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tv   The David Rubenstein Show Peer to Peer Conversations  Bloomberg  August 5, 2017 9:00am-9:30am EDT

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♪ david: what was the strategy that you used? paul: i was completely determined to recapture my parents' money. david: how does somebody raise $5 billion in 24 hours? paul: it was first come, first serve. david: you have the image of striking fear into ceos. some people are probably afraid they will get a call from paul singer. paul: it does not bother me. david: if somebody invested in the very beginning, what would the rate of return that would have been compounded? paul: one dollar became $160. david: is it too late to invest retroactively in that? [laughter] >> would you fix your tie, please? david: well, people wouldn't recognize me if my tie was fixed, but ok. just leave it this way. alright. ♪
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david: i don't consider myself a journalist. and nobody else would consider myself a journalist. i began to take on the life of being an interviewer even though i have a day job of running a private equity firm. how do you define leadership? what is it that makes somebody tick? david: i read the other day that you opened your fund for 24 hours and $5 billion showed up, so how does somebody raise $5 billion in 24 hours? paul: it was not exactly true. david: oh. paul: it was true in the sense that once the offering was open, because it was first come, first serve, there was a lot of demand. in 23 hours later, it was filled up, but it took a number of months of preparation. david: that makes me feel that you did not do it in 24 hours.
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how much do you manage now overall? paul: $34 billion at this point. david: you started it in what year? paul: 1977. david: how much money did you have been? -- have then? paul: $1.3 million. david: where did you get that? paul: friends and family. i was a practicing lawyer, and in early 1977, i decided that what i had been doing managing a small amount of, a tiny amount of friends' and family money with was much more interesting than practicing law. david: you grew up in new jersey and manhattan and you went to the university of rochester, then harvard law school. paul: it was a wonderful experience, but a daunting experience, especially because i did not exactly like what i was doing. david: but you went to practice law in new york. paul: in the absence of a better idea. david: i practiced law in new york initially as well, and i practiced law in washington --
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paul: sad to hear it. [laughter] david: when i gave up the practice of law to go in business, my mother said, you went to law school. what are you going to do? o not know anything about law. what did your mother say when you said, i am going to give up law? she said no? paul: can you earn a living? [laughter] david: you started, you are working out of your apartment. what was the strategy that you used to get off of the ground? paul: a tiny bit of context. my dad was a retail pharmacist and after i started attending law school, he said, you have to learn how to be an investor. he and i traded tiny amounts of tech stocks and mining stocks together. $2000 of this or $5,000 of this, so i became very interested in markets and in trading. and in the period of time from 1967-1968 through 1974, he and i
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found just about every possible way conceivable to lose money. [laughter] paul: so when i started elliott in 1977, i was determined to engage in a trading strategy that made money all the time. and so for the first 10 years or so of elliott's existence, the primary strategy was convertible bond hedging. buy the bond, short the stock, it had a strong positive carry and trading profits. i practice it on low leverage and it did the job. the job meaning consistent return and making more money more or less over time. david: when did you realize you were better than the average guy getting these or doing these kinds of things? paul: i never thought of it that way. i was completely determined to just make a rate of return. um, really recapture my parents' money that i had lost previously. and keep finding ways to, to
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pursue that goal of absolute return at a time when convertibles were becoming more quantified, more leveraged, and more competitive. david: the core of what you do, you call it a macro fund, or a value fund. what would you describe your investment technique? paul: some people call what we do multi-strategy, others call it absolute return. the idea of our portfolio mix is to try to make money as close as possible to all the time. what we have done over the years in pursuit of that goal as vanilla convertible hedging unint an interesting -- eresting was add other ways for absolute return to the mix. for example, we -- i came to feel, and part of it was my experience as a lawyer, that manual activities, trading
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manual effort for risk, was a good way to add value or -- and also control risk. that is why bankruptcy, distressed securities, became our largest capital deployment. and that is why in recent years, equity activism has become a very important capital deployment. david: that is an important part of what you do now. what you call equity activism. a couple of them are well-known. liet me talk about one that is famous all over the world. you bought bonds from argentina, you may remember this, and held onto them for a long time and pursued them in the courts and reached a settlement favorable for investors. was it hard to hold onto that long? paul: it was not hard to hold on in a portfolio sense, because at no time until the current government came into, came into
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office, i believe in december 2015, at no time before that did the previous two governments negotiate with us. so sometimes the stubbornness, or motivations of your adversary, cause you to not be able to make a deal. and as the claim mounts up, it becomes potentially a larger recovery. david: did any investors say, you have made a little profit. it is ok. go on to something else? did they ever say that during that long time? paul: interestingly, no. david: they didn't? ok. paul: even when it got some press, and it was not an easy situation. it was not only the 14 years to 15 years holding on to that thing, but it was contentious. david: you did not worry that somebody was maybe going to come you know, physically attack you from argentina?
