Joe Weisenthal (2:37)

You know, the other thing too, and it's something that we've observed, which is if you go back to like infrastructure investing is not a new thing by any stretch. But you go back to the 2010s and so much of the money that was made then it was sort of like financial engineering, financial opportunities, who had dry powder at a time when everyone is broke and so forth. And one of the themes that's recurring over and over again these days is just like to make money it feels like you really have to get your hands dirty. Physical things of all sorts. And physical things have just been in our face constantly since COVID And then it's accelerated because of there's so much public money pouring into the space. So governments around the world really opening up the tabs. Then over the weekend we're recording this January 6th by the way, obviously the Maduro news. And so then there's all of the stuff. It's like, oh, who's going to rebuild all of that? We're oil infrastructure. If that oil is ever going to profitably be tapped. Like this is just sort of the physical world is sort of like the story of our time.

Tracy Alloway (3:38)

Are people talking about public private partnerships yet? I feel like this is another cyclical thing that just pops up every once in a while. I'm going to do let's bring in our guest and while we do that, I'm going to do a news trend search to see where we are in the public private partnership cycle.

Joe Weisenthal (3:52)

Yes, let's bring in our guest. Well, we really do have the perfect guest. Lots of experience in this realm. We are going to be speaking with Tyler Rosenlicht. He is a portfolio manager, global listed infrastructure and natural resource equities at Cohen and Steers. So we're going to talk about all this stuff. Tyler, thank you so much for coming on. Odd lot.

Tyler Rosenlicht (4:09)

Thanks for having me. I'm real excited.

Joe Weisenthal (4:10)

What's your job? What do you do? Why are we talking to you? What's Cohen and Steers? Let's, let's get that out of the way.

Tyler Rosenlicht (4:15)

Yeah. So Cohen and Steers, we're a long only asset manager. We primarily invest in real assets and alternative income strategies. So we're managing mutual funds and ETFs, active ETFs and separate accounts for institutional investors. Focused on a couple niche things, primarily real assets strategies here and now. So that's things like listed REITs which we're really well known for commodities and then where I help is our global listed infrastructure and our natural resource equity strategies. So these are long only strategies investing across in infrastructure. It's you know, we call the cute Subsectors. So that's communications, things like cell towers, data centers and satellites, utilities. So this is electric, gas, water, renewables, transportation, the toll roads that you talked about, toll roads, airports, marine, ports and freight, rails. And then e energy is midstream, pipelines and so forth. So we try to look at everything and, and give investors exposure to what is really a dynamic and exciting place.

Tracy Alloway (5:08)

So how busy have you been over the past year or two?

Tyler Rosenlicht (5:11)

It's been very busy. I mean, my joke used to be that I invest in all the old economy stuff. Now it's like the new economy stuff and it's the stuff that people are really excited about. And I'd say we've seen a lot of these trends kind of coming for a long time and we've talked about them for probably a decade, but they've really only surfaced kind of to the front page of Bloomberg every morning in the last 18 months. And I think that's really exciting and we've been really busy because there's lots of new opportunities. We see investment cases in traditional utilities, tons of new alternatives, nuclear, renewables, pipelines, lots of new businesses, capital formation, great opportunities.

Tracy Alloway (5:49)

And what's the balance of power actually like between investors and the companies that need investment at the moment? Because I imagine it could go either way right now. Like, the energy needs for data centers are absolutely massive, so it needs tons and tons of capital. But at the same time, a lot of investors, as we've been discussing, have been very, very eager to identify opportunities and get their foot in the door.

Tyler Rosenlicht (6:12)

Yeah. I mean, in the world that I live in, which is the sort of hard asset economy, I'd say having capital is very important. But we're now at a place in the cycle where the investment needs are so big that it's creat pretty big challenges for companies. And take the utility sector as an example. 18 months ago, if you said, hey, utility capex is going to accelerate and earnings growth is going to accelerate, every utility investor would say that's great. We've gone to such a level now that it's actually a really nuanced answer. There is so much capital required in utility investment today that it's really causing affordability problems. And some utilities we think are really going to struggle because elections are being won about utility bills.

Joe Weisenthal (6:52)

Yeah.

Tyler Rosenlicht (6:52)

Other utilities, on the other hand, actually you invite data centers into your service territory and it lowers bills. And so today I actually think from an active management perspective that dispersion in terms of outcomes and investment opportunities is as wide as it's ever been. So that's a really good thing for us as investors. And I think it's not going to end. You know, we think these are structural, secular trends that are here for a while and we don't think this is a fad from an infrastructure investment perspective.

Joe Weisenthal (7:17)

Hey, just real quickly, data centers lowering bills, headlines like that don't go viral. What's that all about?

Tyler Rosenlicht (7:24)

Yeah, it's very nuanced. So if you think about the utility business model, you know, very simplistically, the utility invests in its rate base. So let's say their rate base is $10 billion. They're allowed a return on equity, maybe it's 10%, they earn a billion dollars. This is very simple math isn't how it exactly works. But then they charge their cost to customers and that's their revenue requirement. What we as bill payers pay you double your rate base. If you don't increase your customers, you could actually dou costs. And that's a lot of what's happening here in New York city, in Washington D.C. and other places. There are some utilities that are long generation or they're long power. So just think about that very simplistically. You've got a utility, it's got a rate base. And inside that rate base, every rate payer is paying for power that's not actually being used. Bring a data center into that service territory, the data center itself might consume that power. And you as the rate payer are not actually going to be burdened by that cost in your monthly bill. And so for us, we think it's really important. You've got to understand the regulation, who the commissioners are, what their power systems are like, their generation and so forth. And there are examples of data centers being really good for both the utility and the customer. But that's again, it's very nuanced and it really depends on where you are and sort of what your asset base looks like.

