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The Artisan Podcast: Global Networking and Trust Building with Paul Horvath of Orchard Global

Updated: Jul 9, 2022

Trust is essential in finance. Built over years, sometimes decades, it can be lost in an instant. Maintaining trust requires diligence, networking and innovation. Most importantly is communication and consistency.

Don't miss this exciting episode of Artisan Podcast – Paul Horvath, CEO of Orchard Global Asset Management sits down with Arthur Salzer to provide his brilliant insight and opinions on the current geo-political landscape, networking on a global scale, and the shifting world of finance.

Key issues to be discussed on this podcast include:

  • Paul’s journey in the finance and founding Orchard Global one of the world's leading credit managers.

  • Taking advantage of opportunities during and after times of financial crisis

  • “Be the nexus where Washington meets Wall Street”

  • The crisis in Ukraine, the effects across Europe, and the world

Andrew Abdalla, Tax Specialist, CPA, CA

Mr. Horvath is Chief Executive Officer for Orchard Global Capital Group. Prior to co-founding the firm, Mr. Horvath was Global Head of Synthetic Credit Origination, Structuring and Distribution at Merrill Lynch from 2005 to 2008. From 1999 to 2005, Mr. Horvath was Global Co-Head of Structured Credit Distribution at JPMorgan, where he helped to grow the nascent credit derivatives market. Mr. Horvath began his career at the Federal Reserve Bank of New York, where he monitored the Mortgage-Backed Securities sector, as well as the bank and thrift industry. He received his BS in economics, international relations, and theology from Georgetown University and earned his MBA from Harvard Business School. Mr. Horvath is a Trustee of the National Cathedral School as well as serving on their Finance Committee and Chairing their Investment Committee. In addition, he is a Trustee of the Washington National Cathedral where he serves on both the Finance and Investment Committees. He is on the Board of Regents of Georgetown University and is an active member of the Johns Hopkins Physics and Astronomy Advisory Council. Mr. Horvath is also the Chairman of the Board of the Hungarian American Institute.

Make sure to check The Northland’s YouTube Channel for more episodes.




Arthur Salzer, Paul Horvath

Arthur Salzer 0:11

So welcome and thank you to everyone for joining today's the artists and podcasts with special guest Paul Horvath, CEO of Orchard Global Capital Group. Now Mr. Horvath, he's the CEO of Orchard Global, he co-founded the firm, but previous to that he was the Global Head of synthetic credit, origination, structuring and distribution at Merrill Lynch from 2005 to 2008. I presume there's an acronym for that. From 1999 to 2005. Paul was the global Co-head of structured credit distribution at JP Morgan, where he helped grow the nascent credit derivatives market. And at the beginning of his career, Paul began at the Federal Reserve Bank of New York, where he monitored mortgage backed securities, as well as the bank and thrift industry. He's received his Bachelor of Science in Economics, international relations and theology from Georgetown University and earned his MBA from Harvard Business School. Mr. Horvath is the trustee of the National Cathedral School, as well as serving on their finance committee and sharing their investment committee. In addition, he's a trustee of the Washington National Cathedral, where he serves on both the finance and investment committees. He's on the board of regents of Georgetown University and is an active member, a member of the John Hopkins physics and astronomy Advisory Council. And Paul is also the chairman of the board of the Hungarian American institute. And I've been it's, you know, I've met Paul quite a few times, personally. And it's always been a real pleasure, given his insights and the discussions we've had. And I know he has an incredible depth of politics, finance, and economics. And I'm very eager to hear Paul share his thoughts today. Now, one of the things I want to jump into is successful investing. It's always about the people. And and I'd like to begin with Paul's journey to co-founding Orchard Global Asset Management again, and maybe some of the challenges he overcame through through life through school, and the earlier parts of his career.

