Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs and harness the engine of capitalism right here, right now at the NYSE and at ICE's 12 exchanges and six clearinghouses around the world. And now, welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
Yes, it's been quite a summer. Rent-a-cars and westbound trains, those the lyrics of Mr. Jimmy Buffett in his first ever top 40 single, Come Monday, released 45 years ago in 1974 on his Living and Dying in 3/4 Time album. I never did get to a Buffett concert this summer, dang, but it's been quite a summer here at the New York Stock Exchange, too, at a pace far faster than 3/4 time, hitting me like a John Candelaria fastball, high and tight with memories flying at me from all angles.
Josh King:
July 26th, first data. NYSE ticker symbol FD rings the closing bell on its last day of trading after being acquired by Fiserv, its CEO, Frank Bisignano, the guy I worked for for many years, walking off into the sunset after doubling the price of his stock just under four years after his IPO. Then this August. I'm in Europe, toting along the book by Blackstone founder, Steve Schwarzman. You heard our conversation with him a few weeks back, the resounding story of betting it all with Pete Peterson to found what is now the world's largest alternative asset manager. Then September, another mentor, Joe Plumeri, an early guest of this show, declares to me, "Josh, I'm going to Israel," and that's where he is as I talked to you today, exploring Masada, swimming in the Dead Sea and venturing to the Golan Heights and Petra on a pilgrimage long overdue.
Josh King:
And just last week here at the NYSE, at our NYSE American Emerging Companies Summit, there's Jeff Solomon, the CEO of Cowen Group, ticker symbol COWN, offering the keynote to other CEOs whose companies are thriving and enter into the public markets. Bisignano, Schwarzman, Plumeri, Solomon, what's the tie that binds? Shearson Lehman Brothers, Wall Street in its heyday, the 1980s and '90s, RJR and Nabisco, barbarians of the gate, the time of Sandy Weill, Jim Robinson and Peter Cohen.
Josh King:
One day, getting ready for charity benefit, Bisignano asked me to come over to his house to look at some old mementos from his days at Shearson, a place where giants once roamed. He showed me an old VHS video of a company softball outing, Peter Cohen's Cohen Heads against Tony DeMaio's Pizzanos, the Jews against the Italians, with Bisignano at shortstop and Plumeri captaining the squad in a friendly game on the diamond. The boys of Wall Street. It was so innocent back then.
Josh King:
No matter the outcome, Cohen's legend only grew from there. He and Jeff Solomon, from Pittsburgh Squirrel Hill by way of UPenn, would go on to form Ramius in 1994, the pair building it into one of the country's largest privately-held hedge funds, then merging it into publicly-held Cowen in June 2009, the deal valued at about 195 million dollars. Jeff Solomon's journey from Squirrel Hill to Wall Street by way of Emma Kaufmann Camp in Cheat Lake, West Virginia and the core values of a CEO and the firm he leads right after this.
Speaker 3:
And now, a word from Artur Bergman, CEO of Fastly, NYSE ticker symbol FSLY.
Artur Bergman:
Fastly is our edge cloud platform. We have help deliver digital experiences for amazing customers like Spotify and Ticketmaster and New York Times. We got started eight years ago. It's been an amazing journey.
Artur Bergman:
We work very closely with our customers. We're a very critical part in their business. We're very selective in type of customers we want in our network. Fastly is built by developers for developers. Fastly is listed on the New York Stock Exchange.
Josh King:
Joining us today is Jeffrey Solomon, chairman and CEO of investment firm Cowen Inc. Jeff's been with the firm since his firm Ramius merged with Cowen in 2009, serving first as its chief chief strategy officer, then head of investment banking, chief operating officer, president and now chief executive officer.
Josh King:
In addition to running Cowen, Jeff's also the vice chairman and inaugural member of the Securities and Exchange Commission's Small Business Capital Formation Advisory Committee, providing advice and council on commission rules, regulations and policy matters related to smaller public companies and small businesses, the work that brought him here to the NYSE last week. No stranger to this building. Welcome, Jeff, to Inside the ICE House.
Jeff Solomon:
Good to be here. Thanks for having me.
Josh King:
So what's your first memory of this place?
Jeff Solomon:
Oh, wow. When I first came to work here, I in a million years never imagined that I'd ever be anywhere close to this building. I mean, growing up in Pittsburgh, we talked about the stock market. We certainly heard what was going on every day, but the idea that I could be working anywhere proximity to New York Stock Exchange, that wasn't something I ever really thought about.
Jeff Solomon:
And when I got here, I remember during my first few weeks of work, I used to work over at the World Financial Center, I felt like I had to make a pilgrimage. And so my first memory of it is just standing right outside on Wall Street, standing up and then going, "I can't believe this is me. I can't believe I'm part of this." It's tremendously iconic. By the way, I get the same feeling every time I walk in here.
Josh King:
I mean, Bisignano talks about sitting on the steps of Federal Hall with a salami sandwich in his hand just looking at the building. But I think that image of Pizzanos against the Cohen Heads, does that bring back memories for you? Because those were your first years.
Jeff Solomon:
Shearson was a really big firm, although it's interesting. I spent some time with Frank. I spent some time with Joe Plumeri. And certainly, I spent a lot of time with Peter, and so I remember those leaders at that time and I was deeply impressionable. I was in my early twenties and I didn't know really anything about how everything worked. And I remember that almost across the board, people took me under their wing and were more than willing to teach and mentor me, educate me, tell me about things that I, again, would never have been able to comprehend how things worked, and it was just fascinating for me. And so again, early on I remember being a part of this and feeling like I was on a great team, certainly at Shearson Lehman in the early days, that's for sure.
Josh King:
I mean, I've heard you talk about developing the S-1 for a big capital raise at Shearson and literally going around the company and understanding how it's basically a collection of small firms.
