Full notes of all speakers – Sam Zell, John Burbank, Barry Sternlicht, Jim Flynn, Ricky Sandler, Rupal Bhansali, and many more from the Invest For Kids Conference held in Chicago on Nov. 5, 2015.

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Invest For Kids
Invest For Kids

Invest For Kids 2015: Sam Zell – Fireside chat

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[drizzle]Is Sam Zell calling a top with sales on CRE markets?

Would know in three years. Has always been very disciplined, sold because he was being offered more for it than he thought it was worth. This sale is a bit of a different story. He determined long ago that the future was in high rises, not suburbs. Had opportunity to complete this transformation in one fell swoop. These assets should be 75% leveraged, not 33%. In two to three years from now Barry will be making money. A good deal for both. He's here today. Was able to liquidate huge amounts of the portfolio without generating any gain.

Seem to be a seller, what's your view of cycle in CRE?

In the 8th inning on Commercial real estate. When we get to the 9th inning what happens to the value of the RE at that point is dramatically dependent on the quality of the RE. High quality stuff will show minor alteration vs. the marginal stuff that today is getting historic pricing is where you'll see the impact. The U.S. is doing great today, the Rest of the World ain't, can't last too long.


In most cases is another word for ownership. The biggest fallacy is that our companies are not owned. Management has a responsibility to produce. Activists are doing much better today than what people think. There is a need for activists.

Where are the opportunities in RE?

Didn't answer the question. All over the world it's different, it comes down to where is the demand. Hard to identify any place where there is significant demand. Investing now in Western Mexico because of manufacturing build-out. Other parts of Mexico not doing so great. Thinks that you can grave-dance in the energy sector. Haven't seen all the ramifications of this bear market.  The most attractive sector at the moment. Don't need to assume oil prices don't go to zero. There's enough distress out there that you can find good assets. Look for forced sales of assets.


Went into Brazil early, things got very heady, sold all but one of their assets. Still a huge market, Petrobras and the scandals and unstable political situation going to slow the growth. When it's all said and done, it might be an opportunity. Institutions aren't yet prepared to take discounts to clear the market there yet... so more pain to come. Need to clear market first there in RE. Deferring and not facing up to issues translates into a longer and more questionable recovery.

View on rates?

Too low for too long. In never Neverland right now. No one can answer the question of, "How do we get out of zero ratesand QE?" How to service the debt if we don't keep rates low. A significant risk LT. Talked about raising rates, mortgage rates went up 25bps and the market stopped.

Invest For Kids 2015: Jim Flynn - Deerfield Management - Health Care fund

People spending too much time on how these companies distribute their products. Managed care makes it hard for patients and physicians to get the drugs. Valeant Pharmaceuticals pushes every financial structure to its limit, more a statement of their company vs. the industry.

Drug pricing - what people should be paying attention to. 1993 a big Clinton issue about why drug companies are allowed to push prices as much as they are. Drug and biotechs all fell hard. Then drug companies agreed that they would price along with generalized price inflation. At that time the high end of drug price inflation was 15-20%, Valeant reported 85 of drugs up 36%, leading to a net price increase of 24%. Breaking the industry pledge to keep drug prices in line with inflation. This is just an annual number. This issue won't go away, Clinton will attack.  Valeant acquires all the drugs it's raising prices on, so doesn't fit the high risk high return argument.

Valeant also using offshore tax status. Increasing costs to the system and taking away the revenues. Will stay in the headlines until behavior changes.

All really bad for Valeant, mostly acquires drugs - old tired stuff, raise price dramatically, no patent life, business model invests almost nothing on R&D, margins can only go one way if then need to develop. Vulnerable to tax regulation and leverage is an issue. A legit short. Could pay off all debt in about five years if things hold. That's the bull case now.

Horizon Pharma - has raised prices on some products and is an offshore company. But it chose to buy products that were targeted to physician sales, long exclusivity products and all are growing. Leverage not an issue. Horizon can pay off all debt based on FCF in one year and buy itself back in entirety in six years. Lack of risk to business model. Can double in 18 months.

Invest For Kids 2015: Steve Tannenbaum - GoldenTree Asset Management

Credit cycle sequence - Leverage ratios increase, market multiples pick up. Drives an increase in default rates. Market doesn't differentiate who defaults and who won't, it just takes the market wider. Spreads should keep widening. Almost two-thirds of bonds are trading below par, a debt picker's market right now.

Calpine - High quality company at trough earnings with FCF and low valuation. 27,000 megawatts of power gen, young gas fleet. Geothermal fleet. Half of FCF is locked in for next three years.  Operate in TX and CA markets which are difficult, oversupply and cool summers so pricing has been difficult. Also environmental regulations will help take coal capacity out of the market which will be met by Calpine facilities. YTD down 32%, market is pricing in their product will be priced off of $2 gas with no benefit of their FCF being locked in. NOLs 1.1b, buying back stock aggressively, 15% more by YE 2017. A 12% fully taxed FCF yield, selling for less than half of replacement value. Mid to high teens FCF yield going to mid 20's. High leverage is the risk, increasing supply of wind and solar, credit markets valuing calpine well, all above par. FCF conversion should improve due to taking capacity out of Tx to due maintenance, so FCF going fwd will improve.

Invest For Kids 2015: Andy Hall - Astenbeck

Consensus view of oil very pessimistic. Worries to China outlook. World hostile to fossil fuels. 2m bbl per day surplus, storage capacity exhausted. This is all detached from reality. Con-tango is not consistent with a huge over-supply, in 1985 and

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