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you did not worry about that? paul: this is not the place to talk about the security arrangements, but it was a contentious situation. david: if somebody invested from the beginning with you, and he or she kept the money with you from the beginning, i don't know if anybody did that, what kind of rate of return would you have compounded over 40 years? paul: my mom did that. david: your mother is 99? paul: yeah, 99 plus. she is waiting for that call next year. david: i assume she is proud of you, i assume. paul: yes, she is. [laughter] david: and -- paul: the answer to your other question, from the beginning a 13.5% net compounded rate of return, one dollar became about $160, $165. and there were some earlier investors who have stayed in the entire time. david: over 40 years, compounded 13.5% net for 40 years, that is pretty good. is it too late to invest retroactively in that? [laughter] david: you have an image being a person that strikes fear into a lot of ceos.
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you must recognize people are afraid that they will get a call from paul singer. paul: it is good when a corporate executive listens to you with the understanding that we are real, we have the capacity to carry through on projects that we undertake, and that we need to be convinced. ♪
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♪ david: today you take corporate bonds and you are willing to litigate. paul: litigation is always a last resort in a situation in which there is a dispute about seniority or a claim. it is part of the equation. one of the risk-limiting and value-creation strategies is
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uncorrelation. uncorrelation is a wonderful element to add to a return seeking portfolio, because if you are doing something that has a pattern of risk and return, even if it is volatile, even if it is binary, make a lot, lose a lot, but a pattern of return s that does not have anything to do with the course of the stock or bond markets, or anything else in your portfolio, that is an elegant part of the mix. david: do you ever do research on a company and then you call up or somebody calls up the ceo and says this is how you can improve the company and they say that is a good idea. i wish i had thought of that? paul: interesting, the way you are asking the question, it is, it presupposes that the response of the company is always either anger or hiding under their desks or some combination. david: and that is wrong you would say? paul: no, sometimes you are
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knocking on an open door. our style as a team is doing the work as thoroughly as we can to develop a thesis, to assess whether we think there really is an action or series of actions that can be taken to eliminate underperformance or ameliorate a situation, then contacting a company privately, testing with consultants or bankers, testing ideas, and trying to generate a dialogue. and sometimes you find you are knocking on an open door. sometimes there is a founder or a management team that is ready to sell out or happy to go on to something else, but they are just, they do not to feel like they are deserting their staff and employees. there are a lot of different reasons why a company that is
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ready for some kind of reformation or new blood likes to see a resolution that can maximize value. david: how many investment professionals do you have at your firm? paul: about 120. david: how do decisions go forward? paul: i have a co-ceo and co-cio, chief investment officer. his name is john pollock, and he has been with me since 1989. in that time, we have more than just complete each other sentences. the founding impulse of the hedge fund idea is independence of thinking. it is the opposite of investing by committee. and the earliest hedge fund folks of course were by themselves. they were sort of privateers in the world of investment oceans. i never thought that the craft would be susceptible to an
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organizational approach, a team approach. i actually never really thought i would be able to be a good manager and a good team leader. the way it actually works is a layered process by which we attempt to train people to accept responsibility to deliver trustworthy insights, inputs, to have done the work, to have commissioned the work, but john or i generally approve every, every meaningful position, and certainly every -- we have deep discussions about every large position. david: you have an image though of being a person that strikes fear in ceos. you must recognize that some people are afraid they will get a call from paul singer. does that image bother you? that you have an image of being a tough person, commanding? paul: what i have learned is not to care too much about
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opprobrium and unfair press. it is good when a corporate executive listens with the understanding that we are real, that we have the capacity to carry through, and a history of carrying through on the projects that we undertake, and that we need to be convinced in order to, in order to say ok, sorry. which sometimes we do. sorry, we were wrong. or, doing a good job. so it does not bother me anymore. david: so how do you see the economy right now? are you worried? paul: i am very concerned about where we are in terms of the financial system, the american economy, the global economy. after nine years of what i consider to be distorted, a distorted set of policies, completely oriented towards what i regard as monetary extremism, combined with what i consider to
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be the growth suppressive fiscal policies, regulatory, tax, so i think it has created a distorted recovery that has been partially responsible for this, this augmentation, this exacerbation of inequality that has caused, in combination of that, and the incomplete recovery has caused this middle-class stress and edginess around the world, which has led to some political fringe parties and fringe thoughts, populism, and so after nine years of this artificial levitation on the part of financial assets, high-end real estate, art, the things that rich people buy, what we have today is a global financial system that is just about as leveraged, and in many cases more leveraged, than before 2008.