Jeff Solomon:
And it was. I mean, Shearson was really made out of a series of acquisitions. I didn't really fully appreciate that at the time, but I was an... I'm an A banker. I started as a corporate finance analyst. I focused on M&A. I'll be candid with you. I don't even think I knew what M&A meant when I applied for the job, but I got it.
Josh King:
Hey, you are at UPenn. You took the ride up to Manhattan. It's an easy way to get into business.
Jeff Solomon:
Yeah, but I was not in Wharton. I was a college of arts and sciences kid. I was a theater minor and an economics major, and I was just... Literally, it sounds so old fashioned to say this. I was putting my resume in boxes and I somehow or another got it in the Shearson M&A box.
Jeff Solomon:
And I got a job, which was great, and the learning that went on in that first two years of my career was intense. But you mentioned how things progressed with my understanding of the businesses now that I run. It really started in those first two years because I got lucky enough to be on that internal corporate finance team. And during the time we were going to do a public offering, I got the chance to draft the S-1 that basically talked about what firm does in detail. And I could go around to each of the various businesses and actually learn. Again, I was just doing my job, but the absorption of information about how firms big firms like Shearson ran at the time is huge, and it's hugely valuable. I still use that stuff today.
Josh King:
So let me see if I get this straight. Abraham and Sarah Kaufmann lived in Germany and had eight children, six sons, two daughters. The sons, Jacob, Isaac, Henry and Morris all immigrated to Pittsburgh. They formed Kaufmann's, which eventually rolled up into Macy's, NYSE tick symbol M, and your summer camp was named for Isaac's first wife, Emma.
Jeff Solomon:
Emma, Emma Kaufmann. Yes, that is true, though. Look, what the Kaufmann family did for Pittsburgh and the Jewish community in Pittsburgh for really my great-grandparents' generation... So my great-grandparents generation came to this country. They settled all over the country, but ultimately ended up in Pittsburgh. And what the Kaufmanns did in Pittsburgh was really create a place where Eastern European Jews could congregate and could have social services. It wasn't like the Jewish community was a particularly wealthy community, at least not from my my side.
Jeff Solomon:
And so yeah, almost everything we did... I played at the Irene Kaufmann Settlement, or the Irene Kaufmann Center. I went to Emma Kaufmann Camp. I went to the Henry Kaufmann Family Park. I mean, everything we did socially was around the Kaufmann family.
Jeff Solomon:
I mean, I think about that now. Tremendous impact on my life. I never knew them. I think about that a lot when I do my own philanthropy. One of the great things is I get to do philanthropy. I'm fortunate enough to have made enough where I can make a little bit of an impact, and one of the things I love is that I'm probably making an impact in the lives of people I'll never know, just the same way that the Kaufmann family did for me and my family.
Josh King:
What was it like for you, your parents, around the dinner table? They said, "It's going to be hot here in Pittsburgh in the summer. We're going to send you to the Emma Kaufmann Summer Camp for the first time." I don't know what age you were, but you must've tracked it all the way to the last possible year that you could have attended.
Jeff Solomon:
My first summer camp, I was homesick. I was really not happy. We spent most of our summers at the swim club, the Henry Kaufmann Family Park. I swam on the swim team. I had a good thing going there. My parents decided it was great to send me to camp. I didn't really want to go because I was like, "I'm having fun here. Why would I want to do that?" And I missed home. Sort of early FOMO, I think, is really... Looking back on, it was the thing that made me homesick. It's not that I didn't like being at camp. I just didn't like the idea that I was missing things that were going on back home.
Jeff Solomon:
That was a critical moment for me, in retrospect, to learn how to adjust to a new environment and a new situation and not worry about what's happening outside of your view. That's a big transitional thing. And I would say if my parents hadn't made me do that or had come to get me when I was complaining about how homesick I was, I'm not sure I ever would've moved to New York. And so I just think even at a very basic level, my experiences at summer camp taught me how to be resilient as an individual.
Josh King:
I mean, you've said in the past, I think, that you had some difficulty with transition and change. And you've got to be the change. And you show up in a summer camp like I did up in Maine. Nine other kids, 11 other kids that you don't know, and you're either going to be backed into a corner or you're going to lead this group someplace else.
Jeff Solomon:
I'm a big believer that the fear of change is mostly when change happens to you. And I think that's with me and that's with a lot of people. And so in my career and in my life, I've tried to be the agent of change. I feel better about change when I'm the one that's actually bringing it about than when it's happening to me. And it hasn't always worked out.
Jeff Solomon:
I mean, change comes and sometimes you're just not prepared for it, but I think the ethos that I've developed over the course of my career is predicated on this idea that we need to create change in order to not have it happen to us. And maybe that's a false sense of control, I don't know, because I'm just trying to do some things where I can make an impact as opposed to have them happen to me. But it's something I think, then, is critical to any business endeavor.
Jeff Solomon:
Change is a constant. It's always going to happen. And I think in whatever you're doing, you've got to be out in front of it.
Josh King:
Change is one powerful word. Another single powerful word is outperform. I look at your website and I see the proud name Cowen, and the one word lockup, Outperform. You beat Apple with Think Different. That's two words. You beat Nike, Just Do It. That's three words. One word, outperform, that raises the bar as high as it can go. Why use that word?
Jeff Solomon:
Well, I think it's why everybody comes to work every day. Doesn't matter what you do. I've never have been in a meeting one time with anybody in my entire career where they said, "I'm okay being average, not an investor, not a company, not somebody who starts a job." They don't come in and say, "Hey, I'm just... Are you cool with me being average?" Nobody does that. And so this idea that so much of what happens in our capital markets today is okay with average. Nothing against passive investing. It's just you're shooting for the average.
Josh King:
Mm-hmm (affirmative).
