Leadership by Example at SkyBridge Capital Partners

Jack Heald: Welcome back everybody, to the OZExpo Podcast. I'm your host Jack Heald and I'm here today with the President and Chief Operating Officer of SkyBridge Capital, Brett Messing. Brett, welcome to the show.

Brett: Thanks for having me, Jack. I appreciate it.

Jack: It's really good to have you here. So, let's just dive right into it. Brett Messing, who are you? Where'd you come from?

Brett: Well, I grew up in Rhode Island. I went to Brown and Harvard law school. Actually, I have two daughters at Brown and one on the way. Found my way to Los Angeles where I worked for Goldman Sachs for 10 years.
Thereafter, I ran my own hedge fund and we got it up to $2.5 billion and then dealt with the financial crisis in '08. That was pretty unpleasant, bounced back in '09 and '10. And then, I wanted to do some public service. So, I actually worked in city government. I was a deputy mayor of Los Angeles. And I did some teaching at UCLA. And then I got divorced, I got bored and I joined my old law school roommate and that roommate, Anthony Scaramucci of SkyBridge, where I'm the president, chief operating officer.

Jack: I was going to ask you how you knew Scaramucci.

Brett: Yeah, we met in August, 1986 in Cambridge, Massachusetts. So, I’ve known him for almost 33 years.

Jack: Well, we'll dive into that a little more later. Talk about your roll in public service with deputy mayor of L.A.. That one. That one really intrigued me.

Brett: Yeah. That was a terrific experience. I oversaw mostly economic policy. So, the city of L.A., there's a port and there's an airport, we oversee the Department of Water and Power. I have some stories for, but I know we have a limited amount of time so I won't dive into them.

Jack: Oh, I want to hear the stories.

Brett: I would say my takeaway is that the system is built to resist change. So, you know if you want to do good, they make it hard and if you want to mess it up they make it hard. So, for those that are worried about our incumbent president, “it's hard to screw up the system” is what we found.

Jack: So, one good story. Just one maybe.

Brett: Okay. I'll tell you one story. So, the mayor was very responsible about trying to fulfill his campaign promises and one of them was to make the port more green. And so we actually brought in Mackenzie to measure how he was doing on his promises. So, when I first got there, the folks from the port came in and they were showing us all these graphs that showed that the port was incredibly more green, there were less measurements of various pollutants in the air.

And the mayor was getting super excited about, wow, we're kicking ass on this. And we got more press. And I was watching the body language of the port guys and I could tell that something was wrong. And then it sort of struck me and I said, “Well, what was the assumptions on cargo that you were using in these charts?”

And so the long, or the short of it is that the pollutants were down because we were in a recession. And not a lot of stuff was going through the port. And you know, it's almost an illustrative of the way city government works is they didn't come in and say what was happening. They came in with a story and if you pulled on it a little bit, like I said to the mayor, “We have a coal manufacturing plant that doesn't make any more coal. So, we're now the cleanest coal plant in the whole country.” Once our port starts getting more ships, the pollutants are going right up. So…

Jack: Oh, my lord. I'm here in Phoenix. I've been here 22 years and I have been through the huge boom in the late ‘90s then again in the early part of the 2000s. And at one point, Phoenix was reported to have some of the worst air in the country, but if you drill down into it, the bulk of the particulates that were in our air was dust. You know, we don't get any rain here.

Brett: Right? Yeah. So, you live in a desert. That's the cost of doing business.

Jack: Let's jump forward now into November, 2018. Anthony Scaramucci hires you as the president and COO of SkyBridge. 

Brett: Sure.

Jack: That's your role at SkyBridge? Why did he bring you aside from, he's just known you for 35 years?

Brett: I run the business on a day to day basis. Although you know, our biggest product is a $10 billion fund to fund that. We've got two terrific Co-CIOs. Who, you know, that sort of manages itself. So, I sort of let them run that business. But, but the thing that excited me about joining Anthony and SkyBridge, I think why he brought me in, is that we'd like to grow the business and make it sort of a more diversified asset management business. The Opportunity Zone is the first area that we're moving into to develop sort of a new product line. And we'd like to, maybe in the next, once a year if you will, come out with new areas that meet the needs of our investor base.

