The Exchanges

Q How'd you get from that to this sole focus on nuclear power?

A We always ran concentrated. We tried to almost be like, 10 to 12 longs that mattered, and about the same number of shorts that mattered, and our nets really just came down to sizing. One of our long-running ideas, probably from 2015 or 20 16, was that energy markets broadly were misunderstood, and we did what we do, which is try and dismantle what consensus had. This consensus idea that we're going to decarbonize, for instance. That felt very real to us. Even six years ago. When we kind of combed through it, we looked at battery markets, battery metals way back, and so we knew that market well. I'd covered uranium in the fuel cycle before. My partner Arger had been covering utilities at JP Morgan, and so we're piecing together this knowledge base, and nuclear just stood out like a sore thumb in terms of how investors misunderstood affecting that market in general and how it worked. But also just kind of how critical it was to our energy infrastructure, and certainly to our goals to decarbonize to the extent that Paris Accord laid out. So we started really digging in. One of our bigger LPs at the time said, hey, love your general hedge fund, but you guys are sitting in Dallas, and you're 30 years old, and I think you guys are at thirty-five million dollars in AUM or something like that. It's a tough business. You're probably gonna have a family. I think what you're doing in nucl…

AI assessment note: “I think what you're doing in nuclear is actually really different.”

Q What are the implications of the long lead time in the fuel cycle for investing, particularly in the public markets?

A The public markets want information that's going to move securities, you know, on demand. I think it's the timing of how supply and demand work in this market that honestly has frustrated some investors who are investing in the uranium fuel cycle, and also is probably the biggest knowledge barrier, even for smart institutional investors in understanding the way that this market's going to continue to unfold over the coming years. The capital cycle is front and center to this conundrum for investors because Nuclear fuel starts its process two, three, four years before it finds its way into a reactor. The price signals needed to incentivize new CapEx often don't align with demand because of that timing element in the market. So we like to say that CapEx should happen four or five years before the eventual deal. And what ended up happening is that nuclear was really excluded from any growth assumption until the very last minute. And that has kept capital restrained from the fuel cycle. Prices need to be higher to incentivize that capital. And so, we miss the window in our opinion. We should have been developing new wines. That expresses itself in the market slowly, and then all at once. Demand is inelastic, and as long as a pound needed is supplied, we don't expose the deficits. There's not opportunistic capital really front-running this like you would see in other markets, but th…

AI assessment note: “The capital cycle is front and center to this conundrum for investors”

Q When you have that large upfront CapEx need and this perception that you've got issues, how does the industry solve that chicken and egg problem to bring capital into the space when there's this left tail concern?

A Yeah, so one thing that you already asked is critical. Putting nuclear in a taxonomy or other framework that gives it the same financing, I won't call it subsidies, but the same financing platform as other generation sources is actually a remarkably important piece of getting them to be on an economic scale of their competitors. Buried deep in the layers of how we've gotten solar scaled and Certainly, carbon capture or some of the other technologies that we have lingering around are a huge amount of subsidized lending, and it is very encouraging to see how nuclear is improving its position vis-a-vis that. The second way, this goes back more to history, is to actually have the political backing of some of the bigger nuclear exporting countries. So, in the U.S., Most may not be aware, but nuclear is a bipartisan support issue for the first time in probably 40 years or so. And what that means practically for like building of reactors is that the US for the first time via Westinghouse and some other companies are going head to head with the Koreans who have built on time and budget. In certain cases, the Chinese who are building scalable, inexpensive reactors built on the Westinghouse design And there's a backstop of political support, which is getting other reactors built in growth markets.

AI assessment note: “Putting nuclear in a taxonomy or other framework that gives it the same financing”

Q So when you have that supply-demand mismatch and you're very excited about the structural opportunity, How did management of the companies play into your assessment?

A It's a big piece of the process. We are not activists, but we are extremely hands-on. Mining is a historically bad business. We're very conscious of that. We agree, frankly, with the labeling of mining and energy industries. So we need to keep our management teams honest, and we do our best to marshal them with our capital. And we've been very selective about the companies who we're backing. One positive for uranium mining specifically Is that because of, frankly, these wild capital cycles, where famously there were probably some 450 uranium miners or so in the last cycle, we launched our fund, it was down to 30 or so, the rest had gone away. Got a new crop, either assets that have been purchased or consolidated or some are new discoveries. The management teams were taking these companies over, realized that to get capital, to get contracts from utilities, They need to do their best to reach the ESG standard. And even small non-producing companies are putting together at our urging and, and the urging of other investors, real internal work on how they do best practices, ESG, et cetera, so that they dovetail with utilities who are holding themselves to the same standard. Those standards need to be met and they probably all won't succeed. But it's putting them in a better position than I think some other legacy mining or energy businesses to achieve it.