Paul Horvath 2:24

Thanks, Arthur. First of all, thank you for everything that you're doing in the private wealth community in North America. And obviously, a special thanks to be able to chat with you today. And and of course, with your with your high net worth clients and investors. Yeah, you know, interesting question, I'm glad that you asked it. I think it's kind of a, I always want to people know, people's backgrounds and where they come from, and how they got there before I interact with them. When you talk about how the long journey that got us to founding and ultimately trying to make orchard as successful can be, it actually goes back to your introductions. The basic ideas for what we're doing, were really created early in my career after I graduate at Georgetown and started out at the Federal Reserve. Now look, let's not overplay what I was doing at the Fed, I wasn't sort of hanging out and setting interest rates with Greenspan. But I was actually holding holding the coffee for the people who are advising Greenspan, on setting rates. And it was an amazing insight into really how the Federal Reserve and governments and central banks help assist and control the economy. Now, I was there at a very special time I started in the late 80s, early 90s, which you'll remember was right in the heart of the savings and loan or thrift crisis. And I learned many things at the Fed. But the one lesson I learned at the Fed that's very relevant to what we do at Orchard is the following. I learned that he or she, are they that investor from the private sector, that works with the central bank that works with the sovereign, to help recapitalize the banking system, during an after times of financial crisis can make a supernormal return. And when I was very, you know, with my econ degree, as you mentioned, I said to my bosses, how can you give these private investors such amazing deals? They said to me, you know, our job is to make sure that the banking system is solvent, because if you if you don't have banks, you don't have lending. If you don't have lending, you don't have jobs. If you don't have jobs, you have revolution. So as they pointed out to me, if they have to cut a deal with some private investors to induce capital into the banking system, if that means somebody makes some money along the way, well, you know, that's capitalism. And I saw you know, as you know, names that you'll all remember the bass brothers rainwater Bonderman, you know Tom barrack, Jerry Ford, Ron Perlman and others, the Fed the FDIC would go and say, Hey boys, here's this Texas Thrift, we really want to stick around. Here's the investment proposition, go ahead and put capital into it, if things don't go, well, the government's got your back, as close as close can be to principal protected. And unless you really mess things up, you're gonna make a 15 to 20% Return compounded over many years. And so, you know, I said to my father at the time, who I still get career advice from, said, Father, if I'm, if I ever see an opportunity, this good, please give me the strength to stop whatever we're doing. I want to be involved in this not as a regulator, like it was at the time, or as an agent, which is what I did for many years at JP Morgan and Merrill Lynch, you know, but as a principal, so I had that idea in the back of my head. And that really was started in the late 90s. Now, fast forward to my time at JP Morgan, JP Morgan, as you noted, really, in the late 90s, they created the credit derivatives market,

really, as a way of, for banks to share risk with other non bank investors. And in so doing, they came up with a very efficient way for a bank to recapitalize or what we call shore up its tier one capital ratios, without having to issue equity, which can be very useful at times. And it was based on, you know, over a year of negotiations between JP Morgan and my former employer, the Fed, and a year or so with the rating agencies, that in the mid to late 90s, they came up with this better way, this capital relief or better way of raising capital, are more efficient way anyway, so more targeted way. So once they did that, in their own balance sheet, he said, Hey, this would be pretty cool to share with other banks, maybe not their US competitors. But JP Morgan had always had a history of being a banker, to, you know, foreign sovereigns and foreign banks. So they actually hired me to help export that financial technology to the non US world. I had been working in London for the previous five years exporting US based financial technologies. And so what I did is I took these, these geniuses from JPMorgan, and I introduce him to over 150 of my non US Bank contacts, at the board and CEO level. My regulatory background came in handy because we had to get 14 other regulators, you know, Bank of Japan, boffin and Germany, the Swiss Bank, Bank of Italy, Singapore, you name it, to approve in their countries, the balance sheet optimization that the Fed had approved in the US. And in the 99 203 period, as JP Morgan, about 50 of US banks, said yes, and we did almost 160 billion of this bank recapitalization. Now, we weren't the only ones. We did a deal with Deutsche Bank early on, they reverse entity that technology became our biggest competitor, which actually helped grow the market. So between us, JP Morgan with about 50% market share, Deutsche Bank, Goldman Sachs, a couple of others. As an industry we did about 300 billion of this stuff now. It was the thing that first time in history really where you had a a credit downturn. Now the Oh 102 credit downturn was pretty was pretty severe. You had a credit, first time in history had a credit downturn without a banking crisis that really proved the technology, if you will, the efficacy of the technology. So you didn't see a lot of these bank optimizations, as I call them, or capital relief transactions from Oh, 3207 for two reasons. One, banks didn't need capital, they were buying back stock from retained earnings. But to the rules change, the so called Basel one banking regulations, became Basel two and was well on its way to what we have right now, which is Basel three. However, in 2007, we were at Merrill Lynch, we were advising the Royal Bank of Scotland a very acquisitive Royal Bank of Scotland on a very large acquisition. Sir Fred Goodwin of the Bank of Rebecca Scotland really wanted to buy a Dutch bank, ABN AMRO, and a 100 billion hostile takeover of that bank. Now, I actually advise them not to do it, but they wanted to do it and they said, Well, okay, if you're gonna do something that large, you're gonna need capital from everywhere. So I actually took my best guy, John Young, who's my current partner and our CIO. I threw him over the Chinese wall. And he worked with the Dutch and UK regulators with with you know, Rebecca, Scotland, maybe an admiral, and we came up with a BA So to slash Basel three compliant version of this bank recapitalization, and that merger was, you know, that merger was done. So it's lado seven.