Jeff Solomon:
And when we decided, "What are we doing at Cowen that's differentiated?" well everything we do at Cowen is geared towards helping people to do better than average, to outperform. In hedge fund speak, it's to generate alpha. That's really what we do in every aspect of our business, and so the simplicity of just saying we come in every day to help other people outperform.
Josh King:
You think about ETF's baskets of huge stocks, which basically are an average at the end of the day. You think about this long bull market that we've been on since essentially Ramius did its merger with Cowen in 2009. And I've heard you say you'd love to outperform. You'd love to put all your capital at play, but we're still waiting for this big end to this bull market.
Jeff Solomon:
Yeah. I mean, I think every market is a different market. This one has been a slower growing, longer-lasting recovery. But then again, what presaged it was much more of a cataclysm than anything we'd seen in our careers, at least I'd seen in my career over the last 30 years. I'm not surprised that this one has lasted longer and that some of the excesses that were created between 2000 and 2008 were not recreated here.
Jeff Solomon:
It's also radically different. We have never, in any other time, had so many individuals in the United States have so much of their net worth in the equity market. It's become extremely accessible for everybody in America, and that has fueled this growth and probably helps to keep it persistent for some time.
Jeff Solomon:
I'm a big believer in demographics. We have boomers just beginning to enter the retirement phase. They've recognized that their earning power on the whole isn't necessarily satisfactory to live out their lives as they thought, and so their reliance on having value in their equity account and in their investment accounts is critical. And so there's this underpinning of everybody does better if the stock market does better, and I think that's true.
Jeff Solomon:
And so to me, this could go on for a while. I'm not saying that it will, I don't have a crystal ball, but we didn't have this giant buildup of... or debt-laden buildup like we had in the previous decade, so I think people will be using their life savings. I'm not going to sit here and say that they're going to continue to plow money into the equity market the way they have, but when you look at the flow of funds, I'm not looking at a cliff somewhere.
Josh King:
I went back and read that article. June 4th, 2009, New York Times. Cowen Group to merge with Ramius. It said, "Mr. Cohen, who ran Shearson Lehman Brothers in the 1980s, said the investment banking business was in many ways going back to the future as Wall Street morphs back into a collection of firms." It mentioned Evercore, which is our neighbor in our midtown office, Perella Weinberg and Greenhill. Was back to the future what was going on for you guys back in 2009?
Jeff Solomon:
Well, yes we were totally... I mean, for me and Peter, for sure, and for Tom Strauss and Morgan Stark, the two partners. I mean, we came from that part of the business. They spent a lot more time in it than I did, and so this idea of really going back to a sell side investment bank was very much back to the future for us.
Jeff Solomon:
What I will say is we had a view that the growth in Wall Street firms and the bigger firms weren't exactly serving the needs of the buy side, at least from our standpoint, exactly what we... They weren't doing exactly what we needed them to do for us. And so with this idea we could create an investment bank, which was the investment bank we wished had always covered us when we're clients, that was the idea behind it. I would say when you look at the market share that we've taken and the things we're doing, that is what Cowen is today, in many respects. It's picked a group of clients, both corporate clients and investors and allocators of capital, all of whom want the same thing. And our goal is to make sure we align the resources of the firm to deliver for them on a consistent basis.
Josh King:
So that transaction was June 2009. Dicey period. Barack Obama, Tim Geithner, Ben Bernanke, Steve Rattner, a new economic team just getting its feet wet in the middle of a historic crisis. Was combining with Cowen a move that you had the vision for, or was it, at the time, just a effort of sheer survival? Let's hear a clip from back then.
Audio:
Now under this framework, we are establishing three new programs to clean up and strengthen the nation's banks, to bring in private capital to restart lending and to go around the banking system directly to the markets that consumers and businesses depend on. Let me describe each of these three steps. First, we're going to require banking institutions to go through a carefully-designed, comprehensive stress test. This borrows the medical term. We want their balance sheets clear and stronger, and we're going to help this process by providing a new program of capital support.
Josh King:
I mean, it was one of the toughest days in secretary Geithner's life. Suddenly, the glare of the camera's on a guy who's basically been behind the scenes for most of his career. But for people who are just starting a new venture and a firm, an enormous ocean of opportunity with this massive direction right behind you.
Jeff Solomon:
Yeah, we certainly thought that the political wins would play out in such a way that the bigger banks would not re-amass the capital as quickly or be able to run these integrated businesses. We were wrong about that. I mean, the amazement of how quickly they were able to repair their balance sheets in retrospect, given the quantitative easing and the actions from the central bank, I mean it helped to repair those balance sheets pretty quickly. And Dodd–Frank, which was important, isn't nearly as far reaching as I think we thought it would be. But that's not why we did Cowen.
Jeff Solomon:
I think a lot of people think that, "Oh, you thought you were going to take share from all these big banks." No, no, no. We just felt that there was a segment of the marketplace for smaller institutions like ourselves and middle market clients that just wasn't being well served. And by the way, we still think it's not particularly well served by some of the bigger financial institutions. Nothing against them. I have a lot of friends that work there. I'm friends with all lot of people that run those firms. They're focused on much bigger transactions with bigger corporations, and we are focused on more family-owned, entrepreneurial, smaller middle market businesses where you actually need to engage and then be able to deliver. And so it's both this idea that you can develop a deep relationship and have top quality execution that's at the center of what we do. That's what we thought.
Jeff Solomon:
And in retrospect, it looks as if we had this great idea that we could basically take share from all the big banks because it happened around the same time. That's not what was in our mind at the time. We just thought, "Here's Cowen. It's a really interesting brand." It's a sleepy company that no one really remembered. I certainly hadn't thought about Cowen in a long time. And for us at Ramius, we had made some other strategic decisions that put us in a position where we had capital, and that we could take that capital, monetize that capital or permanentize that capital by merging with Cowen that was public.
