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Milken LIVE: Leadership: Moving Beyond Conventional Thinking VOD

In times like these, leaders are challenged to go beyond just thinking outside the box. Even before the pandemic, the need for agility and constant innovation had become evident as technology disrupted every sector. How can you foster entrepreneurial spirit within corporate structures and ensure creative destruction? And how can leaders motivate others to embrace the need for constant transformation? In this session, leaders of industry and finance will discuss how to continuously innovate rather than fixate on preservation and maintenance.

Video Transcript

ANDY SERWER: I'm seeing you guys and I think you all pride yourselves on not thinking conventionally in ordinary times. But these, of course, are very unordinary times, and so it kind of requires even more unconventional thinking or thinking outside the box.

Certainly, flexibility has been absolutely critical and paramount this year, so I'm really, really interested, and I'm sure our audience is too, to hear your thinking on this. I should mention that also attendees to the conference can ask questions on the website and we will be getting to them later on in this hour long conversation.

So Kew, you and I had a chance to catch up a little bit a day or so ago and sort of talk about some of these matters. And I think one point that you wanted to accentuate is that the trends that we're seeing in this crazy, crazy year with COVID, racial justice, the election, and all kinds of other matters, really aren't so new so much as they've been accelerated. Can you talk about that a little bit?

KEWSONG LEE: Sure, Andy. You know, the way I say it, I think the future has arrived early. If you think about the topics that were probably being talked about at this conference a year ago, it was about low interest rates, slowing global growth, increasing divisiveness, the growing divide between US and China, the impact of [AUDIO OUT] the economy.

And if you now close your eyes and open them back up again instantly in this virtual conference, these are the exact same trends that we're still confronting. If anything, COVID has accelerated them. And in many instances, trends that would have played out over years are happening in a much shorter time frame. So that's why I basically like to say the future has arrived early.

ANDY SERWER: Right. And Dave, let me go over to you and ask you a little bit about the thinking at Bridgewater, sort of some top line analysis. Do you agree with Kew that really, in a sense, nothing's really new, it's just the future has arrived early or is that a trap, maybe? Are there really new things that you have to really consider?

DAVID MCCORMICK: Well, I think I agree with Kew in a big picture sense. But I think we'll look back on this moment and say, wow we're at an inflection point where many of the trends that Kew mentioned have been accelerated. And it creates this enormous uncertainty for all of us, for investors, for policymakers, and for any of us trying to run businesses.

And you have this enormous income shock, which is really unprecedented in our history, that's the result of the pandemic. And then you have a lot of uncertainty about how different governments will respond to it, you have the uncertainty associated with the divisiveness, and you have a geopolitical uncertainty with the US and China.

And so while I think it has accelerated many of the trends, I think we'll look back on this period and say, boy, there's an enormous amount of uncertainty that requires a unique ability to navigate and prepare for a broad range of outcomes. And so that makes all of our jobs a little more challenging than normal.

ANDY SERWER: Right. Right. Irina, we're on a panel here with all these financial services guys. You're running a nonfinancial services business that is obviously, though, front and center with everything that's going on. Plus you're private equity owned, right, at this point?


ANDY SERWER: And so [AUDIO OUT] sort of touch on for you. I think you were concerned about the speed of change, though. That's something that you were talking about a little bit, correct?

IRINA NOVOSELSKY: Yes. We're seeing the best of both worlds. We're private equity owned, but where we sit, we're really in the fulcrum of hiring as a key global hiring company and seeing the real time data. And it's a combination of what's been said where some trends are accelerating.

But really, what's happening is there's an unmasking of an underlying trend that existed pre COVID that now is coming to the forefront, and that is really what's happening with higher paying jobs and lower paying jobs, and there's this hollowing out of the middle class that is really coming to bear.

And the way that companies are going to handle this is going to determine their success and their ability to have a workforce that they can engage with. So, for example, we're seeing a lot of companies being forced to pivot into asking the question of, can you do the job instead of [AUDIO OUT] done the job.

Because there is not enough of a skill set that 100% fits what you're looking for. And so as a candidate, you're either upskilling yourself to move into those higher growing and paying jobs, or unfortunately you're going to get left behind in the lower scale, lower paying jobs.

ANDY SERWER: Great, and I want to loop back to you because-- ask you a little bit about how managing the company and being a portfolio company has changed this year and then also talk more about the line business itself.

But I want to go over to Steve and bring you in and ask you as a global credit manager. And we're going to ask-- we're not going to let Kew and David off the hook, so we'll get back to them about investing themes and sort of the areas that you see are most appealing at this point. We'll start with that with you, Steve.

STEVEN TANANBAUM: Sure. So I'll first start sort of in the beginning of the year where we went from relatively [INAUDIBLE] to really top decile type of values. And in that type of environment, you wanted to focus on what's good total return, margin of safety, and what you can get sized.

So one area that we focused on was OMBS, which was particularly OMBS that was owned by mortgage rates and that had-- was issued probably 10 plus years ago and then had significant home equity of 40% versus the debt.

So these were high quality securities, but they were on margin. They were on mortgage by mortgage rates. And as a result, they went from mid 90s to the mid 50s. So as a result, we saw that we were able to buy these securities in the mid 50s.

