The future of real estate investing: Pretium’s Don Mullen on the rapidly changing asset class
44:33 Share

Welcome to another episode of Goldman Sachs Exchange's Great Investors. I'm Alison Mass, Chairman of Investment Banking in Goldman Sachs' global banking and markets business, and your host for today's episode. Today, I have the great pleasure of sitting down with Don Mullen. Don is the founder and CEO of Pretium, a real estate-focused investment firm with about $57 billion in assets under management.

Before that, he spent about a decade here at Goldman Sachs, where he served as head of our securities division's global credit and mortgage business. Don and I have known each other for almost 40 years, and I'm excited to- You look much better than I do over those 40 years. Thank you. I will accept that compliment. Don and I have known each other for almost 40 years, and I'm excited to hear Don's views on the housing market, and in particular, his predictions about the future of real estate as an asset class. So Don, thanks so much for being here. Thank you.

Thank you for having me. And nice to be included in a great investors group. That's very kind of you. Well, you're one of the greatest. Greatest. Very kind. So let's start in 2012 when you left Goldman Sachs to create Pretium. What did you see at the time that made you want to take that risk? Sure. I saw a couple of things. I'd say that in those 40 years that we just referenced, I had the opportunity to see the savings and loan crisis.

The tequila crisis, LTCM.

long-term capital management, for those of you old enough to know, and the dot-com. And so each of those crises really ended up reshaping the markets, regulatory environment, and capitalism a bit itself. And so when the global financial crisis happened, my view about that was that we were going to change the manner in which we lent money for mortgages, that we would be in a position that we had to move 10%,

10 million Americans out of homeownership into rentership and that the assets themselves were trading at a material discount. I also had a view, quite frankly, that my time at Goldman Sachs was over. Not because anybody asked me to go, because I was old enough that it was time to quite candidly either try to be in

higher management at the firm, which I am politically completely incapable of executing. Not true. And as a result, thought it best that I move on to something that I might add more value to.

than here. So with that, I often viewed myself as the least successful member of my cohort of people. So we were talking about partner cohorts. My cohort includes successful fellows like Dave Tabber and Mark Rowan and Tony Ressler and I could go on and on of people that we both work with. I said, you know, they did it as entrepreneurs much more than working here.

Each of them, I think, benefited from either a great idea or a great market entry point. And I saw this as a generational event. And despite my years in corporate credit and a small amount of time in mortgages, I thought the investment moment

was all about single family homes and mortgages, and it would be an investment event, one of the greatest ones of my lifetime. Well, it was certainly a great idea and perfect timing. And it sounds like Pretium was formed in the shadow of the financial crisis, as you mentioned. So how has the housing market changed since then? Sure. So we've, as a country, made the decision that we wanted to substantially reduce systemic risk in the system.

So the first thing we did was we created the qualified mortgages, which is reduce the risk in underwriting and increase the speed, quite frankly, that you could underwrite a safe mortgage. And with that, we defined a box pretty narrowly, knowing full well that we would increase the number of people who are renters versus that.

Relative homeownership volatility is modest in the United States. If we go back to the 1960s, I think we varied between 62% homeownership and 69 over the course of that almost 64 years. So while the changes that we were making were significant in reducing systemic risk, we weren't changing the American dream in a way that it wasn't attainable for the majority of Americans. So I think one of the most important parts of the housing crisis

was the manner in which we rationalized the industry. So we reduced home construction dramatically in the face of an oncoming tsunami of demographics. If you looked at the history, even at that time, you could tell that millennials were aging, that we were going to be in a position within a decade, we were going to be short a substantial number of houses. That shortage is expected to last to the least 2040.

So we have years to go and we have a massive demographic imbalance between housing volume and prospective homeowners and home renters. And so as you can tell, we're building homes as fast as we possibly can today, but that's still not going to meet the needs of the American people today. So we should expect a persistent and continued shortage of homes.

So with that as a backdrop, how is Pretium capitalized on those opportunities you're talking about? Sure. So we're the largest private owner operator of single family homes in the country today. We are also the fourth largest manager of residential assets, both homes and apartment buildings in the United States today. We're one of the largest lenders to people who renovate homes, investors who do what's called a fix and flip.

