Mark Carney on The David Rubenstein Show: Peer-to-Peer Conversations

This is my kitchen table and also my filing system. Over much of the past three decades I've been an investor. The highest calling of mankind I've often thought was private equity. And then I started interviewing. I watch your interview because I know how to do. I've learned in doing my interviews how leaders make it to the top. I asked him how much he wanted. He said 250. I said fine. I didn't negotiate with him. I did no due diligence. I have something I'd like to sell and how they stay there. You don't feel inadequate now because being only the second wealthiest man in the world. Is that right. One of the most admired respected and busiest global leaders in the world is Mark Carney. He served for a number of years as the governor of the Bank of Canada for a number of additional years as the governor of the Bank of England. He currently serves as a special U.N. envoy for climate action finance. And he also chairs Brookfield Asset Management. I had a chance to sit down with Mark recently to talk about how he does all these things so well. Mark in the Bank of Canada governor in the governor of the Bank of England. Has anybody ever been the governor of two different central banks. Two different countries. No I don't think so. And so in addition to that not in addition to that you are also the chairman of Brookfield Asset Management. And you are the new chairman of Bloomberg. So you obviously like B. It's Bank of Canada. Bank of England. Bloomberg and Brookfield. But there's a story in the latest edition of a Canadian newspaper like two days ago that's saying that you might also be the next prime minister of Canada. So any interest in that. In the story. Not in the story per se. The you know it's interesting. You you say the same thing over and over but it gets heard differently in different contexts. And I think that story is probably more indication of the current environment in Canada. In other words you wouldn't be uninterested in that. I'm interested that we have an effective prime minister. Okay. So Prime Minister Trudeau and you know him. I know him well. Yes. So but we'll take that as maybe. All right. So I won't pursue that anymore. All right. Let me ask you as the Bank of England governor and as the Bank of Canada governor do you think the others the central banks recently figured out that inflation was more serious than it was too late. Or do you think they recognized early on it was going to be serious. They just didn't do enough about it. No I think in hindsight they realized it too late. They were operating under the old paradigm if you will. It was an issue of not enough demand. And that is something that works well generally until you have a bunch of supply shocks. And we had a covid supply shock. We had an energy supply shock. We had supply shocks with supply chains geopolitics all of which meant that there was more than transitory inflation. And it took a while for some of the central banks to fully recognize that and start. Now that they have did recognize that do you think they've done enough. And do you see any more rate increases likely to come about. There are many people in the market who think that maybe another rate increase in the United States is likely. What do you think about that. Yeah. Well first first part of the question I think that once they started to move and particularly when the Fed started to move it did respond in a very effective manner. It's consistently surprised people with its how resolute it was and what it was prepared to do. It recognized that the bigger risk was that inflation stayed high or or worsened. And and it has put us in a position put the US in a position where inflation is increasingly under control not totally under control. And that gets to the second part of your question which is I you know if I have to choose a camp I'd be in a camp of I expect that there will be a bit more tightening by the Fed. So probably an additional rate increase this year. But what's as important in fact what's more important is the path of policy over the course of the next 12 to 18 months. I think it's finally beginning to be recognized. It's been a painful few weeks for some of the market in getting this recognition that it's not just about where the rate is today. It's not just about the peak but it's the path and the path of rates is very much. And I've been in this view for a while higher for longer in order to ensure that policy is adequately tight to bring inflation fully back to that 2 percent. I was in the White House as a young man. We were running for reelection under Jimmy Carter and the head of the inflation effort fighting inflation effort was a man named Fred Kahn former Cornell professor. And he went out to the White House briefing room one day and said I think we're going to have a recession. Well Carter hauled him into the Oval Office and said Fred I'm running for reelection. Do not use the R word. It scares people. And Fred Kahn said what am I supposed to do. I have to be honest. Be honest but don't use the R word. So the next time Fred Kahn went out he said I think we're heading into a banana. He used the word banana as a substitute for recession figuring reporters wouldn't put that in the headline. So are we heading into a banana or do you think we're not going into a banana. Well I think the the likelihood of banana has gone down actually to be clear. The Fed has done quite a masterful job. Other things have helped. But if you look at and you asked me a moment ago rightly about unemployment and getting back to the 2 percent what's happened