Brad Briner:

You can spot financial trouble in advance if you know what to look for. And that requires seeing what other towns have done historically that has led to their financial demise. That is a very labor-intensive exercise.

 

Nancy Lashine:

Hello and thanks for tuning into Real Estate Capital. I'm your host, Nancy Lashine of Park Madison Partners. Capital is a lifeblood of the real estate industry, but the decisions on where and how it's allocated are driven by people and personalities. Who are they? What motivates them? What can we learn from their experiences? On this show, we introduce you to some of the real estate industry's most influential thought leaders and decision makers, and we talk about what is important to them, how they make critical decisions, who has influenced them and a lot more. Our guest on today's episode is Brad Briner, the newly elected state treasurer of North Carolina. Brad is the sole trustee of the $127 billion North Carolina Pension Systems. It's a lot of responsibility concentrated in one person's hands, and we discuss that in the episode.

This is Brad's first foray into politics. Prior to running for public office, Brad spent nearly 26 years in finance most recently as the co-CIO of Willett Advisors, the family office for the former New York mayor, Michael Bloomberg. Before Willett, Brad held positions at Morgan Creek Capital, The UNC Management Company, and other spots. Brad's diverse background experience investing across asset classes and recent entry into the political arena certainly make for an interesting conversation. So excited. I've been wanting to do this for a very long time. And I was trying to actually remember if we first met when you were at UNC or in your Morgan Creek era. It was also long ago. I'm not sure it matters, but you-

Brad Briner:

It's all 20 plus years ago.

Nancy Lashine:

Right. Right. And you've had such an interesting trajectory. If I ever want to feel insecure about myself, I'll just think about your background and what you've done.

Brad Briner:

Probably.

Nancy Lashine:

Absolutely. I just want to say I think there's a wonderful, for those of you who probably can't see it, there's a wonderful irony that I'm in my office and I have a big apple crystal little glass statue on my desk, and you no longer are in the big apple, you've now gone back to your roots in North Carolina. So you've had just an amazing trajectory, and I'm excited to have everybody hear a little bit about your background. So welcome to the show.

Brad Briner:

Thank you. As ever, you're way too kind, Nancy. It's a pleasure to be here with you and catch up.

Nancy Lashine:

Great. Well, just for those folks who haven't known you for a very long time, maybe just tell us a little bit about your career journey from your, born in Texas, went to UNC, and maybe start there and talk a little bit about how you ended up in the investment business.

Brad Briner:

So when I speak at business schools, they always ask for career advice, and I'm terrible at giving career advice because I've always known what I wanted to do. When I was a little kid-

Nancy Lashine:

Well, I hate you for that, by the way.

Brad Briner:

It's a different perspective, I'll tell you that.

Nancy Lashine:

Uh-huh.

Brad Briner:

All right. So when I was a kid, the stock market crashed and I got interested in that. So as long ago as 1987, I kind of knew what I wanted to do.

Nancy Lashine:

Wow.

Brad Briner:

And that was at the ripe old age of 10 years old. So it's been a pretty linear journey when phrased in that way. I went to boarding school in New England. I was fortunate enough to get a Morehead Scholarship down here at Carolina. And came down, fell in love with the place, fell in love with a girl, started a family, went to work at the UNC Endowment, and that was a very different era of endowment management. Yale was doing it right and a couple others were doing it right, and those like UNC were just late to the game and figuring it out in the late nineties. So that was a lot of fun for me, and I've kind of been a limited partner ever since. Moved from UNC to working at Morgan Creek, which is a multifamily office, again, being a limited partner, building portfolios for folks.

And then I got a call in 2011 from Willett Advisors, which is Mike Bloomberg's family office, to join there. I lived in North Carolina though, it was a small problem. And they indulged me, so I spent the better part of the next 12 years commuting back and forth from Chapel Hill to New York five days a week every week. I guess I did have a year off for COVID. And that was a fantastic experience. But then the opportunity to run for state treasurer of North Carolina, which is really an investment job. I came open and I thought that was a really interesting change of pace for a lot of reasons, but ultimately back to the same core things I've always been interested in and always been doing, and that's building investment portfolios for folks. So got elected in November, 2024, and here I am five months into being treasurer in North Carolina.

Nancy Lashine:

It's an amazing path. We'll pick apart some of those pieces, but let's talk a little bit about your time, when you were at Morgan Creek, you managed money for how many families?

Brad Briner:

Well, we started with two in the fall of 2004. And if you remember that era, the endowments had done really well through the tech downturn, and every family got the bright idea in '04, '05, '06 that they wanted to be an endowment too. So we were in right place at the right time. And so we started with those two families, and it became 10 before you knew it, and what was $400 million of AUM in the fall of 2004, by the summer 2007 was $12 billion AUM. So it was a complete rocket ship and an amazing journey. But yeah, hundreds of families by that peak.

Nancy Lashine:

So when you were at Morgan Creek, you started with 400 million in assets, and over those three years, and of course when I think about 2007, I think about 2008, but we'll get there. But how did your investment strategy change and, from 400 million to...? Is there any difference? Did you do the same thing or did you have to expand asset classes and change the way you thought about portfolio construction?

Brad Briner:

Yeah, there are real practical differences, unfortunately, in hindsight, in that when you have a reasonably static pool, you can plan for it and you can make commitments based on where you think AUM is going to be in two or three years, which is what you're trying to target with illiquid commitments, because it matters what you have today, but it matters a lot more what you have by the time you have peak AUM in that fund, and peak AUM as mapped to your portfolio. When your firm is growing, you have no idea of those inputs. So how much should you allocate to this investment? I don't know. We're kind of guessing at it, and we're hoping that the business plan comes to pass in a way that makes that commitment size makes sense three years from now.