So we're one of the largest lenders in that space. We're also a top non-QM lender.

What's non-QM for those listeners? Non-qualified mortgages are people who don't fit in that box that I described earlier. So ironically, those are people like Ben Bernanke. The non-qualified mortgage means that you don't get a W-2, so you're not a regular employee. So if you're a speakers bureau person like Ben Bernanke or an artist or a consultant or a person who owns a small business, a chain of dry cleaners or drugstores or gas stations,

you're a non-QM mortgage. So many Americans. And those have to be bespoke underwritten. So I have a business that does that too. It's been a terrific business and we're really very happy how many folks we've been able to lend until they can buy houses. And we are also in the business of buying stressed and distressed mortgages for people who need to have help working them out so they can become re-performers. So we have an ecosystem that touches almost every part of housing in the United States.

So you've talked about your unique investment approach as the company's both an asset manager and an operator of those underlying assets. So does that give you certain advantages? Sure. I think being in a position, it's a higher level of complexity. So if you think about what we really like,

It's high complexity. And so whether it's serving single family homes, meaning owning, operating, leasing, repairing, we do all that. We do the same thing in multifamily. We originate mortgages, as I said, and we work on stressed and distressed mortgages and make those loans for fix and flip. Let me give you a sense of why it's important to own the operating company. The average unit size of what we're talking about

is $300,000 to $400,000. That's a lot of units when you're managing almost 60 billion of them. So that's a lot of units. And so as a result of that, you're in a position that you need an operating company that you can control its focus, make sure it makes the right investments in technology, optimize workflow to deliver efficiency on behalf of your investors.

And so one of the unique things about the firm relative to what investing was like 20 years ago is we take highly fragmented asset classes and are able to roll them up into investable scale global institutions. And that's relatively unique. And that's why we have such a large cohort of operating companies to do it. Yeah. So let's talk a little bit more about investing in single family housing. How far have we come in terms of making this asset class investable?

And how much more progress do you think can be made? Sure. So we as an industry still are in a position that the single family rental business managed by institutions operate about, let's call it three to 4% of the industry. Multifamily is an industry that's had institutional investors since the early 1990s, increasingly dominant in that space. That was one of the moments we talked about the savings and loan crisis at

that industry moved into institutions and away from individuals. So there's tremendous upside growth for investors in this space. I strongly believe it benefits the residents in these assets because we're able to provide

more services at the same cost as renting from an individual. In addition to that, we've been able to have houses in, I would call it better communities, meaning our houses are predominantly in good school districts with low crime rates. And the goal behind that is that helps folks who are renters get into better communities and helps in many cases break intergenerational poverty. It's important to understand

You know that if you look at the Harvard housing study on homeownership versus rentership,

they point out that the most important thing to break intergenerational poverty is, yes, owning a house. But the second best thing is renting a house in an ownership community. In a good school district. That's what ownership communities are rented by. So not being in a rental-only community. And so while it's a challenge for many public policy people who are less understanding of this topic to think that a house might have been owned by someone, the family living in it feels it's a blessing.

And so with so many Americans, remember of all the homes in America, almost a third are rented, right? And 41% are renting. And of those people who are renting, 70% of them would prefer to live in a house than an apartment building, but can't. And one of the reasons why single family rental is actually declining as a choice. It's down the only asset class over the last five years that seen it decline in square footage is single family rentals.

Why is that? Because the moms and pops went through COVID and couldn't sustain the challenges of managing through that problem. And so they've been big sellers of assets. The industry shrank, not from the institutions, but from the individuals.

So, is it an institutional investable asset class? Yes. I have clients from Australia to Abu Dhabi. Is the liquidity of the asset getting better? It's yes, but real estate generally, as we know right now, is sticky as interest rates went up pretty dramatically and that's created a dislocation in many forms of real estate, except for everything, maybe not data centers.

