Episode 78: An Innovative Approach to Investing in the Energy Transition Megatrend | Meet Lisa Audet Founder & CIO, Tall Trees Capital | “Meet the Boutique Series”

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When considering investing in the energy sector, most investors assume there are two paths to pursue: either the traditional fossil fuels route or one aligned with a greener future. 

Lisa Audet Founder & CIO of Tall Trees Capital believes in a third, better, way: The holistic approach represented by the energy transition, a structural megatrend affecting every sector of the economy. 

In this Episode, Lisa and Stacy discuss: 

• How Lisa’s time at Tiger Cub firm sharpened her instincts around investing in the energy transition 

• The key pillars shaping the Tall Trees’ investment strategy 

• The “non-obvious” opportunities for helping generate superior risk-adjusted returns 

• The outlook for the energy transition megatrend 

Welcome to the Meet the Boutique Series, where we’ll take you behind the scenes to see how the top asset managers innovate and thrive. 

Enjoy this episode? Hit Subscribe! There are more exclusive webinars to come. 

More About Lisa:

After working for more than a decade at one of the top global macro hedge funds in the world, Lisa Audet felt a desire to start something new, as she had done many times in her career. Lisa’s life-long willingness to step into the unknown was grounded in a global perspective acquired from many years of living and working overseas in South America, Europe and Africa and by 30+ years of investment experience across a diverse range of assets and industries.

Driven by her prior success in energy investing, she founded Tall Trees Capital to invest in some of the most compelling opportunities represented by the secular, multi-decade themes found in the energy transition. Lisa has an undergraduate degree in International Studies from The American University. Additionally, she served in the U.S. Peace Corps and is fluent in Portuguese.

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TRANSCRIPT

Below is an AI-generated transcript and therefore it may contain errors.

[00:00:00] Lisa Audet: You tend to think about energy in a binary set. So you think about the traditional energy or it's either clean energy. Right? And of course, that's not that helpful because if we think it's just about energy security or traditional energy, then we're deemphasizing decarbonization and vice versa. Right?

[00:00:15] And then this sort of conversation around. Energy access or affordability is just lost in the mix.

[00:00:22] Stacy Havener: Hey, my name is Stacey Havener. I'm obsessed with startups, stories, and sales. Storytelling has fueled my success as a female founder in the toughest boys club, Wall Street. I've raised over 8 billion that has led to 30 billion in follow on assets for investment boutiques.

[00:00:40] You could say against the ads. Yeah. understatement. I share stories of the people behind the portfolios while teaching you how to use story to shape outcomes. It's real talk here. Money, authenticity, growth, setbacks, sales, and marketing are all topics we [00:01:00] discuss. Think of this as the capital raising class you wish you had in college, mixed with happy hour.

[00:01:07] Pull up a seat, grab your notebook, and get ready to be inspired and challenged while you learn. This is the Billion Dollar Backstory Podcast.

[00:01:19] This episode is part of our Meet the Boutique series. It's a slightly different format than my regular episodes. The founders and firms featured in this series are current or former clients of Havener, whom I've interviewed during their intro webinar for investors. The conversations are inspiring, as are the people behind the portfolios.

[00:01:41] Let's dive into their stories. Thank you all for being here. Welcome to our intro call with Tall Trees. I'm Stacey Havener, founder and CEO of Havener Capital. We are Tall Trees marketing partner, and I'll be your host for today's call. So let me say today's [00:02:00] conversation is super special to me. Thank you And it's not just because Lisa is a rockstar fund manager with an incredible pedigree and an amazing backstory.

[00:02:09] That is true. It's not just that the work she and her team are doing is work that matters, which is also true. It's also because as a female founder in the finance and investment world, I am really proud. Lisa is our first founder fund manager client that is a female. So I want to run through all for all of our clients, but you better believe that Lisa's story and mission hits different for me.

[00:02:35] It's really next level special. Lisa Audette, founder of Tall Trees, is here with me today to talk about her backstory to founding the firm, how her strategy is different, and why she and her team get up every day to do the work that they do. She'll also take us through the energy transition at a high level and the opportunities therein.

[00:02:56] So Lisa, thank you for being with us today. Thank you,

[00:02:59] Lisa Audet: [00:03:00] Stacey. It's so great to be here.

[00:03:01] Stacy Havener: Can we start with your backstory and your journey, maybe even into the investment world, but certainly to founding Tall Trees.

[00:03:10] Lisa Audet: Sure, absolutely. Yeah, so happy to be here to talk about my background and kind of. Everything I've learned and all the lessons I've gained in my life and then throughout my career and brought me to this wonderful venture of tall trees capital.

[00:03:24] So I'm a Connecticut native. I grew up here. I have a blue collar background. My dad worked in a steel mill. My mom was at home taking care of us. And so, even though it was a traditional family, I had an older brother and younger sister. I felt always felt really supported and encouraged to just pursue my dreams and to go after what I was passionate about and especially by my dad.

[00:03:46] And in fact, my dad actually started talking to me about investing when I was a teenager and started asking me, telling me, you want to make your money work for you. And I actually started investing in my early twenties. And so even though my dad really didn't have an opportunity to get a [00:04:00] four year college education, he was a phenomenal investor.

[00:04:02] So I really credit sort of my love of investing with the influence of my dad.

[00:04:09] Stacy Havener: I love that. Also fun fact, not only did Lisa's dad work in the steel mill. Who else works in this steel mill? I

[00:04:16] Lisa Audet: did as well. Yeah, I mean, actually, like, back in the 1980s, I was really popular with my friends at college because I was like, the period, like, Slash James was like, in the movie theaters.

[00:04:27] So I think that it's, I'm glad you brought that up because I think I really was so lucky that I had a bunch of different opportunities. These are real opportunities. To gain real life skills that helped me later in life. And then just obviously in my career. And one of those obviously was learning the value of hard work.

[00:04:41] I worked in the steel mill during summers when I was at home from college. I also had the opportunity to go to Brazil when I was in high school. I went to Brazil as an exchange student. So taking me out of my comfort zone and doing something just

[00:04:52] really

[00:04:53] Lisa Audet: very different and challenging. And then after college, I went in, I went into the peace corps for two years.