in the U.S. almost uniquely in the U.S. is there hasn't been a sharp rise in unemployment. There's been a fall in vacancies. Something that hasn't happened in the past. But of course this cycle is quite different than any previous cycle. So the Fed's been able to thus far ease some of the pressure in the labor market by reducing vacancies as opposed to increasing unemployment. That plus the other aspects of the resilience that we've seen in the U.S. economy makes recession less likely because the reality is you know if you get half a percent or certainly a full percent historically any time the unemployment rate in the U.S. had risen by at least half a percent there's been a recession. It's just you get the compounding effect. That hasn't happened. The probability has gone down but there's still lots. When you're the head of central bank in Canada do you kind of refer a lot to what the U.S. is doing because your economy is so tied to the U.S. or do you say look we're going to do what we want to do. We don't care what the U.S. is going to do. You consult a lot. We obsess about the U.S. as the short answer because it's the most impactful external factor for the Canadian economy. And there's also some you know some of the things that drive growth in the United States. They're common factors that drive growth and inflation in Canada. Let's talk about your background. So where did you grow up in Canada. Where were you born. I was born in Fort Smith in the Northwest Territories. And you're in the Northwest Territories. Yeah that's very far up. It is very far up. Yeah. So what were your emphasis on the north. What were your parents doing there. My parents were teachers. And did you ever say to them it's pretty far up north to be living. And did they ever move closer. They moved. We moved. Well it's interesting. I mean it's whatever two hour flight south to Edmonton which is probably the northernmost. Did you grow up in Edmonton. I grew up in Edmonton. I went to. Yeah. And so you were a hockey player too. I was a hockey player. So you played Harvard hockey at Harvard. Is that right. I did. Yes. Yes. I opened the gate. I was a goalie. So I opened the gate for a lot of very good players. Really. So were you a star at Harvard in the hockey world or. I was very good at opening the gate. Yes. But you never considered going to the NHL. I would. I can. Yeah I considered it. They did. The NHL did not consider maybe in some sort of administrative role. OK. So after you graduated you went to do something. Like investment banking. Yeah. And you went to Goldman Sachs. I went to Goldman Sachs in London. Yes. Nineteen eighty eight. And what did you do there. I worked actually I worked in the credit department. So yeah. Credit analysis which was probably the best thing I could have done because you know you build up a fundamental skill. Now many people go to Goldman after college. They can get an MBA and you decided not to get an MBA but to get a Ph.D. in economics. Why did you want a Ph.D. economics. I wanted to. Well I thought that at some point I'd work in public policy and I thought it would be more useful. And I toyed a bit with being an academic as well. My father was ended up being a professor ultimately. So you did this in Oxford. Why didn't you do a university in the United States or Canada. Why did you go all the way to England. Yeah. It was to be honest. You could do a Ph.D. in Oxford in three years as opposed to if you're in the U.S. system as a doctor student you spend a huge amount of time teaching which is great if you're going to be an academic. If you want the academic training though it means that the average time is. So when you were in Oxford did you also played hockey. Right. I did. And where you was a star. You're a star. I had to go. Yeah. OK. So you stayed at Goldman for how many years. I was back ago. In total I was 13 years at Goldman but eight almost 10 years I guess. So what is the highest level you reached at Goldman was to be a managing director managing director so managing director a managing director. OK. So why did you leave Goldman. Some people think it's the greatest thing in the world to be a Goldman managing director. Why did you decide to leave and go back to Canada. But I had an opportunity to become deputy governor at Bank of Canada. I've always had an interest in public policy. It was unique unique opportunity and I fully huge respect for the guy who was governor at the time David Dodge. And so how would they have heard of you. You're an investment banker in Goldman. People in Canada already had an ad. They put an ad in the paper and I put an ad in the paper and you responded. Wow. OK. That's how you got a job. Well now. Now it's like OK. So it's not how you got to be the governor as well. You responded. Well I would. They knew. OK. Well no. But you know for the governor as well. I mean that's become the norm now. Central banks do put ads. I don't think that you're the deputy governor. You then went to the finance. I went to the finance department and I worked with. Yeah I was one of them. You become the governor. And I became the governor. Stephen Harper. And that was an easy time because there was no recession. There was no problems. The economy was going well. Well I. Yeah. Basically I remember saying to Diana my wife that look we had young kids. This job. You make decisions a year. You know exactly when you make those decisions. You know. Oh so we're going to have a work life balance. It's going to work great. And and two weeks after I started Bear Stearns ultimately you finished after about how many years were you. Just under six six. All