AI assessment note: “It's a big piece of the process. We are not activists, but we are extremely hands-on.”

Q And what did you set out to do?

A I started with this idea that the early hedge fund days, I probably romanticized them a little bit, but I thought the early hedge fund pioneers were just, am I allowed to swear on this? They were badasses. Volatile, taking big swings, conviction, and it felt to me, hedge fund industry truly was becoming too institutionalized. Which works. Obviously it's great for asset aggregation. So it's not to take anything away from the incredible businesses. I think that's very different from the tiger model of the nineties or even go back like Michael Steinhard decades before that, where investors at limited partners gave you the flexibility to take big concentrated swings. We were right and believe that there was probably research edge. I was hoping to get a group of LPs that would give me the same. We used to joke me and the team that if we were pitching an allocator And they had heard of any of our top 10 positions, long or short, that they could stop the meeting short because we weren't doing our job. It wasn't always the best open. Some people took it the wrong way, but we meant we were really, really trying to scrape global markets for things that we didn't think anybody else was hearing when there was a real value bend to the security in which we wanted to invest.

AI assessment note: “we were really, really trying to scrape global markets for things”

Q Where does nuclear power sit on the energy transition that everyone's talking about from fossil fuel generated power to something cleaner in the future?

A The answer to that is that it's a little bit of a gray area currently, but if you went back 12 months ago, it was definitely not considered in consensus circles to be anywhere near an energy transition or ESG or impact investment. Amazing what an energy crisis and deeper failures of renewables policy and expectations for battery technology, how quickly we can pivot back to things that work and that are clean. I think that 12 months ago it was nowhere to be seen. Some of the benefits of nuclear for the energy transition or ESG see it come to the fore. But like with the green taxonomy, even the inflation deduction act and level subsidy playing field that nuclear is now on with other clean generating sources, all of these are gigantic leaps in the right direction for it be probably more in the fair way of what the average investor thinks is energy transition. And then the only other point to make is that lurking in the shadows, but very quickly coming into the light is advanced nuclear, which probably up until the last six or nine months really hasn't been on anybody's radar, but we think is extraordinarily interesting, which is that there are off the shelf technologies that have been running in national labs or test reactors for a long time that are better, smaller, more scalable, have ancillary applications other than electricity and they're coming. They're coming by the end of …

AI assessment note: “The answer to that is that it's a little bit of a gray area currently”

Q it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now, back to the show. How does safety play in all this? There's always been this discussion that, well, yeah, nuclear is clean and can scale, unlike some of the other environmentally friendly energies. But we have Fukushima, we've had all these other problems in the past.

A The simple answer is to put the problems that we've had in the context of the power generated from nuclear, and you realize just how safe, you know, and reliable it is. That's not to say that nuclear couldn't or shouldn't be held to a higher standard, because when things go wrong, it's viewed as a, as a tail risk. Analogy that everybody uses is being scared of driving a car versus flying in an airplane, despite the safety dynamics at play, and I think it's a pretty good one. But nonetheless, there are very good reasons for the accidents that have happened through history. Both existing plants and certainly advanced nuclear are dead set on reducing the highly low probability Taliban even further. Advanced designs have walk away passive safety features, in some cases have cores that can't melt down, fuel that cannot melt down. They have lower waste profiles. Proliferation risk is reduced. The industry, in short, has understood for the last two or three decades that if they want to survive and evolve, whether it's mathematically justified or not, they need to do these things better, and so they are doing these things better.

AI assessment note: “put the problems that we've had in the context of the power generated”

Q Which two people have had the biggest impact on your professional life?

A My dad is one of them. He's a physician, has nothing to do with markets, but I'll tell you, when I launched Segre, I did a lot of emerging markets and commodities at BigQuery, and it was vertical where I was in. And one of the things that I pitched my early Alpes on was Egypt. You're going to shake your head. And in 2013, I managed by some stroke of the universe to put a sizable position on Egyptian bonds about three days before the Arab spray. First big position in the fund. And I tell you, I'm pretty sure that I was close to having a heart attack. I was really shaken. My parents happened to be visiting, and I just remember my dad taught me, you've always got to keep your legs moving. He's like, you're a running back. He's like, just keep your legs moving. Keep your legs moving. Maybe it's a little silly, but I swear, I think about that on difficult days or when the market's not a barber, just to keep your legs moving, you can stay out. So definitely my dad. And then I talked a lot about Corian Dane. There were wonderful guys there, but I've got a really fantastic group at Sagra. We're tight knit. Arthur and I were randomly assigned freshman year roommates, and we've pretty much been best buddies since best men at each other's weddings, but we proved to be a good yin and yang. We've got a real symbiotic relationship that pushes us in a productive way where we have open and fre…

AI assessment note: “My dad is one of them... Arthur and I were randomly assigned freshman year roommates”

Q Well, let's walk through each one. So start with mining. It's not hard to draw corollaries to mining in gold or energy. There's always ESG concerns. How do you think about where you want to play on the mining part of the value chain?