[00:04:58] So I think [00:05:00] having the opportunity to do these kinds of challenging Things where I'm out of my comfort zone and having to adapt and grow and learn. I think it's just been invaluable to me in my life and in my career.

[00:05:11] Stacy Havener: It's cool how hindsight being 2020, you can't connect the dots when you're in it, but then when you arrive and look back, it all makes sense.

[00:05:19] So keep going with that because not only did you spend time in Brazil, you actually took an even bigger leap outside of your comfort zone post Peace Corps, I believe.

[00:05:29] Lisa Audet: I

[00:05:29] Stacy Havener: did.

[00:05:29] Lisa Audet: And so the other thing that I feel so grateful for, and this just added so much to, to my experience and to my life, was the opportunity to live overseas.

[00:05:37] I lived overseas for almost a decade. So obviously I had these, these stints in Brazil and in the Peace Corps, but I actually went to Mozambique in the mid nineties and arrived there two years after the civil war ended. So the economy, the country was just opening up and coming back to life. And obviously when we live overseas and travel overseas, I mean, Broadens our horizons and for me, it was becoming immersed in another culture and another [00:06:00] language and really developing an understanding of the geopolitical kind of economic trends that kind of shape the economy shape markets.

[00:06:07] And just because I was in the resource driven economy, much deeper understanding of commodity markets. It was so much more than that. Yeah. It was really like being, being in a place that was where it was very uncertain and volatile. There was a lot of change happening all around me and, and dare I say, chaos at some time.

[00:06:22] So just being able to live in an environment where everything is changing and you have to adapt quickly and just be comfortable with change and volatility and, and being able to manage risk in that environment. So that was a huge, huge, uh, lesson for me. The other thing was, it was not, I think it was really straightforward, but it was not easy to get things done.

[00:06:38] You had to think outside of the box. You had to be creative. We had to really work quickly with my team to problem solve. So I did that when I was over there and it's. It's just a great skill to have. And then I would say, most importantly, it was just really hard. It's just really hard to get stuff done.

[00:06:53] Yeah, I can't imagine. It's just simple things like getting your container of office furniture out of the port or trying to get some [00:07:00] documents signed. I mean, it just was so much effort. It's incredibly difficult. Intensive work, intensive to get sort of simple things done. And so you develop this kind of resilience muscle on this persistence of just, I'm just going to keep at it until I get it done.

[00:07:11] When, so, I mean, coming back here, it seems relatively easy in a way after battling it out for a while, but it's a tremendous lessons, right? For life, you know, you face setbacks in your personal life and professional life and just having that resilience muscle of, I'm just going to, I'm just going to power through, figure it out.

[00:07:26] You gotta figure it out. Yeah.

[00:07:27] Stacy Havener: And also, again, hindsight being 2020, great training to be a founder, right? Because it's one thing to be a super talented fund manager. It's another thing to become a founder. So before we get to the founder piece, though, so you're in Africa. How do you end up working at Discovery?

[00:07:45] Lisa Audet: Yeah. So, I mean, it wasn't, I haven't Non traditional path, obviously did lots of different things. I didn't do this sort of traditional wall street path to get to where I am. And I'm really happy about it. Right. I think it's actually like the sweet, the sauce. I think it's [00:08:00] contributed a lot to my success.

[00:08:01] So I started, and the other thing too, is I've also been really lucky to have worked my career span, banking, fixed income and equity. So I've had this experience across different asset classes. So I started. In banking, I was running HSBC Equator Bank's representative office in Mozambique. We were providing lines of credit to banks and also to local exporters.

[00:08:20] And then that was for six years and I spent a year in Johannesburg, South Africa, doing the same thing across the region. Sort of came back and went to Hartford Investment Management, part of the Hartford Financial Services Group. I was there for five and a half years doing corporate bonds, high yield and high grade corporate bond analysis.

[00:08:34] So just really smart people and great training. And just so that you focus on the balance sheet, right? Not just the income statement. Yeah. Look across the whole spectrum of the company. And then, and then I left him to go to join Discovery Capital, you know, Rob Citron's Global Macro Long Short Fund. And initially focused on emerging markets and fixed income opportunities.

[00:08:56] But after the financial crisis, I shifted over to equities and really [00:09:00] focused on investments in energy and commodities. What year was that? That was in 2000. Yeah, sure. Point in 2007. And then, and then in 2009 we saw this renaissance happening in the US energy markets and we saw it was actually technology driven, was really use of hydraulic fracturing use of horizontal drilling.

[00:09:18] And we saw this kind of really this massive technology driven boost in, in that space. And this the ability to capture kind of new resource. So together with Rob, we really built out this kind of energy and commodity sleeve of the portfolio. And by 2014, we had 1. 2 billion invested in energy and commodities.

[00:09:38] And so that level of exposure was pretty consistent for 5 years through 2018. And, you know, generated about 500 million over that 5 year period. And twice the amount of alpha on the short side.

[00:09:49] Stacy Havener: No big deal. Let's just mic drop that for a minute. So you want to talk about being a female in the hedge fund world.

[00:09:55] There you go. And you weren't only long only, [00:10:00] right? I mean, this was, yeah. So talk about that.

[00:10:03] Lisa Audet: Yeah. So lots to say on all of that. Maybe I'll just talk about Rob for a second. It was just, I was at, I spent 12 years at Discovery. So clearly like a very formative period. In my career, and I learned a tremendous amount from Rob, which I brought with me.

[00:10:18] But it's all true. The first thing was Rob is one of the best macro investors out there. So I really learned from him how to read the macro tea leaves. So really, whether it's like central bank monetary policy, or whether it's we're at a certain point in the commodity cycle, or whether it's some geopolitical event.

[00:10:33] Understanding like what matters at what time and how do I marry that theme with bottom up analysis on micro sort of investment opportunity. So being able to marry that macro and micro view. I think Rob is a genius at it. I learned that with him. I also learned the importance of high conviction. It's it's so important.

