45 - 07:03

So let's get back to your global tables. Right? I think I've heard you say you've been over 30 countries. Who knows how many cities and you know where your feet have stepped in terms of power plants, solar panel arrays. Right. So give us some stories that stick out in terms of these adventures of investing in your career.

07:04 - 07:43

Yeah, no, it's great. I have been to 33 countries looking at opportunities for the firm, and it has been quite the adventure. As we invest, we're always looking to capitalize on economic cycles and credit cycles as they play out. And some of my best memories, favorite memories are all of the opportunities that came from the mother of all dislocations and credit cycles, which was the great financial crisis and all of the opportunities we had in the many years that followed that to go help clean up all of that.

07:43 - 08:29

And so when all the real estate markets, when the bubble burst and all the banks, especially around Europe, were sitting on all these loans that were underwater, we wanted to go provide solutions to. Of those banks and buy some of those loans. And I just think about the process of going out and putting value on all of these loans and underlying pieces of real estate in Ireland, for example, which was a first mover to sell off the assets and just the enjoyable element of trying to figure out value when prices of assets are still falling, the economy is still horrible. There's a ton of uncertainty.

08:30 - 08:52

But you want to capitalize on the opportunity, provide the solutions and try to make money on these things. And so the investment element of that is is exciting. But there's a huge element of camaraderie of doing that. Also, like the last site visit of the day of going to a pub in Ireland and having to.

08:52 - 08:59

Ask about the pubs like you had to have gone into the pubs to really understand the value, right? If you just skip that way.

09:00 - 09:21

Then you submit the bid and you wait a few days on pins and needles. Did we win? Did we lose? And that's an exciting part of it as well. So I think that kind of active investment strategy where there's all these dynamics is, is really what's been compelling about it from an opportunity perspective.

09:22 - 09:52

I could see that. And, you know, you have to be a seasoned and hardy and opportunistic and somewhat distressed investor to have the answer to that question be the global financial crisis. Right? Because it's only from that lens can anybody see a positive because of course, going through that as a consumer or just a regular human. It was a horrible process. But you're totally right. Of course, the greatest opportunities are always created in the markets, in big dislocation. And I'm not surprised to hear you say that. But it is interesting.

09:52 - 10:17

So along similar lines, I know, Jody, as we've gotten to know each other, you have talked about this idea that you love the quote unquote, cat and mouse aspect of doing these deals in the private markets. And you already alluded to the mystery of the bid and waiting to see if you won and how competitive that is. So you've obviously done a ton of negotiating in your career. So what are your tips for all of us? What's your secret to the art of the deal?

10:18 - 11:01

And I think the be yourself notion is is a useful guide here as it is with most things in life. And for me, the call it the art of the deal is largely around being patient and being comfortable, letting the negotiation play out, whether they evolve, let it unfold, let it breathe where it needs to breathe. And so that has been key for me and been effective. And also, I think being somewhat analytical, like grounding our positions and good logic and good analysis and good data versus having a more, let's say, blustery style which might be effective for somebody else. Everybody's different, that's for sure.

11:02 - 11:22

And maybe I'll conclude here Beata by saying being trustworthy, I think is the most important thing. And I think maybe I come by it naturally. You feel me. But but that is, I think, key to getting anything done and being effective. You've just got to be trustworthy.

11:23 - 11:49

Mm hmm. It's it's interesting. I'm already picturing the blustery negotiations. Of course, I'm going to pivot to kind of the gender difference question here. I'm sure you have oftentimes been the only woman in the room, you know, on both sides of the table. Right. What do you think? What are your observations? Maybe How has that impacted you as an investor or even even with the prior question around negotiations? How have you seen that evidence itself?

11:49 - 12:21

You know, it's a it's a very good question. And of course, it's often been the case over the years and becoming less the case as time has gone on, which is great. The last transaction that I really had the opportunity to negotiate was the management buyout that we did from our prior parent before AllianceBernstein owned the firm. And it was kind of a capstone negotiation for me. And I just remember to your question here, we have the initial all hands negotiation session.

12:21 - 12:52

So there was probably 15 to 20 of us, both sides, investment bankers, both sides, attorneys, the commercial team from both sides. And I was the only one out of those 15 or 20 people that was won them. And I didn't feel like it was negative. I've never felt awkward or uncomfortable. It's just notable and kind of what we've been working on for so long to try to address this and making good progress on it. So nothing is negative about being the only one.

12:52 - 13:47

And the thing that I have had a little bit the negative response to. Over the years is the perception or reality that women had to work a little bit harder or deliver a slightly better result. I have the same credibility, and so maybe there's a little bit of a chip on my shoulder phenomenon to what's made me successful over the years and what made me work hard to be successful, to have a good track record of investing. And so in some respects, I'm actually quite thankful that maybe it drove me to have that chip on my shoulder. And because things have have worked out well and I've enjoyed it. And in the last several years we've been able to make some changes and nobody has exactly feel that way anymore. Hopefully that should be the goal.