Tracy Alloway (8:41)

I talk a little bit more about that because we've done episodes on the political risks involved with the data center buildout. And this seems to be something that is really gaining traction, especially as we go into the midterms and we see politicians sort of, you know, laying down their positions on this particular issue. But how feasible is it that you could get a data center that could actually in some way improve the electricity market in a particular state or location? And then I imagine that you have to have a lot of room, right, to have a data center. You have to have water access and things like that. It can't be good everywhere, right?

Tyler Rosenlicht (9:16)

Oh definitely. We're not saying it's good everywhere. I mean I'd go the opposite and say it's really actually bad in a lot of places and then it's really good in some places. And so it really depends on all the things that you just laid out, which is do you have the generation, do you have the water, do you have everything else? What you're seeing now in utilities is data center tariffs that are being kind of negotiated and going through the utility regulation process today. And we've seen some examples, examples in Wisconsin for instance, where effectively the data center has zero impact on the local ratepayer. The hyperscaler in Wisconsin has agreed to guarantee a return on a rate base for the capex that the utility is spending. It's not going to impact the rate payers there at all. And so it's kind of done off of the back of the utility customer. There's other places though where they're still working through those utility contracts or we'll see. But hey, you could have big stranded asset risk. Utilities going to spend a couple billion dollars, they're going to make sure that the data cent has power and electricity. Maybe the data center leaves five years from now and then everybody's going to be stuck with a stranded asset. So no, definitively take a step back. We think the world needs more energy. We think the world needs more power. It's going to service data centers, it's going to service industrial customers, residential customers, serve everything EVs, you name it. But that's going to come with the tension of rising bills and that's going to be a challenge for some places and an opportunity for others.

Joe Weisenthal (10:38)

I'm curious. We'll get into all these details and stuff but I'm actually very curious about how you work and how you figure this stuff out. I have to imagine for as long as you've been working on this there must be new things every day because as Tracy mentioned, it's gone from this sort of like a lot of staid stable operations to high tech and there's so much uncertainty. How do you work? Like how do you learn about things? Do you have a team of analysts, et cetera. Talk to us about like the process for wrapping your heads around so much novelty.

Tyler Rosenlicht (11:10)

Yeah. So you know, we've got a great team on our infrastructure team. There's four portfolio managers and sort of we kind of break the world up by geography. We have 1pm in London and who helps us with our European infrastructure investments and Then three here in New York with varying expertise, and then we have seven analysts, and they're sort of our boots on the ground. I mean, Conan Steers was founded as a real estate investor back in 1986, and our perspective was beyond the ground. Be walking properties, be touring assets, because you can find, you know, unique insights if you do that sort of thing. So we want to have this big team that is sector specialists that really understands the utilities, the regulation behind it, what's going on in local politics, going and touring assets, talking to local professionals and trying to find kind of where we can see unique insights and where, hey, the regulation's getting a lot better, or there's this unique contract that we think is going to be really beneficial to this small local utility, or, hey, what's going on in New Jersey, what's going on in Virginia, in New York City, how's that going to affect things as well? And so I think it's important to have this team do really detailed, fundamental work. And for us as investors, I mean, our cio, he would characterize us as thematically informed relative value investors. So let's find good themes that are underappreciated and underpriced and then find the best investment opportunities to take advantage of those. And if you do that, we think you can generate really good investment results.

Tracy Alloway (12:29)

My favorite form of sell side research remains the analysts going on field trips. So now I'm imagining everyone's staring at a data center in New Jersey or something. I know you're not sell side, but speaking of that, though, how do deals actually land on your desk? And I say that realizing that I'm talking as if someone's like mailing out offer letters to you and it's actually landing on your desk. How do deals or potential opportunities get to your screen?

Tyler Rosenlicht (12:52)

So we're public markets investors, so we're just trying to find listed securities and figure out which ones we think are best positioned for the next one year, three or five years. And so we're constantly invested. So as we raise capital via open end mutual funds or through our active ETFs or through separate accounts, it kind of comes in and then we have our core strategy that's invested at all times. And for us, it's about being positioned in a way that we think will do a lot better than the benchmarks that were measured against. And so for us, it's sort of your traditional equity research function where we are constantly trying to make sure that we are leading edge in terms of what's happening in markets and identify, hey, we think that this thing is going to happen to the North Dakota utility as they invite a local data center customer there that's underappreciated by the market. And so it's the fundamental boots on the ground stuff that everybody does. And we just think that we've got some unique processes and unique ways to tap it.

Joe Weisenthal (13:55)

Foreign.

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Joe Weisenthal (15:28)

What point did it sort of dawn on you, or dawn on the market, et cetera, that a lot of companies that we had long associated with being sort of classically cyclical companies could be secular winners. Now I'm thinking of like a caterpillar, which you just sort of imagine by and large here is a company whose fortunes rise and fall with gdp, right? The economy is growing. Well, they're probably going to have a lot of people are going to be buying equipment to break ground. You get a recession, people buy less of it. And then something changed. And you look at a chart of a caterpillar, it's like, okay, this is no longer a cyclical company. When did this start to take hold? Or sort of dawn on people that something was changing?