So it was very hard. What we ended up doing, and this ended up being the right answer, but maybe for the wrong reason, was leaning heavily on co-investments and direct investments. But not because of fees, not because of selection, but because of capital availability. We wanted to put money to work when we had it, and fees and co-investments and directs allow you to do that. Now, over time, you realize they're better for a lot of different reasons, mostly fees, but control your balance sheet too. But for us, it was just a practical reality of, "Man, we got money sitting in cash. Our investors expect a return, so let's find the best that's available." And as you said, we'll come to 2008 a little bit, but that wasn't the best strategy in 2006 or 2007.

Nancy Lashine:

What were interesting examples of co-investments you could find in that era?

Brad Briner:

You were doing a lot of things in emerging markets in that era, and depending on your emerging markets, some of them worked out fine. Certainly, early of those-

Nancy Lashine:

Yeah, that's pretty damn brave if you had to make that because when you're making a co-investment, you're taking more of a fiduciary role in the decision process than if you're just allocating to a fund, for example.

Brad Briner:

But you're alongside one of your funds in almost every case, or a GP at least who has an economic interest, who you're likely paying economics to. So you have some alignment there. But of course, you're right, it is a much more concentrated bet with more responsibilities that are tenant to that. So we were early in China, we did some things in Brazil. Fortunately, we did nothing in Russia, and certainly early in India, but we didn't get a lot of capital to work there. So there was a lot of that going on and then all around the horn of the other asset classes as well. As a reminder though, I think people remember, maybe they don't, that '06, '05 were not peak years for venture capital, so we were still allocated to that asset class when it was deeply out of favor. Those were the best of a lot of those vintage years.

Nancy Lashine:

Mm-hmm. Were you able to get your capital out of China, for example?

Brad Briner:

From those ventures, yes.

Nancy Lashine:

Interesting. Yeah.

Brad Briner:

But it took a long time, and in some cases, it was worth the wait. I think more recent ventures have a very different story.

Nancy Lashine:

Right. Right. Right. When we started Park Madison Partners, which was kind of in that same era, 2006, we thought we'd be the placement agent for the emerging markets because there it was the BRICS, everything was so exciting. We did a lot in Brazil and a few things and some of those other BRICs, or RICs I should say. But it just became apparent at some point that when you're in a long-term asset, currency has a much bigger role than people had necessarily factored in. And that was the biggest driver, one of the biggest drivers of return and impossible to control.

Brad Briner:

Impossible to control and cost us, you, everybody a lot of money over those years.

Nancy Lashine:

And that's not just an airplane tickets, right?

Brad Briner:

No. No. I think the REI at one point was like one and a half to the dollar, and I think it's five today.

Nancy Lashine:

I mean, yeah, maybe it went up three times, but yes. Yeah.

Brad Briner:

The other thing you learn is home court advantage is real, and you don't have it when you're there. And there's all sorts of ways that manifests that are none of which are very good.

Nancy Lashine:

So 2007, '08 happens, how did you end up leaving Morgan Creek and moving on to your next chapter?

Brad Briner:

Yeah, so it's not the story that people expect. In fact, Morgan Creek's business was basically flat in AUM from 2007 to 2011. The composition train changed dramatically. We had built a private team, many of whom I'm still in touch with and have landed in really interesting role. So it's always fun to catch up with them in that regard. And we attracted new investors post GFC into the private side, and some big investors. So we had separate accounts with some large pension funds and a major university endowment. So the composition of the assets at Morgan Creek went from 90% publics, 10% privates to 40% public, 60% privates. And that was great, but then we couldn't see a path forward from a business perspective to managing that. And there was a lot of consolidation going on at the time, and we didn't want to be part of that. And so there were a lot of factors that led to me taking the phone call from Mike Bloomberg or his proxy.

Nancy Lashine:

Right. Right. So you moved to New York part-time, or you become a commuter to New York. Was Bloomberg Mayor at the time when you took the position?

Brad Briner:

He was mayor when I started, and then shortly thereafter was done with his third term.

Nancy Lashine:

Were these assets in the blind trust?

Brad Briner:

They were. They were. And Mike is an amazing man, an amazing entrepreneur, and a wonderful guy to work for, in part because when he came out of the blind trust, not a lot changed. He let people manage their business and held you accountable, but wasn't ever in the weeds, didn't want to be, and wouldn't want to hire someone who wasn't capable of managing those weeds for them anyway. So what's interesting is that the change from blind trust to not blind trust, we barely noticed.

Nancy Lashine:

Wow. Wow. So you started out as the real assets guy and ultimately ended your time there as co-CIO, but since this is a real estate podcast, let's talk a little bit about, what was the strategy, why were you in real estate at all, and what did you find interesting in that timeframe?

Brad Briner:

Sure. So we were blessed with governance that allowed us to be incredibly decisive, and then we were somewhat cursed, if you will, with a foundation structure, which meant you couldn't own more than 19.9% of assets. And so those were the basis of a strategy.

Nancy Lashine:

Sorry. When you say assets, is that like an entity or should I think about this a whole asset?

Brad Briner:

Yeah, at the company level, you can't be... You jeopardize the tax exemption of the foundation. It's a unique provision for foundations. Endowments don't live with this, other people don't live with this. It's just foundations, and you can't argue with it. You just have to have a strategy that's based around it. And so we did. And the logical strategy, when you have a decisive infrastructure, a lot of money or an ownership limitation is to find great partners who can be the 80, you consistently be the 20, and work with them over and over again decisively. And so we did that. We found long-term partners where we'd happily invest in their fund and do big co-investments alongside them and have an ongoing dialogue, at least monthly, if not more often, about whatever was going on.