And any of us who are in credit or structured credit knew that the party was over and that there was a winter was coming, so to speak. So it's late oh seven. And we had a solution to the banking crisis, that the banking system didn't yet know that it had on its hands, it was just a matter, it was not an F. It was a when is this banking crisis coming? There was only one problem. I was working at a bank. So it's really at that time, when I started returning the calls from my sovereign wealth friends in the Arabian Peninsula in Southeast Asia, who had been for the previous couple years, telling me leave banking, come take our money, work with us and manage money for us. And in oh seven, with this new technology, I finally returned those calls, you know, teamed up actually, with some Canadians, who are one in particular as of Singaporean origin. And we created orchard moved the headquarters to Singapore. And well, you know, the rest is history. So that's, that's how we got here, Arthur, maybe just to add, so why should this matter to any investors? You know, I'll try to make it simple. But what I learned, and I'll talk about Larry Summers later, but Larry Summers taught me in a former former president of Harvard, but former Treasury Secretary, he said, if you can ever be investing in a market, where some of the other players are doing things for non economic reasons, that's a market you want to be in. And that's how I see this, working with banks and solving problems to the banks, to make it very simple. If I share risk with a bank, and the credit risk that I'm taking, you know, the fair market return for that, in the normal sort of public markets would be say, six or 7%. If that bank for its own reasons, which we'll get into, will let me take some of that risk off their hands at say, 910 11 or even 12%. Well, what's going on is the bank is subsidizing my taking of that credit risk. So very simply, if by solving a problem for a bank, I can get 6% risk, get but get paid in the extreme at 12%. Well, guess what I'm going to outperform perform most of the market. And that's now, the banks don't do it. Because they're they're idiots. They do it because they have a problem. And they need a solution. If you have a portfolio of loans, and the regulator's say, hey, you need more capital going forward, you can a stop lending, but banks don't like to stop lending. Be you can issue equity, equity is pretty expensive, it's diluted. And that can be a 20% cost of equity, or see, work closely with an orchard to do a targeted recapitalisation at say, 12%, which is more than the 6% that we should be getting paid, but it's a lot less than that 20%, they'd have to pay in the equity markets. That's really at the heart and the core of what we do everywhere across orchard is we, we provide solutions for our issuing clients, the banks, and our investing clients. And in so doing, we like to think that we get super lower returns in the process.

Arthur Salzer 13:32

Well, that's, that's fantastic. It's, it's a real niche area. But, you know, obviously, the system needs it to make it work. Then you brought up, you know, some of your middle eastern connections and how they, you know, suggested that you you leave the banks and come help them manage some of their capital. But, you know, from, from what I understand, I mean, these, you know, the sovereign wealth funds, pensions, foundations, you know, some of these entities have hundreds of millions, even even billions of dollars invested with your firm. You know, these these aren't retail investors, although there might be individuals, you know, behind some of the sovereign funds, that it's, it's basically their money. But, but how do you I mean, how did you create these connections? What, what do these these institutions in these these investors look for? It's a lot of capital to place at risk with one firm. And there must be something different than, you know, you know, what we see dealing just with individual families. Can you maybe elaborate on that at all?

Paul Horvath 14:49

Yeah, um, no, it's a good question. And thanks for asking it. You said something in your in your introduction, which I think is true and if Not all investing, most investing, at least with these very large clients. And it's especially true when it comes to the sovereign wealth community. It's about the people, it's about trust. One of the reasons why I'm relatively open, some firms are very secret and quiet about their strategies. One of the reasons we're quite open is, well, you know, for sure we're, we're proud of whatever little things we've been able to achieve. But I also think it's not very easy to replicate. Because most of the relationships with these banks are 20 years in the making. That's a 20 years of trusting each other. Same thing with, with our largest investors. I've known I've been going to the Arabian Peninsula for better part of 25 years, I've been going to Southeast Asia, for the better part of 20 plus years, and my Canadian colleagues have had the relationships they've had with those investors for the better part of 30 years. And it's amazing, you know, if you have a superior technology, I'll be it may be a little bit harder to explain than others, which by the way, is a good thing, if it's easy to explain, it's easy to replicate, and the arbitrage goes away. But if you have a superior technology, and you have friends and counterparties, with whom you've been doing business for a decade, or two or three, well, you come you you come to trust them and share a lot more than maybe other would. Others would. But they trust you. You know, it's a big world, but it's a small world. And, you know, I think I think it was Warren Buffett who said, reputations take, you know decades to build and can be lost in seconds. It's the rules are very clear. And it's true with the Canadian pension investors, it's clear, it's true with the US state funds. And it's definitely true with the sovereign wealth. You misbehave once and one transaction, that relationship is over. So far, we had, we've been able to avoid that. And look, you have ups and downs, markets go up and down. That's not what they're worried about. They never want to be in a position where they feel taken advantage of. So I think that's a real sort of installed base dependability, so long as we're continuing to perform or outperform. And, you know, it's just more cement to to build that strong sort of solid granite bet of trust, that is the most important thing I would say it should be in all investing, but is essential with the, as you say, the 100 billion, you know, and up community. The other thing I would say is that where some of our competitors may be making a mistake, is they go to these large pools of capital. And they say, look, here's a product we want to sell, you know, sometimes that works, if it's a very good product, fine. But you don't I mentioned that we get close to the banks and get super normal returns to the banks because we provide a solution for their problem. Same is true with these very large, sovereign wealth or pension investors, because they have problems. And if we can solve them, well, then we're going to get more of their money. They don't give it all day one, you know, they give you a little and they see all you do and you grow and you grow. But the biggest problem that you know, whether it's pensions in the US, I know the numbers a little bit better than in Canada. But most pensions need to make seven or 8% returns, the more mature ones need that to be in cash. They don't want a lot of volatility around those term returns. And for this part of their portfolio, your equities and Ventures is different, they really need as close as close can be to capital preservation. So you know when? Well, the tenure has gone up to 3% in the US in the last couple of weeks, but even at 3%. But for sure when the tenure is one or 2%. If your risk free rate isn't one or 2%. And equities are all over the place. And people think on a forward looking basis, they're going to be 678 percent.