And there was pretty much a couple billion of those that we were able to find, and it was purely because of the technicals, not necessarily the fundamentals. So that would be-- and there is a lot of very attractive opportunities in March or April.

And then that goes to, well, what about now? And here, where you have still attractive values in the credit market, you're in the second quartile of value. We're seeing a variety of opportunities. For instance, in the energy market. That's where probably the most out of favor sector by a wide margin in the credit markets.

And you're looking at oil, for instance. There needs to, by our computations or perspective that you need to have about 7% replacement each year. So between the global demand as well as the depreciation of the resource, that you're going to need to replace about 7% of the commodity each year.

So we think it will come into supply and demand relatively in a finite period, and that some of the longer term issues and some of the themes that Kew referenced we think are absolutely going to occur in the oil and gas. It's just not going to occur instantaneously.

And the difference between the decline in supply of energy per year is much greater than what the demand hit is likely to be, even on a change in policy. So we find that you can buy top quartile energy names at four times asset coverage that you're able to get at pretty much triple C, low single B pricing.

Whereas it used to be where, at the beginning of the year, it would have been pretty much double B pricing. So from the mid 200s in the beginning of the year to the mid 500s. Likewise, oil service is-- the assumptions in the oil service industry is that you're never going to have a rationalization of oversupply.

Which I think is very unlikely and certainly would be the only industry that's dating oversupply indefinitely that I've ever experienced in my 30 plus years of investing. So you can buy, whether it's jackups, or offshore rigs, or other oil service for about $0.05 to $0.10 on the dollar of replacement.

We believe that there's going to be a rationalization in that industry in the next 12 to 24 months, and it'll be maturely more profitable than what you're seeing today. You look at something like in the debt markets are much more positive about the prospects of certain industries than the equity market, that doesn't believe there's going to be growth.

So you're seeing, for instance, so today in telecom, you saw a potential bid for KPN. I believe that they could finance probably 100% of KPN's current market price on Friday with just debt. On Vodafone, we all believe that you could finance more than 100% of the current market price of Vodafone today in the debt markets.

In the generation assets, Vistra or NRG, I believe you could finance 100% of their market cap, of their enterprise value in the debt markets. So we're finding the equity opportunities here on very attractive.

And then finally, the last area I wanted to highlight would be Latin America. Now, Latin America started out having disappointing growth prospects to what people thought maybe in the beginning of 2019, ending '19, entering 2020.

And then you have the pandemic and the valuation's even more disappointing. I'd say that Latin America probably broadly has some of the worst growth for 2020 as an area. Looking to '21, we think there's going to be a lot more-- a lot better year, much better comparisons, and even looking to '19, we're expecting a catch up year.

So you look at something like Argentina, which started the year in default, the sovereign in default. They have restructured their debt, yet the debt trades lower than where it started the year. We think that Argentina will do very well next year.

Looking at the provinces of Argentina, you actually have better credits that historically have had better recovery rates, and yet you can buy them at a discount to where the sovereign's trading.

The last idea I want to highlight is Pemex. Pemex is the Mexican state oil company, one of the largest credit issuers period. And Pemex yields about four times, not 40%, four times what their 100% owned parent, or the Mexican government, yields.

So as a result, Mexico is paying several billion dollars more by financing Pemex at the operating level than if they decided to finance it at the parent or the sovereign level. So we think that they're going to work on financing more at the sovereign level, and as a result, the spreads are going to compress.

And that's a big capital structure with a lot of opportunities where we think there's going to be very good returns if that scenario plays out. So Andy, those are a few of the situations that we find attractive.

ANDY SERWER: Wow, OK. That's a lot of grist there, Steve. Thank you. A lot to chew on. And with that, I want to go over to Dave McCormick and maybe sort of pick your brain along the same lines.

I mean, Steve have some ideas. Not a lot for the faint of heart though, right? I mean, that is [AUDIO OUT] Argentine provinces and oil and gas. I mean, do you really have to go to places like that to find real returns these days?

DAVID MCCORMICK: Well, this sort of picks up where Kew made his point about a continuation of some critical dynamics. And just stepping back, I would have said, we would have said in our research prior to the pandemic, that we were in the midst of a paradigm shift where you had a decade of very easy monetary policy.

The efficacy of that was increasingly diminished. And in order to get the stimulation that was necessary, policymakers would transition to more of an MP3, which was a combination of fiscal policy and monetary policy, to be able to stimulate the economy.

What's happened with the pandemic is that that has greatly accelerated that phenomenon, and you really have the uncertainty associated with how each country is responding to the pandemic across different markets and different asset classes.

You have the economic devastation associated with it, which we would estimate at $4 trillion of impact in the US through 2021 in terms of revenue and something 2020 globally through 2021. And then you have a very different ability to respond by region with fiscal capability and monetary stimulus where, obviously, the US Fed as unlimited capacity to print, where other countries and other regions are more constrained.

And so what that creates is a huge amount of divergence and a huge amount of uncertainty brought about by the things I just described and also those broader points around populism, and divisiveness, and also geopolitics. And so if you think about it from an investor perspective, the cone of potential outcomes has really expanded.