We were deeply opportunistic investors. We had zero need for yield. Mike owns Bloomberg LP still to this day, and that is a very cash generative business. So we didn't have a lot of income needs, which allowed us to be total return investors and take development risk and other things. In the end, we thought of our real estate strategy a lot like our private market strategy in general. These are total returns. They got to compete for capital with other things. We certainly value a diversity of return streams, but we weren't looking for eights or nines. We were looking for fifteens, and real estate does offer those up more episodically maybe than other asset classes, but routinely.

Nancy Lashine:

Mm-hmm. And what kind of property types were you focused on at that point in time?

Brad Briner:

No surprise. I mean, post-CFC we were looking to clean up the records of the GFC. So initially, it was credit and then that evolved into other asset classes, multifamily, a lot of hospitality. I mean no surprise when you have that kind of cost to capital, you're going to be attracted to the operating categories that have a lot of operating leverage. And so we did an enormous amount of hospitality over the years and had great success there. But really, it's a private equity strategy by another name.

Nancy Lashine:

Right. Did you have to pay, was UBTI a factor?

Brad Briner:

It was not. It was just a cost of doing business.

Nancy Lashine:

Okay, that's the way. Yeah, because so many foundations really try their best to avoid it. Obviously, the whole tax structure of the endowment foundation world is on its ear as we speak.

Brad Briner:

Right. It does not look very good from where I sit, unfortunately.

Nancy Lashine:

Your timing's pretty good. Once again, Mr. Briner.

Brad Briner:

That is not part of the calculus here.

Nancy Lashine:

So how do you go from being a real assets guy or oil and gas and real estate to being a CIO? I mean that is a transition that there's probably a lot of folks listening who are kind of curious about that, maybe see themselves doing it. But given that real estate's usually maybe five to 20% at the high end of a portfolio, how'd you figure out the other 80 plus percent?

Brad Briner:

I think people often view the asset classes as much more different than they are. Now, there's distinct lingo, there's certainly unique relationships, and all of that matters. I think it would be harder to go from running real assets to running public equity. But if you're going to the CIO chair, you're not running public equity. You're managing someone who does run public equity. And so I think, first and foremost, you need to be a manager. The CIO job is fundamentally managing your team and managing your portfolio. It is different in that I don't, even today, have the time or the ability really to be in the weeds like I used to. I miss that from time to time by the way.

But you're managing the team and having done that in the context of Morgan Creek really prepared me to do that again as CIO at Willett. You do think a lot about portfolio structure and how things work together and the macroeconomic world. I think being in commodities particularly prepares you for that because that is a lens that you're going to need to view what's going on economically as well. So it's a combination of things, but primarily, for those who are thinking about making that change, be sure that you want to be a manager because that is what the CIO job is.

Nancy Lashine:

Did you spend much time thinking about culture as you were thinking about being a manager?

Brad Briner:

All the time. What kind of culture do you want to build has to be a deliberate decision, and otherwise, it kind evolves and can spin out of control. For me, it's about transparency and accountability and being very candid with people so that we don't waste anyone's time internally or externally. And sometimes, people didn't love the candor, but I think over time we evolved to a team that really did, and it allowed us to be incredibly efficient.

Nancy Lashine:

Yeah. I often think about how I've been the product of the places I've worked in terms of culture, and it's very hard to not pick up those habits even unconsciously. So talk to us. Did you find that at all? And how did you train yourself to be better at it?

Brad Briner:

Well, the truth is the hardest part of that is coming out of New York and back to North Carolina. New York famously is a little more sharp-elbowed, efficient maybe as a result. And so really thinking twice before you say exactly what's on your mind, that's been something I needed to relearn.

Nancy Lashine:

Oh, it's one of the... Yes. I've often though been so impressed with the gracefulness at which people can do things like say "no" in Southern. I used to have a book called Do You Speak Southern? And I would have to read it before bed most nights if I was going down to visit anywhere south of the Mason-Dixon line, because that wasn't my natural inclination.

Brad Briner:

For those who don't speak Southern, when someone says, "Bless your heart," that is not a compliment.

Nancy Lashine:

I'm going to need a refresher, Brad, but okay. So how did you think about in the context of, say, when you were at Willett generating alpha? Or did you even need to generate alpha?

Brad Briner:

We absolutely did. We very much believe, and I believe here at the Treasury Department too in accountability, what are you trying to do, and how are you doing it. So for Willett, there were really no excuses. That was the downside, if you will, not for me, but if people thought about it that way, working for Mike Bloomberg. You had a very clear goal, it was an aggressive goal, and you were expected to meet it. And in different categories, there are access problems, venture capital comes to mind, where you may look at a venture capital index, and it's uninvestable. Unless you were with Sequoia 30 years ago, you can't track that index. But we set the bar very high, expected people to meet those expectations, and by and large, they did.

So now, we were looking for alpha. You have the question of what's structural alpha and what is alpha that is embedded in the leader of that asset class by virtual relationships, essentially, structural alphas are always better. Can we have something that almost always guarantees us outperformance. Usually those are fee structural alphas and capital deployment cadence alphas. So can we be more exposed to better vintage years and less exposed to bad vintage years? And can we pay less in terms of net fees because we're co-investing or direct investing. Those are what I'd call structural alphas. And then can we pick better? Some people do that really well. It is harder to predict and it's harder to be consistent with that.

Nancy Lashine:

Do you think by asset class it makes a difference? Like vintage year is more important in, say, venture capital or real estate than it might be in private equity or...?