Tyler Rosenlicht (16:10)

Yeah, so I'd start with so I have kind of the dual function where I help oversee our infrastructure strategies and our natural resource equity strategies. And I'd say on that side of the house that's investing in things like the entire energy value chain, the metals and mining value chain, the ag value chain, you've seen a lot more of like the caterpillar type transitions that you just alluded to, which is, hey, this hypercyclical business that suddenly is being valued like it's not as cyclical. So I'd start with things always have cycles. And so it might be perceived as not cyclical now, but maybe it will become cyclical again in the future. But our view would be, hey, these cycles are actually higher and deeper and lasting a lot longer. And one of the big drivers has been, you know, a lot of the natural resources world has been capital starved for a while. And in that process many sectors and industries have consolidated quite a bit. And so the expertise has really accrued to just a couple players. And if you think about that and you say, hey, one of the things that we believe about natural resources is that we've exited what we talked about as the era of abundance and we've entered the era of scarcity. You know, we just don't have enough of all the stuff that we need for the economy to grow. And the companies that actually facilitate ending that scarcity, there's just not as many of them because again, there's been massive consolidation in these sectors that we think will be persistent, will allow them to earn above average returns, have a lot more predictable growth for a long time, and then we'll reassess in the future and maybe the competition will be invited back and they're going to go back in the other way. But we think it's really early in a lot of these trends and the sort of secular growth and the reduction in volatility of that growth is very different now than it was 10 years ago.

Tracy Alloway (17:46)

So I take the point about consolidation and that you're working on pretty long timelines, but how do you guard against the possibility that as with everything infrastructure related and energy related, certainly it seems like we always end up with overcapacity at some point in the cycle. How do you avoid that?

Tyler Rosenlicht (18:05)

Can't avoid it. That will happen right on the commodity cycle. The cure for low prices is low prices. The cure for high prices, high prices, same thing on the infrastructure side, although, so infrastructure, again it's generally assets that are monopolistic either by regulation or by competitive dynamic. You think about the US Freight rails, you can't really build a new one. And so the competition there is going to Come from new technologies like autonomous trucks and other things. You think about things like airports, even utilities. I mean, these are local monopolies. So in infrastructure that sort of overbuild, I mean, it would happen on the power side and it will happen at some point. Like, you look what happened with shale pipelines in North America, right? In 2010, we thought oil production was going to go up a lot. We built a lot of pipelines by 2015, 2016, and oil prices declined. We didn't need all those pipelines in the short term. Caused a lot of turmoil. And so to answer your question directly, can't avoid it. But we, as investors, our job is to try to sidestep it. Understand? When's the market getting too excessive in terms of its expectations?

Joe Weisenthal (19:11)

Tell us about right now. January 2026. Within the realm of, say, US energy and US energy infrastructure, we all know the headlines and we've done a million episodes on them. There's so much demand for electricity. All right, I get that point. But talk to us specifically about what are we seeing right now? What is the math that you see out there? And maybe to frame it like, how would this conversation be different even in, say, January 2024 or January 2025.

Tyler Rosenlicht (19:38)

Perfect. So let's actually, let's not start with the U.S. let's start with the world, because I think it's. Let's start as big as we can go and then we can drill down. You know, a lot of people for the last, like six years, when they talked about global energy demand, we think they did it the wrong way. They focused on the supply side, where they said, hey, the government has these targets, or we have this sort of goal to have global warming be xyz. This is what the supply would have to look like to satisfy that world. And we said, you know, why don't we start with demand? What do we think global energy demand is going to be in the next two decades? Then let's figure out how we're going to supply it. So global energy demand, it's a pretty easy model. It's three factors. The first thing that you care about is global population growth. All else equal, more people, more energies consumed. I'm not talking oil or coal. It's energy and aggregate. The second thing that you think about is the global economy. Bigger economy, all else equal, more energy consumption. The third one is pretty tricky, and that's the energy intensity of economic growth. And that is, hey, how good are we at converting an energy input into a unit of economic output? So what we did a couple years ago is we said, hey, let's try to predict those things in the very long run. The first thing is, hey, population growth, we think it's decelerating, but it's still positive. So in 2040, there's going to be a lot more people in the world than they were in 2024. Economic growth, we think it's going to slow, but still be pretty positive. Maybe it used to be 3%. Now it's 2.7. That means more energy demand. And then we said, hey, let's assume we get a lot more energy efficient. We're going to be a lot better at consuming and converting energy into economic growth. And that's a comfortable assumption two years ago because government policy was mandating it, consumer preferences were mandating it, and also technologies were getting better. When you put those three things together, what you saw was global energy demand rising from about 178,000 terawatt hours, which is a big number, but 178,000 to 220,000 in 2040. That's a big increase in global energy demand. And again, that assumes a big increase in energy efficiency. So then you peel back one layer. How does renewables fit into this? Well, we also want to reduce coal consumption. So if you think about this, hey, we're going from 180 to 220. We want to reduce the amount of coal we consume. Renewables, we need to add 60,000 terawatt hours or 55,000 terawatt hours of supply. It's a huge number. That's basically recreating the entire global crude oil industry that's been around for 100 years. In the next 16. So what's changed in the last 12 months that global energy demand assumption for 2040 has risen. Our confidence that we're getting less energy intense has gone down because a lot of this economic growth is very energy intensive. And so we've been in this energy addition world, this need to produce really more of everything. And it's only becoming more of an issue and a challenge and an opportunity for the energy industry.

Tracy Alloway (22:40)

Actually, that reminds me, I wanted to ask you, can you talk about the decarbonization initiatives from some of the hyperscalers themselves and how you're judging some of those efforts? Yeah, yeah, yeah.