[00:10:54] You can't be like, oh, I have kind of meeting conviction reports of getting to a place of high conviction because once you're there, [00:11:00] whether it's for a long or a short. If it's if that position is moving against you, if you're long, we have a high conviction long, it's moving against you. If you have the same conviction or even higher conviction than when you put the position on, maybe you buy a little bit more weakness.

[00:11:11] Same thing with the shorts moving against you. Maybe short a little bit more. Conversely, if you lose conviction, just come to short or sell along, like, just get out. So that conviction level is a barometer. To manage your positions in the portfolio was super helpful. And I think I also learned about short investing with Rob.

[00:11:28] What makes a good short, how to size the positions, how to manage it, and make sure that you're generating standalone alpha, that you're not caught in the short. And then Rob's mantra is to replace good positions with better positions in the portfolio. I think that's a great way to, a great way to think about the portfolio.

[00:11:42] You're being proactive. You're not being complacent. You're not sitting on what you have. You're always looking for like better, better opportunities. I love that. Keep going, please. Yeah, so I think as a female, I think it's easier today. I feel like there's more female fund managers. I'm part of this group at Morgan Stanley.

[00:11:57] There's a hundred of us and I feel like I'm [00:12:00] part of a community. I feel like I've got, I've got. Mentors and peers that I can rely on and bounce ideas off of. So I feel it's easier today, but I would say that it's really all about, you know, the performance. I mean, it's about how you show up with your fun.

[00:12:14] And I would say it's a very tough business. I mean, generally risk in this volatile environment and generate alpha. It's very tough male or female. I think you have to have patience. You have to have common sense and you have to have tenacity to be successful.

[00:12:28] Stacy Havener: I love that. I mean, I want to talk about Miami.

[00:12:31] Can we sidebar? I'm like, I'm talking to the participants who cannot talk back, but we're going to sidebar on Miami for a 2nd because Lisa mentioned this just when we were in the green room and it's so important. So cool. Lisa, so the Miami event you mentioned, give us a little background of it and then tell us about what you and the cohort do when you're together.

[00:12:53] What's the premise of the event?

[00:12:54] Lisa Audet: Yeah. So this is this amazing woman. One of the women that I respect the most and admire the most [00:13:00] in this investment world is Tracy Castleman at Morgan Stanley, and she is retiring this year and she is the genesis of This group of female fund managers that started, I think, 14 or 15 years ago, and it started with about 4 or 5, and now we're 100 strong, and so 45 or so of us get together every year, and we go to Miami, and we just, it's the kind of stone conquered.

[00:13:21] I mean, we just pitch ideas. Which is tremendous, right? So we're all sharing these wonderful ideas with each other. And so we're supposed to pitch a long and a short and every year we track the performance. And so I pitched last year, a long and a short, and they also look at it as a combination. So I actually won the award for the best long short, but I actually won the award for the best long and then the best long short combination.

[00:13:41] And so I think my name gets so great in a plate or something, which is so wonderful. And then we also had to pitch new ideas, right? And so we also have stars that we can award to the pitches that as we're hearing them, right. And so I also got like the most number of stars for this year's pitch. So yeah, To be honored by my peers, and this is almost my third year.[00:14:00]

[00:14:00] I'm obviously relatively new to the group. We've got some of the OGs that have been there from the beginning, which just like all sort of love them. And so it just feels so honored and so thrilled to be part of this wonderful community because it is so nourishing and so supportive.

[00:14:15] Stacy Havener: I love that so many great things and high five on the plate because I'm sure it's going to be awesome.

[00:14:23] Okay, so I want great sidebar. I want to go back. Actually, something you said about working with Rob and learning the macro. I want to pull that. Fred forward a little bit because so much of what you're doing now at tall trees is about a macro trend and I want For all of us can you just talk about the energy transition as a macro trend and unpack it for us to set the stage and then we can Go into to what you're seeing and how you're implementing your convictions

[00:14:57] Lisa Audet: Sure, no, I'd love to and especially I think there's a lot [00:15:00] of misunderstanding around the energy transition.

[00:15:01] Yeah. Real to be able to talk about it and talk about how we think about it. I mean, the 1st thing I would say is. And we express this view on our website was that people tend to think about energy in a binary sense. They think about traditional energy or it's either clean energy. Right? And, of course, that's not that helpful because if we think it's just about energy security or traditional energy, then we're deemphasizing decarbonization and vice versa.

[00:15:24] Right? And then this sort of conversation around, you know, Kind of energy access or affordability is just lost in the mix. So what I would just start off with is just that energy is vital, right? And energy is, it touches every part of our lives. We heat our homes, we cool our homes, we get in our cars and drive places.

[00:15:41] We plug in our computers and we can't exist without energy, right? It's essential to the way we live, the way we live our lives. And I just want to talk a little bit about when we talk about energy transition, that word transition, I think is, is create some anxiety for people. Cause I think, what are we transitioning to?

[00:15:57] And so there's this anxiety about I know where we are today, but where are [00:16:00] we going? And I feel nervous about that or anxiety on that.

[00:16:13] So, what

[00:16:13] Lisa Audet: I would say is the way we think about the there's 2 transitions going. Right? So, the 1st transition. Is energy intensity in the developed world is about 25 megawatts per person per annum, right? And energy intensity in the global South. It's about 2 and a half megawatts per person brand. So, energy intensity in the developer was 10 times the energy intensity.

[00:16:36] In the global South, and so really 50 percent of the world's population consumes 15 percent of the world's usable energy. So that's not sustainable. Right? So energy consumption in the global South. It's going to go up. Closing that gap is important. And in order to do that, we need more energy. So we need to have enough energy so that everyone has access to energy.

[00:16:56] So to me, that's the first part of the transition, making sure that we have enough energy [00:17:00] so that everyone has access to it. The 2nd, part of the transition is what we all tend to think about is going from high carbon to low carbon energy. And obviously that processes, we're in the middle of transitioning away from fossil fuels to renewable energy and that process has to continue because we need to reduce CO2 emissions so that we can limit the impact of climate change.

[00:17:19] So I think when we think about energy, when we think about the energy transition, it's really about how do we meet the world's future energy needs with affordable, low carbon or zero carbon? That's really how we think about the energy transition.