Brad Briner:

I hadn't thought about that question in that way, but I would think the credit oriented asset classes are where vintage year is going to matter the most because downside is so much more than upside. If you get the downside wrong in structured credit, in traditional credit or in real estate, particularly core real estate, there's nothing you can do to recover.

Nancy Lashine:

Damn. For somebody who hasn't thought about that much, that's a great answer.

Brad Briner:

Nancy, this a long time and I've lost a lot of money. Unfortunately, I've made more than I've lost, but you wear the losses pretty hard and hopefully you learn from them.

Nancy Lashine:

Do you think performance is more of a relative game when you're in a seat like you're in today versus a seat like the Willett seat where it was more of an absolute return game?

Brad Briner:

Not here. North Carolina has not performed particularly well. It's one of the reasons that I was excited to take this job or to run for this job, that we really needed a reset of our investment strategy and we needed to retool our portfolio. The reason for that is, in almost every case, an asset allocation reason, and so it is here too. We're just not taking enough risk. We're kind of 48/52 equity to debt portfolio here in a world of seventy-thirties. You may have a good quarter here or there, a good year sometimes, but you're never going to have a good 10 years on a relative basis. Yet, it doesn't really trouble people here because they understood it was an asset allocation problem that was from the top down and to some degree was cultural to the state. It's been going on a long, long time. So I'm trying to change that. We are focused on what others are doing and how we're doing relative to them. But I don't want to lose sight of the simple fact, and that's that we actually just need to make 6.5%.

Nancy Lashine:

Is that the actuarial assumption for the pension plan?

Brad Briner:

Yep, and we haven't done it in 20 years.

Nancy Lashine:

Wow. Seriously?

Brad Briner:

Well, we've had one year periods here and there, but in aggregate we haven't, and that's why the only reason we have a pension deficit here. If we had been a median pension plan, we'd be overfunded. We're not.

Nancy Lashine:

So you answered the question before I had a chance to start to ask it, but you're the dream seat, I'm sure. It wasn't a dream commuting, but everything else about the job sounded like it was a dream job. What was so compelling to you about running for treasurer of North Carolina?

Brad Briner:

I think many of us over time developed choices that we didn't start with. And I was blessed. I had a wonderful experience at Willett, and they were very good to me, and I didn't need to go to work for the paycheck anymore. And once you cross that bridge, which is probably harder mentally than it is actually to say, "Well, I can divorce the compensation architecture from the work I'm doing," then you start to think about, "Okay, the work I'm doing, who is it meaningful for? And is it meaningful to me?" And I think the world of Mike Bloomberg, but Bloomberg philanthropies and what they're doing, doesn't resonate with me the same way that the state of North Carolina does.

So for me, it was that. We had great years, and by the time 2023 came along, what was going on with the North Carolina Pension Fund was front of mind because it had been in a really bad shape. And I had thought about running before. I thought about it in 2015. I actually wrote a case study on the North Carolina pension system in 2005 in business school. So I've always had a little bit of a obsession with it.

Nancy Lashine:

Did you save a copy, by the way?

Brad Briner:

Yeah, so I was talking to a friend of mine, 'cause a friend of mine who works, is one of the partners at Goldman Sachs, and a friend of mine who's a partner at Landmark or whoever they've been acquired by.

Nancy Lashine:

Aries. Yeah.

Brad Briner:

Aries, excuse me. Thank you. We all wrote together and they reminded me of this, but I don't have a copy.

Nancy Lashine:

Something tells me something will emerge.

Brad Briner:

Something will emerge.

Nancy Lashine:

Maybe. Maybe.

Brad Briner:

Yeah.

Nancy Lashine:

How did you go about setting up a campaign to run for this public office in a good-sized state, especially when you hadn't been there full-time, you had something else going on your life like a full-time job?

Brad Briner:

Well, I'd never run and never really thought about running, so it was all new to me. And I think for those, if you're like me and looked at it from afar, you think every campaign is like a congressional campaign or a senate campaign or even a gubernatorial campaign. And the reality is below that line, it's very different. The number of people who are really deeply engaged in those campaigns and understand the issues and the candidates obviously is less. And so you're talking to a lot fewer people, and you need to make sure that you get to those people. So you begin to build a network. You invariably hire a consultant to help you do all of the things you do from a regulatory perspective and a filing perspective and then an advertising perspective. And then you go about raising money, which was, I hadn't raised money since I was at Morton Creek, so I had to dust off some of those skills. It is a different ask than the fundraising world for investments, but skills are pretty transferable. And then it builds on itself.

Nancy Lashine:

So you decided to run for office. How often does North Carolina split the ticket between treasurer and...? Is it basically people just vote their slate, Democratic or Republican, or were you actually asking people to cross lines?

Brad Briner:

So this is a very unique state politically. It is a purple state, but really it's a collection of reds and blues and very little in between.

Nancy Lashine:

Is that county by county?

Brad Briner:

It is county by county. In some cases, city by city. This state usually runs as a generic matter, r + 2, so it's pretty close to begin with, but then you have different campaigns that run 10 points in either direction of that, and in some cases, more. So what you see down a ballot, at least in this last election, was an enormous amount of tickets split, where my guess is 65% of ballots were straight party and 35 were not, which compared to many other states that's an enormous number of non-straight party ballots.

Nancy Lashine:

Huge. Yeah. So this wasn't about winning a primary, this was about the November election.

Brad Briner:

Well, it's always both.

Nancy Lashine:

Obviously, yeah.