And so what we see right now is that is we think that we're in a position that we get a more understandable rate on interest. I think people don't understand right now where interest rates are going because we have the challenge of public policy around tariffs and immigration. As soon as we have a better understanding where rates will go, I think you'll see real estate start to trade more aggressively. But yes, this asset class is institutional and it's happening right now.

Well, we talked about this a little bit earlier, but when you think about the future of housing in America, will owning a home be as important as it's been historically? Or do you think long-term renting is going to become more common? Well, if you travel the world, so we can look at data from around the world, and some of the highest homeownership rates in Europe are in Greece and Italy, ironically. I don't think that'd be anybody's

And some of the lowest are in Germany and Denmark and some of the other countries that are viewed as, you know, historically engines of growth in Europe.

The United States, I don't think, should be as concerned if rentership grows because it improves labor mobility, which is an important thing. That's an important part of GDP growth is being in a position that the workforce can move around. And certainly the most recent increase in interest rates from a very low number to a more normalized number has slowed labor mobility.

But I'd also say there's alternative ways for people to save. And the tax advantages of owning a home have not been as attractive because the standard deduction versus the itemized deduction, not to geek out. But then last but not least, as I showed you a chart earlier, it's actually cheaper to rent a house than to own a house right now.

And so, there are different periods of time that I think it makes more sense to rent versus own. This is one of those moments. I think that there are a lot of people would have been better off during certain periods if they had rented a house and invested in the stock market. So, I'm not going to take one side or the other of that story. I think we should leave people the opportunity to make those choices. Again, someone with a 620 FICO score, where there's a lot of Americans,

with $40,000 to $60,000 of debt, be that student debt or auto debt, they cannot buy a house in this country. They need to be able to rent a house. And so unless we're going to be in a position to say those folks don't have the right to live in a house, we need an industry that rents them houses.

By the way, you and I grew up in our business lifetimes mostly in a zero interest rate environment. We're very fortunate. A lot of our career was in a zero interest rate environment, which is interesting. I want to talk a little bit about how interest rates impact your business. And I imagine that there are a range of implications, perhaps some positive and some negative. And you've built this business through highs and lows. Now, as you say, more normalized. So talk a little bit about that.

Sure. We've lived through a pretty unconventional period. When I first started raising money and I was talking to investors and the most common question was, well, if we have such a large imbalance of demand versus available supply of houses and so many people with lower FICO scores, what could go wrong? And my answer was having worked here at Goldman Sachs and not on my resume as I helped run the life insurance company that we had at the time. And we used to have a thing called the Spanish flu stress test.

What is that? That was when the Spanish flu hit and how many policies would you have to pay out versus your liquidity and assets when you had a large cohort of people become sick and dying. So I would say to people during the period that I was raising money, something like a pandemic would be very bad for house prices. So I bring that up as a self-deprecating comment because clearly I was wildly wrong.

And that a pandemic drove up house prices rather dramatically. And let me bring that to what that means with interest rates. Because if you had asked people what was going to happen when rates went up, people would have said to you that house prices would sag. Right. But because we went so quickly up in interest rates off such a low level, what we did was we destroyed not the demand function as much as we destroyed the supply function.

So, while home builders are building at pretty rapid rates, we have a 70 to 80% decline of homeowners selling their home and moving on. So, the net available of supply of houses available are down. Demand is down less than supply is down. So, higher interest rates actually caused some increase in home prices.

very unexpected by the Fed and everyone overall, just like a pandemic caused an increase in prices and no one expected that. All right. So I want to pivot to talk about your path into finance, understanding whether you saw yourself having this type of career. And then I want to go back to your time at Drexel Burnham L'Envers where we actually worked together and first met.

Well, so I grew up in New Jersey and my dad was an elevator repairman and I didn't really know what job I was going to have. So my mom likes to tell the story and I've recovered from the trauma of my mom telling this story.

That the first job I had wanted was to be a detective because I read a book called Encyclopedia Brown. Yeah, I love that book. When I was a kid. It's a great book. And I actually, I was the only kid, instead of a lemonade stand, I had a detective agency. I love that. Out on the street. That is a great story. And it's, my mom loves to tell that story and I've gotten over the embarrassment. By the way, it's not too late for your career. Exactly. Magnum PI version, right? I can get a nice car too. Yeah.

