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Influencers Transcript: Glenn Hutchins, January 10, 2019

ANDY SERWER: Glenn Hutchins is no stranger to power. He's a private equity pioneer, a former presidential economic advisor, and a Federal Reserve Board member. He's also part owner of the Boston Celtics. A first big splash was in 1999, when he co-founded private equity firm Silver Lake Partners. Today, his former company has $45 billion under management, with investments in Tesla, Dell, Alibaba, along with other tech giants. Hutchins has turned his attention to the world of fintech, along with many other projects. And he shares his story with me now.

Hello, everyone. I'm Andy Serwer. And welcome to "Influencers." Welcome to our first guest, Glen Hutchins. Glenn, thanks very much for joining us.

GLENN HUTCHINS: Thank you for having me, Andy. Great to be with you.

ANDY SERWER: So there's so much to talk about but I want to start off with the stock market, which is wild and crazy these days Maybe can't figure out what's going on with the economy Glenn what's your take on both of those subjects

GLENN HUTCHINS: Well only fools predict interest rates, equity prices, oil prices, and elections. So I'm not going to do any of those today, right? But what's going with the equity markets? I think, in a very distilled way, two major foundational elements, monetary policy and fiscal policy, are, right now, both stimulative. Monetary policy-- What I mean by stimulative are both pointing toward higher interest rates. So monetary policy is in the process of a big regime change, from lower for longer to normalization. Which means the balance sheet's reducing, interest rates are going up, and that's influencing the equity markets.

Fiscal policy, on top of that, has added a huge amount of new financing demands, because it's a borrow and spend plan. So borrowing roughly about a $1.5 trillion over 10 years of finances. That's increasing interest rates.

So those two major influences are driving interest rates up. And interest rates are bad for equities, right? And so that's the major thing to think about.

Then you layer on top of that all of the issues and uncertainties associated with increasing the dollar, which is one another, the secondary effect of interest rates, which causes a reduction in US exports. The consequent slowdown in growth of the countries that export to United States, including, but not only China. And then geopolitical uncertainty associated with things like, but not only, the tariffs. And it's no surprise that the markets are unusually volatile at this moment.

You asked about the economy. Overall, the markets-- One of things people understand is, they say, well, the economy's strong. What is the market saying? You have to understand that economic data is backward looking. The growth for the fourth quarter was X. The markets don't care about that. What the markets care about is what the growth for the coming year is.

So the markets are forecasting, while the economic data looks backward. So the markets are clearly forecasting a set of economic problems, over the course of the coming year, that are more nervous making.

The biggest piece of that is that the hugely stimulative fiscal policy of the last year, with that ill-considered tax cut, was a one time thing. So that's now in the base, and that's not going anywhere. And then you add to that the issues we talked about, plus the question of how long can this recovery last. And the markets seem to be forecasting some weakness for the coming year.

ANDY SERWER: So are you more concerned with tougher comps in 2019, or the actual possibility of a recession, or neither?

GLENN HUTCHINS: Well, as I say, I'm not going to be a fool to try to get into the level of forecasting. But I think the coming year has a-- Well, to the extent that-- We have to desegregate the economy and the marketplace. To the extent that we've got, had a problem over the last year-- Almost exactly a year ago, I was warning people that I thought asset prices have gotten to be too high, and volatility was too muted. Over the course this past year, I think we solved that problem, at least the volatility element of it.

But the, if there is a problem in the economy in the coming year, it will be caused by one or both of two things. One is some slowdown of corporate activity. And the other would be some increase in interest rates that brings equity prices down even further. It feels to me, if there is a problem like that, it feels to me more like what happened in 2000 and 2001, where there would be a correction of equity prices. And maybe a small wealth effect associated with that, but then a pretty quick recovery from it, as opposed to something like 2008, where there was a huge debt burden that weighed on the economy for 10 years.

ANDY SERWER: Let's talk about the tech sector specifically, Glenn. And you said that this sector grows faster than the economy. So it's sort of the investment thesis of your lifetime. But is that still the case? And all the problems we're hearing about social media, and possible government regulation, what's your take on the business these days?

GLENN HUTCHINS: That's a good question. So let's desegregate that into a couple of things. There's a public policy issue out there, which is around the whole set of privacy questions and net neutrality questions that we've dealt with over the last couple of years. The people who think about these things tell me they'll almost certainly be some form of legislation of that this year.