right. You step down and say now I'm going to go back and make money at Goldman Sachs. So what did you want to do. I didn't say I didn't step down. I was asked to. I was approached by the UK government to become governor of the bank. And is that like an illegal poaching. I mean they're going to another country to take the central banker from another country. Did you think that was unusual. Well it was it was it was unusual. It was an unusual time. Technically the head of state Elizabeth is the same. So it's intercompany transfer. OK. So. All right. So when you're the head of the central bank of Canada by the way you get your signature on the currency. Yes. Wow. So it's pretty nice when you hand somebody a dollar bill you say to people it's my signature. You ever tell them that. You don't like that. OK. All right. So you get offered to go to be the head of the central bank of England. And you you said yes right away. And I didn't actually. I I turned it down a few times. It was a rolling conversation over the course of 20. So you ultimately took the job. I then took the job. Yeah. And for about eight years. Yeah. Just under. And when you're the head of the central bank of England as the queen call you for advice or if she ever asked you anything you meet the queen very much or. I did have a few audiences. And the prime minister he doesn't appoint the prime minister or he or she doesn't appoint you. You're appointed by the sovereign. Yeah. And the sovereign says. But who do you really support. You report to the Board of Governors I assume. Well you. I mean you report to the British people really through parliament. That's the way. That's really the accountability you're. I mean you can only. Be removed for incapacity and that is a very. Did you enjoy that. Job job. Job security. The job of being the head of the. I enjoy that. It was. Yes I did. I mean it was you know sometimes in the in the thick of it. It's it doesn't feel enjoyable but it was incredibly challenging. It was. You know there was a lot going on which is the reason why an outsider came in. So yes I did enjoy it. Was it more fun to be the head of the central bank of Canada or the central bank of England. I would say it was with the challenges were much greater in the UK. You had an institution that had been totally transformed. You had a financial system that I mean was at the epicenter of the problems and had to be fixed. You had the elements of Brexit or ultimately was Brexit the Scottish referendum. You had a big management challenge. You know so it was. You enjoyed it. I enjoyed it. So you would recommend that job to anybody that gets offered it. Right. I did recommend it to I recommended it to a number of people. We go back five years ago. Clean energy investment. So that's wind solar battery storage and let's say EV charging those types of things. About 500 billion worldwide dollars spent last year. One point two trillion this year. One point eight trillion. That is one and a half one point six times what we're spending on conventional energy investment. So you step down from the central bank of England and then you ultimately become the special envoy for you. And now you're the chairman of Brookfield Asset Management and now to be the chairman of Bloomberg. What is Brookfield Asset Management. So Brookfield Asset Management is and Brookfield as a whole is one of the world's largest alternative asset managers. The asset management business is the capital light bit. So this is where the twelve hundred plus investment professionals of Brookfield reside. We oversee the investments that have 200000 operating professionals. And it's a business that invests effectively in the backbone of the global economy. So that means renewable power. One of the real estate investors in the world. One of the pioneers if not the pioneers of infrastructure is an asset class. One hundred and sixty billion under management in infrastructure and that's everything from energy infrastructure to data infrastructure big private equity business and a very large private credit business. Now you have many jobs. Currently you're not the head of the central bank in England anymore or Canada. But among other things you're the special I guess advisor to the U.N. Special Envoy U.N. on climate change. All right. That's correct. On climate action and finance. All right. So what is what does that really mean. What are you doing. You're telling the people in each country they should go more electric or don't burn as much oil or what. It's really about. So a lot of if there's a common theme to my career it's working at the intersection of public policy and private markets. So a lot of that in central banking that's what you're doing. And that's what I'm doing is this special envoy. And really it's to organize the private financial system to be ready for climate change not just the physical impacts of climate change but to be part of the solution to be able to provide capital get capital to where it's needed to get emissions. So in this this position which I assume is probably an unpaid position. Very much so. You know people are looking you all the time. So you're the special envoy for climate action. Can you can't fly in a private plane so easily I guess. Right. Then do you take public transportation or you can you drive your own car if it's an oil and gas car or not. Well I have. It might not surprise you have an electric car as you would expect. And most of the time that is charged in Quebec. I live just on the border with Quebec. And that's therefore are you kind of a power. Are you conscious people always looking at you as a special envoy