But with that, so I never thought of finance. Nobody in my house read the New York Times or the Wall Street Journal. My dad didn't go to college. And then my mom, they got married when they were 20 and 19. And my dad was in the military and then became, as I said, an elevator repairman. My dad's only rule growing up is that you have to go to college. It's a good rule. Because he was the only one in his family, his brother and sister went.

So with that, I had an ironic twist in life, which people find hard to believe. And our old friend Harvey Schwartz makes fun of me when I say it, which is I think I'm the only person ever in the history of the university system in the United States

who was rejected at Rutgers and accepted at Yale. That is funny. I think I'm the only person. That is really funny. I think the odds are pretty much I'm probably the only person. Probably. Right. That's hilarious actually. Yes. So with that. Rutgers lost by the way. And so I ended up having a new perspective. And I started as an English major in college. Which and then I realized how little money English professors make. And the odds of me actually becoming a great writer was low.

And so then I made the transition into economics and got a summer job. And I still had absolutely no idea what Wall Street was.

Was a summer job at Drexel Burnham? No, my summer job was at First Boston. Wow. Okay. And I was, that was pre-Excel spreadsheets for those of you who don't know what that was like. So it was green accounting paper that you had a hand write? Uh-huh. And I made spreadsheets with a big piece of, we used to call it oak tag, you know, those big poster boards. Yeah. With a pencil and white out. That's amazing. And then I would photograph them, you know, like in the big printers.

to make spreadsheets for our research reports that we sent out. I'm sure our listeners do not know what whiteout is, but that was a classic of the 80s. That was. That was. So, yes. So, I didn't know what I was doing when I was hired in the fixed income research. And I thought that meant I was investigating or analyzing Social Security payments. And little did I know it was the bond market.

So talking about Drexel Burnham, what did you take away from that time in your career? And what have you learned about building an organization?

Sure. Well, that's a podcast all by itself. So from Drexel Burnham, I'd say the most important thing that I learned was cash flow. Liquidity. Not just the liquidity for the company you work at itself, which was important, right? But the world, having spent time doing corporate analysis before I went there, my background was research for, let's call it six, seven years before I got into the high yield marketplace.

Credit research? Yep. I was a credit research analyst. Any particular industry or just? I first started out in the electric utility industry, which sounds really tedious. I was just going to say, fascinating. Except it was the period we were building nuclear power plants. Okay. And the industry almost went completely bankrupt. And the reason was because of a thing called AFUDC, which I won't give you what the acronym means, but I'll tell you what it is. Okay. Capitalized Interest.

And so what it was is that people who were doing the research, because the industry of quality fixed income research was so new, didn't know the subtract, actually didn't know how to add back FUDC.

they just subtracted it. So they saw interest coverage ratios and debt service capability far in excess of the company's true ability to service. And so several utility companies went bankrupt and it was the beginning of distressed investing after Penn Central. So with that, I became very focused on learning about real accounting, not just reported gap. And so as a result,

became a better bond trader, bond salesman because I actually understood the financial statements and I understood cash flow. And that's why Drexel hired me. And everybody there was about cash flow.

So, I want to go back to the second part of my question, which is, what have you learned about building an organization having founded Pretium and you built it to where it is today? Sure. I have the incredible benefit. So, over those 40 years we just talked about, I did a pretty good tour of Wall Street and I worked at First Boston, as we said. I worked at Drexel. I worked at Salomon Brothers. I worked at Bear Stearns. I worked at Goldman Sachs.

So, you know, you get to spend a long time places and it doesn't mean that I skipped around. It just means I'm old. And so with that, each organization really gave you the opportunity to get a perspective both on the different cultures as well as thoughts on risk management.

how important people are to a successful organization, and I think most importantly, the work ethic that it takes for an organization to succeed. So at most of the organizations, I would say the successful ones in particular, incredible work ethic. Optimism is critically important. Pessimism is an important thing to be aware of.