My view is that it could turn out to be a very good thing, because it removes the uncertainty associated with that, and then allows those companies to reset and get back to growth again. So I think that's probably a necessary thing. And it's not unlike what happened to IBM, at the end of its rapid growth phase, and Microsoft the end of its grab at rapid growth phase. You know, the Facebook, Twitter, Googles are kind of in that same kind of period, where they're subject to regulatory scrutiny.

That's just does. Public policy should create some uncertainty. But with respect to the technology economy, if you had bought the major tech winners, the FAANG group, at their peak price, in each of, before each of, the internet bubble, and the, before the great financial crisis, and held, you would have made a large amount of money.

Look at Amazon, for instance. Amazon didn't get back to its price of 1999 until 2007. But today, that 2007 price is a fraction of where it is today. So if you buy, if you invest in a great company an owner for a very long period of time, you're going to do just fine.

ANDY SERWER: Let's switch over to Washington, a little bit.

GLENN HUTCHINS: Do we have to?

ANDY SERWER: Yes. We do. A couple of questions here, Glenn. So what is your take on how President Trump is handling the economy, to the extent that he oversees it? And what is the best way for a chief executive to handle Trump, a Trump policy, if you will?

GLENN HUTCHINS: Look I think the economic policies of this administration have been irresponsible, to the point of dangerous. The tax cut was a huge error, in my view. Yet I was all for tax reform. I think that, however, cutting taxes, and not paying for it, debt financing a tax cut-- It used to be the Democrats were held to be irresponsible, because they were for tax and spend. What the Republicans have done in this administration is borrow and spend. They haven't even had the intellectual honesty of actually raising the taxes to pay for their spending.

They have, there's some sort of myth out there that the tax cut's going to pay for itself. It obviously hasn't. We have largest, we have the largest deficits during a recovery in American history, even as a percent of GDP. So we're just borrowing a huge amount of money. That's going to put a massive amount of pressure on the interest rates and equity markets, as we talked about in the past.

The trade policies are remarkably ill-advised. Going after our allies, in Canada and Mexico, the way they did-- And I know that's behind us now. But that was extraordinarily ill-advised. The tariffs are hurting, on China, or hurting American manufacturers more than hurting the Chinese.

Do we need to adjust our relationship with China around areas like intellectual property policy and technology policy of course how do you do that You do that by getting China's trading partners to negotiate with them as a bloc what was that called? That was called TPP. The Trump administration's actions to withdraw from TPP without extracting any concessions with China was a huge blunder. There's an opportunity out there right now. But the way we manage our allies, it'd be tough thing to do, which is to turn TPP into a negotiating bloc with China, and really go after these problems in a way that can fix them. They're not doing that.

The third is, we have a set of-- Republicans used to recoil from industrial policy. Government can't pick winners. But we are picking winners. We're picking the coal industry, the nuclear industry, the aluminum industry, and the steel industry as our winners, right? And while China is investing in smart infrastructure, artificial intelligence, and quantum computing, as well as solar.

There are more Americans who work in the solar industry then work in the coal industry in the United States. But we're not thinking in those terms. So I think if you go across the economic policies of this administration, they're plainly wrong headed.

ANDY SERWER: That is a list of qualms you have there. No doubt about that, Glenn. So what should the Democrats do about this? I mean, there's a wealth of candidates. How is this going to play out as we get towards 2020.

GLENN HUTCHINS: I'm not a, I'm not a political prognostic. But I think that if I was asked about the economic policy aspects of that, what I would say is, we need to get back to some degree of fiscal responsibility. Not increase taxes, but rollback these tax cuts, to get to the Obama Bush level of taxes. Then try to move forward toward tax reform that makes our tax system more competitive. That's kind of one.

The second is that I think we need to have a significant investment in our infrastructure in our economy. Infrastructure is a very, very tough issue, because more than 90% of it occurs at the state and local level. And it takes a very long time to get it done. I would advocate, as a consequence of that, an infrastructure bank, that could, at the federal level, not like, not unlike the import export bank, that can provide financing. And I would focus our research and development budgets on newer technologies, so that we could compete with China in the future in things like AI and quantum computing. And I would put a huge amount of emphasis on getting our education system right, so we could prepare the next generation for the future. Those are some of the things I would do.

ANDY SERWER: You served in Washington, though, and you know what the environment's like. It's actually much worse than when you served there a couple decades ago. How do we end this incredible bipartisanship? I mean, do you see any solution? Any, how realistic are those plans of yours, for instance?