Yet, you're looking for eight, nine 10%. That is a problem for which a solution is needed. Again, because we're able to get in my earlier example. Nine to 12% returns on 6% risk, what we can do is we can take that and package that into a solution to a pension where we say look, we have this risk that it's about six or 7% that we should get paid. But actually we're getting paid 1011 or 12. So, solution number one is if you want to take a little bit more volatility. Well we won't hedge that. And we'll just give you that, you know, 1011 12, which is more than you need, so that you can pay for for other parts of your portfolio. Or other pensions that we work with, or sovereign wealth a little bit more defensive. And they say, You know what, it's great that you're getting paid 12 or nine for what we think is six or 7% risk, why don't you do this? Why don't you spend a couple 100 basis points, you know, buying some, some hedging. And, you know, we've been doing that for a long time, but I'll tell you, COVID, was terrible for the world and terrible for the people, but COVID it did do one thing, it sort of proved the point that we've been making to our investors for the better part of the last decade, which is, we believe that orchard doesn't have necessarily the best returns. But rather, we like to think that orchard has one of the best risk adjusted returns.

Arthur Salzer 21:01

One of the things though, that I noticed, and I've been fortunate to attend, you know, some of your dinners, and some of your presentations, you know, in Washington DC, was was really the depth of orchards network. And, and it's, it's deeper than most other, you know, hedge funds, or even private equity firms that we've, we've dealt with. And, you know, some of the people that, you know, I was very fortunate to hear, speak, you know, live into meat, you know, of course, was was Dr. Larry Summers, but, but also, you know, to bring in former heads of the NSA, and to have real conversation about potential, you know, geopolitical risks around the world, those those were very, very valuable. And, you know, as a firm, you must hear a lot from from these sources. You know, given what we're hearing going on in Europe today, you know, for the past couple of months, as well, as you know, we're seeing, you know, a very tight fed for the first time, since since the early 80s. You know, Orchard must see a lot here a lot. And I think it would be great to to get some insight to, to maybe the, you know, the unique things or views that you're you're hearing,

Paul Horvath 22:22

and no, absolutely, I mean, look, Arthur, what you're speaking to, is at the core of what our vision for orchard is, should be and strives to be every day. And it derives principally from, from the following. The world is interconnected, we all know that. And certainly, since that's one concept. So you want to be global, which is why we're Orchard Global. But also, and this is especially true since 2008. What governments, with governors, governments do, and don't do matters for investing. What the Fed or the ECB says or does, has as much or more to do with returns as anything else that you can do, you know, equities, credit or, or rates or FX research on. So it's, it's not just global macro, and we're not a global macro player. But if you invest in ISIL, in a maybe if you're I don't know, in in some kind of pharma tech or something, you can just hang out in the lab. But if you're doing what we do, if you're working with the, you know, 20 or 30 largest banks in the world, in the 14 most important economies in the world, you need to have a global perspective. And you need to, you need to be at the nexus of where Washington meets Wall Street, where Berlin meets Frankfurt, where Basel meet Zurich, you get the picture. And, you know, lots of our competitors. You know, they get whatever information they get by hiring analyst or credit folks or whatever, good for them. And some do it better than others. Many of them hire friends of mine, in DC in New York and London. Just given our backgrounds. You know, we like to do it ourselves, because we like to think that we get better information by actually being involved. Look, myself, John Young, our CIO, Andrew Webber, or, you know, one of our other founding partners, we are global by our nature. We're from Texas, New Mexico and Colorado, but we spent a large part of our careers in London and in Asia, and the Middle East. So we don't just talk about being global. We are globally present. We're headquartered. You know, we're in Singapore. We have significant operations. Our largest operations is in London. We have a DC presence Turon presence in New York presents and Houston presents. So you really learn things by being global. But to your other point, you'll learn things by being there in the room with the people who are making policy have made policy and will make policy. So because if, if, if you, if you travel around the world, and you also hang out with the people who regulate the financial markets, as well as the people who invest in it, we'd like to think you get insights, important insights that have relevancy to investing before they hit the financial press. And you mentioned, Dr. Summers, you know, at that very symposium, that that he had, he warned us a year or two early, even before COVID. Watch out for inflation. And that made us very attuned to when, you know, the Biden administration took over and early 21. And they were considering what size of rescue package to put? Well, you know, they put out something that was 1.9 trillion, and paid people even more than in the past,