[00:17:32] Stacy Havener: That's great. That's a great backdrop. And I think it's interesting when you say binary, because to me, that.

[00:17:38] There are binary thought processes happening in many places around energy. It's a sector play. It's dependent on the price of oil. If it's green, it doesn't include the traditional energy players. There's all this very black and white thinking. Thinking and I wonder if you could speak to that for [00:18:00] somebody who maybe grew up with a certain perception of what energy investing is, how would you talk to them about what it's becoming?

[00:18:08] Lisa Audet: Yeah, I'm so glad you're bringing up that point because the way we think about it is, as I said, the 4 energy touches. Everything right? It's almost like it touches every aspect of our lives, and it's a structural megatrend. So we're in the midst of the most important transformation of the energy sector ever.

[00:18:24] Right? It's a structural megatrend that touches every sector and it's creating, it's creating opportunities for companies to either create. Or I don't want to say either either or create or be left behind right as we transition to a low carbon economy. So the way we tend to think about it is we're looking at it in a very holistic way.

[00:18:44] Right? And I think people have tended to think about the energy transition is really let me just invest in these 5 sectors in solar batteries, hydrogen. And that's a very small component of the energy transition, right? So, I mean, the market today, we think for the energy [00:19:00] transition, when we think about it touching all these sectors that need to decarbonize is about 25 trillion.

[00:19:05] So this is Rob West, our dear friend over at Thunderset Energy, talks about 25 trillion market today going to 50 trillion by 2050. So I think it isn't just about, you know, Traditional energy or clean energy or even these sectors that we think are traditional are just the energy transition. It's so much more than that.

[00:19:23] Stacy Havener: So can I read between the lines? And look, so you're saying it's not just the energy players, it's actually companies that need to figure out how companies and other industries that need to figure out how to manage their own energy needs in a changing environment. So it's broader than Energy as an industry.

[00:19:43] Lisa Audet: Exactly. The energy is only the supply part of it, right? It's only the part of we're transitioning away from coal. We're transitioning away from oil, the lower carbon sources or 0 carbon sources of energy. That's just the supply piece. [00:20:00] There's a whole demand side of it, right? Which is like, how can we create energy efficiency technologies that help companies reduce their carbon footprint?

[00:20:09] So, it's everything from shifting over to electrify electrifying buildings. It's about using materials that are decarbonized. It's about creating a building and homes. That are more energy efficient, but the energy efficiency part of it is an area that we focus on a lot. We feel it's underappreciated.

[00:20:26] There's focus on how can we replace fossil fuels with renewable energy? Obviously, that's super important and that's happening. But it can only happen so fast, right? Because there's certain, I mean, China controls the supply chain for the solar industry, right? They control a lot of the inputs into the renewable energy.

[00:20:43] Industry, so it can only move so fast. There's this we're coming off a very huge growth off of a very low bottom, but we think the energy efficiency part where technology is around digitalization around automation. Help reduce energy use, and I mean, the reality [00:21:00] is, we're actually wasting about 80, 90 percent of the energy we have available to us.

[00:21:04] So I think we're all wringing our hands thinking we need more renewable energy and we're frustrated about how slowly we can make that happen, but at the same time, we're actually wasting a lot of the energy we have available to us. And I think Keep going with that.

[00:21:17] Stacy Havener: What do you mean by that?

[00:21:19] Lisa Audet: Yeah. I mean, just think about like when I'm in Europe, for example, and I'm getting out of an elevator in a hotel, it's completely dark, right?

[00:21:24] And as soon as I step out, the lights come on. It's so simple, right? These are just sensors. So this is low level stuff, right? I mean, in Europe, it's They're ahead of us in terms of all these things that, and it adds up over time, right? They're leaving the lights on all the time versus like, the lights come on, when you come in the room, they go off and you leave the room.

[00:21:42] That's very low level stuff. We think AI is going to be the real game changer for the energy transition. Just to give you an example, we need to figure out how to make semiconductors with less energy. We need to figure out how to make aluminum with less energy. We think AI is going to help us do that.

[00:21:57] There's certain companies, industrials, That we, that we [00:22:00] have in the portfolio, they have decades and decades of data, right, which if dropped into a large language model, can be used to enhance innovation within their own companies and enhance innovation for their clients. Right. So we think AI, we've just scratched the surface.

[00:22:16] We're excited about what utilities are doing with AI. You know, they're using AI. I mean, they use it for a long time for preventative maintenance, but the real game changer for them. Is, of course, the grids become super complex, right? It used to just be power was, you know, coal generated power, fuel generated power, and it was just sent 1 way to customers.

[00:22:35] Now. You have renewables on the grid renewables are intermittent, right? They don't provide 24, 7 power. So you've got different energy sources on the grid. It's become more complex utilities trying to manage when solar gas fired power, nuclear hydro. And also the bidirectional flows, right? So some customers.

[00:22:53] If there's a lot of renewable energy on a particular grid, customers are selling back that power to the grid. So [00:23:00] utilities are using AI to manage those bidirectional flows. They're using AI to manage supply and demand. Because not all demand is the same, right? The demand for energy at an ICU unit It's not the same as I need to recharge my, but I can do it next week.

[00:23:13] Like, I'm not, so it's really, AI is going to be a big game changer. And I think it's going to create a lot of efficiencies in terms of how we use energy, which is great, right? Because we need to, if we're using less energy than we need, then we'll be less worried about how we need growing energy demand.

[00:23:28] Stacy Havener: It's a great example, too, of how something that you might not think of when you hear an energy transition portfolio, AI or companies that are specializing in AI and tech actually makes its way into the portfolio because of its potential. Derivative use in the whole process. I love that. I also want to say, like, you heard it here 1st, that, like, the old tired utilities are going to be cool.

[00:23:53] So that's exciting. They finally get that. They get a cool badge. So talk to us about. [00:24:00] How this all plays out on the short side, because I think, too, like, again, in that binary thinking, it's oh, so Lisa and her team are long, the clean energy and the good players and short, the dirty energy companies respond to that and take us through it.