Jack: Good time to talk the Opportunity Zone. What are you seeing from, we just got the guidance from Treasury last week.

Brett: Yep. Sure.

Jack: Make a little more sense. Clearly real estate is driving the initial excitement about Opportunity Zones. Are you seeing a similar growth and excitement about ongoing business?

Brett: You know, we're focused exclusively on the real estate side and I think that's where the focus is going to be. Remember the principle purpose of this bill, or the law, excuse me, is to write economic growth and community redevelopment. And with real estate, it's easy, right? You build an apartment, we know that apartment is in a particular community with a business.

Where a business exists to serve an existential question, right? It can be incorporated in Delaware, with its headquarters in Oakland and most of its employees and most of its sales in Manhattan. Right? So, there was more guidance on that. But I think growing a business from the start is hard enough without trying to comply with these various regulations. And so I think there'll be some amount of capital that goes into business formation and obviously there's a nexus between real estate and businesses. If we build, you know, apartment buildings for example, we need there to be jobs to support the folks who live there so they can pay the rent. So, yeah, I think it will be more indirect and direct on the business side if these are the Opportunity Zones.

Jack: What's the biggest concern that you're dealing with right now, a week after guidance from Treasury, in terms of building these funds for the Opportunity Zone program?

Brett: Well, you know, the thing that I say about Opportunity Zones, is that Opportunity Zones have been like high school sex. Everyone's talking about it and no one's doing it. Again, like high school sex. They eventually get to it. Just take some time. I think there were two things that were holding back investors. One was the regulation you just referenced, and you know, they were delayed because you probably heard there was a government shutdown that slow things down a little bit.

Jack: I heard about that.

Brett: Yeah. So, that's, that's behind us. And the regs were very accommodating. Look, this is a Trump policy and the treasury wants it to be successful. So, I think they have gone to great lengths to craft the regulations in ways that are supportive. But the second aspect of this that I think has made this a long sale cycle, if you will is there's an inherent complexity to it. But beyond that, it requires a 10-year investment.

You know, most people have never made an investment with a 10-year horizon. I never have. I mean I've made a number of private equity and real estate private equity investments and some of them lasted 12-13 years where they weren't supposed to. They lasted the 12 or 13 years ‘cause they went bad.

I was supposed to get my money in seven or eight. You know, this is an investment where, you know, your minimum period from investment to harvest is going to be a decade. And that it's just something that takes a lot of careful consideration. But I can tell you Jack, there's a lot of demand out there.

I can just feel it. I mean just based on the crowds we get, I was speaking at an event in San Francisco and they expected 60 people and had 130 show up and we can visit with almost any large family officer, registered investment advisor ‘because this is, this is a very powerful tool and it's not for everybody. It's certainly something that all investors should be at least evaluating to see if it has any utility for them

Jack: You know one of the best phrases I heard from another guest is, referencing the challenges of the OZ program was it requires patient capital. But, one of the things that it is true about patient capital, it's patient not only in terms of its exit, but its patient in terms of its entrance. And this 180-day window was scaring a lot of folks away.

Brett: I'll tell you why. You know, my dad was a salesman. What he'd say to me is, "Yes is the best answer in sales we can get. ‘No’ is second best answer.” There’s nothing worse than when people, say "I'll follow it," "I'll see," "I'll think about it". So, the 180-days sort of forces a decision and it produces a greater level of engagement. On some level, I view that as a little bit of a gift.

Jack: So let's talk a little bit about your background. What is it that uniquely qualified you for where you are right now? What are the skills, and frankly what are the talents, the innate talents, you've brought to this role with SkyBridge.