Brad Briner:

But the thing I think people miss is the basic math of primaries versus general elections. And I can speak to North Carolina's turnout numbers, but I suspect they're true in other states too. 70% turns out in the fall and 15% turns out in the primary. And so it's a very different calculus between who the 15 are and who the 70 are. And you got to be thoughtful about both.

Nancy Lashine:

Wow. This is sort of taking me back in my high school years, I thought I would want it to be a congresswoman, and I worked for my congresswoman on the hill, and then life took over and I realized-

Brad Briner:

It worked out pretty well for you.

Nancy Lashine:

Well, it's all good. No, it's all good. But thinking about all of this, I'm just thinking how squeaky clean your past must be, Brad.

Brad Briner:

I always tell people is, "I actually have three middle names, and not one of them is 'fun.'"

Nancy Lashine:

Oh. Oh. I know that's not true. It may not be your middle name, but it may be a surname. So other than managing the pension fund, does the treasurer have other responsibilities in North Carolina?

Brad Briner:

I've got seven major divisions that we're responsible for. Ultimately, all of the assets and the liabilities of the state report to this department in some way, shape, or form. So when we issue bonds as a state, we do that, we have a 401k program we manage, all the cash of the state and the banking function of the state we manage. So everything that touches money or the assets in the liabilities of the state comes into the Department of State treasurer. And in addition, which is kind of a bit of a non sequitur, given what I just said, we run the state health plan, which is the insurance program for the state employees, 770,000 of them.

Nancy Lashine:

What's the size of that in terms of dollars?

Brad Briner:

We spend just shy of $7 billion a year on that.

Nancy Lashine:

Wow.

Brad Briner:

Healthcare is expensive.

Nancy Lashine:

Well, yes, no, no, but I'm saying that's not your day job. I mean, figuring out what's going on and fixing things where they need to be fixed beyond the pension plan, which we will talk a little more about, it's an enormous job.

Brad Briner:

It is. But you have to make peace, as I'm sure you do, running a firm with the fact that you can't know everything. You have to hire great people, you have to give them the tools they need to be successful, and you got to let them run their business. And same is true on the state health plan here.

Nancy Lashine:

Right. So let's talk a little bit about the pension fund. What were the obvious easy wins as you've been in your chair now for five months and where are you looking to go over the next couple of years?

Brad Briner:

So the pension total value on December 31st was like 125 billion. Just for context, we had about 12 billion of cash. So the first and obvious answer was let's get some more return out of our cash. Now, coming into the year you had a new president, of course, you had reasonably full equity valuations, and so we weren't in a hurry to get involved in the equity market more than we already were. We started deploying into short duration fixed income, where you had excess spread. So just picking up pennies and nickels, really, more than anything. April presented an opportunity to lean more into the equity market, and so we did some of that. We still have five-

Nancy Lashine:

Public equities, you're saying?

Brad Briner:

Yes.

Nancy Lashine:

Okay.

Brad Briner:

Yeah, I mean, once we got comfortable that the design of the tariff strategy of the Trump administration wasn't to completely explode the trade architecture of the globe, and it was more to get better deals for the country, then we felt comfortable getting involved in the equity market after it had gone down 10 or 15%. So we began doing that. We still have four or $5 billion of cash to deploy. We are beginning to find the type of assets that we'd like to own long term slowly, where they yield nine, 10 over time and we can own them perpetually. So we're looking at a number of things in infrastructure, we're looking at some things in real estate as yields have reset in some of those asset categories. We know that at that type of yield, you're taking some risk, but if we can mitigate those risks and feel comfortable that we were going to get paid that eight, nine, 10% for a long period of time, we want to do stuff like that.

Nancy Lashine:

Can you be more specific what sort of infrastructure or real estate opportunities look attractive? And nine, 10% sounds pretty darn good right now.

Brad Briner:

Right.

Nancy Lashine:

Yeah.

Brad Briner:

So we've been looking at ports, pipelines, and office buildings.

Nancy Lashine:

Interesting.

Brad Briner:

Yeah.

Nancy Lashine:

Ports. So buying the infrastructure of the port?

Brad Briner:

Yes, and the terminal operations as well. These are long-lived concessions with governments. These are not going to be disintermediated. You are exposed to global trade, and so eyes wide open, and that may not be as big in the future as it is currently though. Ultimately, we think that this gets figured out and those volumes continue to grow. So that's one of the reasons why the port infrastructure is actually a little bit on sale right now, is those clouds are overhanging it. I feel comfortable that even if the trade war continues to worsen, you're still going to have a lot of trade and you're still going to need to run it through a port.

Nancy Lashine:

If you like the port, would you also want to buy the industrial properties around there that are also soft right now?

Brad Briner:

Potentially if they don't still trade at four caps.

Nancy Lashine:

Yeah, no, 'cause I think what's happening is that leasing is soft and not a lot's on the market, but you definitely are buying it at lower expected market rents than you were two years ago.

Brad Briner:

No question. And we've got an industrial program that's ongoing. We've just added more capital to it, so hopefully we will see things like that. Real estate really is two things for us, it's a credit asset class and it's a private equity asset class. And on the credit side, we want to make those long-term credit oriented with an inflation adjuster type investments at high single digits. If we're going to be in private equity though, let's make sure that it competes with private equity. If we're doing a redevelopment, if we're going to have an operating asset or a repositioning of some kind, we've got to make sure that it competes with what we're doing elsewhere.

Nancy Lashine:

And where does office fit into that thought process?

Brad Briner:

Office, I mean, could you hate anything more than office right now?

Nancy Lashine:

No.

