Graduation Season

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In this episode, Larry Wieseneck, Co-President, Cowen & Company speaks with David Erickson, a former colleague and a Senior Fellow at Wharton Business School. They discuss returning to the office, being adaptable and flexible in changing circumstances, and taking ownership of your career. They also speak about how emerging technologies such as electric charging, cybersecurity, ride sharing, eCommerce, restaurant online ordering, and online education are solving problems and are creating new industries. Lastly, they speak about major ESG themes in the next year.

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Transcript

Speaker 1:                       Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Larry Wieseneck:            I’m joined again by my good friend and former colleague David Erickson, a Senior Fellow in finance at the Wharton School of Business. And this is Larry Wieseneck, co-president of Cowen. As we record this on May 19th, 2021, we’re in the full swing of graduation season for many students and families. And we wanted to start by talking about that tremendous milestone, as well as where we see the future in terms of jobs, industries, and opportunities in the emerging and innovative sectors that we specialize at here at Cowen. With that, let me turn it over to my good friend, David.

David Erickson:                Thanks, Larry. As you mentioned, in terms of graduation season is upon us. And when my seniors, my graduating seniors, or my second year MBAs came this spring to ask me for career advice as they look to start their jobs, I usually start with put your head down and learn as much as you possibly can as you get going. Obviously, Cowen will have a number of graduates starting soon, what advice do you have for them?

Larry Wieseneck:            Well, I say first of all, on behalf of all of us, congratulations to all the graduating seniors, and that extends not just to those graduating from college or from graduate schools, but also those from high school and such. It’s a special time for anyone as a graduate, and of course their families, and maybe a little bittersweet because of the past year we’ve been through. But hopefully, they’re going off to a future in a returning normal. And again, we’ve been careful to use the term now, it’s not about going back to normal, it’s not even next normal, it’s about a process of reemerging. And so, I think for all the graduates, what I’d say is welcome to the new world that you’re going to be entering, and let’s think about what lessons we have from the past to help us navigate this new future that you’re embarking on.

                                         I guess the first thing that I’d say is I agree with you when you say you start put your head down, learn as much as you can. That’s certainly the advice that we give to our incoming young professionals. Nobody really can know at, again, if they’re coming out of undergrad, at 21 or 22 years old, if they’re coming out of a business school degree, maybe they’re in their late twenties, early thirties, hard to know, in fact you shouldn’t know, what exactly your career is going to develop into. But in your first roles, there’s no question it’s about accumulating knowledge. And I like to think that those that come out of rigorous educations, more than anything else they’ve learned how to learn. And what I think young professionals need to do is continue that learning in their new job.

                                         It’s a lot easier if where they’ve selected to work happens to be in an industry or in a function that they really enjoy, they have real interest in. I think it’s very hard. We often see people take on roles they think they’re supposed to do either because society’s told them that, their families have convinced them of that, their friends have, that tends not to work out really well. And so, one of the things I would definitely say to people is make sure you’re pursuing something that you’re going to enjoy the domain that you’re working in, because that puts you in position to learn both directly and by osmosis from the people around you and from the experiences. If you’re in a field that you really don’t think you’re going to enjoy, it’s probably going to be short-lived and you’re probably not going to learn all that much. And so, those would be my top of the waves kind of thoughts.

David Erickson:                Right, yeah. And I say the same thing. Don’t do what’s hot today, because what’s hot today tends not to be hot tomorrow. And if you don’t really enjoy what you’re doing, it’s going to be short-lived in that regard. This graduation season, as well as last year’s really, due to the pandemic, still really wasn’t normal. I know Penn still had a remote graduation. I know some people were able to have in-person graduations, but there’s been a lot of press recently, especially in the last year, about being a record year for Wall Street, as well as the velocity of work increasing, with no travel and no commuting and mostly Zoom meetings, it’s really had an impact on the juniors on Wall Street. How is Cowen trying to help their juniors adapt as well as those coming in, joining the firm shortly, post-graduation?

Larry Wieseneck:            I love the fact you used the term adapt, because I think that this really is about adapting and in many respects giving tools to all of us. By the way, you asked the question about juniors and new joiners, but I’d say it’s equally applicable to the most senior professionals. None of us anticipated a world where we’d spend 14 to 15 months with almost no contact with our actual physical offices or with clients, and instead, we’d be doing 95% of our work via technology.