Brett: I think I'm a good leader. I think I set a good example. T way I am mentoring other people or just through hard work and setting an example. I think I am a good salesman. My dad taught me well and I think having taught on a college campus– and going to law school helped on this – you have to learn how to take complex concepts and make them simpler. And I think I'm reasonably good at that. And I think that helps in a variety of contexts. And then the other thing is, Anthony will actually listen to me. So that helps a lot.

Brett: That makes me uniquely qualified as partner. He’s a super talented, super smart guy, but we all have flaws and it's always good to get input from someone who you respect and trust. Right?

Jack: Yeah, absolutely. I'm interviewing him in a couple of weeks.

Brett: You'll have fun.

Jack: I'm definitely looking forward to that one. Hey, talk about your teaching. That one seems like a real out-of-nowhere kind of role to hold for somebody who for all intents and purposes has been in investments and finance his entire career. How'd you land that gig and what were you teaching?

Brett: Well, Jack. I had PTSD from the financial crisis, so I needed to take a few years and do a few other things.

Jack: Yeah. a lot of us did.

Brett: Public service was part of it. Teaching was another part of it. Going to my kid's club soccer games was another part of it. But the class that I taught was primarily built around the financial crisis. And if you're a student and you like, you can hear from a practitioner, just not from an academic, but it really an examination of the misalignment of incentives and how that leads to excess. We watched some of the movies. I had him read some, like "Too Big To Fail,” and "The Big Short", and they enjoyed all that. And in addition to reading some of the books that were written about that very memorable time period…

Jack: Do you have a favorite that you reference regularly.

Brett: I actually liked the book about the fall of Bear Stearns by William Cohan. I thought it was, I thought it was very well-written and very insightful.

Jack: What are you seeing as the possible conflicts, misalignment of interests here with the OZ programs?

Brett: That’s a good question. I think there's a concern about, sort of the impact on communities which I view was being this place. I think the preponderance of the money is going to go into urban environments and to comply with the rules and the Opportunity Zones, you have to build within 31 months, which means you really need buy in from the various constituencies. Nothing gets built in a major city unless you get the politicians or community leaders environmentalists or union leaders on your side. And at the same time, there's nothing you can build in the city that you're not going to have opposition to.

Jack: Right.

Brett: I mean, if you buy a hot dog stand in the parking lot, you're going to have, at least in L.A. where we have public hearings, you have all the people show up saying, I used to park there. You took away my parking spot. So, I think that the greater good will be served here, I think that's been a concern that people have expressed.

But I think this is really well designed public policy and in that it creates are of a competition for capital. Because there are three benefits here in the Opportunity Zones program. You get to defer your tax liability, you got to reduce your deferred tax liability. But the biggest is that you don't pay taxes on an investment in an Opportunity Zone if you hold it 10 years. But the way that works is, you have to make money, right? The benefit of not paying taxes is only worth something if you have a gain.

So this acts like an amplifier, right? It doesn't turn a bad investment into good investment. It turns a fair investments, a good investment. A good investment into a great investment. A great investment into a fantastic one. Right?

Jack: Right.

Brett: But so as a consequence, you know, it creates a competition among the cities and among projects. So, this will not help all areas, right? I don't think it's going to help Stockton, California. I don't think it's going to help rural areas in Kansas, but I think when the sun sets on December 26, 2026, that there'll be a lot of good that will come out of this.

Jack: I tend to agree with you. I've also thought, you know, I live here in Arizona. We've got the Palo Verde Nuclear Plant, 30 miles west of town. All of the Indian reservations in Arizona. With the advent of fourth generation nuclear, it seems like somebody has got to be looking at fourth generation nuclear in these rural areas with Opportunity Zones. Comment on that if you choose, I'm just putting that out there for the world. Hey guys, let's put fourth generation nuclear and Opportunity Zones together. Let's make it happen

Brett: I don't know enough about fourth generation nuclear to speak to it. But I'm not saying that that rural is going to be getting no benefit from this. I just think that the preponderance of the benefit is going to go into cities. And that's because when you're making a real estate investment, the things that correlate highest with, real estate values is where people are moving, right?” And where the job creation is. And you know, this urbanization is a global phenomenon.