It's a tool to use in risk management, but it can't be a dominant factor in the culture. Bear Stearns had a little excess pessimism in the way they approach things and therefore didn't take enough risk to succeed. And we can have another podcast that talks about why they did fail. It wasn't about

They're risk-taking on their trading desk as much as people think. Goldman Sachs was filled with optimism and confidence. Still is. And I think it's a critical part of its culture. And I think that you need to be optimistic. Again, hardworking, high-quality people who want the organization to succeed is critical. A bonding of people to try to accomplish that. And growth is critical because

Because when people feel like they're on a shared mission to grow something, they take great pleasure out of it. But working really hard to go sideways grinds people down. It's not a lot of fun.

So hopefully that was helpful. Very much so. And I'm sure you can spend another hour talking about what you've learned about building organizations. So before you joined Goldman Sachs in 2001, which by the way, it's the same year I joined, you actually discussed work-life balance with Lloyd Blankfein, our CEO at the time. So tell us that story. Right. So I won't say that I have the view of work-life balance the way it's discussed currently. I had recently gotten divorced.

And I had the wonderful benefit of joint custody. And so I had my daughters every other week for the full week. And it doesn't matter of all the things I've had the great opportunity to do, which is, you know,

He did the White House with a bunch of presidents or be on the board of a bunch of companies or have great colleagues during financial crises where we made money when other people lost money. I can go through the list of bands I've seen, concerts I've been to. It doesn't matter. The most joyful moments are being with your children.

and having them have joy in accomplishing or doing something. So when Lloyd was trying to hire me, I said, "I have just one rule." And he said, "What?" I said, "Every other week, I am home for dinner."

Every single night. Every night and it doesn't matter. And how did he react to that? He looked at me like I was a Martian at first. And in only the way he can, he thought of a way to commercialize it and decided to make me a figurehead of work-life balance, which no other person on earth would ever have thought of me as a work-life balance person. Because on the other weeks, I worked. Right. 24-7. 24-7. And he still would call me on vacation.

with my daughters and ask me what the hell just happened on something. But it's important because the opportunity to spend time with your children and watch them grow is one of the best experiences any person can have. And so I think we should all try to find the opportunity for people to have that. So I just I'm going to go off off script for a minute. You mentioned that your mom had one rule that

You had to go to college? My dad. My dad. Or your dad. Okay. Had a role. My mom, a God lover, used to say it was too stressful for me. I shouldn't go. All right. So your dad had this role. You had to go to college. Do you have rules for your children?

and what are they sure and they didn't listen to me so the first thing i said was please can we not get tattoos before college that's a good rule i said it didn't work and i said listen because in college i i have no control anymore anyhow so that didn't work they just hid them until they were in college so yeah then i had pretty rigid

times you had to come home. Did that work? That did work, though, because I had more control over that. I'd be standing at the door. Right. And they all complained, but I used to say,

when you're 16 years old there's nothing good happening after 11 o'clock and 17 could be midnight and maybe senior year got to 1am on saturday nights but that was about it so yes we had good rules but there were also you know academic rules that there were no tv during the week there was you know that was completely defeated by social media on your laptop though but yeah i had i had extensive rules and i was known as the strict dad among their group of peers

Okay. By the way, my husband always says and said to our kids in high school, nothing good happens after midnight. Yes. That was his rule. And they'll still think it's true. Yeah. No, absolutely. So let's continue on with your life outside of work. You're also a passionate art enthusiast.

In fact, I'm not sure how widely known this is, but you were instrumental in bringing art to the High Line, which, for those of you not in New York, is an elevated freight rail line that's been transformed into a public park. So talk about that experience and why art has played such an important role in your life. Sure. I took my first art history class in senior year of college.

And I was completely overwhelmed by just the experience. That once I started making a little bit of money and being in a position I had a little bit of free time, I spent a lot of time at museums and starting then to think you could actually collect things, which just never occurred to me. I don't know why. And I began a contemporary art collection. And it was at around that time that

the other Goldman Sachs partners were getting very involved in the High Line. So lots of folks here were big in helping the founders help create the park. And that group of folks asked me if I would like to get involved. So I met Robbie and Josh, who were the founders, the real catalysts behind it. And they asked me to sponsor the garbage collection program. The garbage collection program? Oh, yeah. So this was really both a true story and somewhat unfortunate, but

All the guys from Goldman had gotten the opportunity to sponsor these beautiful ends of the park, this sitting area, these trees, this cafe. You got the garbage collection. And I was getting the garbage collection, which I really did feel was typical of my role on management committee and Fick that I could put my name on the garbage cans. There was not going to be a banker who was collecting the garbage. Definitely Fick.