not to work. They increased unemployment benefits from 400 a month, to 600 a month, which sounds like a good thing. Why not pay people, a lot of people lost their jobs and COVID. The problem was, isn't 600 a month if you do the math, if you're making less than 52,000 a year? It makes more sense not to work than to work. But one thing I did learn in Harvard Business School, there's a lot of books written on what they don't teach you at Harvard Business School. Well, here's what I did learn at Harvard Business School. People respond to incentives. If you pay people not to work, well, they're not going to work. And you know, he's a Democrat. But he said, Hey, I love the new administration. I'm glad that it's Democrat. And actually, Jason Furman was also a Democrat, who was Obama's, you know, version of Larry Summers. They were saying, Guys, you can't do this, not because we're taking sides on Republicans versus Democrats. But like, I know, we haven't had inflation for the last two or three decades. But we're going to and it's going to be a problem. And, you know, I don't know how many people listen to them, but we certainly listen to them. And we have those conversations with them. And you know, if you know that it's coming, you know, again, we're not writing a macro hedge fund, but you can position for it and get ready for. You mentioned, another person who we had, at one of our roundtables just symposium, General, Keith Alexander, he was NSA Director for nine years, but maybe more interestingly, he was the first commander of cybercom. And I'll tell you why, obviously, being an Asian, also Asian manager, we have insights into what's going on in China. But it was really, General Alexander, who forced my eyes and all of our eyes open. No, no, no, you don't understand. This isn't just the next adversary. This is Cold War. 2.0. Cold War 1.0 was with the Russians over nuclear weapons. And we're getting version one be right now, we can get to that later if you're interested. But Cold War 2.0 is with China. And it's not over tariffs, and trades and aluminum and soy. It's over digital dominance. And, and at that very same symposium with General Alexander was talking about it. As you remember, we had Republican and Democratic senators disagreeing on most things, but they in unison, were agreeing with General Alexander and intelligent senators, some of the most intelligent and thoughtful senators are saying, You know what? General Alexander is right. And we need something that looks like a complete or partial decoupling from the Chinese economy. Now we can debate whether that's a good thing or a bad thing. 100% decoupling is never gonna happen or can't happen. We'll never say never, but it's unlikely to happen. But even if we get partial decoupling, well, that has real and present investing opportunities and pitfalls. The one that we focus on most is if there's globalization and decoupling two themes that sadly have been happening a lot in the last or maybe necessarily in the last two or three years. Well, guess what? Banks are going to need a lot more capital, that helps our bank regulatory capital business, but also the supply chains and infrastructure. In the West, that's been depending on China, and maybe it's going to depend less. So guess what? governments and companies are going to need a lot more real capex capital. And that's why we have specialized funds that deal with growth capital, and actually we're launching with one of our banking partners. A as a opportunity Stick infrastructure, you know, lending facility. So we just we don't hang out with these, with these government officials and the International officials, just because it's kind of a cool thing to do or makes for a good conference, we're very focused on our day job, which is trying to get the best risk adjusted returns, for our for our investors, but we feel that that is a critical and differentiating way of getting insights that others so that we can position for our investors. And then again, be a little bit ahead of the game and try to deliver supernormal returns. So that's why we do it. And the how it's funny how it works. The more you do that stuff. The more people, the more the more you throw the party, and the more interesting the party is, the more people want to come to the party. And I'll tell you want. And this is where two or three things come together. Guess what if you get that many interesting people in the room, guess who wants to be there also, our sovereign wealth and pension investors guest who wants to be out there also are our big bank.