GLENN HUTCHINS: You know, so, this whole notion of, you know, don't waste a good crisis, right? So the question is, do we have to wait for a crisis, until we can actually get it right? I would hope that in the coming years, we could end up with an election in 2020 that would test this vision of America. One that's backward looking versus one that's forward looking. One that was about investing in the future, which is one, rather than one that was nostalgic about the past. One that's about uniting people, rather than one about dividing people.

If we could have that sort of discussion, we could learn a lot about the country that we are.

ANDY SERWER: Glenn, you have funded the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.

GLENN HUTCHINS: A name not created by a poet.


ANDY SERWER: It rolls off the tongue


And Ben Bernanke and Janet Yellen are affiliated with that. You're close with John Williams, who is the head of the New York Fed. You're definitely a policy wonk.

Why are you so interested in this subject? And is it right for you to be this closely involved with the Federal Reserve?

GLENN HUTCHINS: Well, when we decided to do this venture at Brookings, it was my observation that monetary policy was something very few people really understood. That it was a subject that was essentially controlled by a priesthood of central bankers, who worked inside heavily fortified and garden buildings. And they very seldom brought their subject matter that they researched and talked about to the public, for very good reasons, which was that they could do things like move markets. So they knew to be very careful what they talked about.

But I thought it would be a very useful thing-- Particularly, you have to call, following the financial crisis, when there was a fiscal policy stalemate and Washington sequester, and all that sort of thing, the only really powerful tool that was being used for economic policy was monetary policy, for about 10 years.

And so, to have a place where monetary policy could be studied, outside of a central bank, could be debated, and where the different views could be articulated and disseminated, I thought was a very valuable thing to do for the purposes of public understanding of what was going on.

ANDY SERWER: Do you wield too much influence?


GLENN HUTCHINS: No, I-- Well, first of all, there there's a very important separation between what I do and what they do. David Wessel, who's really the person who's put all this together, former Wall Street Journal journalist of renown, and I have an understanding, which is, the less I'm involved in it, the more successful it will be.

So I don't tell them what to do. I very seldom engage with what they're doing. They've done a terrific job. And I've just stand stood back and let 1,000 flowers bloom.

ANDY SERWER: But Ben Bernanke and Janet Yellen are walking down the halls. What are they, what are they like?

GLENN HUTCHINS: By the way, the concept that I could tell Ben Bernanke and Janet Yellen what to do is ludicrous in and of itself.

ANDY SERWER: Fair enough.

GLENN HUTCHINS: All right? If you know what I mean?

But one of the things that we've done there is to create what I call open architecture. Which is, what they do is, they figure out what the most important issues are they need to be discussed. A good example was, a few years ago, there was this concept of negative interest rates. And there are countries around the world that experimented with negative interest rates. So they found the people in the world who had practical experience, and had studied it, and brought them together from around the world to discuss this topic.

That's not a topic that's political that's ideological that has a that where someone wields influence it's a topic that is you know could turn out to be enormously important that there's now a repository of understanding of.

ANDY SERWER: Right. You also gave $15 million to the Hutchins Center for African and African American Research at Harvard, your alma mater. Why did you do that?

GLENN HUTCHINS: Well, it's interesting. So the other piece of this is-- we also, by the way, called that the Hutchins Center. We did a global search for a name.

ANDY SERWER: And somehow you landed on that?

GLENN HUTCHINS: Hutchins, exactly right.

ANDY SERWER: It's funny how that happened.

GLENN HUTCHINS: Right. In that case, it's, they're similar in that, it's-- race relations in America is a topic that has had, that continues, even after having an African-American president, to vex us, to be at the core of our, who we are as a society. It is something that has attracted a relatively small amount of money. The amount of money we gave was $25 million, and it was by far the largest gift ever in the field.

That's actually, what's a lot of money, it's not a large amount. Harvard this raised $9 billion. If you know what I mean. And so the, my point is that it's a very, very important topic, that hasn't had a lot of support. That's kind of one.

Two is that there's a person there, Henry Louis "Skip" Gates.

ANDY SERWER: "Skip" Gates.

GLENN HUTCHINS: Who has extraordinarily capable, in terms of taking the understandings, the research findings in the ivory tower, and translating them into something that can be, that he can talk about as a public intellectual, and that could be made accessible to people who weren't experts in the field.

So it's been, again, a very, very powerful outcome there, to kind of create the means by which we can promote better understanding, and build bridges, inside this community, where, like a lot of other things in the world in which we live today, there's too many divisions.