                                         And so, the way that we’ve thought about this has been we’re going to be in a process of return. And as I said a few moments ago, what we’ll be returning to will not be what we left in February or March of 2020, it will be different. Some people have said we’ve accelerated five years of technological gains and changes in the way we operate in a one-year period, right? And we’ll talk a little bit later maybe about some of the industries that have participated in that. But for our industry for sure, we’ve changed the way we work. You reference Zoom, I’ll say we use Teams and other products like that a lot more. We have more sharing of information, because we’ve had to.

                                         When we talk about going back to the office, the key word that we’ve learned, and I’d say we’ve learned it from our people, has been flexibility. We found out that certainly for our team, and I’m going to guess that we’re probably fairly similar to most white collar working environments. So I can’t say this necessarily is applicable to some of the roles that are much more tied to the manufacturing world, et cetera. But for the knowledge industries, our professionals have said they’ve enjoyed the flexibility, right? They’ve enjoyed being able to do things from home, see their families more. Sometimes it’s simple as not commuting.

                                         At the same token, in a poll that we did internally, we found the number one thing people don’t like about working from home is they don’t like the lack of boundaries between work and an office. So there’s a paradox there. They like the flexibility, the lack of commute, maybe even the working in their pajamas sometimes, dare I say, but they also miss the contact with their peers, the contact with clients, and having some separation. So what we’ve been thinking about, and we actually have engaged our juniors directly, we’ve put together a council representing our analysts and associates to give us direct insight, in addition to surveys we’ve done, on what we think the future should look like so it actually fulfills their desires.

                                         Question one was what should people be trying to get out of a job? Well, we think one of them is if they feel that they have ownership, you’re part of the solution, well, then people are going to be a lot happier in their workspace. So we’re definitely talking about adding in the fact that we probably won’t have five days, Monday to Friday, in the office every day being required anymore. The office will be our home base, but that’s what it’ll be, it’ll be a home base. And in a hub and spoke, the spoke is going to be all of our remote locations.

                                         And that might mean for an analyst or an associate, that one week on Friday they work from home, the next week if they’re going away for the weekend to, we’ll say whatever, Marin County if you’re in San Francisco, or you’re going to Sonoma, maybe you leave on Thursday, you work on Friday remotely from the hotel you’re going to be at. We think that’s going to be a part of our workspace going forward, and that’s one of the ways that we’re trying to make sure that we build in the flexibility that our juniors have really enjoyed during this period.

                                         We also are definitely exploring something that we didn’t anticipate, but during COVID, people just didn’t take vacations. One of the reasons was they couldn’t go away anyway, where were they going? So they worked from home and people felt like, “Well, I’m going to take a vacation day to sit in my house all day?” So they didn’t take vacations in the way that they should have. And so, we’re going to be instituting oversight of things as simple as vacations. People can’t go six months without taking vacation days, and that’s going to be something that our HR working with our senior management are monitoring, and people will be told just like anything else, “Okay, when’s your vacation days? You got to take a vacation the next three weeks, four weeks.” Because we want to make sure that everyone has the opportunity to get a health and wellness break, they deserve it. It’s important.

                                         And so, those are some of the things we’re doing very tactically to address what we think is this challenging time of moving back into the office at the same time we’re going back to society. And we’re also mindful of that, right? For some people, it’ll be the first time they’re going to restaurants, the first time they’re getting on public transportation. And so, the last thing I’d say there for all our employees is we’re not racing back, we’re doing baby steps first. I’ve used the example of it’s like a sports team having offseason exercises. Then they have things like spring training, where they start practicing, and then they start the regular season. We’re not going to get back to the office, all people, et cetera, for some time, but we’re going to be doing things that exercise our muscles to get used to what it’s like to go back to the office.

David Erickson:                Right. Yeah. Especially not just the junior employees, but those that graduated, plus all the ones that have to relearn those muscles, as you say, in terms from a work…

Larry Wieseneck:            It’s everyone. Honestly, this is just as applicable for our juniors as it is for the most senior professionals. We’re all going through this together, but we’re mindful of the hot buttons that younger people have versus older people versus… Another one is there are hot buttons for folks who have young children and that’s different. And we have to make sure that we help them navigate it too.

David Erickson:                So when both of us graduated college, God, those many years ago I guess, some of those industries and companies to work for then don’t even exist now, right? As you look forward, I mean, Cowen works with lots of interesting companies across emerging sectors from ag tech to biotech to all the areas related to renewables and clean tech. As you look forward, what do you think are going to be the most interesting sectors over, let’s say, the next 10 plus years?