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and so i, and i don't think the financial system is more sound. i do not think the fixes that have been put into place have actually created a sound financial system. so i don't believe confidence is justified in policymakers and in central bankers, and the fact that confidence has not been lost up until now is, is obvious, but if and when confidence is lost, i think it could be lost in a very abrupt fashion, causing conceivably a ruckus in the bond market, stock markets, and in financial institutions. ♪ david: you have given a lot of money and raised a lot of money for republicans. do they listen to you? paul: their problem is they are subject to all kinds of forces, all kinds of pressures coming
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from 360 degrees on their compasses, so the right policies and best ideas are not necessarily the things that make the final cut. ♪
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♪ david: in the political world, you have become well known in the political party outside of your firm. the last presidential election, who was your favorite candidate? [laughter] paul: i supported, i stood aside for most of 2015, and then supported marco rubio. david: when he dropped out, did you have anybody next? [laughter] paul: um, no. i stood aside. david: ultimately when donald trump became the nominee for the party, did you support him as the nominee? paul: i voted for him. david: ok. paul: and there is, i was not going to vote for hillary clinton, as some of my republican friends did. and i became optimistic about some of the opportunities in economic growth and regulatory reform, tax reform.
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david: has donald trump invited you to visit him? did you know him before he was elected president? paul: i did not. i invested in his bonds a couple of times. [laughter] david: those were high-grade bonds? [laughter] paul: they were on the date of issue. [laughter] [applause] david: they later became high-yield. paul: and below. [laughter] david: so, have you seen him since he is president and have you given any advice? paul: i visited the white house a few months ago and we chatted a bit about taxes and economic policy. david: you have given a lot of money, raised a lot of money for republicans, do they listen to you? paul: sometimes. david: do they say thank you for your ideas? or they do not do that? paul: that is not the way it goes. their problem, you know, let us be humanists here, their problem is they are subject to all kinds
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of forces, all kinds of pressures coming from 360 degrees on their compasses, so the right policies and the best ideas are not necessarily, and many of them listen and many of them are smart, but not necessarily things that make the final cut, but i think it is important for citizens, informed citizens, to try to give assistance. we are among, among republican activists who actually can, in a relatively un-conflicted level, we are not -- we have less parochial interests in the things that we talked to policymakers about than most folks. david: you have made a fair amount of money and have been very involved in philanthropy. one of the areas you have been involved with is human rights. what propelled you to get involved in human rights and marriage equality issues?
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paul: i applied to philanthropy the same spirit of activism, trying to get involved, trying to make a difference, make an impact, create things, not just write out a check. it is a similar impulse as the impulses that govern my investing style. in the case of gay rights, my younger son came out to meet as gay in 1998, when he was 21 years old. and shortly after some brief discussions, i became very interested in being a funder of gay rights groups, of helping out in that realm. at the beginning, just writing out checks.
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at the beginning, pursuant to a agreement with my son, anonymously, but over a period of time it became overt, and over a period of time, i and my team became quite friendly with -- with legacy gay rights groups, including democrats, hard-core democrats, and we started working together on different projects. the culmination of that was, and it was really a very, very highly strategic and well-executed project, was a partnership with the governor of new york with us and our democratic friends to make gay rights, gay marriage legal in new york, which required
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republican state senators' help, and we were involved in that. david: when you're not investing money and giving away money, you must have some time for relaxation, so what gives you pleasure outside of those other activities? paul: i am a musician. i play piano and keyboards. david: you play at concerts, or at home, or do you have a band? paul: i have been in a number of bands, amateur bands of course. [laughter] and i play with musicians now. david: is it because you took lessons when you are young and -- were young and you do not get to the level you wanted and now take pleasure in it? or did you learn it later in life? paul: i started lessons when i was 10 years old and took a blues lessons when i was 11 years old. i have been in reggae bands, blues bands, rock bands. i have had fun because my, most of my family are musicians, so
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we have a family band also. and so we have a guitar player, a saxophone player, drummer. david: what would you like to see as the headline of what you have accomplished in your life? paul: he tried to make a difference. he protected a lot of people's capital over a long period of time. he was steady and reliable. david: pretty good. a lot of people who are wealthy are not really happy. you seem like a happy person. [laughter] david: would you say you are happy with what you have accomplished? you are not tortured? paul: this is a form of therapy, david, which i appreciate. do you mind if i lie down? [laughter] david: no. you have done an incredible job building a business that i admire what you have built, and what you have done with philanthropy. it is remarkable. i want to thank you for a great conversation. and i thank everybody for listening. paul: thank you. ♪ ♪
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