You could have everything in the US from a sort of Japan-like multi decades of very depressed growth to a 1970s stagflation kind of environment. And the question is, how do you invest within that environment? And obviously, an enormous amount of diversification is critical given the wide range of outcomes.

And the alpha opportunities we think in this environment should be exciting because of those divergences. But as you said, it's not for the faint of heart. Because if you're an investor, you really need to believe that you've got some unique edge and an insight which is going to position you well to make those bets in that environment.

So we see lots of different behaviors across our investor base, which are mostly large, sophisticated investors. But the key is diversification around their strategic portfolio and very thoughtful areas of investment in alpha where they have high confidence or where managers that they believe in can give them an edge.

ANDY SERWER: Yeah, great. Thanks, Dave. Before I go over to Kew, because I want to pick up on something there, I encourage people who were attending to ask questions. And also for our panelists, if you want to jump in, just kind of signal to me with your hand that you guys just want to follow up on a point that one of your fellow panelists just made.

So Kew, over to you. And I want to ask you how you're looking at opportunities in terms of portfolio companies, what you would be looking to invest in at this point. And then after that, I'm going to go to Irina and ask from the sort of flip side, being a portfolio company, how does it feel being managed differently now by one of you guys? When you first, Kew.

KEWSONG LEE: Sure, Andy. I mean, what makes the environment just fascinating, and yes, there's a lot of uncertainty, but there's a tremendous amount of opportunity, is it's the very uneven nature of the impact that COVID is having and the very different type of recoveries that we're seeing around the world.

We're seeing this recovery vary tremendously by region, by asset class, by industry sector, and even within industry sectors. And to pick up on something that David said, the dispersion of outcomes here is being quite dramatic with real winners, real losers, and those who are accelerating their growth in this period of time versus those who aren't.

And so we're blessed at Carlyle with an incredibly global platform, a lot of industry expertise, and of course, given the private equity nature of our business, we have the luxury of taking the very long view as we work with partners to think about how we build companies in this evolving environment.

And if I had to break it down, this very uneven nature of the recovery makes us want to be incredibly selective in certain areas and drive hard. So, for instance, we're still very big believers that there's going to be real ways to grow companies in China and in India. In fact, we've put well over a billion dollars in those two regions very recently.

There's certainly growth equity investing opportunities in health care and in technology around the world. That's an obvious. There's been a shift away from the more value-oriented companies, types of investments, with more of a focus on growth at the moment.

And then finally, I would say, by asset class, I can't disagree with anything that Steven said. Credit is a huge opportunity right now, especially as you're playing dislocation and transitional capital opportunities. So it's hard to summarize it just in one sentence because of the uneven nature and the dispersion of outcomes that we think is going to happen over the coming years.

ANDY SERWER: And just to follow up on that, though, Kew. I mean, are you getting calls from a lot of these beaten down companies in terms of airlines, restaurants, hospitality, oil and gas? I mean, there's sort of-- everyone's talking about bifurcation, but there's these groups that are just really in trouble right now.

KEWSONG LEE: Yeah, and it's a great question. And I would say there are two or three ways that we're thinking about it. First of all, what's amazing to us is if you think about the last great crisis, the great financial crisis, the recession, I would argue, and this a generalized comment, but there were lots of solvent companies that were illiquid.

I would argue today, because of the policy response, you're seeing perhaps a lot of insolvent companies that are liquid. So whereas before it was solvent companies that were illiquid, I would argue right now there are probably a lot of insolvent companies that happen to be liquid because of what's happened with respect to policy response.

I think a lot of these companies are going to be-- and industries-- have existential type of issues ahead of it. As business models change, the ability for companies to adapt consumer behaviors to change is amazing. We see this in China. We see how e-commerce has just taken off.

We see even here in America now people are starting to get used to certain types of practices, et cetera. Now, of course, the issue is, what's really changed and what really hasn't? Behavior, it takes about 21 days of repetition for new habits to form, and that's going to underlie a lot of what happens to some of these companies.

They're clearly reaching out and looking for capital. But I would be careful to substitute or make the mistake of thinking that liquidity equals solvency. I think liquidity has the ability to defer into the future and push into the future other types of-- extend the runway.

But eventually, some of those issues are going to come home to roost, because fundamental business models may have changed with respect to some of the behaviors that are changing as this environment continues to evolve.

ANDY SERWER: Yeah, that really is the big question. How much of the changed behavior is permanent? And Steve, you wanted to add something here?

STEVEN TANANBAUM: Sure. Just to add to what Kew was talking about, you look at something like credit card data on who's going to be the beneficiary if you can't travel? Well, it would be home improvement. It might be crafts, people who stay at home.

So-- and, in fact, the credit card data, for instance, in crafts, has been terrific, 20% month over month improvements. And in fact, you go to stores like-- I was at a Michaels last week. It's pretty bare, and as well as Joann's.

But the issue is, OK, so what happens next year? Does it stay? Is it something that they like? Last cycle, that's what happened. That when they-- I guess during the recession, it was more affordable to spend time on crafts and other activities.