So I said, not sure I really want to do that. But I said, Robbie and Josh, what do you guys think about your art program? What's your program going to be? And they said, we don't have an art program and we will not have an art program. I said, that's not possible. You're running...

One of the great public parks in the world. You're renovating an extraordinary early 20th century piece of infrastructure and making it into one of the most accessible, unique pieces of city architecture and park in the world. And all the galleries are on either side of it. You have to have an art program. And they said, no, we're not going to have an art program. And I said, just tell me why you're not going to have an art program. Not to make this long winded. They go, we can't afford it.

We have so much money that we have to raise for the park itself that we can't afford any mission outside the park itself. I said, that makes perfect sense. I understand that. Well, if you change your mind, call me back. They called me about a year later in classic, like a sitcom. They said, we have good news and we have bad news. I said, okay, what is it?

The good news is we're going to do an art program. And I said, that's terrific. What's the bad news? There can't be any bad news. You're going to pay for it. You're going to sponsor the whole thing. I said, well, that's not a problem. I'll talk to my friends at Goldman. No, you have to pay for 100% of every piece of art that we do on the High Line for at least the next five years. Wow. It's a big commitment. And I was like,

Oh, okay. Let me think about that. Yeah, I'll do that. And it's been one of the, you know, like I said, your kids are the most important thing to you. Being in a position to be involved with the Highline in Art program is something that I've been very lucky that they made that decision. And I'm very thankful that they gave me the opportunity to be involved. And the money is irrelevant. It was wonderful. It's still wonderful.

And it's extraordinary. I mean, New York is one of the greatest cities in the world, objectively speaking, of course. And I think the High Line is number one or two thing you're supposed to see when you're in New York in terms of tourist attractions. Yeah, I think it's a top two or three visited site. Now, it wasn't designed for that, which is why it's so crowded. The original surveys, when it was designed, thought they would have almost one-tenth the tourist visits.

That's amazing. And it's become catalytic around the world where other people come to study it to see what they can do with their old infrastructure in cities and not just tear it down, but renovate it in a way that brings more life to those communities. I think it's already accomplished a lot of that.

So, before we move to the lightning round, which I'd like to do, I want to end with a question on how you see Pretium evolving. You were early in finding a new way to invest in real estate. So, what are some potential new investment categories that we could see?

Sure. So I mentioned in passing what we do in residential credit more broadly and real estate. And so we lend money to, I mentioned, fix and flip folks who renovate houses and make them for consumers to buy. And so that's a way we need to renovate housing stock in America.

We have the oldest age of housing stock in American history now. And so we have a massive renovation need as a country to be in a position that folks can purchase houses that were not really of contemporary nature. I won't go down the rabbit hole, but I will say that in changing the mortgage system that we did in 2008,

We changed it so it's harder for a consumer to do that themselves. And so as a result, we need this intermediary of investor to renovate houses. So what you'll see us do is continue to grow by helping facilitate renovation and building houses. We're fast growing in to be one of the largest lenders to home builders in the United States.

You're going to see that occur because banks are exiting that field. So like they've exited a lot of other businesses and created the growth of private credit, they're exiting lending to home builders. They're exiting lending to land development. They're exiting lending to lot finance. They're exiting lending to multifamily construction. And we and others are taking over that. So you should see us be very large in that space.

over the coming years. We continue to see opportunities in what we call residential credit, which is our stressed, distressed MSRs, all the mortgage universe of assets. It's a pretty resilient all-weather strategy that we continue to grow. And we're very excited about the opportunities in the coming years.