Larry Wieseneck:            Well, it’s amazing. First of all, you age us when you’re talking about when we were in college. The interesting thing that we found, in particular the last three years as we’ve increased our focus on the disruptive forces across all sectors, is I’m not so sure that the sectors change, it’s rather who’s solving the problems within those sectors that change. It reminds me of the learnable moment that almost every business school student goes through of looking at the Kodak case study and recognizing that Kodak had the technology to do digital photography 20 years before it came out, but they chose not to embrace it because they didn’t want to eat up their film business. And I think that’s really the message across almost all this disruption, it’s that new technologies and new ideas combined by bright minds, because bright minds are the ones who see around the corner and say, “Wow, this is a problem. There’s technology out there to solve it if we add X and Y with B and A, and we come up with a different business model.”

                                         And so, if I think about the things you even asked about, let’s start with healthcare, mentioned biotech. Healthcare is going to continue to be probably the or the second largest industry for decades to come, right? We live longer, we fight more disease, et cetera, but who the winners are in those spaces will continue to evolve. And so, I think biotech hasn’t yet scratched the surface of the opportunities and there’s [crosstalk].

David Erickson:                Do you think the FDA process with what we saw in the pandemic, do you think that’s going to evolve? The fact that they were able to come to market relatively quickly, obviously in an emergency situation, do you think the FDA is going to adapt their processes to make it more market sensitive? Go ahead.

Larry Wieseneck:            Not being a biotech or a healthcare banker myself, but obviously we at Cowen are very deep in that. What I’d say is part of the reason why we’ve seen such growth in biotech in the first place, even prior to what we saw with the vaccines, et cetera, is the FDA has already significantly simplified things up. The last administration, in particular the chair, put in a lot of changes that made the ability to move through the process quicker accessible. And that only got accelerated in the emergency use authorization for the vaccines. I think we’ll ultimately go back to where emergency use is for emergency use. I don’t think that will stay there, but I do think maybe the better path and the one that’s more accessible in general to get drugs out faster, et cetera, is the burgeoning tools and diagnostics sector.

                                         So part of the reason why companies are able to target certain opportunities faster, know what indications are more likely to work, and then use code or think of it as think of the tool space often as it’s applying software tools to the drug discovery. That combination has significantly both increased the time to narrowing down the solution set, but also what it’s done is it decreases the failure rate. They’re more likely that their shots on goal will be successful, because they’re not just doing it in the lab, they’re using technological tools to say, “Focus on these three opportunities.” There’s no question we talk about sectors, tools and diagnostics is a sector that is just burgeoning and unbelievably exciting today.

                                         Synthetic biology, which is a related portion there, where again, we’re using new technologies to allow us to create in the Petri dish, so to speak, that which might be a limited resource, but to solve important problems. It started with healthcare and drugs, but we see that now running out into consumer products, into technologies, where our knowledge of cells allows us to actually create things that in the natural universe either uses up too much resources or maybe you just can’t replicate, because we’re running out of those resources. So those are areas that are really exciting.

                                         I will say, you also mentioned ag tech as part of your question, if I were to point out the two areas that I think are just unbelievably exciting in general outside of healthcare, I’d say everything in the sustainability ecosystem. And that’s going from the electric vehicles, over to ag tech, over to food supply issues. We are at a point now, as we talked about in our last conversation, where it is now economically viable to have a business that is only focused on delivering solutions that use up less resources. And that’s, to us, what we mean by sustainability. Huge opportunities there for, again, the young graduates coming out to build a career.

                                         And then the other one, mostly driven by engineers, because if you don’t have that skill set, you’re not going to be able to do much there, but we’re just years away, I think, from where true deep learning and machine learning companies can have a huge impact. We’ve seen a few of them, data-focused companies like Palantir, but we see a burgeoning opportunity there, as well as in robotics and automation, where software and hardware come together to actually do things that are hard for people to do and do them better. And so, all those are areas of it’s not just the next decade, I think decades long opportunities for the economy.

David Erickson:                Yeah, no question. So just to shift gears for a second, we’ve obviously had a pretty significant event in the markets, especially as it relates to the East Coast in the last couple of weeks with what happened with the Colonial Pipeline. Obviously, people on the East Coast are acutely aware of the potential disruption with reliance on the oil and gasoline infrastructure for both, whether it’s personal or commercial transportation. I know Cowen spends considerable amount of time in the alternative energy space or the energy transition space. How do you see technologies like biofuels and electric and hydrogen all evolving as we go forward?

Larry Wieseneck:            So the first thing is the number one message I think to society and to industry from what happened to the Colonial Pipeline is that just enormous risk from a cybersecurity standpoint. While it happened to be a pipeline, you can’t just jump and say, “Well, if we had electric instead it would be better,” because that could have been the grid. They could have shut down, theoretically, the Northeast electric grid, in which case gasoline would have been better and your electric car couldn’t run, like we saw in Texas a few months ago.