There was a follow through, but there is the issue of what's going to happen next year and you still get that behavior? Likewise, so that's something that's very attractive today, but may just be a cyclical bump as opposed to a structural bump.

Contrast that with the airlines versus the cruise lines. Will there be different behavior because of the type of conferences we're doing today? Or-- and even if it's 10% different behavior, the prospects for the airline industry probably will not be clear cut for '21 and you're going to need a longer perspective.

Contrast that with is the cruise line an easier leisure industry to invest in relative to the transportation industry of airlines? So there's just a lot of unknowns. And then it goes down to what's the price given the unknowns. So I agree with Kew that there's a lot of uncertainty out there, and it'll be interesting to watch how it plays out.

ANDY SERWER: Yeah. I mean, you can run your business models, but at some point, intuition has to come into play here as well as instincts. Irina, I want to go over to you and ask you, as promised, about being a portfolio company. I believe you are owned by Apollo and Ontario Teachers. Is that correct?

IRINA NOVOSELSKY: Correct, yes. And I want to thank-- yeah, go ahead. Sorry, Andy.

ANDY SERWER: No, I just want to ask you, what transpired this year as this totally crazy environment unfolded? How did they start talking to you about your business and your company? Go ahead.

IRINA NOVOSELSKY: It really goes in line with what we've been hearing from a trend perspective that we'd hear from an investing side where there's opportunities to invest and looking for things that are moderately priced, or an opportunity to get in early, or where things are overpriced.

And very similar as a portfolio company in the sense of looking at opportunities whereas a company we can double down and invest because things are at a discount and it's a way to expedite the growth of our business coming out of this. The other thing that has always been critical and remains to be critical is speed and adoption.

I believe it was David that talked about that companies are pivoting. They're adjusting to the new way of the world, whether it's 100% remote way of the world or your business model is changing on leveraging the different ways that you have to go and access your clients and consumers.

And so we really need to get to that. And the companies that we've seen be successful and internally of taking action is speed, and over emphasizing the speed, and making mistakes, and then pivoting. It's the companies that are waiting that are seeing that they're getting left behind.

On the interesting side, on the employment side, which is really a leading indicator of some of the changes that everybody has mentioned in the sense that candidates and companies are posting jobs. And that is really where there's growth, because when you're posting a job, that is where companies are hiring, and the whole entire candidate marketplace essentially moves to where there's growth opportunities.

The one thing that we haven't talked about that is an interesting perspective that we're seeing is yes, there is, of course, front line hit COVID companies, whether it's the airline industries or retail, hospitality, that are going to have some tough decisions ahead of them.

However, what we haven't talked about is the SMB population and the smaller middle market companies, which really are the heart of the US growth. And one of the things that we're seeing is they're actually recovering faster and their ability to pivot has been exponential versus some of the larger players as you would expect.

And the actions that we're seeing from a candidate perspective is, because of COVID, they're actually becoming more competitive versus their larger companies. For example, they no longer have to be in Zone A hiring cities that are most expensive and salary, very competitive.

Now, because of the virtual aspect of work, they're able to go and get some of the best talent and compete on an apples to apples basis with these larger companies. The second thing that we're seeing is they're actually being really smart on taking tech talent and hard to get talent they weren't going to have access to previously.

But because of a lot of the impacts that these large companies are having and they're taking the time to pivot, these smaller businesses are coming in strong and building their pipeline of talent. And then the third thing that I believe Kew touched on in the beginning is really the diversity element of what we're seeing.

And both from a private equity perspective as a portfolio company getting asked to report back, but also as a hiring company for thousands of clients, the question of what does diversity of my company look like is becoming more or more important, and that's going to translate into the investment valuation.

And one of the great examples of that, as we know, that the more diverse a business is and the teams are, the better it performs. And one of the things that we are seeing is this emphasis on bringing in the right talent, which really comes at odds with what we're seeing from an unemployment perspective, with the white community being about 7% and the Black community being almost double of unemployment at 13%.

And so there is going to be this eye opening moment for companies where they're going to have to really start aggressively building talent from a diverse perspective and hopefully adjusting some of these ratios that we're seeing, as having a two times disparity in unemployment rate is not going to be something that we're going to be able to continue.

ANDY SERWER: That's really fascinating stuff, Irina. And, of course, you do have that data right there at your fingertips on the front line of the employment picture in the United States, which is amazing. And I'm hearing some of those trends you're talking about with diversity in SMBs.

I want to ask you, what about this whole notion of people not wanting to-- and I think some of this we touched on, but not wanting to work in cities? So are people really going out and working in the 'burbs, working from home, and how are you able to see that in your data?

IRINA NOVOSELSKY: Yeah. We're seeing over a 60% increase on a candidate searching jobs from home or work from home opportunities. On the other side, we're also seeing businesses now make those opportunities available in work from home about the same increase, so that shift is happening.

The second thing that we're moving is because, again, we see the location of where these people are looking for jobs. They're starting a migration to second, third, and fourth populated cities versus cities a lot of movement, for example, on the West Coast around tech developers. San Fran is the number one spot. We're seeing now suburban cities starting to grow with tech developers.