13:47 - 14:15

Yes, And getting to know Carvel, I was also excited to see that it's not just you in the room. And obviously we're working with some really great women, especially on the clean energy team where you and I have partnered explicitly on on that portfolio. So tell me about your work at Carvel, at your level. Right, to be able to rise to the top and really influence change. What have you done? Have you approached it and has it gone great?

14:15 - 15:12

I took over leadership of the firm with two of my partners in 2016 and basically woke up the next day and said Things are definitely going to change here in all of these ways. And it's just an incredible opportunity to have in any leadership role. And a little bit background on our call it the journey here. It really started in 2015 when we started our Women's Forum, which is a forum for all the women across the firm to get together. And it really had a dramatic impact on the organization. And thinking about that first meeting we had in 2015, we all felt like we had to slink out of the office because what was ever good. But we're going to think, Oh, there's all the women going someplace and, you know, roll their eyes. And and in fact, it kind of felt that way.

15:12 - 15:45

But over the years, we just powered forward with it and broadened it out, not just to women, but this whole DTI phenomenon that's been so powerful and in recent years. It really is about everybody. And so everyone made it about everybody over the years and just wanting everybody here to have a good experience and to be able to be themselves and do their best work. And it feels different still on a journey. Beata But I think we have we've made a lot of progress.

15:45 - 16:27

Well, I congratulate you. I think it takes leaders everywhere of all genders, like you said, to build inclusive environments and to really get people on board with the idea that it shouldn't just be the diverse population arguing for diversity. This really works with allies. And, you know, I commend you on what I've observed as a culture that I think is really unique, especially in your asset class that has been, you know, very traditional, the debt space for our listeners that don't realize like the debt space is. So I found even more kind of gender tilted and I think in the alternative space. So you really have this combination of aspects that make it tougher. But it's great to see the progress that you've made.

16:27 - 16:29

Yeah, well, thank you for appreciating that about us.

16:29 - 16:33

I totally appreciate and totally appreciate it.

16:33 - 17:19

All right. Now I want to talk about investing. We're going to pivot back to I know what you love to talk about the most and specifically on your latest area of focus and kind of most timely area of focus is not your only area, but I know an area that you're very passionate about, which is clean energy. So renewables, it's so dynamic, so much has changed. I mentioned the war, of course, which is ongoing and horrific and has its own set of consequences for energy. And then at the same time, legislation that has been massive in terms of changing the dynamics. I know you'll provide some stats for us, but do you want to just make the case for the asset class why renewables are interesting today, Why clean energy is like suddenly kind of this huge opportunity?

17:19 - 18:14

Oh yeah, happy to. And you're right, I do wake up in the morning and that is what I'm focused on. It's my current passion, as you well know. And when you look out over the next 30 years as the world makes this transition to clean energy, it's going to be amazing to watch it. So many things needs to happen and it's also incredibly capital intensive. You look at some of the stats and it's going to cost somewhere between, I don't know, 90 trillion and $173 trillion to make the transition, which just spells out. The opportunity here. From an investors perspective, it's just these are growth markets. It has to happen for purposes of meeting the world's climate goals. So there's a fantastic element of it from an impact perspective. And so it's exciting to be involved in it.

18:14 - 19:12

And then just from a simple economic and commercial point of view. Renewables like solar and wind are among the cheapest, if not the cheapest, in most parts of the world now source of electricity generation. And so it stands on its own right from an economic perspective. But then you've got all the tailwinds here, as you said, about the policies, whether it's the Inflation Reduction Act here in the US or similar legislation now that European countries are putting in place to respond to the Inflation Rate Reduction Act will help to further scale up renewables and kind of make the transition away from from fossil fuels. So as the markets scale, they'll continue to become even more cost competitive and cheaper over time, which is the point of all that.

19:13 - 19:18

And do you see a difference between wind and solar, or is there a preference or where there's been more progress made?

19:19 - 20:04

From our perspective, because we like to focus on small and mid-sized transactions, we've been more focused on solar Just because they're smaller assets definitionally or can be a win transaction is just generally a by its nature, a large transaction. Those tend to be a little bit lower yielding. And so we're trying to find more attractive returns. And we been in the solar and battery storage process. We have done some wind transactions, but more financings, not as as owner of the assets. But both are expected to be significant drivers globally of the transition. So they're both clearly very important, as is battery storage increasingly important.

20:04 - 20:08

And how big of a deal is the Inflation Reduction Act.

20:08 - 20:49

The complete game changer? It really is. Over the last few years, there's always been the are those tax credits going to get extended? If they get extended, are they going to get extended for a year or two years? And the Inflation Reduction Act came along last August where 369 billion to address climate change and the financial support there for renewables is in the form of tax credits. And the tax credits are going to last at least ten years longer. We need to get the emissions from the power sector 75% lower than what they were in 2022.