[00:24:19] Lisa Audet: Yeah, so I would just say just at a very high level, we've shifted a little bit how we approach the short investing in the portfolio. We tended to focus on lower beta shorts that have more of a longer runway. It's really been positive for our performance staying away from some of these high beta opportunities.

[00:24:35] In terms of what we're focused on, we tend to have kind of three buckets of what we're looking for on the short side. One would be just, I mean, no surprise, high carbon emitters, companies in space producing kind of iron ore, coal, et cetera. Then we also look for companies that may have technologies. A number of these companies were de SPACed back in 19, in the 20, in 21, they were de SPACed.

[00:24:55] They have technologies that were sexy at the time, received an attractive [00:25:00] valuation in the market. And we think these technologies In some cases are still in the prototype phase. They're still there's unproven, but the market is still giving them a high valuation. So that's a bucket of companies that are attracted to us on the short side.

[00:25:12] Then there's just companies that, that just face unanticipated consequences from the energy, they're just. They're losing out. They're losing out because they can't really adapt to maybe hotter weather because of their business, or they're, they're just challenged really in terms of being able to evolve and adapt.

[00:25:29] They have stranded assets, you know, that aren't going to be attractive, right, in a world that's moving to a low carbon economy. So I would, I would say that the other thing that I would mention on the short side is, oh, what was it? It'll come back to me. There was, yeah, anyway, it'll come back to me. Welcome to my world where

[00:25:45] Stacy Havener: all the ideas go right through and I'm like, that was great.

[00:25:48] And hopefully at some point in time, it'll come back to me and be great again. So I'll just keep talking and when you get your idea back, you tell me. So are you thinking about the shorts? Because obviously there's lots of different ways you [00:26:00] can run a short. Portfolio in conjunction, especially within the context of a long short strategy, is this like pairs?

[00:26:06] Are you hedging? What are you trying to accomplish with the short book?

[00:26:11] Lisa Audet: Yeah. So we're not, it's not pairs, right? We're really just finding those opportunities that we think are structurally are basically going to just either trade sideways or trade down. They obviously hedged the long book, but we're really looking to generate stand standalone alpha with the shorts.

[00:26:29] We're not trying to pair them up. In some cases, there is a little bit of a relationship. We might be long, a certain industrial that is benefiting from some of these secular tailwinds, and then one that is kind of being hurt by the, Kind of tailwinds, they're not participating in that. So there's a laggard in the space.

[00:26:46] I know what I wanted to talk about, which is good. I think we're really feel quite strongly about in terms of playing out negatively is I think, and it's, it's, it doesn't really fit into any one of those three buckets that I just mentioned on the short side. It's been a good space for us and [00:27:00] that would be electric vehicles.

[00:27:01] So I think people would think, Oh, you should be more electric vehicles. That's good for the energy transition. So the auto OEMs, whether it's ICs, I mean, this is just a difficult business It's very capital intensive. You're really relying on a strong economy, low interest rates, lots of people finance the purchase of their vehicles.

[00:27:17] So as soon as we have high interest rates, A pullback in demand, and then of course, with EVs specifically, Tesla, I mean, Tesla was really out in front, initially leading the EV charge, but of course the Chinese competitors have really caught up and they're producing really competitive, affordable, good quality vehicles.

[00:27:35] So, I think what's so interesting is that, again, Rob West, we really work with and admire so much, had an EV forecast that we're going to see 60 million EVs. As part of the vehicle fleet in 20, in 2030, and now he's taking it down to 40 million. That's like, so it's because the cost of ownership is higher for EV, right?

[00:27:55] It's like the average cost for an ICE vehicle is like 30, 000. It's cost 45, [00:28:00] 000 right now. So the cost of ownership, maybe you pay a little bit less, obviously you're not buying fuel, although, but really the total cost of ownership, it's like the upfront is more, right? And then of course, China is producing lower cost EVs.

[00:28:12] Yeah. But we're not going to be able to buy them here in the US and you can't buy that because there's going to be huge tariffs placed on them. So I think the lack of an affordable 65 percent of these are purchased by the richest 10 to 35 percent people in the world. Right? So it's people that are in that very high income bracket.

[00:28:28] So I think we're not, and it's not good for decarbonization. Obviously. Right? We're going to see less on the road. So, we just, we don't find that area attractive right now. And also, it isn't as clean as you think, right? If you're driving in West Virginia, and you have to go fuel up, I mean, the power in West Virginia is from coal, right?

[00:28:45] Utility in West Virginia is going to be coal fired. So, unless you have a renewable energy source, that's providing the electricity to charge your EV, it's not maybe as clean as you think. And let's not even get into the minerals. I was just going to [00:29:00] ask that. I know. Where do you need to go to find those and what is happening in some places of the world to get those minerals for those energy batteries.

[00:29:10] So, I think we've been negative on, we've been negative on EVs, we've been negative on lithium and those trades have worked pretty well.

[00:29:16] Stacy Havener: Yeah, it's interesting. All the knock on things, the unanticipated consequences of something that was a very good idea. And then you start seeing it playing out. You're like, Oh man, we didn't think about that.

[00:29:26] In fact, I asked you in the green room, given what we're seeing right now with the weather and the hurricanes and some of the news, um, related to courts or do you want to just, it's so topical. You want to take us through what you were sharing with me about the weather, the impacts. On energy.

[00:29:44] Lisa Audet: Absolutely. I mean, it's still early days and I feel like we're still trying to figure out what's really happening down in Florida, which is a tragedy.

[00:29:50] Yeah, please do to this to this hurricane or the 2 hurricanes. Really? Yeah. So, yeah, so the point is, is it obviously [00:30:00] 3M people plus, it seems to have lost power. And so a lot of different times we have hurricanes coming through. Kind of energy alley coming to Louisiana and Texas, and so people are losing people also lose power.

[00:30:12] Those hurricanes come through, but you also see these refineries shut down production, right? As preventative for the hurricane. So, in this particular instance, we, none of the refining capacity was shut down. We still have the same amount of product kind of coming into the market, but now we have a lot of.