And we think right now is in fact one of the best times to invest in that category. You also will see us become international. I deliberately did not choose the word global, but international because the problems that the United States faces are not unique. Longevity is something that's happening worldwide. So people are staying in their houses longer. Immigration is something that most countries need at some dose of. We can all debate what's the right amount.

but because birth rates have been flat to down, we need immigration. So the UK's short houses, Canada's short houses, Australia's way short houses, the banking system's not up to the task of lending in all these places. So there's need for the same banking products and renovation products that we've talked about. So I would expect our firm to be international as we think of the coming years with the same set of products, multifamily, single family, home builder, lending and mortgages,

And that I think you'll also continue to see us look for adjacencies so that we can continue to be in a position that people look at as the go-to firm in residential assets, internationally and domestically. All right. So we'd like to end these sessions with a lightning round. So we're going to run through a couple of questions and just get a quick answer. That's hard for me, but I'll do my best. Okay. What was your first investment?

I always think my first investment was my studio apartment at 77 Bleecker Street as that. How did that investment do, by the way? Well, well, well. But I would say that my first financial investment, separate from a house, was buying long bonds when interest rates were at 14% on 30-year. Do you remember, I think when I started, I think the prime rate was 20 in like the early 80s. For sure. A crazy time.

All right, you talked about music a couple of times and concerts. Who's your favorite musician? Well, I have lots of favorite musicians at the current moment. I will say that my daughters like to make fun of me because I'm a big chaperone fan. Love chaperone. And the Charlie XCX, and I'm not even sure I know how to say that right, but I love those are my two current favorites. And then I have a new wave group of favorites.

I'm a blondie fan and the psychedelic furs and the talking heads. And then obviously some of the best concerts I've ever been to are Rolling Stones concerts who I've been to well over 20. I had the pleasure at a Rolling Stones concert on that must be their third or fourth retirement tour. And I was at the Prudential Center and I was with my daughter who my middle daughter who's a huge Stones fan. And we're sitting there and there's this blonde woman sitting next to us all by herself.

And she was very charming and chatting with everyone and ba-ba-ba-ba-ba. And then the Stones had Bruce Springsteen come out

Wow. It was great. And then he went back and they said, our next guest is Lady Gaga. And so my daughter and I looked up and looked left and the seat was empty. No way. And so she performed and then she came back down and said, she goes like, how'd that go? Oh, my gosh. And so we were like, I cannot believe we were sitting with Lady Gaga. And didn't know who it was. And we're both Gaga fans. That's great. My new favorite is Shabuzy. Oh, yeah. Which my daughter teases me about, who I think is fantastic.

It's fantastic. All right, back to our business lightning round. So what do you think your greatest strength is as an investor? I've had guys call it like pattern recognition, right? Which is what a lot of folks do in this space is I've never had what I would call short to intermediate term pattern recognition skills. So

there's a lot of great stock investors. That's one of the things that they can do. I'm more of a pattern recognition long arc, as we've talked about. It was so obvious to me in 2008 that we would change the shape of the mortgage market and that if you were early capital into it, you could be in a position to forge a business out of that. And so I constantly look for that. And I think that's

The value doesn't mean I'm always first, but I try once we make a decision to go into it, we become very successful at it. And so I think it's that understanding when businesses are dislocated. In many ways, what I would characterize, which you said earlier, what did I learn from these other firms?

It was less about investing and more how to build a business that invests. So it's not like I'm some folks who would wake up in the morning very successfully like Dave Tepper and look at a stock and he understands where it's going to go. I'm not that person.

But I can look at trends and fundamental trends, regulatory trends, GDP trends, and things like that, and have a sense of where we're going to go and then try to manufacture an enterprise that will capture the opportunity from those changes. Yeah. Well, as you said, pattern recognition. Yeah. So what's the best piece of advice you've ever received?