                                         So I think the first message there is how important cybersecurity is for everything we’re talking about in the future. And the more reliant we become on technology for solutions, the more important the safety is there. And I think we’re going to have to look to the governments around the world to really come together on a protocol for dealing with these cyber risks, because I don’t think you can solve it. The Chinese can’t solve on their own, we can’t solve on our own, the Russians can’t solve on their own, but there’s got to be a price to pay, and a real one, if you allow cyber warfare. So that’s just a personal view that I think is important.

                                         When we go to energy transition, I think that almost in the way you asked the question, you answered it, which is it’s all the above. I think that we’re going to end up in a world of a balance between a number of different technologies, some of which will be better for different types of solutions. So the way we fuel the home may be very different from the way we fuel an automobile, may be very different than how we fuel an airplane, but they’re not all going to be reliant on hydrocarbons, only right now they are, right? Again, natural gas, oil, jet fuel, all come from hydrocarbons. So I think that in this evolution, and that’s what it is, it’s a 30 to 40-year evolution away from a dependence on hydrocarbons, all the various opportunities that we know of currently will play a role.

                                         The one that I think is most exciting near-term to most people, which is electric, has its own risks. We’re seeing it right now, where we’re close to a number of companies, they’re doing electric charging stations and building that infrastructure. If New York City tomorrow basically banned gasoline-powered vehicles, there’d be no cars on the road ostensibly, because there’s not nearly enough electric charging infrastructure in New York to allow for that. And we don’t have enough load in New York City, Con Edison couldn’t deliver enough power locally to actually fuel those cars, right? So what it means is there’s a huge infrastructure need to get to that future of electric being dominant, hydrogen, hydrogen electric alternatives, and then biofuels, there’s infrastructure needed there as well to make that truly viable.

                                         So I think this is going to be a combination of a public private partnership over time, with the public having to be a part of this, and building in components that are for general use. There’ll be companies emerging out of monopolies. I mean, if I make the investment on building out the electric grid, let’s say, for charging in city of Chicago, how do we get reimbursed for that? If I put the money up, do I control? Those are the kinds of questions that still have to be determined, but it’s clear that’s our future. It’s a future that’s a combination of all the above. And we won’t know that’s dominant until down the road, and government’s going to have a say in that. Because if the government really leans in and says, “Electricity is the answer,” it’s going to be a lot harder for, say, biofuels to get their go, because the subsidies might be in electric side. So that needs to be worked out.

David Erickson:                Right. So we’ve talked about the return to the office, probably happen now that most people, or not most people, but a number of people have gotten their shots, and the restrictions from the CDC on mask wearing and stuff are changing. It seems like it’s going to be in the next month or so, or the next few months, that people will be transitioning back to the office. Before the pandemic, there was significant trends in ridesharing and micromobility, do you see that reemerging or reaccelerating now that we’re transitioned through this period in terms of the pandemic?

Larry Wieseneck:            We do. And I actually should be more aggressive, we definitely do, and I think it’s because of a few things. One is the trends were already on that side, because as the younger generations take their rightful place as an economic force over time, they’ve got different interests than, say, those they’re replacing our age or older. Our generation was used to owning lots of different assets. The next generation is more focused, at least currently it seems, based on all the data, on experiences. And so, they’d rather collect experiences than collect assets. Ridesharing and micromobility are 100% at the core of that if you think about the solution it provides. It says, “Why would I want to own three cars, if I’m a suburban family, to have them sit in a driveway 90% of the time when I could actually find the exact type of ride I want at any moment through a sharing situation? So it delivers a better customer experience, and I don’t have the cost nor the dust being collected of actually owning the asset myself.”

                                         And so, I think that both those trends were there. It’s accelerating now though, because more people have experienced that. And so, I think that what we’re going to see is, as people come back to work, an acceleration of both those themes. And then you throw in that in the cities it’s going to take a while for people to get used to public transportation. And that’s going to lead to, unfortunately, I think it’s not great for the environment, because right now they’re not electric, most of these opportunities, they’re still mostly hydrocarbon. We’re going to see an increase in traffic, et cetera, because of the use of more of these alternatives that over time as they become electric, obviously, that becomes more sustainable. So definitely.