[00:30:28] People that are without not going to be able to consume power, so there's potentially going to be a little bit of a glut right now, and I just think going forward, and we're probably going to keep having these types of events, and I think we're going to be very tight in power demand and electricity demand is going up by a huge amount, so temporarily, it's obviously going to lessen that, but this is not the reason we want it to be less, right?

[00:30:49] Stacy Havener: Right, right. And how about the courts? Component that people, there was a

[00:30:53] Lisa Audet: really important input into semiconductors. So obviously it's still early days, but a lot of [00:31:00] that apparently has been compromised, right? With that force of supplies. I think this is going to become the new normal is just, whether it's weather events or geopolitical events or other things, we're going to be living in this world of.

[00:31:13] Of really increased volatility, and I think which is why I think we have an advantage as a long short equity liquid. We can respond quickly. We can put positions on and generate performance by meeting these events and understanding how to trade them and how to position.

[00:31:29] Stacy Havener: I love that we have so many great questions.

[00:31:30] I want to get to, but before we switch gear, so. Reminder, if you want to ask a question, I forgot about the Q& A. There's also the Q& A thing. Throw it in the Q& A or throw it in the chat. Whichever one works better for you. We'll get to it. One of the things that's interesting is a lot of allocators don't necessarily have a sleeve in their allocation model for energy transition per se.

[00:31:53] And so I'm wondering for the clients that are Partnering with you. Where are [00:32:00] they putting a strategy like this? Are they putting it in their long short bucket? Because obviously lots of firms have an alt sleeve. Are they putting it in there? It's just a differentiated long short strategy or how are they fitting this into a portfolio?

[00:32:14] Lisa Audet: I think we tend to most end up in kind of the absolute return. I mean, sometimes we're looked at as kind of part of energy, but I think the absolute return bucket is the right place for us. I mean, either long, short equity or absolute return, and I mean, I'm encouraged because I'm seeing that the allocators are becoming more interested in allocating to long, short energy.

[00:32:34] So it's been a number of years of kind of less focus on the long, short equity in more of a focus on private credit or private equity or venture capital. So I'm really excited to see that. There's definitely, we're definitely getting more inbounds. We're having more conversations. And I think allocators are starting to realize a number of things.

[00:32:50] One is that all of this volatility in the market is really good for long short management.

[00:32:55] Yeah.

[00:32:56] Lisa Audet: I think we can take advantage of that on the long and the short side. I also [00:33:00] think that interest rates coming down, credit maybe isn't the best for where you want to necessarily be. Maybe it's time to put, put more risk on it.

[00:33:07] You can see interest rates. Coming down, I think there's a lot of cash sitting on the sidelines that needs to get put to work. And then specifically for us and for our strategy, we believe this is the best opportunity in the market over the next few decades, without question. Obviously, it's exciting to be in NVIDIA, and obviously that's a great place to be too, but It's been super crowded.

[00:33:31] I'm excited about investors starting to look beyond the mag seven and starting to see what's out there and what else can I feel comfortable that, that this is a kind of a multi decade trend and I can put money to work in something that where I, you know, I can see the consistent kind of performance and we've been having a great year and we're really capitalizing on all these opportunities in electrification, in the mining space and industrials across the board.

[00:33:55] We're really finding tremendous opportunities and I think we're just like in the beginning This is the beginning of the [00:34:00] whole trend

[00:34:01] Stacy Havener: but and when we were prepping for the call, I actually just kicks Like googled long short fun flows just to see because it like you said I mean, it's been such a hated part of the market for so long for many structural reasons and also other reasons But I saw that actually this year you have some I've seen some positive flows into Longshore as a category, which I think is encouraging.

[00:34:24] And certainly there's an element of just a macro theme to this as well, which I appreciate you speaking to. Okay. Let's go to some questions. There are some great ones. Also, there's a lot of smart people on this call. So thanks for being wicked smart and giving me these questions I'm gonna ask lisa to translate into layman's terms All right.

[00:34:46] So the first one are you ready lisa? I'm gonna go right at this like the big juicy one here Okay, equity securities of critical metal producers and the historic boom bust cyclicality of their cash flows and [00:35:00] share prices in past mining up cycles So this is the topic. Would companies do a better job at creating lasting shareholder value by redeploying bumper free cash flow towards share buybacks instead of investing in incremental production growth at cyclical high spot prices?

[00:35:23] Can we have the Dakota ring on that

[00:35:27] Lisa Audet: Yeah, so that's a great question. So absolutely short term, you can deploy those cash flows or buyback stock, but ultimately, you know, a lack of investment in these commodities is just going to mean there's going to be a deficit in these commodities, and then you're going to see a spike in prices, right?

[00:35:41] If demand is still strong. So it's not really a strategy that's going to play out over the longer term. Companies need to, in the industry, we need to keep investing, right? To make sure that there's adequate supply to avoid this kind of boom and bust. Type of cycle and for us we're looking for companies that have a balanced approach right that that use some of their cash [00:36:00] flow Obviously to invest in in in build future capacity and also give some of that cash back to shareholders So we're really focused on a balanced approach to both the both.

[00:36:10] Yeah.

[00:36:11] Stacy Havener: Okay, great All right next question and then i'm going to go to the q a so That's your heads up. If you have a question throw it in there or the chat. Okay, if trump wins Do you expect the IRA to be repealed?

[00:36:27] Lisa Audet: So, I mean, there's been tremendous amount of concern around the possibility that the IRA could, could get repealed.

[00:36:34] And I think our view is that a lot of the people that we've spoken to and our understanding is that certain components of it have already, they're in process. And a lot of the benefit of the IRA goes to red States. There's a lot of reshoring. There's a lot of. Clean energy technology investment that's going into red states and creating a lot of jobs in those states.

[00:36:55] So there's been actually a lot of Republican senators and I think congressmen. I was persons as [00:37:00] well that have come out and defend defended the IRA, but there's certain aspects of it that I think are unpopular on a bipartisan basis. And that would be maybe subsidies to ease again back to about being less excited about the space.