ANDY SERWER: I think people are probably getting to see the point, that you have a lot of different interests. So my question, Glenn, is, how do you allocate your time when you get out of bed in the morning?

GLENN HUTCHINS: It's funny. So people ask me, what are you doing? And I say, precisely what I want to do. But the most important issue for me is to find really talented people with whom I can collaborate to get things done, right? So in this case, we've talked about two people, David Wessel at the center of Brookings, Skip Gates at the center at Harvard, creating the capacity for them to be successful, and then getting out of the way and letting them do it, is a real gift.

And so what I've tried to do is to pick spots where a small amount of invested capital and time and interest on my part can enable people like that to be successful.


GLENN HUTCHINS: By the way, it's also not too good for your golf game.


GLENN HUTCHINS: You can't do all this and get your golf handicap down. But that's OK.

ANDY SERWER: Something has to suffer.



ANDY SERWER: Crypto. Another one of your interests.


ANDY SERWER: And you've kind of gotten into that. But we've just seen a huge meltdown over the past 12 to 15 months. You are still a believer?

GLENN HUTCHINS: So if you had, if we'd been sitting here together in 2002, we probably were, you would have asked me, the internet. We've just seen this huge meltdown in the last 12 to 15 months. Are you still a believer? right?


GLENN HUTCHINS: And so the answer is yes. Now the digital currency solution is them is the most important technological advance I've seen since the internet it has the capacity to do lots more but it has certainly has the capacity to enable us to move anything of value around the world the speed of light at no cost

The it has three components. It has a token of value, which is called the bitcoin it has a accounting mechanism which is called a blockchain.

But the most important piece, which is one that people aren't focusing on, is the protocol, the underlying protocol by which we agree to do these, to conduct these transactions. So you use a series of protocols every day, and you don't even think about it. You don't think about the internet protocol. You don't think about the simple mail technology protocol. You don't think about the file transfer protocol. You don't think about the high tech translation protocol. I go through them, all, right? You just make use of the technology, and the protocols make it work.

The people who really understand what's going on with digital currencies understand that putting these protocols in place, the blockchain protocol, the Ethereum protocol, the Ripple protocol, and then enabling those protocols to cause transactions to occur. And then those, and those transaction can be defined very broadly as not just moving [INAUDIBLE] things of value, but anything that's got an information content, is extraordinarily transformative. The focus on the value of the token is distracting and uninformative.

ANDY SERWER: So maybe now's a good time to invest in it.

GLENN HUTCHINS: I'm investing in the companies. I have owned some of the tokens, on and off. But I'm investing in the companies that use the technology to drive this transformational change.

ANDY SERWER: You've also invested in fintech?


ANDY SERWER: And what does that mean? What does fintech actually mean?

GLENN HUTCHINS: Well, you know, I remember Ted Turner once said, I was into cable before cable was cool.



GLENN HUTCHINS: I was into fintech before fintech was cool. NASDAQ is fintech.


GLENN HUTCHINS: Bringing together financial services and technology to drive value to customers. So over the course of my business career, I helped to build the NASDAQ. I helped to build what's now called TD Ameritrade. Those are both fintech companies, companies that use technology to deliver financial services. And right now, I'm involved with the company that we discussed earlier called Virtu, which is the world's largest electronic market maker, that makes markets in securities around the world at the speed of light, at less than penny spreads.

ANDY SERWER: Do you see changing what you're doing right now? Or do you like this sort of portfolio life that you have?

GLENN HUTCHINS: Do you have any ideas? Do you have a recommendation for me?

ANDY SERWER: Sail around the world?

GLENN HUTCHINS: No, thank you.


GLENN HUTCHINS: No, I, look, I'm enjoying very much what I'm doing. Because I have a life where I'm able to be engaged in as an investor. I am able to, I'm able to be involved as a philanthropist. And I'm able to sort of be engaged in the public policy community. I get to play the occasional round of golf. And we're hoping to see the Celtics get to the NBA finals, sometime in the next few years.

ANDY SERWER: Yeah. How's the NBA been so successful over the past decade?

GLENN HUTCHINS: You know, it's changing. So, I think it's primarily because-- If I had to pick one thing, I think that David Stern and Adam Silver have been extraordinary as commissioners of the league. They're great leaders. And by the way, one of the thing the great leader does is pick a great successor. And you think about the succession from David Stern to Adam Silver, extraordinary. I think that's point one.

Point two is, the international appeal of the NBA has proved to be enormous. And so there's a big international market that's growing, very much unlike, for instance, American football, which hasn't had the same kind of international appeal.