Brad Briner:

But I think what's so powerful for me in office is the retail analogy, in that what happened in the retail sector is essentially what I think will happen in the office sector just delayed by seven or 10 years. You had way too much of it. You have high quality and low quality. High quality not only survives, it thrives. Low quality, a lot of it gets repurposed to something else. And so it probably is not worth much, if anything, beyond land value. And that's what you've seen in retail. I think it makes sense that that analogy would hold for office too. Now, I talked to the folks in the AI world and they scare me a little bit that no one's ever going to be in the office in the future, but I'm not so sure that that's the case.

Nancy Lashine:

Yeah, we're social beings. What kind of markets do you like office in?

Brad Briner:

Well, the good news is there's not a lot of people buying, so you can pick and choose that. And why wouldn't you want a tailwind?

Nancy Lashine:

And New York office is hot right now. I mean, New York has become-

Brad Briner:

Some of it.

Nancy Lashine:

Yeah. The Park Avenue corridor and the A and better buildings. But yes, you can definitely buy a mid-block building or a C building for not a lot. I'm not sure that's what you want to own.

Brad Briner:

We own some of that from a legacy perspective, and those conversations about what to do with it are ongoing. They're not a lot of fun, but that doesn't stop us from thinking about what's next and where we want to deploy capital.

Nancy Lashine:

Have you made any new commitments to office? I'm just going to ask one last time.

Brad Briner:

We have not made commitments to funds in that regard. We have bid on a couple of assets and we are waiting to hear any day on those.

Nancy Lashine:

Right, interesting. I'm just going to circle back to an earlier conversation we had as we're talking about the real estate strategy for North Carolina. Would you do anything outside the US, whether it's western markets or the emerging markets as we were talking about before?

Brad Briner:

Probably not in the emerging markets. You have so many issues with title and tax and regime changes of different kinds. We would, but it would need to survive two tests. The first is the currency test. The problem with fixed coupon investments outside the US is you have no natural hedge to currency devaluation. And one of the things that we learned about hotel investing over time is you do have a natural hedge just in resetting the rents every night. And so you would need to make sure that you have that natural kind of hedge. Long tenured office leases in London, as an example, don't help you, but short duration hotel investments would. So that's one. And then two is just general tax leakage. And we have such a competitive advantage here, in that we know we're not paying taxes. And there, you're going to end up paying a lot of taxes one way, shape or form, so it makes it tough.

Nancy Lashine:

So going back to your goals as a treasurer, you've talked about the sole fiduciary function and that's something you'd like to change. Maybe explain what the sole fiduciary means and why you want to change it.

Brad Briner:

So I think every pension in this country started this way, and it was you elect the treasury, you appoint the treasurer, and that treasurer is responsible for managing our pension fund. And within some statutory limitations on how much of X or Y or Z asset class you can own, "Just go do it, treasurer." Over time, people thought more of that, saying, "Well, maybe there's a better governance structure that we could put in place that has more people involved and more controls." And so 47 of the states have moved away from this already, to committee models of different sizes. Us, New York, and Connecticut are left. And I won't speak for New York and Connecticut, but it was overdue for us to make this change. We looked at it in 2014 as a state, decided not to go forward because returns were okay. And that was really looking back to the GFC, where we were tremendously under risk.

That was a good position to be in if had you known. The difference is 10 years later that analysis is exactly upside down, being under risk for any material portion of the capital market's history is a bad idea when you have a cost to capital like we do. So I've been out talking about this for really since I started the campaign, and I think we have a very good likelihood of getting this done. We passed the house governance reform 112 to three, and we passed the Senate 40 to nothing last week. So it needs to go back to the house for one small change next week, and hopefully we're on the governor's desk in short order. And he has said he'd be supportive. And I don't think that he'll change his mind, but we'll see. And hopefully we're implementing this the back half of this year.

Nancy Lashine:

Wow, congratulations. That's a huge something.

Brad Briner:

Thank you.

Nancy Lashine:

Yeah. Not to be premature, but... So let me ask the obvious question. Now, that you're a treasurer, isn't this going to cause you a lot more headache and things like investing in office or things that are hard to do because somewhat contrarian? Aren't you less likely to be able to make some of the changes that you want to make?

Brad Briner:

I don't think so. I've got a strong CIO who had been here before and rehired him January 1st. And he's got a good team that we need to keep growing, who really know what they're doing and can dedicate their full day to it. As I mentioned, I got seven divisions. That's one of them. So I literally can't spend enough time to feel like I should be making every decision by myself. So there's that piece of it, which I think is important. But the second piece is that actually in statute, we have asset limitations that were last updated in 2012, I believe. They were completely appropriate for 2012, but of course, things evolve.

And we can't buy much in the way of below investment grade credit right now. That's where I think the excess return is available at the immediate moment. So we're capped at 7.5% there. I think we're a little over seven as we speak, so those go away as well. So you have more degrees of freedom from a specific asset class perspective. And I'm already functioning in the way that the CIO is running the portfolio. So I don't think about it in those terms. I think about it in how do we make permanent a governance architecture that allows North Carolina to perform as well as any pension.

Nancy Lashine:

Is it the legislature that chooses the new governance architecture or is there something statutory?

Brad Briner:

So it is statutory. We've written the statute. We've obviously had input from both chambers and the governor. And I think we're 95% of what we wanted, because it's all pretty intuitive, putting in a five-member board appointed from different people, still having the staff make the day-to-day calls, et cetera, et cetera. So there's not a lot surprising in there. For those who know how pensions are managed.

Nancy Lashine:

Are you thinking that staff will have discretion up to certain dollar amounts or within certain boxes?

Brad Briner:

Yes. And so that will be determined by the board once the board is seated... Below half a percent I certainly don't think the board should be involved. But when you're making major moves, of course, the board should be involved.