[00:37:12] So there's a 7500 dollar tax credit. That might be, I think it's possible that other parts of the, if Trump is elected, there's other parts of the IRA that could come under attack, but. I think the core of it I think will be maintained because I think it's good for the country, right? It's good for the country, it's good for job creation, and it's good for us to develop our own independent, our own domestic supply chain in clean energy.

[00:37:37] Stacy Havener: Okay, great. Let's go to this one. What is the state of political risk in key African countries right now? For example, DRC has a lot of valuable green metals, but the political risk is significant. How are you seeing African political risk impact the energy transition?

[00:37:57] Lisa Audet: Yeah, I think if anything, the [00:38:00] political risk is growing, right?

[00:38:02] I mean, I think just stepping aside from that particular industry in the DRC, for example. Just the very strong dollar and its impact on emerging market currencies, I think it's making things very difficult economically across Africa and the DRC specifically. So, I think there's going to be an increasing kind of tension between what's happening on the ground and outside.

[00:38:25] Participants involved in that. And so I think it's going to create supply chain constraints. I think we're going to see less supply. There's clearly an effort to try to move away from as part of the input into the batteries. I just think it's a very challenging situation and clearly there isn't clear alignment in terms of what is being trying to be taken out of the economy and what is being put into the right.

[00:38:49] So, I think it's a very difficult situation. I think political risk just continues. To be a major factor and a major hindrance to the energy transition accelerating and [00:39:00] and as I said earlier, so much of the energy supply chain for clean energy is in China. Right? And so these other areas outside of China are hotly contested and it's just very challenging.

[00:39:10] Stacy Havener: But that's a good dovetail into another question around risk. We didn't talk about the risk management component and we did talk about shorting, but talk about risk management in general, because certainly you have political risks. There's lots of risks on both sides of the book, so to speak. And so how are you thinking about risk management?

[00:39:29] Lisa Audet: Yeah. And I'm so glad you asked that. I think we've done a really great job with that. And we really outperformed the market in 2022, which is when we launched and it was a really challenging year for the markets. And we've continued to do a good job. I think it starts with just having high conviction longs and shorts, just doing a really good job in terms of our stock picking.

[00:39:46] And we've also started to become much more active in using options. So for example, we've generated quite a bit of profit in our long book year to date. So we put some, some puts in place really just to hedge, hedge the downside. In those [00:40:00] names, and we've also used other types of options really just. You know, really the kind of hedge scale risk in the market.

[00:40:06] We think goal is a good hedge right now. This is a way to mitigate really disruptive kind of geopolitical risks. I think the best risk management for us, it's just being really proactive with the portfolio goes back to what I was saying earlier about level of conviction. Right. And just, if you lose conviction, we're not trying to round trip.

[00:40:22] We're not trying to wait around for something to come back. It's all about, do we still have the same view today that we did before? And if we don't. Then we just want to be proactive around it. I think, and as I mentioned before, I mean, just coming from a macro fund and having the benefit of that, I think that's been super helpful.

[00:40:38] Just being able to not overreact. I think that's a really key point too. I mean, obviously we've all seen in the beginning of August, we had this major drop in the markets. We saw the same thing in September and we were, we were very steady. We were very steady. We really just held on to our conviction. We didn't panic.

[00:40:54] Obviously, we're happy to trade positions around if our conviction level changes, or we've reached a price [00:41:00] target, or if there's a good reason to do a trade one way or the other, we will. But we're also quite happy to just be patient and be steady. And I think you have to have a steady hand in this market.

[00:41:10] It's super volatile. And so we're just making sure that That we stay very focused on our highest conviction ideas and not get distracted.

[00:41:19] Stacy Havener: Thank you. And how about for the short book? I mean, you mentioned just a philosophical change a little bit on, on what types of shorts. Is there anything on the short book that you're doing differently or maybe leaning into more on the risk management side?

[00:41:32] Yeah, so we've had a,

[00:41:34] Lisa Audet: we were hurt quite a bit by our short book last year. We still ended up with high single digit positive performance, but really we're hurt by it, by our shorts. And so we really have changed tack and we're not only are we focused on different types of opportunities in the portfolio, which are, as I mentioned, the kind of lower beta opportunities.

[00:41:51] But we're also sizing those positions smaller. It's so important to have small kind of manageable positions in your short book. You don't want to get carried away and getting, [00:42:00] adding to them because I think some of these high beta shorts, I mean, you might have a day where they report bad earnings and shares go down high teens percent, and you feel great about it, but then there'll be a comment about maybe we're going to get four or five interest rate cuts in the next six months and then the shares rally again.

[00:42:13] So I think. We've cracked the knot in terms of finding the right type of short investment, sizing them appropriately, and just being really, just being really vigilant and making sure that we just are proactive about it.

[00:42:24] Stacy Havener: Okay, that's helpful. Okay, let's go to another question here. What ISO slash RTO market trends currently intrigue your investment thesis?

[00:42:35] Ooh, that's a good one.

[00:42:36] Lisa Audet: Yeah, so for those of you that aren't familiar with those kind of acronyms, so those are the authorities that actually manage the power markets. In Texas, and then in the PGM area. So we're very excited about the opportunity. So maybe just to provide a little context around that. So we've had pretty low energy demands, electricity demands, but it's been kind of trending over the last decade, about 0.

[00:42:58] 4, 0. 5 percent [00:43:00] Kager, it's actually going to 2. 5, 2. 8 percent Kager. So, we're seeing this massive increase in electricity demand, and it's really driven by partly by these, but mostly by reshoring by electric building, electrification and of course, data centers, right? Data centers is really the big driver there.

[00:43:16] So, this is, I cannot emphasize. Enough like what a massive step change. This is okay. This is massive. And so what is happening is you've had very utilities have to have reserve margins and that really is to cover peak demand. So they're looking at what's the peak demand that I could have. On a particular day, and, of course, we haven't really been had to worry about that, right?

[00:43:38] Because the electricity demand has been pretty low. So, these reserve margins have been pretty wide and 15 percent or something. So, those margins are getting squeezed, right? So, these peak days, like, you have 102 degree weather in Texas or something. You're just seeing that reserve margin. So, there's just this recognition that.