Another example we're seeing, and this goes to reskilling America that's going to have to happen, I believe it was Steven that mentioned the airlines really feeling the impact of this. They're laying off thousands of airline stewardesses and workers, and one of the things that we're seeing, given AI and the tools we have, and looking at the underlying skillset, this group of candidates is perfectly suited for customer service representative roles that can be remote and across the country in cities anywhere in the US.

And so we're seeing a whole migration of both the type of work that the US workforce is doing and the skills that companies are starting to look for and being a little bit more flexible in bringing in great talent, even though they might have not done that job, and it's opening up very random cities in the US for that opportunity.

ANDY SERWER: Fascinating. And, of course, the airlines are huge employers, so there's going to be a lot of shifting there, no doubt. Hey, I want to go over to Dave and ask you about leadership.

And I'm not sure about the other four, but-- and maybe you guys know this about Dave, but he is a veteran and served our country. And we're very grateful for your service, David, and deployed to Iraq, I believe. So an incredible experience there.

And so your vision of leadership might be a little bit different from some other people's. And I wonder what this incredible year reminded you of. Did your military background help out in terms of trying to address these challenges?

DAVID MCCORMICK: Yeah. Well, I want to try to tie together sort of two thoughts, because Kew was talking about the degree of transformation that's going to take place in various industries and Irina was talking about the leadership of managing a company through this period.

And while there's all this uncertainty, I think it's an incredibly exciting time. I mean, obviously there's devastation and all the terribleness that's associated with corona. But it also forces each of us to really fundamentally think about our business and ask all sorts of hard questions.

Underlying assumptions about how we work, how we serve our clients, what kind of relationships we should have with our partners, our employees. What talent pools we can access, how we can achieve true diversity and inclusion.

And it's true that we should be forcing, as leaders, and driving change in all those areas and asking those fundamental questions at all times. But it's moments like this where you feel this pressure and uncertainty that I think really allows leaders to rise to the challenge.

And the key attributes of leadership will be adaptability, and agility, and a willingness and capability to change your mind around long held assumptions. So I think it's exciting, and challenging but exciting. And that certainly ties back to time in the military, time in the Treasury during the financial crises where the leaders I most respected.

Hank Paulson, a good example, my boss in Iraq, who were very adaptable and didn't take anything for granted. Constantly pushed the envelope in terms of asking themselves hard questions, and acknowledge mistakes, and were able to adapt.

And I think this is one of those moments where leaders are going to make a lot of mistakes, experiment, try new things, ask hard questions, and learn through evolution and good choices and bad. And so from that perspective, I think that those leadership attributes will rise to the top.


Oh, you can't hear Kewsong? I'm sorry. I'm a little confused here, just because I can hear Kew, but I'm hearing from the technical people that the audience cannot hear from Kew. Is that correct, technical people?

OK. Kew, you can hear us, the panel, and the panelists. But apparently the audience can't, so I'm just going to have to ask you to hold that thought for a minute, OK? And then I'm going to go over to-- go ahead, Irina. It sounds like you want to jump in. Looks like it.

IRINA NOVOSELSKY: I was going to touch a little bit on where Kew's going and that's the transparency element of the flexibility that, as leaders, we're having to drive and those that, and David, I believe, touched on this, is in times of fast change and what we're going through, there is a different expectation around leadership and the transparency angle of making the mistake, pivoting quickly.

Also, we're living via Zoom and Wi-Fi as we all are doing now, and one of the things that that does is it breaks down a lot of the barriers that originally existed. And what we're seeing from the candidate population is they're looking for that vulnerability.

They're looking for that expression within a culture that is manifested in actions. For example, how are you communicating issues? How are you getting ahead of the things that work and don't? And that old school world of communicating via email or memo writing is just too slow and too late for the population and where we are as a business globally.

And one of the things that we're seeing successfully work with clients are those that are increasing the communication frequency, that they're really being proactive and acknowledging here are the things we know, here are the things we don't know. And really enabling-- we talked about diversity, but it's the inclusion aspect that's also so important. Enabling the organizations to participate in the change.

Because given how fast everything is happening, it couldn't have been before and it definitely can't be that leadership fix the problem. It has to be a full company involvement, and that starts with laying a lot more cards on the table and the transparency that you normally would accelerate during a transformation, but now every single business is going through a transformation.

And giving employees a way to tie back what they're doing to help the broader goal of where the business is going, and that is just-- we've seen that materialize and being one of the most important things that a company can do right now to retain talent and continue to hire great talent.

ANDY SERWER: Great. Steve, I want to talk to you. I think Kew's back. Kew, say hi.

KEWSONG LEE: I don't know. Am I back or not?


ANDY SERWER: You're back. Do you want to finish your point? And then I want to go over to Steve.

KEWSONG LEE: Well, don't I don't know where I got cut off, but I was just going to say we're meeting so many CEOs and entrepreneurs and I would broadly put them into two buckets. Those with the mentality that I've got to survive this thing and figure out a way to get my people back, but those who have a view that we need to coexist and adapt.

And it's that latter bucket of leaders in companies that I think are making the most progress right now. Is-- the way I think about it, there really is no going back. There's a before and there's an after, and we're in the after.