It's not just In the United States. And so I think the money will follow the people and the people are, are more increasingly moving to cities, a lot of secondary and tertiary cities. You know, whether it's Charleston, Savannah, and Jacksonville, you know, Salt Lake, Denver, Portland. I just flew in from Seattle. I mean, Seattle has grown from 550,000 to 750,000 over the last 20 years or 10 years, I think. Incredible growth.

Jack: Yeah. I was last in Seattle 20 years ago, and as it understand it, it is not remotely the place I last saw.

Brett: So, Amazon has 32 buildings in Seattle. They occupy 32 buildings. I mean, it's just incredible. I was visiting with a classmate who actually used to run their real estate and I got a tour of the biosphere. I don't know if you're seen it. Jeff Bezos built this…

Jack: No.

Brett: You know, they look like three half-soccer balls. They’re huge and it's like an architectural marvel, but inside of it is all this plant life around the world and it's a whole ecosystem. It's built to be like this very Zen place to go for Amazon employees to work, to relax, to have meetings.

Jack: Oh.

Brett: They do some public tours. You know, I was, walking up to have an old classmate give me a tour. But if you know, if you find yourself back there or anyone listening does, it's certainly just to go see from the outside is incredible. If you can find your way inside, it's quite an experience.

Jack: Well, we've got the biosphere science experiment.

Brett: That's right your biosphere 1.0.

Jack: Yes, we do. That's a fascinating experience. It really is. I took the kids there when we first moved to Arizona, lots of life lessons that came out of that.

Brett: Right. It would be Darwin's wet dream to go into this particular place.

Jack: Yeah, absolutely. Hey, let's step outside the realm of Opportunity Zones, in particular and talk about Salt. Salt is coming up here in a couple of weeks. Give us a quick promo about it.

Brett: We're super excited, Salt was on hiatus for a year. So, we're bringing it back. This will be the 10th Salt, and there's just a terrific lineup. I mean, Anthony will be doing a session with John Kelly who fired him, so they're going to kiss and make up on stage and share war stories. Which I think will be pretty fascinating. You know, we've got a bunch of really interesting guests, including Nikki Haley, who I've never heard speak, but I hear is phenomenal.

And on the Opportunity Zones though inside, we really have, you know, every, everyone you would want to hear speak with the exception of, you know, Sean Parker, who is sort of the intellectual godfather of this program and just does very few public events. But we have Dr. Ben Carson, who's leading up a task force, the founders of economic innovation group, which was the think tank that drove the idea. Dan Kowalski, who heads it up, Steve Case, who's been a big voice on it. Jim Sorenson, who's a billionaire from Utah has been a big voice and advocate of Opportunity Zones. So, it's, it's really an incredible, collection of content, for anyone interested in this.

Jack: And the Opportunity Zone Expo is going to be in town at the end of.

Brett: Right down the street.

Jack: Right down the street.

Brett: They kindly asked me to participate, so I'm going to show up on Friday and I am sitting on one of the panels. So, Vegas is descending upon, I mean Op Zones are descending a Vegas together.

Jack: I love to find out about the people I'm talking to. So, outside of your financial expertise and your operational expertise and your sales expertise, what are you best at? What gets you up every day? Gets, gets you excited?

Brett: Well being a dad. That's kind of a boring answer though.

Jack: No it's not. I'm crazy about my kids. So, we can talk kids all day. I love that. How many you got? Three.

Brett: I’ve got three. I got a graduating senior from college, a high school this year and the sophomore. And now they're awesome. Three awesome girls.

Jack: Do girls run in your family?

Brett: Well, not really, you know, I from my family in terms of, you know, where I grew up, it was me and my sister who you might've heard of, her name is Debra Messing. She's on "Will and Grace".

Jack: You know, I had seen your last name, and I thought I recognize that last name. I did not realize that.

Brett: Yeah.