A Yeah, so, especially in the geopolitical climate that I just outlined, reliable Western sources of uranium becomes incredibly important. Russia does not do much direct ethereal-weight mining. They're maybe five percent global supply or so. But Kazakhstan, fully independent neighboring country, former satellite, is 40%. So, you know, there is definitely concern in fuel markets over the time that becomes a regional block. And at the same time, because Kazakh material in particular has been very inexpensive, And ramped significantly through the nuclear bear market that we had that those low cost pounds in the market disincentivized development in the West. So to answer your question, we've been hyper-focused on trying to find very high quality strategic resources that are in the West that we hope can scale up to get a real blocking position in the market, which will, in our opinion, remain in structural deficit for many years, regardless of capital. But if you are a size deposit in the right jurisdiction, the right cost profile, we think that will maybe be seen by the market as a strategic asset, and currently they're not.

AI assessment note: “we've been hyper-focused on trying to find very high quality strategic resources”

Q What has to happen for that gap in understanding of both the waste profile and the safety profile to the point where nuclear has significantly more adoption than it does today?

A Well, you know, what's interesting is that you're starting to see it in the polarity, and I hate to be this blunt about it, but the generation who experienced Three Mile Island and China Syndrome, the movie, I guess to a certain extent, then also Chernobyl, they're getting older. Younger generations don't have experience of that kind, and frankly, the marketing and negative PR has really toned down You know, green parties, so-called environmental activist groups aren't taking aim at nuclear in the way that they did. Certainly in my parents' generation, maybe even in my teens. And I think all that is showing up again in Poland, which is that young people are very supportive of nuclear. You're seeing it in every country where the failed energy policy is actually starting to bite, either because electricity prices are through the roof or because there's energy rationing. If those countries have shut nuclear and had that as a consequence, popular sentiment has shifted very radically. But ultimately, I think in Western markets, what we need is a better comp. Because three years ago, when we would talk about our funds, or frankly, just our views on energy, most investors would say to us, but isn't nuclear dangerous? The truth of the matter is, in a few short years, nuclear is dangerous does not come up much with anybody who we speak to, but there is heavy, heavy skepticism that nucle…

AI assessment note: “ultimately, I think in Western markets, what we need is a better comp.”

Q What was the research process like in going from not knowing what a credit default swap was to seeing the conviction that housing at the time?

A I give a lot of credit to the senior guys at Corriente when I joined. They were very much believers in baptism by fire. I actually ended up joining the firm as they were winding down some of their subprime trades, but it was also very pressing and the team in predicting that credit bubble that had come started in the U.S. would make its way to Europe and it will manifest itself. In the financial system, I'm saying sovereign debt work. I think it might've been my second or third day at Corriente and Mark just told me to whack up the phone and buy two billion dollars of notional Greek protection, which was somewhere around five or six basis points over Germany at the time. I had no idea what was going on, and he was always the angel on your shoulder, but he wanted you to dive in headfirst and figure it out later. So I got a lot of access to different cross-asset products, and there was a very collaborative work environment where everybody shared what they were working on. To bring us all up to speed on fundamentals. There's usually a lead working on something, but it was very deep. I use the word white paper approach for Segre's process. Here's a whiteboard. Here's what we think the general population knows about this vast member of the sector. What do we think we know? And then how do we make sure that we know it the best?

AI assessment note: “dive in headfirst and figure it out later... collaborative work environment”

Q What about thinking as a contrarian appealed to you?

A I think I've been a natural contrarian my whole life. At least that's what my parents tell me. I was the kid where the teacher was telling us that this is the way to go. And I said, well, let's not make a right. Let's make a left. If this is the history of something, I said, well, it's not really the history of it. It's more like this. So I don't know, maybe that was a know-it-all, but I certainly fancied myself with some of that question that I definitely liked being against the grain. I think there's a natural element to contrarians and something deep in the fibers. I think at least as long as I can remember. Not when it came to markets necessarily, but when it came to light, I was there.

AI assessment note: “I definitely liked being against the grain.”