You know, our big bank counterparts. I'm doing something next week, I'm on the board of the American friends at the Munich Security Conference. And we're bringing the Munich Security Conference to the US next week. And we're having all of the security heads and chiefs and senators and, you know, names that you will some of them that you you and others have met. But guess what? We have the CEOs of one of the one or two of the banks are like, wait a second, can I get a ticket to the party? And the answer is, of course, absolutely. Because you know, they want to be informed as well. And that helps. Like I was saying earlier, build that trust. So that's sort of that virtuous circle, if you have, as I said, if you throw the most interesting parties, people want to come and they bring their own ideas, which makes the next party even more interesting.

Arthur Salzer 31:56

Yeah, no, I have to thank you. For some of those. I attended a dinner during the Milken conference a few years ago. And the the connections that that I built, were incredible. And the insight that we get to see just because of attending that dinner that that Orchard Global hosted was, was it's really appreciate it. So so thank you so much for that. One of the things that that we really haven't spoken about too much, though, is Europe. It's getting a lot of front page news now. But, I mean, do you have a corporate, you know, view of what's going on in the Ukraine? You know, what, what can be shared? And maybe what, you know, you know, how much can we talk on this? It's just, it's concerning to a lot of people.

Paul Horvath 32:52

No, I mean, it should be and it's very sad. And, and for my own family, it's, there's a personal angle, my father was one of the students. He was one of the student protesters who along with the revolutionaries really started the Hungarian Revolution in 1956, when he was 1718 years old. And everything that's going on in Mariupol, and Kyiv, and live now in Ukraine, and my father lives through, you know, in Budapest in 1936. And, you know, he's not shocked by the just total lack of any regard for human life and dignity that's going on by the Russians. I was brought up in a household like that, and have always been very strongly biased against Russia, that amazing country and amazing history and culture. But it least in the last 100 years or so has been been a pretty bad actor and and they're really not covering themselves in glory, nor are they helping themselves right now. There's sort of two ways to answer the question that you're asking one is on a geopolitical, moral humanitarian level. And we are investors as well. So I'll I'll try to answer it on that level. Also. Look at what's happening in Ukraine. A couple of things to focus on. Putin has miscalculated, and we know why. He has committed something like three quarters of his entire conventional forces into the conflict. And because of his own sort of corruption and hubris, but also an incredible amount of help from the West, and from NATO, but specifically from I don't know what name they give it for, but from really the Canadians, along with Americans, but the Canadians who really led the charge in this but the Canadians, the Americans, the Australians and the Brits. They didn't start here. Helping the Ukrainians you know, three weeks ago or four or 10 weeks ago, they really started in 2014. And even before that, but after Crimea, Canadian Special Forces British us had been training command and control, okay, this is what's going to happen. Not if but when Putin makes his move, and this is how to prepare for, yes, giving weapons, but really giving, you know, how do you organize yourself in a way to be able to deal with this threat. And so special thanks? Well, to the US military, but our Canadian friends or British friends, and and our Australian friends in, in helping them prepare, number one, number two, it's starting to get more public press. But what is not a secret

is Intel. You know, these advanced militaries have four or five countries I mentioned, they have an incredible air advantage, seven to one versus NATO, but probably a much higher number than that to one, intelligence. And if you know, somebody sitting in a mountain, somewhere under the mountain somewhere in Virginia, or Utah, or you know, some other undisclosed location, can call up a commander in the field, you know, in eastern Ukraine, or when they were in the battle in the west and saying, Okay, here's that long column of tanks, but that's the one with the one. If you get that one, that's the colonel, you take that one out. The rest are conscripts, they don't know what to do. Most of them want to desert, they literally have their cell phones, and they're calling their moms asking to be taken home. So we can capture them and use that Intel. Let's not underestimate and that you know how much that's helped the Ukrainians and of course, their incredible resolve and the incredible political leadership that they've shown. I want to just pause and repeat something that I was at a dinner a couple of days ago with Mike Pompeo. So I can't claim credit for this, I gotta properly footnote it. But he just said, you know, leadership matters. And he said, Look at the difference between Solinsky and Ukraine. And I can't remember the name of the guy who was running Afghanistan. But you know, bad things started, the Taliban came in Afghanistan. And the leader of Afghanistan was on the first, you know, first USA Air Force military plane out of there. And you saw what happens when we offer that to Zelinsky. He said, I don't want to ride I want weapons. And he got out in the streets and said, I'm here and I'm ready to fight. And that makes a difference. So let's, let's recognize that as well. But getting back to what I was saying is because of all of the good work that's been done over the last eight or nine years and training and all the weapons and other assistance that's happened, the bringing together of NATO, but I think the Biden administration actually has done a good job, I'll be flexibility finally, from the Germans, which I never thought would come but finally did come at the right time, as well as other NATO allies. We are putting we're painting, putting into very interesting, but very scary box. People are focusing on the upside, just fine, because to a normal educated non Russian, it looks like they're under pressure. Well, Putin doesn't have to, you know, vote and get reelected. But he does have to stay in power. There's no prep Putin presidential library that he gets to retire to. He loses. Literally, he's dead. So all of the successes that we've had so far in working with our Ukrainian partners, have created a situation that is a very binary outcome. Peggy Noonan in the Wall Street Journal made a very compelling case. Hey, boys and girls understand what's at play here. It is a very real possibility. It is in the Russian playbook, to use tactical nuclear weapons, not strategic, which is ICBMs, hitting, you know, London or Washington, but tactical. And it is the belief of the Russians, that if they use tactical nuclear weapons, neither NATO nor the US would respond or respond accordingly because they would get afraid and take their ball and go home. Now, I'm not saying that that's gonna happen, nor is Peggy Noonan, but that has gone from like a 1% possibility to, I don't know, maybe not 50, but 2030 40% possibility, and not that the Western governments sit around and ask for my advice, but to the extent that they do, we're sort of pressuring them, you need to get ready for what your response will be. And please, please, please don't Tell us and don't tell anybody, but have one. And there's a couple of different responses.