And so the faster the leader in an organization adopts the mentality to say, we need to adapt, evolve, innovate, and push forward in this environment, and as Dave and Irina point out, make some mistakes every once in a while, but you're pushing forward as opposed to holding on to go back. It's the attitude of adapting, I think, that is going to define great leadership moving forward.

ANDY SERWER: Great. Steve, I want to turn to you and ask you about adapting. Your firm is maybe the youngest firm here, certainly one of the younger ones. And no one strives to be complacent, right? Like, I'm going to go to work and I'm going to be complacent.

STEVEN TANANBAUM: It certainly isn't a virtue.

ANDY SERWER: No, it's not. But here's the thing about human nature. Many of us get complacent. And all of a sudden, something like this happens and you're like [CRACK]. So how did you change the way your firm worked this year?

STEVEN TANANBAUM: Sure. So the first thing is, volatility is an opportunity. We also appreciated that what the current environment meant that there was going to be less interaction at our main offices in New York and London, physical interaction.

But that was only one aspect of interaction. That did mean that we couldn't, for instance, be in a different environment in West Palm Beach, where we have an office. And so we had our investment staff, our senior investment staff basically rotate there, and we found that very effective and a competitive advantage.

And then also communicate. Because really, this is a people business that's about communicating. So we had to think about how do we communicate most effectively given this environment. And so we-- and if we're going to err, we're going to err on over communicative.

So the first thing we did was divide the investment staff into four groups and we had regular Zoom calls. We also had regular town hall meetings with the partners in the entire firm. So that helped just communication.

One of the things in terms of adapting was, is this something that we can continue to incorporate? Because people tend to react really well to the increased communication. And the-- so to me, we got through this environment a chance to get better, because everybody is trying to get better.

I think Andy mentioned that we're the youngest firm here. We're celebrating our 20th anniversary. And I know that-- I think that we're the youngest firm by at least five years. So it's-- we're at the age where it isn't so bad being the youngest. We don't get ID'd anymore.

So how do we also, in terms of in this environment, and maybe I'll take, Andy, your question to kind of the lessons learned over the past couple of decades. Because when I think about how we're trying to adapt to the environment, is we know that whatever worked in 2010, and we thought we were a great firm in 2010, we wouldn't be a great firm in today if you just stayed to same.

The environment has changed so much. The debt market is 50 times larger than when we started the business. You also have the range, and David was alluding to this. There's just so much broader opportunities. Having a strategy to capture it is very important.

And then also matching-- and I see this with Carlyle and this matching of opportunity to the fund structure is just so important. In terms of how we adapted, first is making sure we're in the ability to capture a range.

Look something like EM, and most credit investors who were specialists in EM just focused really on the sovereign opportunities. In the '90s, it might be the Brady and some of the other names. But there will be a lot of focusing on the currency of the local instruments, et cetera.

But given how broad and illiquid those opportunities have become, that's certainly an area of focus for us. You look-- I mentioned Argie provinces. Just wouldn't have been something that we would've looked at outside of Buenos Aires historically.

Now we see that there are some really terrific provinces that are maturely better credits, and we're asking questions we didn't ask 10 years ago or 20 years ago. In distressed investing, 20 years ago, you could be a good distressed investor but just looking at a good company, bad balance sheet, convert the debt to equity, and then you'd capture the discount, the arbitrage.

And that was one strategy that was probably the easiest, most popular strategy. You look at a company like Frontier, which was a $18 billion restructuring, a former baby bell that if you did that with Frontier, you'd be kind of nowhere because you actually-- there are legal arguments about seniority.

There needs to be a change in management and helping oversee that. So the skillset today is just a different and broader skillset than what was needed 20, 25 years ago. And then you look at information.

And I know a lot of the panelists, you're at the forefront of that. Better information, I reference credit card data. This was something that wasn't really used five or 10 years ago to the extent that it's used today.

And you're just able to get better information and making sure that you had that, not only on trading, but as you're trying to make decisions across a wide variety of issues. So that's some of the areas that we're thinking about how to adapt. And we, again, I started off that we know that if we don't adapt, we're going to become extinct. So that's kind of our mindset.

ANDY SERWER: Don't want to become a dinosaur, Steve.


ANDY SERWER: Right. Good. We're going to go to some questions from the audience here and I'm going to ask Dave the first one. It's about your priorities as a manager. What are the most pressing issues that you want to resolve right now, and are you focusing on, say, the P&L, or client relationships, or employees? How do you allocate your bandwidth, Dave?


Whoops. I am not hearing David. Let's see.

DAVID MCCORMICK: Excuse me. It's a good question. I said, we, just like the other panelists, have been engaging with regular town halls and conversations with our team. And I start every one of those really talking about three things, and pretty much everything that I'm focused on fits into three categories. One is helping our clients navigate this period of uncertainty. Can you hear me OK?


DAVID MCCORMICK: OK. Helping our clients navigate this period of uncertainty, and, of course, I don't mean in terms of how we specifically can help them in a way that's commercially beneficial to us. I mean genuinely helping them navigate this very uncertain landscape.

And so we spend a lot of time thinking about how to innovate and evolve our model of service in this period of uncertainty, which is testing the way we've historically served our clients. And then the second thing I'm trying to focus on is how we test every assumption about how we work and really thinking about using this as an opportunity to transform our business.