Tyler Rosenlicht (22:52)

So there's sort of like three competing factors when you're thinking about energy. So one is you want the energy system to be stable, you want it to be clean, and you want more of it. I think five years ago it was clean, stable, more in that Order. We want clean energy, we want it to be stable and we want to have more. Today it's kind of flipped, right? We need more, it has to be stable and then we do want it to be clean but we can't necessarily sacrifice the clean for the more in the stable part of it. And so I think everybody is well intentioned and doing the right things which is, hey, let's try to transition the dirtiest stuff away, move from coal into natural gas hyperscalers who have a lot of cash. Let's try to re industrialize the nuclear economy. Let's continue to make investments in SMRs in existing reactors, turning them on. Let's try to get more geothermal and other things in the hey, let's get more of it, let's make sure it's stable, let's make it as clean as possible. And then once we've kind of gotten there on the build out, we can start to shut down the stuff we don't want and really just rely on the stuff that we do want. But again, the three factors have changed and I think that that's really shifted market perceptions on what the energy industry should look like.

Joe Weisenthal (24:02)

Have they acknowledged that they've changed or is this just a quiet they've changed but we're not, they're certainly not putting press releases about it. But you know, how is it just change?

Tyler Rosenlicht (24:12)

I think it's actually a little bit more acknowledged than people would say out loud. Like I get yelled at sometimes when I talk about specific stocks but there's a UK based major energy company that went one way and then they've very publicly gone the other way. And I think that's normal when you see sort of market conditions shift like.

Joe Weisenthal (24:29)

This random question, the year 2040, are we still going to be using coal in this country?

Tyler Rosenlicht (24:35)

In our model, our model is global. So this country versus the world, let's just focus on the world. We have coal supply or sort of coal generation cut in half by 2040. I think that's ambitious. I would hope that it was zero. But the sort of energy pragmatist would say hey, around the world coal will be relied upon for a really long time. It will be a much lower percentage of energy markets and we think it will sort of decline over time. But again, the idea of zero coal around the world by 2040 I think is highly unlikely.

Tracy Alloway (25:10)

Since we're talking about energy on a global scale. Talk to us about what you're seeing or expecting out of China because this is the other source of a million headlines Nowadays or at least a million headlines with very, very large numbers in them about what China is doing in terms of building out its energy capacity.

Tyler Rosenlicht (25:27)

Yeah, I think part of it is you think about the global geopolitics and you say like, well, why are some places more aggressively pursuing alternatives versus traditional? And you know, why did Europe do as much renewables as they did? And a lot of that has to do with taking advantage of what you're endowed with or not. So. So here in North America we have plentiful natural gas and crude oil. And our need to invest in renewables from a cost perspective is different than Europe where they are an importer. And so the way to sort of convert from being an importer to self sufficient is to harness what you've got. If you've got a lot of wind and you've got a lot of sun, you're going to want to over invest there. I think China depends on the world for energy supply and they're trying to reduce that and they want to be more independent. They're going all in on nuclear, they're investing massive amounts in their nuclear economy, coal generation as well, kind of everything. And I think just an effort to be more self sufficient. But that's not China specific. Right. That's kind of like every country right now is doing a similar thing and trying to be a little bit more self sufficient. In a post Covid post, Russia, Ukraine, rising geopolitical tension sort of world.

Joe Weisenthal (26:32)

I think I'm very skeptical that we're gonna have a nuclear renaissance in the US Like I know there's tons of headlines and I'm sure there's a few of those places that are gonna get restarted. I am not an expert, so it's just my gut. Am I off the mark? Where are we looking on that?

Tyler Rosenlicht (26:48)

So I think it really depends on what you mean by a nuclear renaissance. So something.

Tracy Alloway (26:52)

Yeah, give us a timeframe, Jeff.

Joe Weisenthal (26:53)

Like okay, here's my. I don't even. Why am I making predictions? I don't know anything about this stuff but like I would be surprised if I were on Polymarket or something. I would imagine that there's not. What's that plant in Georgia that came online?

Tyler Rosenlicht (27:06)

The Vogel.

Joe Weisenthal (27:07)

The Vogel plant. Like I don't think there's going to be another Vogel in the next 20 years.

Tyler Rosenlicht (27:11)

I disagree. I'll kind of talk you through why. But let me tell you about what the nuclear renaissance. And again I'm talking kind of global as opposed to just us, but we can definitely talk about us too. So take Another step. I like to take a lot of step backs, as you can tell.

Joe Weisenthal (27:23)

We're going to talk about the Galaxy Wide.

Tyler Rosenlicht (27:25)

No data centers in space in this conversation. Conversation, I promise.

Joe Weisenthal (27:28)

No, actually now that's. I'll ask you about that. Yeah.

Tyler Rosenlicht (27:31)

Okay. So why, why are we talking about nuclear? Yeah, right. It's pretty simple. You break the world into traditional and alternative. Good thing about traditional. So things like natural gas and coal is it's reliable. 24 7, 365 energy. Unfortunately, it has the emissions profile. We don't like alternatives. Let's just call it wind and solar has the emissions profile we want, but it's intermittent and variable. If you're a data center CEO, you're feeling pretty good about your business today, you kind of wake up with night sweats about the power going out.

Tracy Alloway (27:59)

Right.

Tyler Rosenlicht (28:00)

You cannot lose power. You have a very expensive metal shell that's cooling servers and providing electricity and energy. Which means, hey, I can't take the intermittency. I've got to use the baseload. Nuclear is sort of the one resource that can kind of serve both masters. It is 24 7, 365. Low variable cost, very high capacity factor. And it's also pretty clean. And so that's kind of why we're talking about nuclear. There was an episode maybe a couple months ago where you said, hey, nuclear batteries.

Tracy Alloway (28:27)

Yeah, I'd rather. I was about to ask you the same question.

Tyler Rosenlicht (28:30)

We'll go there, I think. I mean, it's all about energy storage. The whole thing is like, hey, how do I store energy to use it when I want it? Like, coal is effectively an energy battery. Natural gas is an energy battery. There's just no batteries for wind and solar that are viable today. But I'd love to solve that problem and that would, that would help in a lot of ways. But back to the nuclear can't hold.