Jeff Solomon:
And then this idea of being able to break the traditional buy side-sell side regime for how people look at the business, that came in the first two years when we said, "Okay, let's not look at the world that way. Let's just look at the world as those who care about active management outperformance and those who don't." And when you look at it that way, buy side, sell side, we're all in that same ecosystem of trying to figure out how to create outperformance. And that was really a 2011 or 2012 idea that really played itself out in the last half a decade.
Josh King:
Played itself out in the last half a decade. We are 10 years on from that time in 2009 when you started that effort. My friend, David Morehouse, who's now CEO of the Pittsburgh Penguins, moved back to your hometown from Washington to work for Ron Burkle and Mario Lemieux as they were buying and rebuilding the Pens and the area around PPG Paints Arena, a classic urban development success story, something I'm sure you've gone back and see unfolding before your eyes.
Jeff Solomon:
I got a couple of Stanley Cups in my belt.
Josh King:
Thanks to Lemieux and Morehouse and that gang.
Jeff Solomon:
That's great. I'm hugely indebted to them and Rutherford and the crew.
Josh King:
What have you seen in Pittsburgh from its nadir and leaner years to when you go back home today and you see the way someone was saying, "Traffic is pretty difficult there"?
Jeff Solomon:
Pittsburgh is a great story. It's on its third renaissance. I mean, just think about that. Its third renaissance. The first renaissance really happened when post World War II when the city really needed to clean itself up. It was a pretty dirty, grungy city. The heartbeat was really all about steel and manufacturing. The apex for manufacturing and steel was like 1960, which is just six years before I was born, so I was born just before the second renaissance. If you lived in Pittsburgh in the '70s, everyone thinks about the Steelers and the Pirates and the Super Bowls and the City of Champions and the World Series victories. That was definitely happening, but what was also happening is we had one in five Pittsburghers out of work by the end of that decade. And the cataclysmic fall of the US steel industry had a deep toll on the region.
Jeff Solomon:
What are you to do about that? This is a classic example we talked about earlier. Change happened. Foreign steel became a reality. The rest of the world really finally got its act together, particularly in Asia, after the Second World War and began to produce competitive product, cars and steel, and we in Pittsburgh, weren't prepared for that, or the senior leadership in some of the companies pretended like it wasn't happening. And it happened.
Jeff Solomon:
The leadership politically at that time said, "Listen, we love this place and we're not going to let it go away." And the second renaissance was all about figuring out how to do job retraining and attract new businesses, meds and eds, right?
Josh King:
Mm-hmm (affirmative).
Jeff Solomon:
The biggest employers in the City of Pittsburgh today are hospitals and universities.
Josh King:
Yep, Carnegie.
Jeff Solomon:
And bringing in talent and recruiting, I mean actively recruiting to come and live in this lifestyle and changing the perception so that by the time I left in 1984, Pittsburgh was the most livable city in America five years, five years after US Steel or Jones and Laughlin went... US Steel pretty much left the city, and Jones and Laughlin went bankrupt. That's a huge feather in the cap of leadership.
Jeff Solomon:
So what do I take away from that? I knew Mayor Caliguiri because he lived in my town. I went to high school with his children. How do you not admire that effort and that foresight? And so I think Pittsburgh exists today because of leaders like Mayor Caliguiri and the city council who made really hard decisions to transform the city.
Jeff Solomon:
And so today, it's a hundred percent one of the most livable cities in America. My parents are still there. My in-laws are still there. My kids still go to Emma Kaufmann Camp, by the way. And so we're there all the time, and I look at it with this amazing sense of pride. And I think a lot of us who live in the Pittsburgh diaspora feel the same way.
Josh King:
So, Jeff, you were here last week as the keynote speaker for the NYSE American Emerging Companies Summit which celebrates American companies, like many in Pittsburgh, thriving and entering into the public markets. What did you want to make sure the audience took away from your talk?
Jeff Solomon:
That the public markets are still available for you if you've got a valuable business model and that it's not for everybody. But for companies that really want to have growth initiatives where the amount of capital they need to raise outstrips their ability to raise it in the private market, they should be looking at accessing the public markets. It's never been easier for smaller companies, or hasn't been this easy in quite some time for smaller companies, to get access to capital certainly post the JOBS Act.
Jeff Solomon:
And I wanted to leave everybody with this sense that certainly in Washington, DC today, maybe more than any other time I've been going there, we are focused on how to create a marketplace in which capital providers can meet capital leaders in a way to create valuable companies, create jobs, create private sector growth. And that exists today. And I think sometimes media gets hung up in some of the big tech challenges or the big tech new issues. The reality is that the smaller companies are actually the ones that are making it happen for the American economy by and large. The fact that this stock exchange is focused on how to bring capital into those companies, I want to be a part of that dialogue, for sure.
Josh King:
This year, you were appointed vice chairman and inaugural member of the SEC's Small Business Capital Formation Advisory Committee. So, Jeff, what's the purpose of the committee and your role in providing advice on commission rules, regulations and policy?
Jeff Solomon:
Yeah, it's an amazing thing. So again, not something that gets a lot of attention but in 2016, Congress and the president actually passed a law that said, "We're going to empower the SEC to focus on small business capital formation, defined as company that are 250 million dollars in market cap and lower, private and public," with this idea that that's really the bread basket of our country, and so many of the small companies really are providing the economic growth engine for individuals. And they not only created this office, but they created an advisory committee, which is the one that I'm on; a small business advocate who we also met last week, Martha Miller, who's doing an amazing job. She's incredible. She comes from Birmingham. She's got a real strong sense as to what it's like to advise small businesses, and she's brought a really a great energy into the SEC. I made a comment when I was there for my last meeting. I'm like, "I can't remember the SEC being so happy."