[00:43:53] We need more capacity. We need to have more energy available to meet peak demand because peak demands are a lot higher than [00:44:00] we think it is. And so these capacity options where they're going out in the market and contracting out power on a go forward basis. And they're actually, so the price is going up, right?

[00:44:10] So we're seeing a massive increase in the price to bring this power, to lock in this power so they can maintain a decent. Reserve margin, and so what's happening is a lot of this power is being supplied is coming off the grid, whether it's nuclear or whether it's other types of power. It's getting allocated in these options and then you still need other power, right?

[00:44:31] And so we're really excited 1 about the utilities that are winning these that are winning these. Capacity auctions at very high megawatt per hour prices. And we just see those prices continuing. We see power prices continue to go up. We see capacity auction prices continue to go higher. So all of that is very bullish for these independent power producers that we have in the portfolio.

[00:44:53] But it's also really bullish because you're seeing, in some cases, nuclear power being pulled off the grid [00:45:00] to supply power to the data center. So that leaves a gap who's going to replace that power that that nuclear power that was on the grid that was sending energy to all of us, just consumers rather than residential consumers.

[00:45:11] Where's that power going to come from? It's going to come from gas, right? But we're seeing this massive increase in need for gas peakers and also a need for equipment to upgrade the grid. So, as I was saying earlier, the grid's more complex. It needs to be expanded. So, there's about 3 companies in the power equipment space that make gas peakers and make transformers in this critical infrastructure that's needed to upgrade the grids.

[00:45:35] And those are great investments right now. Fascinating. Yeah, it's going to be a very tight electricity market, a very tight power market and gas peakers are going to be the backstop for that. Also, because, as I mentioned earlier, we have a lot of renewable energy, which is great and more renewable energy on the grid, but it's intermittent, right?

[00:45:51] We either have a lot of it, the wind is blowing, the sun is shining. Yeah. Or the wind is not blowing, the sun is not shining, then we don't have that much. So we have to have backup. And that [00:46:00] is nuclear, and it's coal, obviously, but we're trying to get away from coal. So it's nuclear and it's gas. And this gas piece of it is, we're seeing just an incredible increase in demand for gas peakers.

[00:46:11] And then also for this transformer equipment, which is used to upgrade the grid. The price there's a 5 to 6 year waiting period now. Wow. Get transformers and pricing's gone up 70 percent in the last year. So we want to be positioned. I was just going to add that we want to be. Yeah, I mean, utilities are great, especially the independent power producers, but they're spending a lot of the capex, right?

[00:46:32] We want to be, we want to be investing in the companies that are benefiting from the.

[00:46:35] Stacy Havener: Yes.

[00:46:36] Lisa Audet: So, like, where you are in the, where you are in the supply chain kind of matters.

[00:46:40] Stacy Havener: Great point. And actually, let's pull that nuclear thread forward because we have a question. Do you think uranium slash nuclear is going to be an increasingly important part of the energy transition?

[00:46:53] 100 percent

[00:46:54] Lisa Audet: yeah, we're very positive on nuclear. Very positive. We have investments in the portfolio. So [00:47:00] nuclear is 1 of our key things this year. There's 4 themes. I just talked about 1 of them, which is in some ways, the most exciting thing, which is electric electrification power. And grid upgrades.

[00:47:10] Another thing is nuclear. Another one is copper. And the other one is data center infrastructure, but specifically on nuclear. So nuclear is a bad word. We haven't had a lot of investment in nuclear. So now, as I mentioned, we're seeing all these renewables come into the grid. They're intermittent. And people are saying, like, where's the back, where's the 24 7 power?

[00:47:27] And so all of a sudden nuclear is becoming back top of mind, because people realize that it's a great source of 24 7. Energy and, of course, this data center demand. We've just seen a deal. 3 Mile Island is now cramming clean energy and has come back to supply energy under a deal with Microsoft. So we think energy is going to be a great way to address some of these energy needs.

[00:47:49] And so we're invested both in companies that produce uranium and also companies that, like I mentioned earlier, like the independent power producers that are providing nuclear power. Okay,

[00:47:57] Stacy Havener: wait, this is sparking more [00:48:00] questions. Hold now. Okay, between the uranium mining companies and the commodity itself, which do you think is the best way to invest in nuclear energy?

[00:48:11] Lisa Audet: So I would say the companies, I would say the uranium producers, and there's one in particular that that we like that not only produces uranium, but also recently acquired an asset that allows them to service the nuclear reactors. So they're getting that kind of that more stable kind of service revenue.

[00:48:30] Which creates more stability in their revenue and earnings and cash flows. But we certainly don't think there's anything wrong with buying the commodity. Um, obviously one just has to have an appetite for more volatility. I mean, not that the equity is necessarily not volatile, but of course the commodity, the underlying commodity is going to be even more volatile.

[00:48:48] So if one has an appetite for that, I think that's certainly fine. But we like the uranium producers because You're not only getting upside from the price, but you're also getting this kind of [00:49:00] steady stream of earnings cashflow from this new business.

[00:49:03] Stacy Havener: Great questions, everyone. This has been fantastic.

[00:49:06] Lisa, thanks for your candor and your storytelling. Any parting words for us, Lisa, before we go.

[00:49:13] Lisa Audet: Yeah, I just want to thank everyone for tuning in today. Just appreciate it so much. Your interest in learning more about me and about our strategy and happy to follow up with anyone. I think I've shared, I think this is one of the best investment opportunities over the next few decades.

[00:49:27] Would love to have additional conversations with any of you. Thank you again so much.

[00:49:31] Stacy Havener: Thank you, Lisa. You're an inspiration. Thank you everybody. Have a great day. Talk with you all soon.

[00:49:36] Stacy Havener (2): This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. The information is not an offer, solicitation, or recommendation of any of the funds, services, or products or to adopt any investment strategy.

[00:49:51] Investment values may fluctuate and past performance is not a guide to future performance. All opinions expressed by guests on the show are solely their own opinion and [00:50:00] do not necessarily reflect those at their firm. Manager's appearance on the show does not constitute an endorsement by Stacey Havener or Havener Capital Partners.

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