How do we work? How do we ensure productivity? How do we ensure creativity? What does remote work mean for us not just in terms of its challenges, but its many advantages? And so there's an enormous benefit in sort of going to first principles and asking ourselves really fundamental questions about every aspect of our business, and that's been really instructive.

And then this is a moment where our employees, we're not just worried about our team members in terms of how are they going to work with Bridgewater. But this period of uncertainty has put enormous duress on all of our lives. We've had a number of family members that have been affected, in our broader community, that have been affected by COVID and so forth.

And so we're thinking about how to enhance our relationship with our team members through this period of uncertainty. You really learn more about your community and your company in periods of challenges like this. And so I have found it, through our employee surveys and our engagement, to be a period where people feel closer and more connected to our community and to our company because of the way we've responded.

And each of those things is of equal importance. One doesn't trump the others in terms of priority or focus, and that, holistically, is really the agenda that we've been focused on since the very first moment of transition to a work from home environment and realizing that we were in for a period of significant change.

ANDY SERWER: Great. Kew, I want to ask you about sort of a micro question, but it's just about-- and this comes from a Magnus Fluka. He asks, video conferencing has been obviously essential as we've sort of hit upon here during this time, but it obviously also has its limitations.

And I'm wondering what your thinking on that is, particularly as we emerge. You talked about this being the after. Are you going to let people video conference in from their houses in Connecticut as opposed to coming into the seniority office?

KEWSONG LEE: Sure. Well, first of all, everyone is calling it working from home. I call it living at work, which is the reality of really everything we're going through right now. And we have to balance the enormous unleashing of productivity because of video conferencing, and these new technologies, and how we're working.

So, for instance, we're fundraising virtually, and I can be in the Middle East, Singapore, and California all within three or four hours. You could never do that before. And so our fundraising has gotten incredibly effective and efficient.

We're closing deals faster than I'd ever imagined we could do. I was worried, during the onset of COVID, how do we do diligence? How do we meet our CEOs? How do we do all the customer checks and the supplier checks? How do we do all that?

And yet, what we're seeing is everyone has evolved in using this technology and time frames for deals are actually starting to compress as opposed to elongate. Now, you look at conferences. We just pulled off a virtual conference, the first ever. It was very well received.

I just don't know if we're ever going to go back to four days in Washington, DC with thousands of people flying in. It could be a hybrid, but I'm not so sure we ever go back to that. But we have to balance all that with some of the really, very real issues, I would phrase it, in terms of culture and the erosion of culture that's occurring.

Because while this video technology is sustaining and we can get by and we can do quite well with it, I just don't know how sustainable it is. And David raises some really good points about the longer term impact, and that's why I call it more living at work.

And these are all things that we're all figuring out as we go along, and I think great leaders right now need to focus on the very personal aspects of what this video technology and what the new work environment really is doing to relationships, to our psychological requirements, of being in a social environment, et cetera.

And those are some of the challenges, honestly, that I think all of us are going to have to push through and figure out as we continue to evolve. It's just not the good aspects of this technology, but there is some negative implications which are probably more medium to longer term that need to be confronted.

ANDY SERWER: Yeah. I think Satya Nadella was talking about some of that, Kew. And you mentioned conferences, whether they come back or not in real time. And I know there's at least one hotel in Beverly Hills that sure hopes it comes back, right?


ANDY SERWER: For those who are familiar with this conference. Irina, we've got a question here for you, and that is-- and this sort of follows what Kew was talking about, which is, what skills do you think leaders need most or just managers, employees, in this new environment? What resonates?

IRINA NOVOSELSKY: Did you say me? Sorry. I had a Wi-Fi flip for a minute. I didn't hear the full question, but I heard the, what resonates, and so I'm going to assume you're piggy backing off what Kew said.

And one of the things that we're seeing-- and I love that living at work concept, because one of the things that we have seen is, in our first month of moving into a virtual environment, we saw productivity jump 25%. And at first, as a leader of a company, you think that's great. My people are working more. I'm getting more productivity.

And one of the things that has really been weighing on me, and I'm sure many leaders around this panel as well, is I am just seeing employees overworked. And there is no line where you come home or you have that 30 minute commute.

On average, the US population has about a 45 minute commute to work, and that 45 minutes is a decompression time. And so what we're seeing happening is there's this gray line that is just extending more and more of doing conference calls into the night that there really isn't this cutoff.

And one of the things that we've seen is starting to help is, as a company, we're starting to blur the line proactively. What do I mean by that is we acknowledge that you are living at work, and so how do we invite that back into the world?

I'll give you three examples that we've had some success with is we've created Thoughtful Fridays. People are really Zoomed out. They're tired of showing their face. Normally in a meeting, you can kind of have your brain turn off for a minute while you're thinking. There is no turning off when your face is in the middle of the screen.

And so on Fridays, there's only external meetings. We don't allow any internal meetings to get scheduled, so you can actually go for a walk for 10 minutes. You can get some work done. You can think. We also started coffee chats, where globally, we randomly select a handful of people and you get to meet people.