Tracy Alloway (28:49)

Solar energy in your hand. You can't.

Tyler Rosenlicht (28:50)

I wish you could. And maybe, well, one day you will. But we think it's going to take quite a while to do that. But okay, so the nuclear renaissance. We've been shutting down nuclear generation capacity around the world for the last two decades.

Joe Weisenthal (29:02)

So step one is including infamously sunny Germany everywhere.

Tyler Rosenlicht (29:07)

So step one is like, let's just not shut it down. We think we're in like the seventh inning of that ball gate. Like, we're not shutting it down.

Joe Weisenthal (29:13)

Yeah, that's something.

Tyler Rosenlicht (29:15)

Yeah. So phase two is like, well, can we turn on any of the stuff that we recently turned off? Yeah, we're in like the fifth inning of that game. I think that sort of is going from a slow bleed to hey, flatten and then slow growth. So the next couple of years are about hey, turning on Three Mile island and other places. Phase three, which would be, I think we're in the second and third inning and we're going to start to see some acceleration here would be this sort of brownfield inside the fence nuclear facility build out. Hey, you worry about NIMBY issues, site supply, security, safety. I think that's been talked about here as well. We do think that that's going to start to pick up. But that's like a 2032 to 2035 in service. And then we talk about SMRs and thorium and other opportunities. I think that'll happen. But it's like 2035 to 2040. So that's still a renaissance to me. We're taking something that we were sort of allowing to slowly melt and we're sort of refreezing it and then we're building it. And that's, that's okay.

Joe Weisenthal (30:10)

Just yes or no by the year 2040 in the United States, will we.

Tracy Alloway (30:16)

See you guys are going to start a poly market contract?

Joe Weisenthal (30:19)

Will we get another vogue?

Tyler Rosenlicht (30:20)

So I've got this like internal bet. So I have to say yes. But there is a caveat. No utility will do it themselves. Yeah, there is, I'd say zero chance that a utility will say, hey, we're willing to do a greenfield new nuclear facility with no cost overrun risk. But I think the cost overrun risk will get covered by the government. So we're starting to see some of this stuff. We're seeing it across the natural resources economy. Right where the US Government is taking direct equity stakes and they're having a more directly interventionist approach to all of critical minerals and resources. So what would I do if I was sort of the energies are, I would say, hey, I'm the US Government. I'm going to backstop guarantee cost overrun risk for 10 nuclear generation facilities across the U.S. i'm going to make sure they get built. I'm going to sort of shoulder the excess cost burden and then maybe at the end of this I'm just going to sell it to the highest bidder. So let's just make up the numbers. Maybe it costs $100 billion for the US government to do that. Maybe those 10 facilities get sold for $50 billion and the taxpayer has taken a $50 billion loss. But here we've got 10 new generators providing sort of cheap and clean Energy, maybe they can sell it for 150 and actually sort of help the deficit situation. So again, to answer your question, I think it's going to happen but I mean one of my key messages, it's not going to happen alone. These supply chains are not going to come about because of market forces. You're not seeing a reaction in copper production, you're not seeing a reaction in uranium mining, you're not seeing a reaction in nuclear generation without direct government sort of intervention has a little bit of a negative connotation but direct government catalyst, you know and I, but I think that that's going to happen and we're starting to see.

Tracy Alloway (32:24)

This reminds me, I did pull up the chart of the number of times public and private partnerships are being mentioned in news stories and yeah, spiking into late 2024 and 2025. So we're, we're back, we're back. But okay, talk to us a little bit more. Why doesn't the market like signal work for something like uranium or. You mentioned copper as well.

Tyler Rosenlicht (32:47)

Yeah, I think honestly these are sort of markets that have been sort of forgotten by investors and companies are still being penalized for increasing capex and increasing supply.

Tracy Alloway (32:58)

So, so it's kind of the shale story.

Tyler Rosenlicht (33:00)

That's sort of the shale story. So, so you look at sort of at the end of last year some of the major mining companies talked about their 2026 capex. Most of them sort of cut capex expectations or at least relative to consensus came in below. That's weird, right? Copper prices all time highs, gold prices all time highs. Shouldn't the miners be increasing their capex and inviting that supply response we talked about earlier? The investors just revolt, they say no mas, they want the discipline. You've destroyed so much value and they did.

Joe Weisenthal (33:31)

Right.

Tyler Rosenlicht (33:32)

Shale destroyed a lot of value 2010 to 2020 and so it's not going to happen naturally and maybe that's okay because these management teams they should continue to be held to the discipline. But we do need the supply and so that's why I think that the government is going to try to get it moving. And we've seen examples of that. Right. You saw some rare earth stuff last year, lithium stuff last year, obviously the big nuclear backstop of contracts and so forth that was announced in the end last year. A lot of it is not well defined but we're going to start to get some more definition behind this stuff.

Joe Weisenthal (34:04)

You can't blame the shareholders. I mean it must be so sick. You have these prices shooting through the Moon, it's like, why not just take the cash?

Tyler Rosenlicht (34:13)

You know, I mean, as a long term oriented shareholder.

Joe Weisenthal (34:17)

As a shareholder, as a shareholder, you.

Tyler Rosenlicht (34:19)

Know, I think, listen, at these prices, returns on a lot of projects actually look pretty good. But you worry about administration changes and you worry about the supply response. And honestly, these companies did really poorly for a long time. And so the spreadsheet math might say, hey, you start drilling again. But the sort of history would say, no, no, the returns need to be way better to justify that. And I think it's a rational response by the investor base. But I think step one is like, people need to start looking at the, again, the old economy stuff again, but it's the new economy stuff. People need to be looking at natural resources stocks, they need to be looking at infrastructure stocks, they need to be feeling good about them providing capital to these companies and then you will get that supply response. But again, it's early in the cycle.