Jeff Solomon:
I'm thrilled to be on that committee because I think it's a committee that can actually solve a lot of challenges. And the symbiosis between this advisory committee and what we're seeing in corporation finance is really productive, the idea that you can streamline rules and regulations to make it easier for small companies to raise money without squandering investor protection. And I think the fear that everybody's had, certainly I heard about it a lot during the JOBS Act, and every time somebody touches some of the regulations, the big fear is that it's going to hurt small investors. And the answer is it doesn't have to. The idea that you can bring risk capital in and allow small investors to participate in the growth of small companies is at the center of the JOBS Act with crowdfunding. And we need to have a regulatory regime that allows small investors to continue to be able to participate in that because they're missing out.
Jeff Solomon:
One of the things that's happened with passive investing is if your entire portfolio is in passive funds, you're not participating in any new issue, no IPOs, because those funds do not participate in IPOs. So it's not only that individuals don't own stocks anymore. They don't own funds that own new companies.
Jeff Solomon:
And so now I hear this lament, "Well, all of the wealth is being created by VCs and private investors." And the answer is yeah, because we scared the little investor away post 2000.
Josh King:
Right.
Jeff Solomon:
And that little investor is now doing very different things that have nothing to do with capital formation. So one of the things we're doing is okay, how do we bring them back in, in a very safe way? We cannot go back to some of the bad stuff that happened, nobody's in favor of that, but we have to create a regime in which it's safe for investors to take appropriate risks. Not all of them will work out. Not all of them will work out, but the ones that do will more than pay for the ones that don't.
Josh King:
One of the areas of great promise, of course, is biotechnology stocks. The New York Stock Exchange, along with the Securities and Exchange Commission has been working hard to create a new on-ramp for biotech companies to access capital. It's a topic that we've covered on this podcast a few times in recent weeks. Cowen's working extensively in this industry. Are you seeing an impact from these changes to allow biotech companies to access capital earlier and easier?
Jeff Solomon:
Yeah. I mean, it's been one of the industries that's benefited most from the JOBS Act, probably the industry that's benefited most. Why? Because it's capital intensive.
Jeff Solomon:
So if you think about what's happened in our economy and go back 20 years, we used to fund companies privately that were capital intensive and we built things here. Now we don't. We fund companies that are software companies and service companies. And frankly, those are not capital intensive. The whole VC community has pivoted its business model to financing companies that are capital light.
Jeff Solomon:
Okay, so they don't really need to access to the public markets because they don't really have needs for growth capital. Biotechnology is this shining exception to that because it still takes a lot of money to develop a commercializable pharmaceutical. That ecosystem is a relatively small ecosystem that requires significant energy and effort to get inside.
Jeff Solomon:
If you're an inventor or you're a company, getting inside that ecosystem is not an easy thing to do. But once you're inside it, there's a lot of collaboration and work around understanding what's likely to be successful and what isn't.
Jeff Solomon:
Cowen already had, when we did our merger, a poll position in that discussion and debate. And if we've done anything, we've just tried to bring the capital markets around to say, "Hey, it's okay to come back in and create new companies here because with the JOBS Act and a bunch of the regulation, we can smooth the path for a number of these companies to access that capital base and survive."
Jeff Solomon:
I'll share with you this. There are about 4,500 publicly-traded operating companies in the United States today. 300 of them are biotech companies that have come public in the last six or seven years. That's a remarkable change, and you can tag it back to a number of things. I think the single biggest one of them is the passage of the JOBS Act. Period. That opened up people's idea that "Hey, you can access the public markets for the first time in like a decade? That's a big change." So the goal is, how do we take what's happened in this biotech ecosystem and extend it beyond that? That's really the question that we're trying to answer.
Josh King:
I mean, the JOBS Act may be one example, and the work that you're doing with the SEC another, of places where Washington actually gets some work done. But in other places, it can be so hard to decipher. It makes you just want to take out one of those old CDs and play a little Freddie mercury.
Josh King:
(singing)
Josh King:
So we're living in strange times, Jeff. You write in a LinkedIn post about Trump trying to buy one island nation, a hurricane destroying another island nation, an island protectorate China, Hong Kong, going haywire with protests, and a bunch of other calamities playing out against corporate profits being stagnant, global economic growth slowing and the yield curve inverting. Your advice to an investor, echoing Mr. Mercury, is to open your eyes, look to the skies and see is what is happening around us, what's happening this morning as we open the newspaper, and see how the president's visit to New York has gone, is this real life or is it a fantasy?
Jeff Solomon:
First of all, it's both, and I think that the purpose of my writing that, first of all, other than I'm a huge Queen fan and I think that Freddie Mercury's voice is probably the most epic rock voice ever, my purpose in writing this is because this is what we do every day. You have to separate the reality from the fantasy. Greenland is a fantasy. I don't even know how to even... So let's not spend a lot of time on it. The media isn't necessarily filtering particularly well for us, and Twitter certainly is not a filter at all. You have to build filters for Twitter. I find that to be actually really hard.
Jeff Solomon:
And so as a result, oftentimes the people with the loudest megaphones are the ones that get heard, and that may not necessarily be representative of reality. They may be espousing some fantasmical view of the world as they see it, or they may just be trying to build their own brand by saying the most wackadoo thing. And so we as investors have to be able to say, "Okay, let's separate what's reality and what's fantasy," and that's a framework that I think is really important.
Jeff Solomon:
It's a reality that we have an inverted yield curve. It's a reality that we're having funding problems in the money market. Those are realities. That's not fantasy. That's real life, every day. And we've got a think about what that means and what that means for asset values and the ability to access markets and things like that. Those are things we need to do, and the purpose of my writing this was to basically say, "Take a step back. Take a deep breath. When you read the paper or however you consume your news, do it proactively and say, 'Okay, is this something I really need to think about, or is this not something I really need to think about?' When you do that, you see there's actually a remarkably few number of things you actually need to think about, and you should focus on those and try to understand how those are going to make an impact in your portfolios or in your businesses."