Because one of the things I think Kew said is, going and staying virtual, even in conferences. But one of the things that you lose from that is just human interaction that isn't around 100% work. And so these coffee chats allow you to meet your neighbor virtually.

And then one of the other things that we're doing that, at first was a little controversial in that crossing that line, but has been one of the most exciting things that our company has embraced, is we are asking our employees to videotape their kids and asking what do you think Mommy or Daddy does.

What does CareerBuilder do, in this instance? And it is this proactive helping of embrace that they are living at work. Kew, I am taking that. That quickly drives that engagement, because--

KEWSONG LEE: I just want 20% of the upside whenever you use that. Thank you.

ANDY SERWER: That's such a great market now, Kew.

IRINA NOVOSELSKY: And I'm Apollo owned. We're going to have to negotiate that after. One of the things that we're seeing is that engagement on videos, the fact that we're proactively opening that door a little bit and recognizing that they have a life, they have a family, that this is now a blended world. And it's also really exciting to see what four-year-olds and five-year-olds think that Mommy and Daddy does at work.

ANDY SERWER: Right. I actually like the Friday idea the best, and I'm going to start that right away because that is an amazing idea.

IRINA NOVOSELSKY: It is hard to implement. It is hard, because--

ANDY SERWER: Yeah, oh, I know. Everyone is going to have their own little exception. Don't we all know that? That's what we deal with. We've got to get those exceptions out. Just a quick follow up, though. Actually, Irina, what I was asking you was, what skills do managers, or employees, or CEOs most need now in this new environment when they're out there putting their [AUDIO OUT]?

IRINA NOVOSELSKY: I wasn't even close, Andy. The top five skills, underlying skills that we're seeing actually goes really around leadership and the proactive thinking. So, for example, is problem solving is a key one.

Customer support is one that is flowing across many of them, having the ability to communicate. We're also seeing, from a tech perspective, is understanding technology. We're actually seeing-- and we see it with companies like Google, and Amazon, and [AUDIO OUT] of our clients that are actually building training programs to teach employees and enhance that, because there's just not enough candidates out there that have the right tech background.

And then the last top skill that we're seeing is sales, and sales not even from a sales role perspective. It falls into the top five skillset that cloud architects are looking for. So that sales concept is actually flowing across almost every single job category that we see out there.

ANDY SERWER: Yeah, some of that's pretty timeless stuff, actually, which gets back to some of the themes we're talking about here with Kew that it's actually kind of a lot of plus ca change stuff in a way. Let me go around and ask people just quickly, Steve, start with you. What would be one action item that you would suggest that other leaders take right now?

STEVEN TANANBAUM: Well, on a broad topic, it's just the life/work balance. It's something to be very deliberate about. Whether it's taking-- that there's no contract on at least one day, something like a Saturday, and being deliberate about encouraging people to get a life/work balance. And that and-- yes, that would be the one theme I would be focusing on.


DAVID MCCORMICK: It was-- Irina mentioned it, but I think the opportunity in the world of diversity and inclusion is potentially enhanced by what we've learned from this environment. So the remote work, the ability to access new pools of talent, the capacity to try to think about how to create an inclusive community with more remote work. So that's, in my mind, an emerging area of opportunity if we're thoughtful and creative as leaders.

ANDY SERWER: Kew, what about you? What's an action item, or two, or three coming from you and Carlyle?

KEWSONG LEE: Well, yeah. I would say at the personal level, empathy is going to be exceptionally important. This crisis affects each and every one of us differently depending on age, where you live, your politics.

And the ability to actually appreciate what others are going through and then still being able to govern, and lead, and drive the firm I think is [AUDIO OUT] you have as a leader, the better shot you have of navigating this difficult world.

Second, and I'll just stop with two. Usually, I go with three. But second, I think appreciating and having a multicultural perspective, which is obviously enhanced [AUDIO OUT] in your organization.

But happening that multicultural perspective and orientation, especially, especially in a world where the politics are divisive and where nations are drifting apart. But having a multicultural perspective to ground your thinking I think is going to be exceptionally important.

ANDY SERWER: All right. And Irina, we're going to let you have the last word on the last item [INAUDIBLE].

IRINA NOVOSELSKY: Yeah. I would say, from an employee perspective, we have, as leaders, a really key and important conversation to have. We are only as good as our team and we really have to embrace some of the diversity and inclusion statistics that we're seeing to change what the faces of our companies look like and make sure that we're really hiring with the right mindset and putting the right procedures and policies in place to drive that diversity.

I think that's going to be one of the key trends and themes that we as leaders have to act on. And then from a business perspective, I would say prioritize endlessly. There is just so much distraction out there, and one of the things that we have to do is continuously and ruthlessly prioritize to make sure we're working on the big rocks that matter.

ANDY SERWER: All right, and that concludes our panel, Moving Beyond Conventional Thinking. I can't believe we didn't even talk about politics. How refreshing. How refreshing, actually, a political-free zone.

Anyway, I really want to thank this awesome panel. Kewsong Lee, Dave McCormick, Irina Novoselsky, and Steve Tananbaum. Thank you guys so much and have a great day, everyone.


DAVID MCCORMICK: Thank you, Andy. Bye bye.