saying you know he's using too much. He's got too big a carbon footprint or you don't worry about that. Well no people look people will make that particularly if they don't want to confront the tough issues around climate change. The big blocks of what's actually going to make a difference. Go to you know what anything you're wearing. You know there's plastic on my watch strap and therefore there's an element of hydrocarbons in that. And if you have an oil and gas investment that comes to an investment committee and you're the special envoy you have to recuse yourself. Or how do you know. Well we have a very very clear approach at Brookfield. As I say we're one of the largest renewable energy providers and we are systematically going through our assets to ensure that as much as possible they have business plans that are consistent with the transition towards net zero. And and we do that first and foremost from a fiduciary perspective. We see being low carbon or lowering your carbon footprint to put it that way is one of the fundamental drivers of value in the market. And I have to say we're being proven right. We know in real time that the mapping of the temperature increase to the extreme weather events is worse than we thought 10 years ago. So actually the goal even though the goal is getting tougher to get it's becoming more important to get there. And the third thing we know is the mapping. You can map specific actions to specific emission reductions and it can become very clear whether you're making a difference on that. And what we've seen I'll make two points if I may on that. One is we go back five years ago. Clean energy investment. So that's wind solar battery storage and let's say EV charging those types of things. About 500 billion worldwide dollars spent this year. Last year 1.2 trillion. This year 1.8 trillion. That is one and a half 1.6 times what we're spending on conventional energy investment. And that's starting to move. You can see in real time what's happening in terms of emission reduction solution emission reduction. And as well you know from a financial we're at Bloomberg you know and talking a bit about Brookfield as well from a financial perspective. First off the numbers are huge in terms of you know the action is in the clean not in the conventional. Secondly the information set around whether or not a company doesn't matter what the industry is could be tech could be motor whatever services. The information about what your carbon footprint is today and where it's going is exploding. So you can tell who's part of the solution who's part of the problem. And that is driving value. Some of the emerging market countries say well wait a second. You guys in the United States and Western Europe you had a century or so to pollute as much as you wanted. Now you're asking us as we're emerging to give away the right to use some of these same kinds of fuels that you use. It's not fair they would say. What do you respond to that. Well it's not fair. Unfortunately the disproportionate impacts of climate change will also fall on those same countries and the people in those countries. You know Africa is 17 percent of the world's people 3 percent of the world's emissions run rate. But you know you know hundreds of millions of people will be in uninhabitable climate if we don't get this. So we've got to all get together and deal with it. First point. And then the second is that now given the progress that has been made in the economics of wind solar stores particularly they are becoming the low cost solutions for those countries as well. You have an electric car. You said you drive electric car. Right. So some people say electric cars are not perfect in the sense that they get the minerals you need for some of their batteries for example. You have to do a lot of mining of things and that is not great for the environment either. But on the whole you would say electric vehicles are infinitely better than carbon. Well here we are. Combustion Bloomberg and I can reference BNF research on this which they actually show depending on where you are where the crossover point is that your electric car net impact on the environment is where it's better than internal combustion engine car. If you're in places like Canada where you've got a lot of clean power 85 percent of our power is zero emission in Canada. No plug for Canadian manufacturing there by the way. And the the crossover is about 18 months. If you're even if you're in China where you have instilled in the installed base a lot of coal it's well I'll have to check on the BNF and check the number but it's around five years. So and that includes the embedded carbon from all those processes. For somebody who's watching it says I'd like to be like Mark Carney successful at almost everything he's touched. Maybe maybe not hockey perfectly but pretty good. What was it. You hard work. It's just being good genes. You know just smarter than everybody else. So what is it. What do you think it is that enable you to do all these things. And you're still a very young man by my standard. You're 58 years old. That's a teenager to me. So so how. So what do you think made this possible. Well look luck is luck is a huge element of it without question. You make your own luck to some extent if you're doing things that you like and you care about. So you're around opportunities. You know I wouldn't have been governor of the Bank of England if I hadn't wanted to be in public policy and was the governor of Bank of Canada for example. But I at least in my experience maybe with my genes where I think you can't get away from hard work.