Tracy Alloway (35:03)

On the topic of natural resources and maybe investor reluctance, we're recording this on January 6th and the big news in the markets is of course, what happened over the weekend in Venezuela. I'm sure that's not your particular area of expertise, but you know, as an infrastructure investor, when you look at a place like Venezuela where we hear they need billions of dollars of capital to get the oil industry up and running, what do you think about that situation?

Tyler Rosenlicht (35:31)

Yeah. So let me just talk about it strictly from like an investor perspective and how you would sort of think about that. Being an infrastructure investor, we care a lot about one risk that very few people spend a lot of time on. So, so if you were to say, hey, Tyler, you talked about the data center CEO staying up at night for losing power. What keeps you up at night? For us, it's regulatory risk. Right. You're investing in airports and utilities and things like that that are governed by a regulator. We worry about surprise. And you get regulatory surprise here. Right? You look at what happens with utilities in Illinois, you look at what's happening with FERC and as they sort of change things, so we spend a lot of time.

Joe Weisenthal (36:09)

I don't know anything about utilities in Illinois.

Tyler Rosenlicht (36:12)

Well, like, hey, the utilities spent some capex and they said, hey, we want a higher return, we want to get that in our rate base. And the regulator just says no, you know, and so, so you talk about our boots on the ground investing. It's trying to make sure that we understand those very difficult things to figure out before everybody else does. So take it to Venezuela. If I was to make a Large foreign direct investment there. From an infrastructure and resources perspective, I would really, really want to understand the legal constructs surrounding that. And that's really challenging in the midst of regime change. And so I'm very hopeful. Like I think everybody would say, hey, we're hopeful that things get resolved quickly. And then you sort of figure it all out very fast. But it's going to take a while, I think, before you actually start to see some investments. Because as an infrastructure investor, the risk of expropriation, nationalization is very high. And so you don't want to go and suddenly see your assets stranded there. So maybe that answers your question. But again, a lot of it is about understanding regulation and law and, and what's happening in politics and so forth.

Joe Weisenthal (37:20)

Well, I'm also curious. I mean, we had. President Trump is obviously very excited about the opportunities to rebuild that infrastructure and for American companies to come in and be part of that. But oil, West Texas, it's at $57 a barrel. Setting aside the obvious, highly uncertain regulatory environment of Venezuela. I don't know what, like pencils out at 57. I'm curious. You know, you mentioned pipelines, like during the 2010s or sort of, you know, there's a lot of anti pipeline politics and I assume that the current administration is much more, you know, green light for pipelines. But who wants to build new pipelines at these prices?

Tyler Rosenlicht (37:58)

Yeah, so it's, I'll use my favorite acronym, but I've got to give credit to Paul Sankey at Sankey Research because he's the one that coined it. But so a decade ago, we had a NIMBY world which is like not in my backyard. That world transitioned to a bananas world. Bananas is build absolutely nothing anywhere near anything. Right. So the bananas world existed from like 2018 to 2024. And when I say bananas world, that's about the ability to build infrastructure, not any other bananas out there. Right. That does feel like it's changing a little bit in that, hey, there's starting to be a little bit more sort of certainty and sort of based in D.C. desire to build stuff. And so you're starting to see a little bit of pipeline construction activity heating back up. We went from a world where, hey, we're never going to build another pipeline in North America. I think that's changing. It's going to be a lot more pragmatic than it was in 2010-2015. But you're starting to see this sort of willingness to make these investments. But again, it comes because this Sort of.

Joe Weisenthal (38:53)

But did they math out, like, what pipeline is economical at current prices?

Tyler Rosenlicht (38:57)

It's all a function of what the customer is willing to pay. Right. And if you've got natural gas prices in the high threes and if you've got sort of wide oil differentials and other things, like a lot of the pipeline activity that we're seeing today is natural gas pipelines feeding the data centers. Their willingness to pay is pretty high. And so that's really where we're. It's not an oil pipeline world today, it's a natural gas pipeline world.

Tracy Alloway (39:19)

We go from we have no bananas to yes, we have no bananas.

Joe Weisenthal (39:22)

I love that. I had never had bananas before.

Tracy Alloway (39:24)

Please enjoy my 1920s cultural references there.

Joe Weisenthal (39:28)

Going back to US energy and electricity again, every headline or every person is like, you know, we have the chips, we have the et cetera. Energy is the bottleneck. You hear that over and over again. And I think Jensen Long said that again today in that CS energy is the bottleneck. Except we all know this, right? So in my mind it's like, oh, it's all priced in. But like, as an investor, what parts of this energy story to you still feel underappreciated? Or where are there still opportunities in a story where there's like literally anyone is aware of this fact? The electricity constraint.

Tyler Rosenlicht (40:05)

Yeah. So I'd start with we agree electricity is constrained. The demand is going to keep rising. I would note it's not just data centers. Like, we spent a lot of time thinking about U.S. energy markets and they went from zero growth in terms of electricity demand from 2007 to 2020. They've been growing like 1 and 1 2% recently. We think it's going to go to 2 and a half percent per year. Doesn't seem like a big number, but going from 0% to 2 and a half percent in a big industrial system is a huge one. Only about half of it is data centers. There's lots of electricity demand coming from EVs and from the industrial system and so forth. But where do we see the opportunity? I'd start with certain utilities. So utilities today actually trade at a lower multiple than they did a few years ago, and growth rates are a little bit higher than they used to be. So that's like a little bit of an odd thing to see. However, what we think is, hey, the average utility is going to see some challenges from affordability issues and from reg. But the best utilities are not trading at a lot higher multiple than the average utility. And their growth rate differential is Way better. So to put some numbers around it, eight years ago you had to pay an 11% premium to get 1% better growth. So the average utility group was going to grow 6. Best in class utility was going to grow 7. You had to pay an 11% higher multiple for that trade. Today the fastest growing utilities only trade 6% more expensive. So actually cheaper relative to the average, they're going to grow 2% more. So instead of 6.5, it's going to be 8 and a half. That's pretty odd, right? You're paying lower absolute multiples.