Josh King:
I mean, you have six things that you point out in that LinkedIn post from busting the status quo is the new status quo to spending by US consumers and US businesses will continue to be the most dominant indicators of health in the global economy. And there's five things in between. Curious, I don't know how much you enjoy sitting in front of the computer, putting on a little Freddie mercury and writing, but is that a good release and a good way of sharing your philosophy, by authoring these posts and putting them on LinkedIn?
Jeff Solomon:
It's cathartic and therapeutic for me. I mean, I'm always thrilled when people want to read it, and I'm humbled that there's actually an audience out there that consumes it. For me, it just gets loud in my head sometimes. I think everybody... How's it not loud in there? You get bombarded every day with more than you could possibly process as a human, and I just need to get it out.
Jeff Solomon:
So sometimes, I write and I don't really send it around to anybody because it doesn't make a lot of sense. And then sometimes, all of a sudden there's a parting of the waters and you're like, "Oh, this is actually what's happening here," and I want to share that with you because I think I've discovered something or I've concluded something or I can look around the corner and see something that I want to share with you, or at least plant it in your head. And when that happens for me, I want to write, I write. I don't go home every night going, "I got to write something." And I don't do it in any regular timeframe. It's when there is a series of things that occurs and it gets loud in my head and I feel like I need to get it out.
Josh King:
I've heard you say in the past that sometimes someone asked you, "Well, what do you do that is a total waste of time?" And you were challenged to come up with what that might be. You thought, "Well, maybe I'll go back into the backyard and smoke a cigar and reflect on the world, but I get a lot of work done when I do that."
Josh King:
And I'm told that you also write these macro notes to your colleagues each week often infused with the lyrics from bands that have had a big impact on you over the decades, from Steely Dan to The Doobie Brothers. I mean, Jeff, you had me at yacht rock, but can the up-and-coming millennials relate to your leadership bromides leavened by Crosby, Stills & Nash?
Jeff Solomon:
If you look at my playlist, it's on Spotify. People can download my playlists.
Josh King:
What's it called?
Jeff Solomon:
It's Jeff's Macro Playlist. I think my Spotify username is Solly1769. And you can see it there. It's actually not filled with things from my youth, per se. It's actually filled with a lot of modern music as well. I listen to a lot of music. I still sing in a band from time to time. I have kids that are in their twenties and teens so-
Josh King:
Do you feel validated by having the chairman and CEO of Goldman Sachs be a disc jockey?
Jeff Solomon:
I was a disc jockey before he was, in high school. But that aside, validated? I'm thrilled. You know why? I think it's super important. We are human beings. This idea that the imperial CEO that sits in some secluded office that comes down from on high and makes pronouncements, I mean I think I grew up thinking that's the way it was, and I think there's still a lot of people in America that thinks that's the way it is. It isn't.
Jeff Solomon:
Yes, I have hobbies. Yes, I love music. Yes, I love to sing. That's who I am. Just because I'm wearing the chairman and CEO title, that doesn't go away when that happens.
Jeff Solomon:
And I think in David's situation, he loves EDM. And just because he's now the chairman and CEO of Goldman Sachs, that doesn't go away. And so kudos to him for continuing to pursue that. It's wonderful.
Josh King:
After the break, Jeff Solomon and I discuss Jeff's involvement in the SEC's Small Business Capital Formation Advisory Committee, the current IPO climate and how Jeff found himself not in Hollywood, but instead on Wall Street. That's right after this.
Audio:
It's more than an iconic building or a global financial marketplace. It's anywhere technology, commerce and people intersect. The innovation that makes people's lives better. Dreams that were once impossible are now realities. At the New York Stock Exchange, we help tech companies flourish and change the world.
Audio:
So go ahead, bring those ideas to life. We'll bring it to market. We are living tech.
Josh King:
Welcome back. Before the break, Jeff Solomon, chairman and CEO of Cowen, and I were discussing the current state of the equity markets and the events swirling in the world around us. So let's go back to Pittsburgh one more time for 32 immaculate seconds.
Audio:
Last chance for the Steelers. Bradshaw trying to get away. And his pass is broken up by Tatum. Picked off. Franco Harris has it. And he's over. Franco Harris grabbed the ball, a deflection. Five seconds to go. He grabbed him with five seconds to go and scored.
Josh King:
Jeff, the Steelers over the Raiders, 13-7 in the 1972 divisional playoff game. The Immaculate Reception just voted by the NFL the greatest play in NFL history. Terry Bradshaw to Franco Harris. The team would go on to win four Super Bowls in the Chuck Noll era alone. What did you learn about leadership from watching that team?
Jeff Solomon:
Well, I still get choked up when I hear that because I listened to it on radio. That wasn't the radio broadcast, that's the TV version, but the radio broadcast, I still hear from time to time, and it takes me right back to being six years old. The play was blacked out in Pittsburgh. In my own head, I had already had the play in my own head the way I heard it way before I ever saw it. To me, it represents a turning point.
Jeff Solomon:
Prior to that, the Steelers in particular were perennial losers, 40 years of just never doing anything right, and it looked like that was going to continue. And in that moment, everything changed. All of a sudden, it was like the ball could actually bounce our way in retrospect. And even though we a tough decade ahead of us from an economic standpoint, there was this amazing allegiance to that work ethic, that ethos that that team represented.
Jeff Solomon:
What I learned from that, and I've had conversations with Franco Harris about it, I've been fortunate enough to have met him and spent some time with him, what that team represented was galvanizing. It didn't matter what color your skin was or what your religion was or whatever challenges you faced on the other six days of the week. On Sundays, we all got together and we did one thing, and there was something incredibly bonding around that, that if I meet a Pittsburgher from whatever walk of life and we have nothing else in common other than we grew up in the '70s in Pittsburgh, we have an instant bond and we can go deep for as long as we want that.