Now, I was privileged enough to have, you know, Ambassador Bolton, former NSA Director and Ambassador to the UN, had him at a dinner two nights ago. As much of a hawk as he is, he doesn't think that Putin will pull the trigger. I hope he's right. But he may, because he may have no other choice. And if he does, we need to be ready. So that's, if you will, a little bit of insight from the front of what my best guess what's going to happen, which is terrible for the people, Ukraine. And I would say, for the Russians, I don't think this thing gets resolved. anytime soon. I think this is going to be grinded out, battle it out. You see every day that the Russians making more mistakes, getting, you know, it was a catastrophic mistake and the Russians parts. But even Putin had a walk back, I think Laval started talking about how, you know, Hitler had Jewish brought blood and how it's okay. I mean, I understand what he's trying to do, he's trying to pass this Nazi, we're snapping at Nazis in Ukraine, but that got very, very harsh response from from, from Israel and other places. So that tells me that they're really losing their plot losing the plot a little bit. But that doesn't mean that there's going to be a coup tomorrow. So I think it's, it's really, sadly, for the Ukrainians, and for the Russian soldiers and the Russian people, I think that this is good conflict is going to be around for a long time. And until it's not, one day, you know, a straw that will break the camel's back will happen. And either it's going to be very bad, because we're gonna go nuclear, or the collapse will happen. But I'm not sort of sitting around expecting it to happen anytime soon. What I will say to include, to conclude, though, is, we need to understand where we are in history right now. I believe that I don't think I'm speaking on hyperbole here. I believe that what happens in the next three weeks to six months, or year is as important sort of inflection point in history as 44 and 45. Four, that was the last time we had something this big. That doesn't mean we have to start hyperventilating. But it means that whether we're talking about policymaking in Germany, or Europe, or the US, or Canada, or Australia, or wherever, or Japan, maybe it's time to stop fighting over the silly things that we fight over taxes and culture, come together and say, Wait a second, this isn't both an existential threat to sort of not even Western, Western or democratic liberalism, and rule the people. And by the way, if we get this right, we can actually take territory. But if we get it wrong, it's not like we're gonna go away. But you could imagine a block of China with a disabled Russia, I eat cheap source of natural resources, teaming up with an Iran and Venezuela, a couple of other, you know, folks who don't believe in rule by the people of the people, for the people. And we just need to understand when we're setting our priorities when we're when we're voting and when we're setting budgets. This is one of those times, you know, to take it seriously. Eisenhower, who was in the middle of the Cold War, ramped up the defense budget to 10% of GDP. Right now, we just getting the Germans up to 2%. And the US has down to 3%. Maybe we need to change. They're gonna talk about investing if you want, but I wanted to pause to give you a sense, yeah, no, no, shut up for a second Lee,

Arthur Salzer 44:08

you know, great critical insight. It's, you know, from, from our point of view, I mean, you were comparing it to, to the 40s. I'm worried more that it's, you know, it could be more like the First World War where we're, you know, different governments get pulled in, for all sorts of reasons and all sorts of provinces that that were done behind the scenes. And, you know, I would, I would hate to see it spiral out of control. And the the points that you brought up about, you know, Putin getting painted into a corner you know, I know, strong you know, policy, you know, makes for better negotiations, but, but sometimes it might be good to give them an out. How do you let them you know, back away or back down, you know, with his head held high somewhat, because, again, you know if he loses power, he potentially loses his life. And that's, you know, that's the ultimate end game theory. I don't think he wants to go down as a as a martyr. Definitely.