20:50 - 21:18

So the tax credits will run for a long time. They're very substantial and that give developers and investors the certainty that they need to move forward with projects. So like I said, solar and wind, they're cost competitive in most cases without subsidies like this. But the tax credits will accelerate the transition because it makes it even more economically compelling.

21:19 - 21:57

So in short, the the recent legislation, like you said, game changer. It was the magnitude of it and also the certainty of it. I know there's been a lot of debate about our renewables of of leading trend. Could this all get rolled back under a different administration? But I think you and others have really commented, no, this is the real deal and this is long term, and that's making it very possible. And in fact, leading to a giant uptick, it seems, in projects getting done and financing is being available. Right. So I just want to cement that because I think that's where we get a lot of questions. And it does feel like it's real. There's real permanence to it, is what you're saying.

21:58 - 22:44

There is. And there's some other interesting elements of it that are very helpful. Some of these bonus tax credits that are out there that make it a fair and just transition for all parts of society. For example, you can earn additional tax credits if you locate your project in a particular to in an energy community, meaning a community that has a lot of fossil fuel employment. The point here is let's make the transition fair for people that are in the fossil fuel sector so they can make the transition to good jobs in the renewables and clean energy space.

22:45 - 23:08

That's very powerful from a social perspective. You can get bonus credits if you locate your project in a low income community. That's great about it. And. If you have a plan in so many ways and in red states and blue states, I think it's quite positive for every constituency. Let's say with with all those bells and whistles.

23:09 - 23:16

Yeah. Well, you mentioned battery storage. Do you want to explain why you think that's an area that's really compelling today as an investment for you?

23:17 - 24:14

It is. And one of the main beneficiaries of the Inflation Reduction Act is battery storage, standalone battery storage. So prior to the Inflation Reduction Act, you could get a tax credit for batteries that were co-located and charged by a renewable asset like solar or wind. But if you were a standalone battery storage project and you are charging from the grid, there wasn't a tax credit. Now there is. And so the effect of that is more of those standalone battery projects will be economically viable with the tax credits, which will help to accelerate the growth in battery storage. And the reason it's so important to see that growth in the battery storage sector is it's necessary to help stabilize the grid as renewables proliferate.

24:14 - 25:07

So the grid, as we've always known, it wasn't meant for all this distributed generation with solar projects all over and wind projects all over. It was built for the old environment, and renewables are there in their intermittent power. As everybody knows, the sun is always shining and the wind isn't always blowing. And batteries play such an important role here because they can help to smooth out supply of power coming onto the grid and demand under the grid. So basically playing an important role in the stability of the entire electricity grid as renewables proliferate. That's why it's so important and it will accelerate the adoption of batteries. A lot of CapEx is going to have to go into battery storage.

25:07 - 25:20

You know, there's so much complexity in the space. There's a lot for everybody to learn. But clearly it's not just the wind farms you drive by or the solar arrays. There's a lot of complexity behind it in investing opportunities. So I think that's what's interesting about the battery storage aspect.

25:21 - 25:37

Well, Jody, this has been terrific. I want to round out our conversation with the same question I ask all of our guests, which is this idea about how do you invest with intention? How do you think about prioritizing what's meaningful to you? Either your time, talent or treasure?

25:37 - 26:01

Well, there are probably two elements of that. How we invest with intention and the work that we're doing here in the investment activity at AB CarVal. And we've always been principle investors. Yeah, that's always kind of been part of the fabric here. But if something doesn't seem right, whatever that is, and an investment, then we stay away from it and don't pursue it.

26:01 - 26:48

And then personally, as I think about philanthropic investments and how I spend my time, I am somewhat concentrated in in my giving and what I care about. And one of the things that's really moved me and where I've been active is at the University of Minnesota. So being able to provide scholarships for girls and diversity candidates, some of which have come from my hometown, which is Duluth, Minnesota, and just like being able to offer that to them so they can have the same experience that I had that with me. And so I've been active there. And then with the Carlson School of Management generally as they look to do various things. So that's what I have a passion for. And so I've been focused on it.

26:49 - 26:54

Terrific. Well, thank you again, Jody, for your time today. It's great to have you as a colleague and as a guest.

26:54 - 26:55

Likewise.

26:55 - 27:00

Thanks for all your work. We look forward to a future where renewables continue to grow.

27:00 - 27:04

Thanks for having me. And Beata been blessed. Really appreciate it.

27:05 - 27:19

If you enjoyed the podcast and haven't subscribed to our show, please go to Apple Podcasts, Google Play, Spotify or wherever you listen to subscribe and rate us. You can also find us on Twitter at Bernstein or find me Beata Kirr on LinkedIn.