Jeff Solomon:
That is, I think, what's so great about sports, frankly, or what can be so great about sports, is that it teaches you that the way that humans can engage with one another to accomplish a goal, regardless of where they come from, regardless of what they look like, the team aspect of that is really critical. And for me, when we're building our team at Cowen or when we're talking to management teams about how to build their team, there's all this learning that goes on into who you bring on and how you bring them on and the functions they perform, and the fact that it's really every team is made up of individuals, and individuals have different responsibilities.
Jeff Solomon:
And I'll say things like, "You cannot expect an offensive lineman to run 15 yards down the field really quickly and catch a ball." That's actually the job of the wide receiver, but you know what? That wide receiver doesn't get to make that catch if the offensive lineman doesn't block effectively, because the quarterback never gets to throw the ball. So when we are building our teams, we have lineman and we have wide receivers and we have quarterbacks, and we have people who do things, all of which work together for us to deliver what we deliver.
Jeff Solomon:
And that team, more than any other team in my life, is emblematic of that. And it showed that if you got the right individuals together around the right strategy and the right game plan, and the ball can bounce away because let's face, it luck is a big part of things, you can win a lot. And then so that for me, obviously for most Pittsburghers, it's a real turning point.
Josh King:
You were talking earlier about wanting to build Cowen into the investment bank and having the coverage of firms the way you yourselves wanted to be covered in the past. Larry Wieseneck, who's the co-president of Cowen, called your firm a challenger bank committed to offering a unique value proposition to your clients. How do you think you stand apart, whether it be M&A, capital raising or investment strategy?
Jeff Solomon:
Well, so Larry's right about that, and it's interesting. When I first met him right after he left Barclays, I instantly could understand that this is somebody who understood exactly the challenges that I was facing as a leader and that understood our marketplace. And he's the first one to teach me this idea of challenger bank. It is a bank that ostensibly blends the deep relationship, the interpersonal relationships that you can build in our business, with the ability to execute at a high level. That's not an easy thing to do.
Jeff Solomon:
And what I used to see in many instances is the bigger banks, they definitely could execute because they could throw bodies at stuff and they had capital and they could... If I could figure out a way to get them to do what I needed them to do, they're always good at doing that because they're big and they have a lot of access. The problem was I wasn't really sure if the people on the other side of the table cared about me or my business or they just wanted the fee, and I think that's what people's perception is.
Jeff Solomon:
The flip side is for some of the smaller banks, I had great relationships. But then when I'd ask them to do something, do they have the team? Do they have the horses? Do they have the execution capability behind it, or are they just going to let me down? And I think for most clients, getting those two vectors to line up is a really hard thing because you can't really see them.
Jeff Solomon:
At Cowen, we're trying to not have you have to make that choice. You can have a deep and meaningful relationship and not worry about execution. In fact, you can get top quality bulge-like, whatever you want to call it, execution unfettered at Cowen and have a deep and meaningful relationship. In order to be able to do that, you have to be able to be product agnostic, and this is a really critical thing.
Jeff Solomon:
When we're giving advice to issuers or companies, we're telling you what we think is the best thing for you. Many banks I saw gave me advice that was... They thought it was the best thing for me, but it was really the best thing for them because that's what they do best. And of course, they're engaging me because they think there's a fee at the end of that. Our job is to give you the best advice. And then when you choose what path you want to go down, we have to be able to execute for you. We have to walk in product agnostic and give you the landscape, have a dialogue about it.
Jeff Solomon:
There's also a supposition in that, that we may not know best. We actually need to have the conversation, learn more, learn about you, understand your business dynamic. What we come in with may be the best idea, but then we learn something and we're like, "Well actually, maybe this is really the best idea." And so you need to be in a position where you can deliver that, and so that's what challenger banks do. They figure out how to take those deep relationships and build execution capability so that the clients at the other end of the table never have to worry about having both.
Josh King:
Talking about the way you serve your clients, the desire and passion to serve others often crosses over into our day jobs for you and for Cowen Inc. The natural cultural DNA can be found in what I think you call VEST, which is vision, empathy, sustainability and tenacious teamwork, values that define how Cowen employees serve their community and clients and each other, certainly values that each of us can live by.
Jeff Solomon:
Yeah. So it's interesting. We gave it a taxonomy. That was part of what we did. And I think it's important when you're scaling an organization to be able to label things that people can identify with. But if I'm being honest and candid, that was here at Cowen before we got there. It just wasn't organized in a way that people could conceptualize it.
Jeff Solomon:
Cowen and Ramius, both deeply empathetic organizations where the people in those organizations cared about outcomes for others and doing the right thing. You can't invent that. You either have it or you don't.
Jeff Solomon:
Adam Grant talks a lot about this in his book, Give and Take. Yeah, at the center of all of these engagements is the ability to relate to one another. We call that empathy.
Jeff Solomon:
But you have to have vision. You can't come in and say, "Well, I don't know. What do you think? I don't know. What do you think?" I want to hear what you think. You need to tell... We have the debate, discuss. Show me what you see. Show me your vision, everybody.
Jeff Solomon:
And then sustainability is this idea that everything we do, we can leave a little bit on the table for the next opportunity. There's no such thing as a maximization strategy that's long-term sustainable, in my opinion. It might work for a little while, but after a while people are like, "Wow, all those guys did was try to take the most from me." I don't want to do that anymore. So when we think about some sustainability, it's businesses that are sustainable businesses that give back to the firm, to their communities, to their families. Those are the things that we try to get around.