Joe Weisenthal (41:43)

Do you have a theory for what though?

Tyler Rosenlicht (41:44)

I think people are worried about regulation, I think people are worried about rising interest rates, they're worried about affordability. And what you're going to see is the pack will separate over the next three years. So it's rational that sort of the world has compressed in the way that it has from a utility perspective. But I think over time those that are able to execute will really be rewarded. Outside that, I mean the picks and shovels types companies to the data center and re industrialization build out, we still see a lot of opportunity. Multiples are up, but they're becoming more predictable. Their growth rates are accelerating. It's more structural in nature.

Joe Weisenthal (42:18)

Who are some of those companies I mentioned? Caterpillar.

Tyler Rosenlicht (42:21)

But that's like yeah, I mean the engineering and construction companies that are help building the large scale infrastructure and so forth would definitely fall in that bucket. We look at some of the companies that are like aluminum smelters and so forth. Again these are highly consolidated industries relative to where they were a couple decades ago. And so this is like it's the gold rush. Who made all the money in the gold rush? It was the Levi's and the picks and shovels companies and I kind of think that's where we are. You might get the best absolute returns in some of the direct ways to play this, but they might come with a lot more volatility. And we think the sort of at least risk adjusted returns are more in the picks and shovels.

Tracy Alloway (42:57)

Speaking of volatility, very quickly one of the interesting things that happened last year in Data Center World was we had that big outage at the CME which was the result of an outage at one particular data center that was run by an operator called I want to say Cyrus one. Yeah, I think that's the name you talked about, the CEO staying up late at night worrying about exactly this scenario. But do you as an investor in the infrastructure have to worry about operational risk as well, and then how do you actually assess that?

Tyler Rosenlicht (43:24)

Yeah, we do. I mean, let's use pipelines as like the best example. Right. If you own a company that owns oil pipelines and they have an oil spill, like that is a big problem. So we get a lot of questions on, hey, how do you think about ESG and integrate ESG and so forth. And one of the key things that we do is we think about the incentives and we think about how these companies are doing, maintaining their assets and what their local shareholder relationships are like and what the integrity of what they own and operate are. Because, yeah, with infrastructure, operational risks have major asset impairments risks with them. And so again for us, it's this big team around the world trying to do what we can to talk to not the CEO, but the plant managers and the sort of next rung down and ask one CEO what he thinks about the assets of another company and are they maintaining them? Well, and try to get some insights there because, yeah, it's a key risk, something that we worry about.

Joe Weisenthal (44:14)

So we're kind of in a post banana world in the sense that from the D.C. perspective, I think the administration clearly has a much more liberal attitude towards approving various things. On the other hand, and we've talked about this recently on the show quite a bit, the local backlash, particularly to data centers, suddenly people are really anxious about that. We see these town hall meetings going viral and there's misinformation about there. Something when you think about like the utilities that are the rapidly growing ones, the ones for whom there's perhaps an opportunity because they don't trade at a premium, that that is consistent with their growth potential. Do you worry about that aspect and do you do much time thinking about like, yes, on paper, we know there's tons of plans to build more here, et cetera, but will it actually happen, given the realities of local politics?

Tyler Rosenlicht (45:07)

Yeah. I mean, I'd start with there's been a lot of data center backlash and is it appropriate or not? I mean, there are some utilities whose bills went up 15% last year.

Joe Weisenthal (45:16)

Yeah.

Tyler Rosenlicht (45:16)

So. And you think about a data center company that doesn't create any jobs in the local market. I mean, there's construction jobs, but then once the data center is running, it's just kind of like a big empty shell with some refrigeration and some power and you're not really doing a lot for the local economy. So your sort of local residential customer who's paying 15% more and is not seeing any sort of economic benefit to the Local area from that that is inviting a reasonable response from the regulator to say hey, we actually, it's not in our best interest to do this. And so we spend a lot of time on who is on the utility commissions. Are they elected, are they appointed? Because that can matter. What has been the bill pressure?

Joe Weisenthal (45:54)

I take it the elected ones are more sensitive towards all else equal on.

Tyler Rosenlicht (45:59)

Elected commission, you're saying hey, they want to stay elected and so they're going to do things that are more beneficial to the local electorate than someone that's government appointed or governor appointed who would maybe do something that's hey, I know the bills might go up a little bit, but we actually want to invite this. I mean just to put the magnitude of the opportunity. So there's a utility in the Midwest. It's been around for about 100 years. It currently has a system that's about 11 gigawatts. So 1 gigawatt is about a million people. It's like the city of Denver. So this Midwest utility, 11 gigawatts took them 100 years to get there. They currently have data center Demand to build 15 gigawatts. Whoa, think about that, right? 100 years ago to build.

Joe Weisenthal (46:38)

What's the name? I want to look this up. What utility is it? Can you.

Tyler Rosenlicht (46:41)

I get yelled at by.

Joe Weisenthal (46:42)

All right, fine, we'll look it up.

Tyler Rosenlicht (46:43)

We'll look it up separately.

Tracy Alloway (46:45)

We'll use data powered AI platforms to figure it out.