Well, I'll give credit. I had a colleague here named Pablo Salame. I know Pablo. And like all partners at Goldman Sachs and FEC, we were all competing with each other every minute. And so we were very parsimonious with our-- That's a good word. --compliments to each other. Okay. But we had some rough times and Pablo was very kind to say,

Don't doubt your confidence in your ability for pattern recognition. It's very extraordinary. So that was an insight and a compliment that at times you needed. So I give Pablo credit for that. Advice I'd say more from my dad, who more or less said you have no control over where you're born, who you're born to.

whether you have hair or don't have hair, whether you're charming, you're handsome or not, but you do have control over how hard you work. And so you may not be, you might not be able to outsmart someone, but you can outwork them. That's good advice. So that's been one of the most important things someone told me. So you've talked about David Tepper and some others, but which investor do you admire most? Well, I think there's lots of people that I look at them and I admire them for things they've created.

So he's an extraordinary investor, right? Dave Tepper. I would say that Mark Rowan's an extraordinary business builder. He's really an extraordinary business builder. And so I look at people for different skills and what they've accomplished in doing those things in the space that I know.

the best. And so, Mark's pretty high up there on all skies. I think that, you know, I'd say that having been here, I give a lot of credit to both Lloyd and David. This is a not fun place to run and I know everybody thinks it's a fun place. Maybe it's not fun every day, but it's probably fun. I will tell you my happiest day is when I realized I would never run this place and I thought I was going to be sad and I was relieved.

I think it's really hard. I think they earned every nickel they get. It's a really hard job. So I admire them for their contributions and the hard work they put into to deal with it. But I would go back like one of the best investors I ever saw was Tepper and one of the best business builders is Rowan. So where do you spend your time outside of the office now?

Well, I still spend time on art. I still spend time looking for pattern recognition more in books as I get older rather than the Wall Street Journal because

Things like the Wall Street Journal and research, I always feel like I'm reading something that everyone knows already. It's not new. Right. What books do you read? I'm reading books on AI now because I'm trying to understand what's really going to happen because we don't need large language models to change the world. You know, it wasn't too many years ago we called this machine learning, if I think correctly. And so I already see the beginnings of its impact on what I do.

And not just in investing, but you're going to see it even in a computer does a better job handling resident inquiries for challenges with the house than a human being does. So I think we'll see a lot of that. And one of the reasons I'm optimistic, despite these volatile times, both socially and politically and economically, is I think we will end up with an era of unprecedented labor productivity coming up.

So, similar to the 90s, though even more extreme. And I think that will allow us to improve GDP per person so significantly that I'm less worried about our high level of federal debt, quite frankly. So, I spent time on things like that. I know that's weird.

I like doing that as a thing to do. I still like collecting art. I have a five-year-old. So I have the blessings of a 32, 31, and a 30, and a five-year-old. And that is one of the greatest gifts I've ever received. So I'm going to watch him do ice hockey because he's a big ice hockey fan. It's extraordinarily fun. That'll be fun. And I like working, right? So yes, I do things that I work, but...

Of all the things you said that you asked, let me tell you one that you didn't ask. Would I have ever imagined that at 66 years old,

I would still love working 60 hours a week doing what I'm doing. And I never would have imagined it. I'm the guy whose dream was that at 45, I would buy a bar in St. Barts, right, and live there year round. Instead, here I am. Here you are. But you're having more fun than you've ever had in your life. Correct. That's great.

So, Dawn, thank you so much for being here. So, thank you all for listening to this episode of Goldman Sachs Exchange's Great Investors, which was recorded on February 19th, 2025. I'm Alison Mass. And if you enjoyed the show, we hope you'll follow us on Apple Podcasts, Spotify, or YouTube, or wherever you listen to your podcasts, and leave us a rating and a comment.

The opinions and views expressed in this program may not necessarily reflect the institutional views of Goldman Sachs or its affiliates. This program should not be copied, distributed, published, or reproduced in whole or in part, or disclosed by any recipient to any other person without the express written consent of Goldman Sachs.

Each name of a third-party organization mentioned in this program is the property of the company to which it relates, is used here strictly for informational and identification purposes only, and is not used to imply any ownership or license rights between any such company and Goldman Sachs. The content of this program does not constitute a recommendation from any Goldman Sachs entity to the recipient,

Thank you.

which may vary. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this program and any liability, therefore, including in respect of direct, indirect, or consequential loss or damage, is expressly disclaimed.