Nancy Lashine:

Right. Right. Well, that's super exciting. That's a major transition for major state.

Brad Briner:

It matters so much for our taxpayers and our retirees. The hardest call I get in this job is a retiree who retired a decade ago, who worked hard for this state as a teacher or whatever, and they haven't got a cost of living adjustment in a decade. And they tell me that, "I can't afford basic things because I counted on the money keeping up with inflation." And I have to essentially tell them that, "Well, that's our fault. Sorry. We're trying to fix it."

Nancy Lashine:

All teachers, public, everybody's under the one plan?

Brad Briner:

They are. Yeah. So we're a unified pension system, which should allow us a real competitive advantage in economies of scale. And that's one of the ways that I think we can create structural alpha over time.

Nancy Lashine:

Yeah, no, it's huge. I mean, I've done some podcasts with CIOs of other states, and with COLA adjustments, it's very important. Yeah.

Brad Briner:

Over that decade, inflation I think is 42%.

Nancy Lashine:

Yeah. And it's not getting any better in this decade coming forward.

Brad Briner:

No. Not good.

Nancy Lashine:

So you have talked a little bit about what you're doing with AI, and you have, I think, a pilot project going on. Tell us what you're doing and how you're thinking about that.

Brad Briner:

Depending on how much time people have spent on AI, it is very exciting or very terrifying, and maybe a little bit of both. But the reality is you can't ignore it. It's already happening. And if you have children in school, they're using it, and the schools are trying to grapple with it too. So for us, we're essentially in the information processing business in everything we do, whether it's looking at local financials, considering what procedures to cover in the state health plan or making pension investments. It's data processing and pattern recognition, and those are the functions that artificial intelligence should be great at.

So we've got to figure out how we can use it. But we're also state government, and we got to be very, very careful with private information. Not that everyone shouldn't be careful, but we have to be extra careful. So the folks at OpenAI, their chief economist is a friend of mine and he's local, approached me after I won the election and said, "Hey, we're trying to figure out the use cases for our technology inside of government." And I said, "Well, gee, I'm trying to make government more efficient. That seems like we should work on something together." We quickly identified two areas where we don't have private data to our divisions. One of them is returning unclaimed property to people.

You go to our website, you can see all our data already, so it's all public. And then the other division is monitoring and managing municipal finance. So every town county is required to submit publicly available financials, and we analyze those to see what the looming problems are and see where we can help. So we have those two divisions where we don't touch private data begin with. So we're rolling it out in those divisions, where we can kind of sidestep the thorny privacy issues that AI manifests and see what kind of productivity growth we can get. We're eight or nine weeks into the trial, and it's going really well. People we're rapidly getting to the point where people say, "I can't live without this."

Nancy Lashine:

Wow. Are there any examples that you can share with us? Like, what's the productivity output that's been meaningful?

Brad Briner:

Sure. So without using the name of the county, or the town in this case, you can spot financial trouble in advance if you know what to look for. And that requires seeing what other towns have done historically that has led to their financial demise. That is a very labor-intensive exercise to try to say, "Okay, this town of this many thousand people that had this industry mix, is in this part of the state, et cetera, et cetera, gotten to this financial trouble for this reason." For you and me, it would take a week to try to figure out that one town.

Nancy Lashine:

Well, maybe a week for you, a couple of weeks for me.

Brad Briner:

Either way, and I would do it in a couple minutes.

Nancy Lashine:

Wow.

Brad Briner:

And so it's things like that. It's teasing out patterns in the data and learning from reference examples to say, "Okay, we got to look out for this town. Their accounts payable are going way up in a way that we saw over here four years ago." That's pretty cool. And it allows our team to be so much more efficient.

Nancy Lashine:

Are you trying to use it in any way in your investment management processes?

Brad Briner:

We're early days there. We've had a number of conversations. And frankly, the multi-strat firms out there are really leading the way. So we have been picking the brains of the various highly talented and very capable firms that we do business with there to try to think through how we might use it, particularly at the base layer of entry-level analysis. We get hundreds of investment proposals every day, and AI would be very good at discarding a number of them and saying, "Hey, this is never going to be a fit. It's not big enough. It is duplicative of what you already have over here," whatever. That would be a really good productivity enhancing use case. But we're trying to think through how we make sure that we don't throw out the baby with the bathwater.

Nancy Lashine:

Right, right. So what's your instinct? And I'm going to ask you a really hypothetical question. I mean, if you think about what's happened to equity investing during your career or my career, everybody went from thinking that manager selection was key to saying, essentially, you should index your public equity portfolio unless there's something really special. And so with AI, what's your instinct? How is it going to alter the investment landscape, not just for publics, but for privates?

Brad Briner:

I'm not so sure AI doesn't just exacerbate what is already happening.

Nancy Lashine:

Which is?

Brad Briner:

Competitive pressures are collapsing alphas growth, fee structures have not changed, which means that your worse off is nothing. So that's the public equity story 20 years ago. It's the hedge fund story of late. There are exceptions to that rule, always.

Nancy Lashine:

Always. Yeah.

Brad Briner:

And so to me, regular way private equity, large scale private equity, and certainly private credit suffer from this already. So index-ish and particularly fee structure sensitive is I think where you need to be in large private equity and large private credit. I don't know for real estate how relevant it will ever be. Because certainly AI will help you identify particular trends that are going to influence the particular property or the city that you're in, but that doesn't mean that that property owner is ever going to sell it to you. It's kind of a basic concept, but it's a really important one. Private equity businesses at tens of billions of dollars of enterprise value are going to be sold to whoever the highest bidder is. There's no real estate assets that's that big. And so it's so much more fragmented and so much more bilateral market that I think there are going to be differences, and it's going to certainly fight the underlying trend much better than other asset classes if you're a real estate manager.