Tyler Rosenlicht (46:49)

They'll kick me under the table if I give too many specific stocks. But no, you just think about that, right? A hundred years ago to 11 and by tomorrow they want another 15. That is really expensive. And so you're seeing this tension and I think that's reasonable.

Tracy Alloway (47:03)

Do you play Power Grid ever? Do you know that game?

Tyler Rosenlicht (47:05)

No, but I feel like I should.

Tracy Alloway (47:07)

It's a board game. It's a board game where you're in charge of supplying electricity to various cities. It's kind of fun.

Tyler Rosenlicht (47:12)

I played the board game Pandemic in like late 19 and look what that led to. So maybe I'm a little bit scared.

Tracy Alloway (47:20)

Well play Power Grid and then we can all enjoy an efficient electricity system. Maybe, maybe things will change.

Joe Weisenthal (47:26)

That was a great conversation. Tyler Rosen, like, thank you so much for coming on Odd lot. So let's stay in touch. Now we're going to use our AI skills to backwards figure out what that.

Tracy Alloway (47:36)

Hundred year old gonna draw energy from the data centers to crunch the numbers. To crunch the numbers, Claude or whatever.

Joe Weisenthal (47:41)

Yeah, Tracy, I really enjoyed that. It does feel as though if you're in the right place right now there's just a mountain of money coming. I mean, who knows if you're like gonna get it. But you know, between all of he talked about every country wanting to have more domestic energy security, the secular trends, et cetera, etc if you're in the right place, government spending more money feels like you could stand in the right way of an absolute fire hose of money right now in this space.

Tracy Alloway (48:21)

I mean it feels to me and you know, he kind of said it, but the government is the key risk here, the regulatory risk. And also I take his point about even though maybe the numbers pencil out at current commodity levels, if you look at future demand and stuff like that, it might not work because your assumption is well, you know, in three years we'll have a new administration or Maybe in another 10 years the pendulum will swing back towards clean energy or something like that. So that to me seems to be the big risk.

Joe Weisenthal (48:52)

Just on the Venezuela point, I mean it's going to be a hard sell. I mean imagine who wants to pony up $100 billion and granted, shared between a bunch of different companies. Presumably it's still the same old regime. There hasn't been, you know, and then all the uncertainty there and then the fact that, you know, oil just isn't as valuable as it was several years ago.

Tracy Alloway (49:14)

Who are the brave sell side analysts that are going to go on a field trip to Venezuela in order to inform their research on buying like PDVSA bonds or something?

Joe Weisenthal (49:24)

Yeah, that's what we need. We need a sell side report like because the thing that's fun about the reports that you like is they often take a lot of pictures. Oh yeah. So we need someone to do report like go into the facilities. Like just someone takes a thousand photographs of like here is the state of this. Yeah. Product, this facility, this.

Tracy Alloway (49:43)

Someone go watch an oil tanker being loaded up in Venezuela and tell us everything that you see.

Joe Weisenthal (49:49)

How is it, how efficient is it and so forth, what it would actually take to repair it.

Tracy Alloway (49:54)

I feel like I need to add a disclaimer onto that. Please do not go to Venezuela and do all this on our account.

Joe Weisenthal (50:00)

On our account. No, we are not asking, we're not.

Tracy Alloway (50:02)

Asking anyone to go to Venezuela.

Joe Weisenthal (50:04)

We are asking someone in a professional capacity whose job would be to go there anyway to please include a lot of pictures in the sell side report. But we are not asking you to do it on our behalf.

Tracy Alloway (50:16)

Is that a big enough caveat? Are we going to get the lawyers?

Joe Weisenthal (50:19)

We gotta Reverse engineer what that utility company is in the Midwest. Because those numbers are staggering. I mean, the fact that, what is it, 11 gigawatts, by the way, can I, as an aside, here.

Tracy Alloway (50:30)

Yeah.

Joe Weisenthal (50:31)

Energy math. I have the hardest time wrapping my head around it.

Tracy Alloway (50:35)

I was thinking that, like, measuring 1 gigawatt as, like powering Denver was actually, actually a really, really useful way of thinking about it.

Joe Weisenthal (50:42)

Except the problem is I already. I always forget that. But okay, one gigawatt Denver. One gigawatt Denver.

Tracy Alloway (50:46)

Just tattoo it onto your arm, Joe, because, you know, that's a useful fact that you're probably going to be referencing for many years to come.

Joe Weisenthal (50:52)

And then a gigawatt is different than a gigawatt hour. And so these are like separate things and so forth. But the idea that here 100 years took them, took them 100 years to get to 11 gigawatts and now they're projecting 15 gigawatts more. I mean, it's staggering, staggering numbers. And I guess it makes sense why literally every company in this space is saying, it's not chips. It's not. It's the energy. On the other hand, maybe we have some incredible technological breakthrough, a deep seek moment for chips. And these chips use, you know, 100th of the electricity that could happen.

Tracy Alloway (51:23)

Well, I mean, again, going back to how we started the episode, you kind of saw a hint of that potential today.

Joe Weisenthal (51:29)

So such a fascinating space.

Tracy Alloway (51:31)

Absolutely. Shall we leave it there?

Joe Weisenthal (51:33)

Let's leave it there.

Tracy Alloway (51:33)

This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me, Tracy Alloway.

Joe Weisenthal (51:39)

And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our producers, Carmen Rodriguez, Armenarmon Dashiell Bennett at dashbot and Kalebrooks. Kalebrooks. And for more Odd Lots content, go to bloomberg.comoddlots for the daily newsletter and all of our episodes and you can chat about all of these topics 24. 7 in our Discord, Discord, GG, Oddlauds.

Tracy Alloway (52:00)

And if you enjoy Odd Lots, if you like it when we do these energy episodes, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.

Joe Weisenthal (52:30)

Sam.