Paul Horvath 45:18

Well, I'm not to be too tongue in cheek, but there's, there's no, Putin is going to after this May 9, this more muted may 9 celebration that he's going to have. He is, well, because he has Parkinson's and he has some form of cancer. I think it's bowel cancer, but it's something that involves that necessitates a procedure. There's a lot of folks all over the world hoping that, you know, that when he goes under the knife, he doesn't wake up. I don't think that's going to happen. But there's certainly no lack of people praying for that outcome. All joking aside, and, you know, I full disclosure, I probably hanging out with a few too many Hawks. And whether that's John Bolton on the Republican side, or I actually did, and I have some before the war. And as you can see on my Twitter account, and LinkedIn account, did some interviews with General Wesley Clark, who was the Supreme Allied Commander of NATO, what we're really trying to do their message to Putin message to German Chancellor Schultz and message to Macron is, is there anything we can do to stop this from happening, because, but he's a Democrat, Bolton, his Republican, Pompeo is Republican. And they're all saying the time for off ramps is over. There's too much they probably know more than we all do about just how much of the atrocities have actually happened. And that this is one view, it is a more American view, it's a more aggressive view. But it's a view. And I think I probably subscribe to that. We can't run around being afraid of the nuclear threat. We need to be strongly to be unified. And we need to be basically saying the sanctions will stop when all Russians troops are pulled from all parts of Ukraine, including Crimea period. Now, it would we all allow, or should we all allow un or NATO or somebody else to come in and protect whatever, you know, Russian minorities are in Ukraine, so that there's not retaliation. Absolutely. That's on the table. But my own view, and I'm acknowledging it's a hawkish view, but it's one that I subscribe to is, you know, we've, you know, it's kind of like last exit before the toll. I think that's where, certainly people in this town. I'm doing this podcast in Washington, believe so. You know, I don't know, maybe that leads us to nuclear war. But that is very much the prevailing thinking. Now, let's look beyond this conflict. A lot of doom and gloom here. You know, we are investors, and let's look to opportunities. If and when this does get resolved, hopefully sooner rather than later. One thing we're certainly focused on and starting to prepare for is there could be an incredible Ukrainian recovery driven economic boom, that really will require capital. And that's what we do. Remember, we're the solutions guys. And when you give capital to people who really need it, get tend to get supernormal returns, to give you a flavor for what that how profound that boom could be or that opportunity. Let me take you back to something totally different, which is 2005 and Hurricane Katrina. Now, in 2005, you Ford and GM in March of 2005, were downgraded to sub investment grade, everything was looking like q3 q4 2005. We were heading towards in the US anyways towards recession, or I would say in North America, because Canada was was right there with the US. And then something unexpected happened, Hurricane Katrina and what happened was 150 billion that was sitting in insurances you know, investment portfolios in a very short amount of time was was was what pushed forth to rebuild you know, Louisiana or New Orleans. That one little rebuilding of a city it wasn't that little was able to cause such a boom that what was supposed to be the recession of oh five ended up being the boom of Oh 50607 And put off what ultimately happened in Oh, eight for two, three years. Um, that's a city in a relatively poor state,

there's 44 million or there was 44 million, there's 5 million have left, there's 44 million million Ukrainians, who didn't have the most up to date infrastructure to begin with. But you know, that if and when the Russians do leave, and we get back to some modicum of normalcy, the amount of money that's been coming in, from the Americans from the Europeans, from the, you know, the Western democracies of Asia, there is going to be an incredible investment in turning. I mean, the Ukrainians are talking about how do we turn in, you know, Ukraine into the Israel of Central Europe. And because they're so critical to food and other and we're talking about 44 million people, this literally could mean, the upside scenario is somehow there's a piece soon. And we get back to the rebuilding part. And let's not miss out on that opportunity. I don't think it's going to help inflation very much. But it could really, you know, be it could be responsible for a half a decade or decade of prosperity and profitability. For those people who help, you know, turn Ukraine from the mess that it is into the, to quote Zelinsky, the Israel of Central Europe. So let's not leave this call being too, too bummed out. There's opportunity there. But we just have to be tough and make sure that we make decisions that help increase the chances of the good scenario, rather than the bad bad scenarios that I painted before. Absolutely.

Arthur Salzer 51:43

I think we all want to see it resolved as peacefully as possible. And as quickly as possible. That would be the best for for for the people of the Ukraine. I want to thank you so much today for your time, Paul, and your insights. It's these are very different than than what we hear, you know, on television, you know, reading, you know, reading social media, or the news and to get this deep insight. And leading edge insight is critical to helping us serve our families. So thank you to everyone at Orchard Global. Thank you, Paul again, and we look forward to to continuing our relationship and growing it with with your firm.

Paul Horvath 52:25

Great. Well, thank you so much. And lots of prayers for our Ukrainian friends. Slava Ukraine. Goodbye. Thank you.


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