ANDY SERWER: And which has other problems.

GLENN HUTCHINS: And which has huge other problems.

And then I would say, third, the capacity to embrace and work with the players in a socially productive and constructive way, so that you've got a, you don't have friction between the players and the league and the teams, that you have them all working together as one, is the way a great organization succeeds.

And then, I think, finally, the embrace of modern technologies for purposes of pushing the game forward, and making it accessible to more and different kinds of customers in different kinds of ways, is been very valuable.

ANDY SERWER: Now before we started talking about basketball, I was going to ask you, if called, would you go back to Washington to serve? Presumably, after 2020?

GLENN HUTCHINS: I don't have any plans to do that. You know, I'm 63 years old. There's a new generation of people that ought to be kind of--

ANDY SERWER: A young 63.

GLENN HUTCHINS: A young 63. No. My goal right now over the next couple of years is going to try and be able to make a contribution find a path to putting a to solving the huge problem we have right now in Washington by trying to put leadership in place either Democrat or Republican that can be constructive and push our country into the next century that's the main thing which I think I can try to work on I'm not particularly interested in serving myself in that capacity

ANDY SERWER: Let's take a look back Glenn at Silver Lake which you founded. It's now been 20 years.


ANDY SERWER: You co-founded that 20 years ago.

GLENN HUTCHINS: 20 years ago this month.

ANDY SERWER: 1999. I remember.

GLENN HUTCHINS: January 1999. Yeah.

ANDY SERWER: Yeah. Why-- A lot of people wondered if it would succeed. And it did.

GLENN HUTCHINS: Including you.

ANDY SERWER: Including me. Well, I just ask questions.


That's my job.

GLENN HUTCHINS: That's your job. I get it. I get it.

ANDY SERWER: But it was successful. It's still successful, of course. You've left the company. Why was it so successful? How's it been so successful?

GLENN HUTCHINS: Well, I think one was that we picked a-- You know, they say, one of the tenants of modern finance is, it's more about asset allocation than manager selection. I couldn't select a different manager because that was the person I saw in the mirror every morning. So I had to pick the right set of assets. So I think finding a, being able to focus on technology during a period in which it had enormous growth, and within technology, picking a spot, which was mature technology companies, companies operating at scale, where other investors weren't focused. So you had your territory to yourself.

And then, if you were successful, you could occupy the commanding heights of that segment, because you had pioneered that, was kind of, I think, big point number one.

I think big point number two was bringing, instilling a set of investment disciplines. Due diligence, rigor, and internal processes, at Silver Lake, that made the investments good ones, was very important.

You recall that when we started the firm, we raised the largest first time fund ever, and didn't invest a dollar for a year and a half. And people thought, what are you doing? That was during the period of 2000 and 2001, when you really needed to pick your spots very carefully. So being a disciplined investor, in the right asset category, at the right time.

ANDY SERWER: All right. And finally, Glenn, last question. This show's called "Influencers," and you're an influencer. So my question is, how do you want to use your influence on the world?

GLENN HUTCHINS: That's a big question, Andy. So I've-- So, when I was growing up, when my mother would be baking cookies--

ANDY SERWER: This is good.

GLENN HUTCHINS: In the kitchen, and you'd smell the chocolate chip cookie going, we always knew, as kids, that it wasn't for us. It was for the church bake sale. Right? Mom, she always had, put a few aside for us.


GLENN HUTCHINS: She was a great mom. But my point is, the, my parents were always [INAUDIBLE]. My father spent his entire career addressing issues of hunger and poverty, both in the United States and around the world. I think, I believe very strongly in the view that, to whom much is given, from whom much is given, much is expected. I think I've had the opportunity my life right now to make important contributions. And as I say, what we're focused on is race relations in the United States, and effective public policy.

You know, I've recently become co-chair of the Brookings Institution, trying to focus on, with my co-chair there, Suzanne Nora Johnson, making it an important, even more important player, in evidence based independent policymaking in Washington. That's a real opportunity to make an important contribution.

But mostly, it's all finding a place where we can use the great good fortune I've had for good effect for people who are less fortunate than us, and for our country in general, which is in real need of leadership today.

ANDY SERWER: All right. Let's leave it at that. I want to thank you, Glenn Hutchins, policy wonk, investor, thinker. Thank you so much for joining me. I'm Andy Serwer. Thank you for watching "Influencers" with Andy Serwer. We'll see you next time.