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Reuben Munger

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2020-07-06
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2020-07-06
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  1. “So the process, and this isn't just for them, I would almost generalize it, but they thought their project was ready sooner than it was. And so you begin by underwriting the project as they think it is. And often it takes a bit longer for projects to develop and get to that point where it's construction ready. And so the key is to drive toward a result or alignment of here's how we work. And in then jointly working through how that asset is going to be underwritten, show your ability to add value to their own analysis and then as they hit a bump in the road, that kind of flexibility and understanding, it's particularly easy when you haven't written a check yet, but using and showing how, yeah, that bump in the road is something we've seen before. That bump in the road is going to probably work out this way. Let's all call this person and using some of those same resources that”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “Next 12 months, where you're able to get contracts that people hadn't realized you could get contracts for, and by being an early mover, engage with these markets in a way that creates specific high return value that if you're not diving into the market with a good team, you aren't going to identify.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “That was effectively where I was going, is that solar had come to the power grid and we had been looking at utility oriented energy storage for three or four years, found a team that we really liked. They were very smart, three guys, backed by a great group of angels. And then the question becomes when and how are they ready for us? And so we spent a year almost working with them and showing them how we're going to operate and why we can grow the pie with them. You don't want to compete purely on cost of capital. You want them to understand that we're going to move quickly and understand the markets that they're building in. And as soon as it was time to start construction on their first asset, we came in and paid to build that asset and have grown that team from three people to 30 plus people. We did four different smaller assets. One of those is an example was a test of an idea that we had. The idea worked in the market and we now have, or expanding that 10x over the next.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “To the Japanese market, and so they had early stage developers, but not people who knew how to bring projects across the finish line and make a difference. And now we have an energy storage platform that's building batteries. And it's a very similar playbook and framework of understanding what makes the market function, working with companies to be an early buyer of the product. It's not a new technology. We don't like technology at risk. LGCAM has sold billions of dollars of batteries, but that doesn't mean that someone has put a battery into New York State to do this specific application. And so you have to work through with the regulator and contractors and all those things. And you effectively get paid for doing that work.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “It's an evolving path. I mentioned Cape Cod. In 2013, out of 100 power investors, 80 of them weren't looking at solar. And so now you're at 20. And then of those 20, 15 of them had decided that state renewable energy credits were a bad, bad thing. They'd failed in Connecticut and New Jersey. They'd caused sort of a boom-bust cycle. But Massachusetts had rolled out its own program, but suddenly evaluating and underwriting that program was something only five out of the original 100 were doing. And so it was very reminiscent of Bowpost approaches where we once owned the all SEC portfolio, meaning not a football thing, but an under investigation thing, because effectively, if you were under investigation, most investors turn away. And so, you know, how do you get an edge? How are you able to look at things that others aren't? And so it started as simply as looking in Massachusetts. We then went to Japan after Fukushima and you had that opportunity to bring expertise built in other markets.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “And that same thing makes a huge difference in mobility and transportation, where a battery that used to cost $1,000 a kilowatt hour is breaking $100 a kilowatt hour. And so things are increasingly in the money. And so I think in both power and mobility, that's the defining theme is that more and more things are economically in the money. This isn't a question of regulations or subsidies. It's just pure economics. And then where and how does the structure and situation at hand create an investment opportunity?”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “So, I mean, I think the powerful ones within, and they're somewhat obvious, but the powerful ones within electricity are declining costs of renewables. So renewables have just been on this inexorable decline in cost. And the question becomes not, is that a good thing? It's how do you position your investments to benefit from that rather than be compressed? That whole chain doesn't make that much return on a gross basis anymore. It's wonderful for the world that solar projects can yield or get capitalized at a 7% unlevered return, but that also means the returns are too low for us. And so how do you position yourself against that theme? And that's been an important part of what we do in electricity. Then the decline curve in lithium-ion batteries applies to both electricity and mobility. And maybe we'll come back to it. But that's enabled by dropping costs of batteries.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “Every day, but at the same time, the old network is but very, very tight and always open for a phone call. And because you've sort of been through two or three cycles of complexity and challenge, whether it's at the firm level, whether it's an investment you have, there's just sort of a lot of shared journey. And so the quality of that early network is really powerful. And then as you've worked in certain areas over time, you build a level of expertise that lets you really add value without being tried. You can actually add value to things because you may be alongside of or ahead of some of the companies that you're potentially partnering with to buy an asset or to build a business.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “The lack of pigeonhole is part of how you differentiate yourself in a competitive market. Some of the other investors who we respect a lot are stuck as project financiers or debt investors or equity investors. And so they'll spend a lot of time trying to convince a management team to adopt to their structural limitations. And we try to spend a lot of time with a management team to find alignment. And so that really opens up what you can do once you find things you like. It doesn't mean it always fits, but we talk a lot about finding someone who likes our flavor of capital because it is flexible. It's not overarchingly flexible. But we then take that structural investment approach and apply it across a set of themes. And there are a couple of benefits from being in this for over a decade is the early warriors, let's say, have a deep and abiding bond. And so the network has been growing.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “Where they were a mixture of assets and opportunities that we felt like the underlying assets could But often in some cases it's valuable to come without the baggage of history in an existing platform. And in others, it's that very history and existing platform that allows you to transition.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “Really important to us not to get boxed into a single lens. I think the defining characteristic is can you invest with the structural opportunity and framework? Growing up, the idea that there was debt and there was equity or different approaches to what an investment was wasn't really the right framework. It's what are the underlying opportunities? How do you best structure them to capture those things? And so we've been willing to be a debt investor. We're willing to be an equity investor. We've owned straight project capital and we've owned companies. What that's meant is to get to your actual question is we've started building things with management teams where there's really just an asset. So we've gone in and been construction capital building solar projects on Cape Cod because Massachusetts had an interesting regulatory regime that people had not really dug in and figured out. But we've also bought full-blown companies.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “You started thinking about sourcing opportunities and looking at your filter, were you looking at cheap existing cash flows? Or you also mentioned in this transition, you might have things that aren't driving positive economics today, but clearly with that tailwind, we'll get there as cost structures come down”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “And so it's sort of a deep value biased portfolio skew and investment skew that we were then seeing time and again in multiple different transactions and opportunities.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “So we set up our first vehicle, we called it a sustainable asset fund. And the key aspects of how we approach the world is saying that sustainable assets are the same thing as real assets, that they're sort of a fundamental architecture of infrastructure that delivers electricity, it delivers transportation, it gives us our food, it gives us our water. But the big shift that was taking place was that there's sort of this secular and structural tailwind that is going to really cause transition over time. And so our basic shared philosophy was that you had the opportunity to buy real assets and physical tangible things that provided real principal protection. And yet the tailwind was going to allow you to earn outsized returns to the extent that you're right.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  15. “Was sort of a major decision in life in many ways, right? Going back to managing money for others is a very different undertaking than what I would call self-exploration. But the process had led to finding fellow travelers and particularly had been working with the Capricorn Investment Group, which is Jeff School's family office, and then Jeremy Grantham and his foundation. And what was clear is that none of the three of us had the scale to pursue the things that we were seeing. And we had a high level of alignment on what the investment opportunity looked like and how best to pursue it. That really catalyzed coming together and establishing vision in the way that it is now. I had two people with me in my office but brought over the person who ran real assets at Capricorn. He joined Vision Ridge. And we kind of accelerated from what was then a three person team to the thirteen investment professionals and kind of a fully established firm that we are today.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  16. “And so you roll through a few years of doing this on your own in that process of discovery what you enjoy and where the skill set is. You mentioned having capital and scale. So at what point in time did you decide that you wanted to go past just investing and working with nonprofits on your own?”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  17. “Losing any money. And if you take that approach to venture, you definitely won't succeed. And so it came to a point in 2012 where there was both a question of what are you good at? And then also what does the world need? And it seemed at that point that you needed one of two things. You either need a deep technology and you needed scientists. And I would credit Bill Gates and the Breakthrough Institute and Breakthrough Energy, his venture capital firm that he started around that period of time as saying, look, we can make these big, hairy scientific bets and they've hired some of the best scientists in the country. Or you can now deploy and scale things that aren't suddenly in the money and make sense to build and grow and just need to roll up your sleeves and do the work and figure out through structure and other things how to make the investments pencil. And that obviously tied back to my background and what I spent my time doing.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  18. “The frameworks that mattered were hardest then, right? Sort of nascent companies are tricky. That universe is all about management teams that are able to scale and grow and build something that may not be there yet and kind of create a future, whereas particularly public investing, by the time you've gone public, the something is there. And so I think part of it was learning how those people dynamics work. There are commonalities in finding inefficiency between being a deep value investor and being a venture capitalist, but the ways and methods to realizing outcomes is completely different. And so spent a bunch of time learning about the difference and also learning about the things that I'm good at and I'm not as good at where finding the thing that could be amazing is the opposite of making sure you don't lose money, right? Sort of venture capital portfolios and value investing portfolios have the opposite skews. I grew up learning that you'll do well if you never”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  19. “So everything is incremental in terms of actually having the time to learn how this functions. The good and bad of being an investment generalist is you know a lot about a little until you need to know a lot about something specific. And so sort of taking that framework, it was time to dive in on a whole bunch of systems and situations that I hadn't spent a lot of time thinking about. I knew there were problems. But I then worked closely with a handful of nonprofits. They were always eager to engage with someone who wanted to learn more and work with them. So I spent time doing that and investing a bit from my own balance sheet and diving in with a number of emerging companies and startups to sort of spend four years as I put it getting smart and ultimately began to see more and more opportunities that weren't just interesting intellectually or felt like they could make change but that were compelling investments aligned.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  20. “Have set a great example of how to engage in a community and think about being more than just sitting at a desk and Making money for yourself and for your investors. And so I had And set with a choice of sitting and staying where I was and being able to probably give money to causes or jumping in. And so I rolled up my sleeves, left effectively in the first two months of 2008, not knowing what was around the corner, but really feeling like the question and opportunity of figuring that out was rooted in the capital markets. You needed capital markets in order to solve transportation and power and these big chunky industries that were at the heart of our resource constraints. And so I began a journey of spending all of my time working on those questions.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  21. “In the late 90s, I wanted to move from banking into investing There was a firm called Baupost that was running a search, and they said, Oh, you probably haven't heard of them. They have about a billion dollars. And turns out the PM gives you a call for your introductory half hour interview. And so had a phone call with Seth Garmin then, and ended up going up to Boston having the most interesting three and a half hour interview of my life. And I walked out and said to my girlfriend at the time, I'm not getting this job, but man, I learned more than I ever have. I guess I did well enough to get one more shot. Had another good conversation, and learnt about things like Dutch auctions and Polish holding companies and all kinds of great stuff. So I joined Baupost and proceeded to spend a decade there effectively going from a billion dollars to $12 billion. But that was a period where we started by calling European companies up and asking them to mail us the annual report and translating it to English. And so sort of there was a window of advantage that's very, very different than there is now. But that was kind of the beginning of my investing journey.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  22. “Grew up, the son of teachers and the grandson of teachers, so education was really important, first real exposure to stocks was in high school. Had a math teacher, freshman, and senior year, great guy. And he made us do the stock market game. So freshman year, we thought we were really smart. We were going to buy the most expensive stocks possible. Turns out that was Berkshire and Capital City. So I just wish I had bought them and held them. But by senior year, we realized that the game was driven by percent gains. And so back then a tick was an eighth. And so if you bought a stock that traded for 75 cents, one tick overnight would effectively one buyer move your percentage a ton. So we sort of started gaming it then. And that was the beginning. I went to college, liberal arts school, Washington University, a long way from where I grew up in California culturally and otherwise. But from there, I was lucky I had an alum that reached down and interviewed a couple of kids and joined Wolfenson. The M&A investment boutique.”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source

  23. “My guest on the ninth episode of Sustainable Investing The Next Frontier is Reuben Munger, the managing partner of Vision Ridge Capital, a private investment firm with over a billion dollars in assets that focuses on sustainable real assets. Ruben started Vision Ridge in 2008 after a decade of value investing experience at the Bao Post Group. Our conversation discusses Ruben's path and his approach to sustainable real asset investing in the private markets. We talk about his time at Baupost, transition from broad public market investing to focused venture impact investing personally, and the creation of VisionRidge alongside Jeremy Grantham and Capricorn Investment Group. We then discuss Vision Ridge's flexible investment strategy, creative structuring, portfolio construction, opportunities in power and mobility, competitive dynamics,”

    2020-07-06 · Capital Allocators · Sustainable Investing 9: Reuben Munger – Private Capital Perspective (Capital Allocators, EP.147) · IDENTIFIED FROM THE TRANSCRIPT · source