Jack: Well that's good. Yes, I have heard of her. Okay. Let's, let's move on. We've talked about being a dad. What drives you out of your mind?

Brett: My ex wife. Can I say that? I won't say her name.

Jack: Oh God. Yeah. I've got one of those too.

Brett: But I'm very Zen about it. I meditate and time heals and we all move along and we had some great years and we had some good years. And some that weren't as great or good.

Jack: You brought up something that I am really interested in. All of us who are investors are people as well, we're not machines. Meditation is one of the things that once you reach a certain age, like you and I have, learning how to manage the interior becomes really important. Um, what have you learned about meditation? What works for you?

Brett: Well, we could talk for an hour on this Jack. I've been meditating for a little over a year. I would suggest your listeners read Dan Harris's book "10% Happier", which is just phenomenal in terms of sort of acting like a gateway drug into meditation. And you know, I meditate 10 minutes in the morning in the middle of the day, and at night.

The first way in which I noticed was I sleep better. I've always had trouble quieting my mind and sleeping and I sleep much better. And I mean the whole concept of sort of responding and not reacting has application well beyond meditation. Uh, you know, I wish I had been doing it for the last 20 years. I think it makes me a better human. I think it makes me better at my job. I think it makes me a better dad. And I'm a zealot about it.

Jack: Is there a physical component to your practice as well?

Brett: No, I, you know, I usually just sit on a chair, you know, I'm not as flexible as I like, although I stretch every morning, so I don't do the cross leg thing. I sit at a chair, I have a couple of the apps and actually I have the 10% Happier App, which Dan Harris, the author of the book I referenced, and also a book by a guy named Sam Harris called “Waking Up”. And I sort of rotate through different guided meditations. But you know, I like to do body scans to the extent that it’s physical. But, I'm really, it's about sort of sitting still and focusing on the breath and it's hard to explain, how impactful it's been.

Jack: You're right, we can talk about it for a long time and I don't want to bore our audience with that. I do have one. 

Brett: They think both of us have man buns and tattoos all over ourselves. That's what that's…

Jack: I have no hair at all.

Brett: So like I said, just before we sort of move along from that. But the thing that really got me into meditation was actually the science of it. I mean the spirituality of it just speaks to me.

Jack: I was going to ask about that. I was going to talk about Steven Kotler and Stealing Fire, carry on. Go. Go.

Brett: Yeah, I mean there's just indisputable science that demonstrates that it reduces stress, it helps you sleep better. It makes you less likely to get sick, it makes you happier. And there's this whole field of positive psychology that's developed and I've read a number of the books. The one I would recommend is called the “Happiness Advantage” by Shawn Achor. And they all recommend meditation; there's a direct line from meditation to happiness, and there’s a connection from happiness to longevity.

Jack:  Brett, I appreciate your time. Is there any last words you'd like to leave us with before we sign off?

Brett: Well, I guess to any perspective investors out there, I think I would spend a little time to get to understand the Opportunity Zones program. Again, to me it's a tool and it has use in a variety of different contexts and we're seeing people use it differently. You know, if you just summarize it, the government is subsidizing investors to de-risk their portfolios.

And so, you know, anyone who has sort of concentration that exists in any kind of an asset and that concentration usually exists because they don't want to pay the capital gains tax. As I said, getting subsidized by the government to reduce the level of risk in their portfolio. And it's only gonna be around for a few years and the maximum tax benefit is available if you invest in 2019 so now that we have treasury regs, I think it's timely.

Jack: Well, Brett, if folks want to know more about SkyBridge or Brett Messing, what's the best way to get that information?

Brett: Visit our website, Skybridge.com and there we are.

Jack: And I'll remind our listeners at all the contact information and hopefully some of these books that Brett talked about will be available printed on our website. I am Jack Heald for Brett Messing and the Opportunity Zone Expo Podcast. Thanks for listening and we will talk to you again next time.

Announcer: This Podcast is for informational purposes only and does not constitute legal tax or investment advice. For specific recommendations, please consult with your financial, legal, or tax professional.

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