David Erickson:                Similar to that. And we mean last year at this time, we were pretty reliant on e-commerce, whether it’s for our shopping or even take-out delivery for dining. And again, now with the vaccines and the various masking rules changing, people are now wanting to shop in person and renew their lives as it once was and dining in person and almost, hopefully, going back to normal. When you talk to clients in the consumer sector, what do they expect in the next few months and really the rest of this year?

Larry Wieseneck:            Like I answered earlier when I talked about what I thought the future sectors were, I said it’s really not about the sectors changing, it’s about who solved the problems. The genie’s not going to go in the box here either. Meaning that the digitally-enabled solutions are going to be huge enablers of the consumer-facing companies going forward. Those who embrace technology, let’s take a restaurant, the example you used, they’re going to be able to figure out the right balance between their take-out services, their delivery services, and their in restaurant experience. The one thing they’re not going to do is stop using data and stop using technology to fuel them. So it may be that what before was during the pandemic, they moved to an online and app-friendly environment for ordering, that may be now how they do all their bookings for restaurant space. Better experience for the customer, maybe they even get to pick their table. We’re seeing people thinking about those kind of things.

                                         So I think that demand will determine what in restaurant versus out is. One thing for sure, profitability will go up though, because with that data, I can now, if I’m an owner of a restaurant chain, I can target people, I can have things like special Tuesdays or whatever it might be. And I know from the data that David Erickson is more willing to buy tacos on Tuesday than Thursday, so I’m going to basically market to you that way.

David Erickson:                Tacos every day for me, actually.

Larry Wieseneck:            But I do think that it puts more pressure than ever on the mom and pop. If there’s one theme that I think is playing out is COVID showed us that the ability to afford the digitally native components and embrace it is a key differentiator from those who are able to balance or not. I am afraid that the trend that had been going on for many years, where mom and pop restaurants, stores, et cetera, being squeezed out by either larger chains or by digitally native companies, I think that’s likely to continue with one exception. When you get to the luxury end of everything, whether it be luxury branded product, whether it be the high-end restaurants, there is always a place for that high customer service. And generally, family-owned businesses, et cetera, are just better at delivering that customer experience. And so, there’ll be niches where that can be delivered that way, understanding that, of course, some large chains are also great at customer experience. That’s the battle, I think, ahead, is serve the customer.

David Erickson:                Last question, recognizing you got to get back to what’s going on in the market today given the turbulence. As I look back over the last year, besides the pandemic, one of the biggest themes in the market was the real emergence of ESG, whether that’s the excitement of the electric/alternative energy space, to the social awakening, reawakening in areas from investing to governance. What do you see as one of the potential big themes as you look forward to the balance of 2021 and really the early part of 2022? So for the next year, say.

Larry Wieseneck:            So I guess this is a great time to introduce at least a way that I think about ESG. I don’t think they’re equal in their waiting at any one point in time, and depending on a corporate situation or one investor’s view, they may have put greater emphasis on one or the other. I think the reason why the environmental is and, I think, will continue to be the biggest theme for some time is that businesses that are solving problems with resources, and are therefore helping on the environmental-related issues, while they’re doing that, they’re also solving a social challenge. Because so many of our environmental challenges disproportionately impact those that are disadvantaged or are not in the strongest position. So our view is certainly the easiest way from an investible theme and the easiest business models to attack are the pure environmental ones. So I think, again, if we have to say for the next year, I think that continues. We’re still early in that emerging.

                                         I think on the social space, what we’re starting to see though is, and it’s this clear second place, is all of a sudden this acceleration of things like online learning has meant that new education programs that really even the playing field between the haves and the have-nots are starting to become truly scalable. And so, there’s lots of questions regarding… Sorry, because I know your employer might not love this, but what is the value of the on-campus college experience or business school experience or law school experience? That goes into the S, because if I can create access, no matter where people are, to a world-class MBA experience or world-class legal experience, then maybe students don’t have to actually pick up from where they are, have the expense of moving, and for some people that would be better.

                                         And so, we’re seeing lots of online education from pre-K all the way to the elderly learning languages, learning new skills, coding, et cetera, and that’s core in social. And so, I think that we’re going to start seeing more social-oriented businesses being developed post-pandemic, as lessons learned, like that. And so, if I had to pick the second theme, it would be this emergence of real business plans attacking some of the social injustices to even the playing field through skills and knowledge. So hopefully that answered your question.

David Erickson:                Yeah. That’s great, Larry. It was great to catch up again. Thanks so much for the time. Look forward to our next conversation.

Larry Wieseneck:            Thank you again, David, for participating with me and coming up with such great questions. Look forward to next month.

Speaker 1:                       Thanks for joining us. Stay tuned for the next episode of Cowen Insights.


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