Nancy Lashine:

Okay. Now, I'm going to throw you a curveball, 'cause obviously, you worked with Mark Yusko for a long time, and he's been a huge advocate of blockchain and Bitcoin specifically. When you think about the ability to implement blockchain and ownership of real assets, you could potentially own a piece of those things, kind of like owning a share in a company without the owner selling them. Is that something you think is near term on the horizon?

Brad Briner:

Not for smaller assets. In the end, investors can't invest in thousands of assets. They have to pick a reasonable number that they can get their head around. And so tokenizing a very large asset that many investors would be interested in the first place and then consider trading and then you'd have liquidity as a result, I get that. But the office building we're in, which is a hundred thousand square foot office building in Raleigh, North Carolina, you're going to have five people interested. It's never going to trade. What's the point? And so you have diseconomies of scale that are very real in this conversation.

Nancy Lashine:

Interesting. So maybe you tokenize, I don't know, I was going to say Rockefeller Center, but even there you've got all kinds of issues around that because of capital. Capital needs-

Brad Briner:

One Vanderbilt.

Nancy Lashine:

Yeah, One Vanderbilt, but One Vanderbilt today, but in 50 years it won't be the newest hottest building.

Brad Briner:

That's true. Although in 20 years, it still may be the newest, hottest building.

Nancy Lashine:

I'm staring literally as we speak at the new JPMorgan headquarters, which is just north of One Vanderbilt. And there are people who will disagree with you on that.

Brad Briner:

JPMorgan is going to own that one for a while.

Nancy Lashine:

They will, and they won't be tokenizing it. I think you heard that here first. Any other thoughts about though cryptocurrency and its role for you as the treasurer of North Carolina?

Brad Briner:

It's an active topic in our legislature. There's a bill to authorize us to put up to 5% of all the state's funds in essentially just Bitcoin. Now, it is an option, not an obligation. So of course we're supportive of options. But I'm not sure I'd be comfortable putting 5% of anything in Bitcoin, at least from a lower risk, lower return perspective, which is what the state's money is. That said, everybody's kind of looking for the hedge to the US dollar. The problem with shorting the US dollar is you have to buy something else. So what is it? Is it gold? Is it Bitcoin? Is it Euro? Is it yen? Maybe it's got flaws, Bitcoin, but it certainly is one of the better answers to that question.

Nancy Lashine:

So given the fiduciary role, whether you're sole fiduciary or it's a board, how would you custody Bitcoin?

Brad Briner:

So the authorizing legislation actually allows us to do that physically, which we do not have that ability right now.

Nancy Lashine:

Like build a cave somewhere and store the codes there.

Brad Briner:

Right, and hold the keys myself and hope for the best.

Nancy Lashine:

Yeah. Have you discussed that with your wife, by the way?

Brad Briner:

Right. Can you imagine? You've seen the headlines recently. So I think we would do that synthetically. I think we would do that through an ETF, most likely. Costs there are pennies and worth paying.

Nancy Lashine:

Yeah, I hear you on that. So speaking of your family, which we weren't speaking of it, but I was thinking about it, you've gone from being this very private figure, maybe the phantom husband who only shows up for ball games on Saturday to this extremely public figure. What's it been like for your family?

Brad Briner:

Extremely public, I might take maybe a peg or two down from that. I don't go to the grocery store and have anyone have any idea who I am except for my friends if they happen to be the same grocery store. So it's not like that. There are certainly people who know that I'm the treasurer and we manage a lot of money here, but it is not, in any way, a public figure the way people think of public figures.

Nancy Lashine:

Right.

Brad Briner:

So it hasn't changed that much.

Nancy Lashine:

I bet you have rock band though, Brad.

Brad Briner:

Right?

Nancy Lashine:

There's no rock band, just to be clear, that I know of.

Brad Briner:

No, I have a daughter in one though. That's a whole nother story. So I did speak at my son's school. They had an eighth grade project around government and how it impacts your life. And so they came to speak, or they asked me to come speak. And I think that was the first moment that for him, it was a little uncomfortable because his dad speaking in assemble. That would've been true for anyone's dad speaking in assemble.

Nancy Lashine:

Right. I guess lifestyle-wise things have probably improved dramatically. Your commute's a lot shorter, you're around a lot more.

Brad Briner:

It's 40 minutes each way though, so it's not nothing. For folks in New York, that's a normal number.

Nancy Lashine:

Just saying, you get no sympathy here.

Brad Briner:

Yeah, that's reasonably long. So it's been great. And our oldest is a senior in high school, and so she's off to college in the fall, and it has been nice to be here with all four of them and my wife for the first time in a long, long time.

Nancy Lashine:

That's awesome. That's awesome. Well, it sounds like you've had a heck of a busy five months. We can't wait to see what the rest of the year brings and the next three.

Brad Briner:

It's a pleasure. It's nice to see you and thanks for the time.

Nancy Lashine:

Oh, it's so fun to have you. Thank you so much for doing this. Really appreciate it.

Brad Briner:

Anytime.

Nancy Lashine:

I hope you enjoyed this episode of Real Estate Capital. Before you go, I have a quick favor to ask. We put a lot of thought and effort into this show and making sure we bring you insights from real estate leaders that you don't normally find in the mainstream media. So if you're enjoying this show, please remember to follow it on your favorite podcasting app so you never miss an episode. We'd also love for you to share it with others or give us a review on Apple Podcasts so others can find us. Thanks again for tuning in. For more information about our firm, please visit our website at parkmadisonpartners.com.