Jeff Solomon:
And then tenacious teamwork is just... Again, it sounds maybe different than a lot of other Wall Street firms, although when you get below the surface, the ones that have been the most successful of tremendous amount of collaboration. At the center of our success at Cowen is collaboration. With all the research that we produce at the quality we produce it, the most read are the most collaborative. We have that data. It suggests that we need to have research analysts on our platform who see the value of working with one another to create unique thought.
Jeff Solomon:
So people ask me all the time, "Are you worried about AI or machines coming in and destroying the business?" I'm like, "Well, last time I checked machines don't know how to collaborate." You have to instruct them. They'll do a rules-based collaboration. But for the most part, unique thought is what we do for a living. Content creation is what we do for a living. That's human.
Jeff Solomon:
And so I like to use machines to figure out a way to create more time for people to think and come up with unique thought. That's awesome. But if they're not collaborative, they're probably not going to work in a place like Cowen. And so this idea of tenacious teamwork is really essential to the execution of some of our other values.
Josh King:
One more trip back to Pittsburgh before we close.
Audio:
Another plane crash last night. Among five persons aboard, Pittsburgh Pirates baseball superstar, Roberto Clemente.
Audio:
The person that he was still lives amongst the baseball community. I don't think that should ever die.
Audio:
And he took the platform of baseball and became a real humanitarian.
Josh King:
Jeff Roberto Clemente died in a plane crash December 31st, 1972. He was delivering earthquake aid to victims in Nicaragua. The MLB now gives its Roberto Clemente Award to who best exemplify the game of baseball, sportsmanship, community involvement and the individual's contribution to the team.
Josh King:
Clemente was 38 when he died. I heard you say that you embraced philanthropy through the UJA in a very profound way when you were 40. With many years behind you but many years ahead, how are you trying to use your expertise and your wealth to make a difference in the world?
Jeff Solomon:
I think we all have the power to do good, and money helps. I'm not going to lie, the better I do financially, the more I get to do philanthropically with money. But it doesn't matter where you are in terms of your status, in terms of wealth. Every human being has the ability to make a positive impact in somebody else's life. It's just a matter of whether or not you want to and whether or not you make an effort. A lot of people want to do it. They don't know how to do it. We shouldn't overthink this.
Jeff Solomon:
I think people, "So, I'm not so sure how I can make the impact I want to make." I'm like, "Listen, how about just start by making an impact-"
Josh King:
Right.
Jeff Solomon:
... "and then see where that goes?" And I think what Roberto did that was so incredible and it seems so, I don't know, usual today, we see athletes who have charities, and we see NFL charities and MLB charities and all these things, at the time that just wasn't happening. We didn't have big free agencies with big signing bonuses. Roberto was doing this because it's the right thing to do. And he was compassionate and empathetic, and he was using his status as a superstar to attract others to figure out how make a positive difference.
Jeff Solomon:
And of course, the fact that he died doing that is the stuff of legend. And it's inspirational to all of us because in some level we make a connection, are we willing to potentially give our lives in service of helping others? I don't think he made that conscious choice, but it turns out that's really what he did.
Jeff Solomon:
So I asked myself the question, "I don't have to give up my life to help others, so why am I not helping others? That's something I should be doing." And I'll get back to something that I think we talked about earlier. Why am I involved with the SEC, right?
Josh King:
Right.
Jeff Solomon:
I'm involved with the SEC because I'm the product of a small business in Pittsburgh, Pennsylvania. My father left a steel industry in 1978 41 years ago, and he bought a small business with a partner, and they went through ups and downs over the next 41 years. And it sometimes wasn't easy. Sometimes he didn't get access to capital and sometimes he was over levered, and sometimes the economic forces conspired to make it much more difficult on him and his partner and my family, my mom, my brother and me, and he survived.
Jeff Solomon:
At some level, I've heard all of those challenges and I'm like, "Hey, I'm actually in a position where I might be able to help people like my dad and mom by bringing capital to them, by creating a better environment for capital raising, by doing something that helps people like them." And so again, it could be outright philanthropy or it could just be taking what you do and paying it back or paying it forward based on the experiences that you had. That's a really powerful, psychic thing to be able to do, and I'm thankful for it.
Jeff Solomon:
Nowhere is it written that you have to do philanthropy until it hurts. I think that's also a misperception that people have. I do philanthropy because it makes me feel good. I get a lot of psychic joy out of that. That's a little bit selfish, but I love that feeling and so I just want to do more of it.
Jeff Solomon:
And I think we've talked a lot about this at Cowen, and I think the business roundtable and all of these things that have happened, we've been talking about this for a while. The better we do at Cowen, the more good we get to do. You define what that good is. Define it in your communities and in your family. The companies that we do business with, the patients that get access to life-saving pharmaceuticals, because we financed a biotech company that had a commercializable therapeutic, that's remarkable. However you want to define good, as long as you recognize it and do it, you're putting yourself in a better position, and that should be inspirational for you to come in and do what you do every day so that you get to do the good stuff. And for me, philanthropy and social engagement, community involvement, that's the spoils of all the hard work and the 30-plus years I've been in this business.
Josh King:
Making a positive difference and finding psychic joy in business, philanthropy and life, Jeffrey Solomon, chairman and CEO of Cowen Inc., also the vice chairman and inaugural member of the SEC's Small Business Capital Formation Advisory Committee, thanks for coming back to the New York Stock Exchange. Thanks for joining us inside the ICE house.
Jeff Solomon:
Thanks for having me.
Josh King:
That's our conversation for this week. Our guest was Jeff Solomon, chairman and CEO of Cowen Inc.
Josh King:
If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us at @ICEHousePodcast.
Josh King:
Our show is produced by Theresa DeLuca and Pete Asch with production assistance from Ken Abel and Ian Wolff. I'm Josh king, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly-available sources and not independently verified.. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity.