My Climate Journey

Ep 57: David Burt, CEO & Founder, DeltaTerra Capital

Episode Summary

Today’s guest is David Burt, the CEO and Founder of DeltaTerra Capital and the lead Portfolio Manager for DeltaTerra funds. DeltaTerra provides proprietary financial models, customized portfolio analysis, and unique hedging strategies that enable highly informed climate risk management for asset owners and investors. Fascinating discussion about what Dave learned from being involved in The Big Short, and is now applying to what in his view is the next big short - mispriced real estate assets due to not properly factoring in climate risk. Enjoy the show!

Episode Notes

Today’s guest is David Burt, the CEO and Founder of DeltaTerra Capital and the lead Portfolio Manager for DeltaTerra funds. DeltaTerra provides proprietary financial models, customized portfolio analysis, and unique hedging strategies that enable highly informed climate risk management for asset owners and investors.

Before founding DeltaTerra, David was a Partner and Portfolio Manager at Wellington Management Company. Prior to Wellington, he built investment processes at BlueMountain Capital, AlderTree Capital (a 2006 startup he founded to bet against the mortgage credit bubble), BlackRock Financial Management, and State Street Research and Management. He began his career as a Real Estate Economist at Property & Portfolio Research, Inc. David has spent 22 years applying his imagination, synthesis talents, and quantitative skills to help institutional investors get the most out of their real estate and structured finance investments. David has been a CFA charter holder since 2002 and received a BS in Mathematics, with a minor in Economics, from MIT in 1997.

In today’s episode, we cover:

Links to topics discussed in this episode:

You can find me on twitter @jjacobs22 or @mcjpod and email at info@myclimatejourney.co, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.

Enjoy the show!

Episode Transcription

Jason Jacobs: Hello everyone. This is Jason Jacobs, and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests, to better understand and make sense of the formidable problem of climate change. And try to figure out how people like you and I can help.

Today's guest is Dave Burt, the CEO and founder of DeltaTerra Capital and the lead portfolio manager for DeltaTerra funds. Before founding DeltaTerra, Dave was most recently a partner and portfolio manager at Wellington Management Company. Prior to Wellington, he built investment processes at BlueMountain Capital, AlderTree capital, which was a 2006 startup he founded to bet against the mortgage credit bubble. BlackRock financial management, and State Street Research & Management. Dave began his career as a real estate economist at Property & Portfolio Research, Inc. After having a front row seat to the big short, Dave has identified that there's a similar opportunity in real estate where there's a big chunk of assets that aren't properly factoring in climate risk, and are therefore short opportunities. Informed by advanced climate risk impact metrics, the fund provides asset owners and other investors with a cost effective and timely solution for hedging against major value corrections in real estate markets.

This is a fascinating discussion. We dig into the business opportunity here. What makes Dave so sure that this is the short opportunity that he thinks it is. We talk about the implications if he is wrong, the state of the state in terms of climate change and how to think about the problem. And also the ethics of essentially profiting on other people's peril. I think it's a great discussion and I hope you enjoy it. Dave Burt, welcome to the show.

David Burt: Thanks for having me, Jason.

Jason Jacobs: Thanks for coming. This is a different kind of episode. It's funny. The My Climate Journey monthly newsletter that I sent out, it's almost like a fishing line. It's like you never know what it's going to drag in. And yeah, I never thought I'd be talking to someone that's building a hedge fund. But the more that we chat in our initial coffee, the more I thought man, coming at it from a different perspective, but super relevant stuff. So excited to have you here to talk about it.

David Burt: Thanks. I'm happy to be here. I think you're engaged in a pretty interesting journey. So happy to help out along the way.

Jason Jacobs: Yeah, it's an interesting journey. It's an interesting time. I mean there's so much change that's on the horizon. I think some of which is visible on the surface and some of which the more you dig in, the more it just becomes clearer is coming. Whether it's visible to the naked eye or not. So it's an interesting intellectual exercise to go through and learn about this stuff, but it's also just important. Or at least it feels that way to me.

David Burt: Yeah. I mean for me, it's a fascinating changing world. We're witnessing some really interesting, potentially really impactful changes to the environment through climate change. And I think it's the right time to get involved with it. There's people who've been looking at this for 20 years. But at this point, it's really starting to hit home to people on a day to day basis a lot more broadly. And I think people are a lot more willing to engage and potentially impactful exercises that could result in a better outcome for the world and humankind. So I'm in the midst of a similar journey. So happy to share some of the details of that with you.

Jason Jacobs: Yeah, I mean, it'd be great to understand what you're up to, and it'd be great to understand how you got here. So pick one of those, and tell me about it. And then we'll hit the other one next.

David Burt: Sure. Well, what I'm up to right now is I just launched an investment research and management firm called DeltaTerra Capital. The objective of the firm is to help investors and asset owners protect themselves against the financial risks presented by climate change.

This is really a continuation of a 20 year career that I have looking at real estate investments, and related securities as an institutional investor. So specifically, I've been building investment processes to help identify the intrinsic values of different types of investments, such that I can buy cheap securities for clients and sell rich securities. And hopefully generate alpha to help them accomplish their investment objectives.

So historically, my clients and former roles, and I've built investment processes at big firms. BlackRock, BlueMountain Capital is a relatively large hedge fund manager in New York. And the last nine years I've been at Wellington Management right here in Boston. Essentially deploying these opportunity identification and risk management processes. Again, on behalf of large capital institutions like insurance companies, pension funds, mutual funds, and of course hedge funds.

Jason Jacobs: And if you go into Google and you Google David Burt Big Short, what comes up and why does that come up?

David Burt: Sure. Well, it will probably come up that there's a few mentions of my name in the Michael Lewis book, The Big Short. And that comes up because I was fairly intimately involved in the creation and development of a market credit default swaps on mortgage backed securities back in 2004 through 2008 period.

So essentially, my journey started at small firm called property and portfolio research. And this was following MIT education in math and economics, which is probably where I picked up my appreciation for science. I grew up on Martha's Vineyard, which is probably where I picked up my appreciation for the environment.

Jason Jacobs: You said when we were chatting before we started recording, 13th generation?

David Burt: 13th generation Islander. Yeah.

Jason Jacobs: Crazy.

David Burt: Yeah. So we have a lot to lose in terms of my family history, if coastal regions get really poorly impacted by this phenomenon. So that is again, probably the genesis of some of my appreciation for the environment. And I've always been interested in science and its application to understanding problems of the world, problems for society. I think my focus on financial services is really a result of that. Is wanting to blend my interest in science and mathematical acumen with real world problems in culture and society. So economics is really to me the expression of that. How is capital moving about to make lives better or worse for people? And being involved in institutional investing is really the penultimate expression of that I suppose.

So how I got to the big short days, I started out doing research and advisory work in real estate markets. A firm called Property & Portfolio Research. There we developed forward looking estimates for property cash flows in different markets and different property types. So we would project for instance, the net operating income for office buildings in Seattle. Or cap rate projections for apartment buildings in Portland. That was sort of the widget of the firm. I took those and applied them to the different types of capital markets that were available for investment.

So the most complex of these and probably the most mathematical, is an area of the financial markets called structured finance. Which is essentially the process by which a group of small assets are packaged together and then the cash flows are the results from those investments or those asset opportunities are pooled together, and then redistributed based on a set of rules that help the investment to become more attractive to a broader variety of investors.

So that's a complicated way of describing market, but it's known as the mortgage backed securities market is the biggest of the securitized markets. And structured finance usually pertains to things where people aren't sure about either when they're going to get their money back, which is typically what people think about and what are called agency mortgage backed securities. Which is the big mortgage market that's guaranteed by the agencies Fannie Mae and Freddie Mac. And the securities that you don't know either when you're going to get your money back because there is no, you're not sure when borrowers are going to prepay their investments, their loans. And you're also not sure if you're going to get your money back because borrowers could default on their obligations. And that mortgage backed securities market is known as structured finance.

So that's where I really found my way and career. Again, with my interest in mathematics and engineering, this was a really interesting place to sort of flex my expertise into understanding something that was really relevant in markets.

And that took me to an area of the market called commercial mortgage backed securities, which was again the pooling of commercial loans into these structured finance obligations. One of my clients at the time was a firm called State Street Research & Management. Again, right here in Boston. And they hired me to build out a similar process that I had developed for helping them to look at their commercial mortgage backed securities risk in a new growing part of the market called subprime mortgages.

So that's where that whole journey began. It was somewhat of a separate journey. There's a lot of parallels to what I'm up to now. Because ultimately, my investigations into those markets revealed that there was a huge amount of mispricing related to essentially a big misincentives issue in the markets. Which were people were getting paid essentially based on how much product got originated versus how well the origination ended up performing in the future. So that ended up allowing for a lot of things to get created that probably shouldn't have.

So that was probably the biggest, the first big market-wide mispricing that I identified through my modeling work. And I did go off on my own following a brief stint at BlackRock who had purchased State Street Research & Management, to try and build an investment advisor that could help protect financial institutions and investors and asset owners against a collapse in the mortgage credit bubble in 2006.

Jason Jacobs: I think what's coming in this story, and correct me if I'm wrong, is that after going through that experience and building those models to identify these mispriced assets. You just mentioned briefly or alluded to that you're noticing similar as it relates to real estate and climate risk, correct?

David Burt: Yeah, exactly. So this is a kind of continuation of this process of trying to identify what impacts the value of these investments. And in the last three or four years, I've been incorporating projections for inclement weather events that are coming out of the scientific community. And we've got a much more robust toolkit for understanding the implications of greenhouse gases on the probabilities of severe weather events. Including sea level rise driven flooding, storms moving slower, having higher wind forces, larger precipitation amounts. As well as wildfires. All of these types of increment events should weigh in to the valuation of a property. And when you're thinking about a property, you tend to think of how much revenue can it generate? Or I guess in the case of a single family home, you're thinking of how much utility via shelter am I getting to get out of this property? And on the other side of that, there's the costs associated with maintaining that property.

So just by making some very brute force assumptions about how much those costs are likely to go up as a result of increasing severe weather events, you find that a large swath of real estate investments are mispriced. So again, that's the parallel to the sort of big short story that I experienced, 2005 through 2008.

Jason Jacobs: And I definitely want to come around and talk about that. Before we do, one thing I've always wanted to know is, so before you started heading in this climate direction, just you look at your career to date and you talked earlier about buying low, selling high, and generating alpha, right? And that's essentially, I mean there's a lot of complicated things that go into that. But that's kind of the primary duties and measurement of success, right?

David Burt: Absolutely.

Jason Jacobs: How does purpose fit into that? What motivates someone to do that for a living?

David Burt: Yeah. I mean again for me, it was how do I say use my skills to the greatest degree of impact possible. And of course there is some idea that if you find the best way to exercise your skills, then you'll also be rewarded with things like a strong career trajectory and compensation. So that's part of it. But it's also just day to day. It's what I enjoy doing. These ultimately become big puzzles, and I'm a puzzle solver.

Jason Jacobs: So I get that you want to be the master of your craft and I get that it can be very lucrative if you're successful. Where does it fit in, in terms of the overall world? And I don't even want to talk, before we even get to the climate stuff. Does that whole mindset of buying low and selling high and generating alpha, and that whole system. Does that make the world better?

David Burt: It should theoretically. Okay. So the theory is that efficient markets are going to create an economy that serves its constituents better than inefficient markets. So an easy way to describe this is by describing that sector that I focus most of my career on. Securitization in a little more detail how it should impact society. Which is that if you take 1,000 mortgage loans that may or may not default. And you try and get investments for those those activities. So basically if borrowers want to borrow money, where are they going to get the money? It's going to be from institutions that need some sort of return on their investment. The return requirement can be very different depending on the institution.

So you might have say, a pension fund that has a very high degree of confidence in the total amount of money that's going to be represented in their liability to their stakeholders. So they can't take any risk of default essentially, because they know they're going to need that money to meet their obligations to various stakeholders. So they couldn't necessarily buy a pool of 1,000 mortgages that had some uncertain potential to pay off or not.

But, if these things are packaged in a structure whereby if there are any losses, those are absorbed by other stakeholders. You can create a tranche that fulfills the need of principal protection for that pension fund, and now there's a more efficient flow of capital into that mortgage pool. So now there's the whole amount of pension capital that's out there might be able to participate in this market by buying the AAA tranche of a securitization. So the theory there goes you have more capital coming into a market like that. Ultimately, borrowing costs will become more efficient. And essentially lower for the borrowing base out there.

Jason Jacobs: So because the markets are moving towards more efficiency, it means that the cost of capital goes down, which ends up being a benefit to the greater good?

David Burt: Absolutely. That is the theory.

Jason Jacobs: So now talk about the, you mentioned that in recent years, your models have been moving in this direction of incorporating climate risk. How did that come about? What led you down that path to begin with?

David Burt: Again, I'm always looking for what's going to impact the cash flows of my investments? And I follow all, I get a monthly tech review from MIT. I follow some of the publications that deal in environmental sciences, and science more broadly. I'm always trying to keep up to date with how our understanding of the world is changing from a scientific perspective. Again, I've been tuned into climate change for some time just because of my interest in the environment.

Ultimately, it's gotten to the point where you now have available a lot of public data that can help frame that probable futures based on this new science. And those have really, that really, I would say the international panel for climate change effort in 2014 was really a groundbreaking implementation of making data more publicly available.

So essentially, what they did is there have been new simulation processes for describing these probability of increasing severe weather events in specific regions for some time. But this was the first real project where the IPCC essentially went to all the scientific groups, the modeling groups out there who are running these simulations that could make those predictions. And they actually took the 20 leading groups across the world, and had them provide their projections for specific geographic regions along a specific set of dimensions all in the same format. So now you have this massive cache of data available to build into these investment models.

So when that became available, I started trying to plug in again, more of a sledgehammer. So what DeltaTerra has been doing is refining the sledgehammer more to the type of scalpel type analysis that you might want to use in an investment analysis. But that was really the breakthrough moment of okay, this data is available. Why shouldn't I try to incorporate this very potentially very impactful cashflow theme into my investment analysis? Just as I had been working on how likely are mall incomes to be impacted by the change in foot traffic as a result of online retailing. That might be the kind of theme I might work on. Now, this theme is how might cashflows be impacted for a coastal property based on increasing insurance costs, increasing tax rates, increasing maintenance costs, increasing energy costs, etc?

Jason Jacobs: Tell me about DeltaTerra Capital.

David Burt: Sure. So again, it's an investment, research and management firm. Ultimately, I'd say our goal is to help asset owners and investors protect themselves against climate change. The financial risks related to climate change. Focused on real estate right now. That's what I know. It's the models I've been building. I also have a pretty strong belief that until pricing around this theme becomes more rational in real estate markets, the will won't exist to put money towards what's known as transition risk or the move to a zero carbon world. That's where a lot of different investors in this space are focused. And I think that that tends to be because people would rather invest in things where they can see the upside. It's just like a natural bias for investors to want to invest in growth, and not to invest in negative stories or to entertain negative stories. And there's a lot of reasons for that.

But in any case, my thesis is that the transition that will happen that will allow investments in clean energy technologies, sustainable energy. That those things won't work as investments until a lot more money gets allocated towards climate change mitigation. So actually changing the policies that would allow those investments to come to fruition. And I don't think that's going to happen until people start losing money as a result of the physical impacts of climate change.

So we're focused on real estate investments. There's three potential contributions in the research and investing community that we could make. One is, will probably be a bit of a research widget. Which is again measuring the impact of different climate change scenarios on investment, intrinsic values. So basically to say in this bullish scenario for climate change, which unfortunately are still pretty negative at this point. Here is the impact on a particular commercial office property's intrinsic value based on increasing costs. Here is the value impact on a tranche of a mortgage securitization based on that scenario. And then in this worst climate change scenario, here are the impacts on those two different investments.

Jason Jacobs: And so would that be technologies that then gets licensed?

David Burt: Yeah, potentially. The firm has pivoted a little bit. So initially, I had imagined that that would be the primary widget and that we would build metric portals where investors could upload their portfolios and download metrics. And then I would work on what I would say would be the second value add vertical of this business, which would be then helping pension funds, insurance companies, other investors, reallocate in such a way that will optimize their outcomes against this particular theme. And ultimately, the reason that it may be a permanent pivot is what I've found is there's actually a good number of climate services firms I think is what they're being called broadly now. Who are doing a lot of the initial steps that I would need to have the relevant tools I need to see-

Jason Jacobs: So you think you can get off the shelf, the stuff that you were planning to build?

David Burt: Some of it. Yes, exactly. Get it off the shelf. And maybe even, I would say I'm uniquely suited to walk the last mile from these projections for increment advance, and connecting them with the actual impact on capital markets. I don't think there's people doing that, but my hope has become more that perhaps I'll partner with one of these companies to make my models broadly available.

I'm just hoping that whoever I use to buy the scientific projections for climate change from, will ultimately buy, rent, steal my financial models and make those available to the broader investing community through the information services type of business that they're used to running.

Jason Jacobs: And why do you want them to do that?

David Burt: Ultimately, there's a couple of mission elements to this business. The big one is I possess this understanding of how a theme like this might translate to the impact on different capital markets investments. I want to make that as broadly available as possible. Because the sooner that these markets reprice, the sooner capital will start flowing more like it should to opportunities that could help provide a better outcome for the world. So again, people aren't going to put as much money into clean energy as they would until they fully understand the impact of not doing it potentially on the rest of their other investments.

Jason Jacobs: I'm going to try to parrot back what I think I heard just to test and make sure that I understand it. So you said there's essentially three buckets. There's the enabling people to better understand their risk and exposure levels. Then it's helping them to start to go about making change. And the third is actually not just showing them what they need to do, but giving them products that fulfill that.

David Burt: That's absolutely correct. Yeah.

Jason Jacobs: And the first piece, there's more off the shelf available than you thought. So you're less focused on productizing that. So are you more focused now on steps two and three?

David Burt: Yeah. And mostly just step three. And this is partly driven by a change in the fundamental data that I'm observing in real estate market. So some of the first pieces of analysis that I've attempted to do is to say are values, real estate values being impacted in regions that are more exposed to this theme than others? And the initial answer I'm finding to that is yes. And it may be happening right now and fairly quickly.

So the residential housing data and commercial data are both showing signs of pretty dramatic slowing. Specifically in appreciation. So appreciation levels for residential real estate are much lower than they should be given the current state of supply and demand. And that effect we're seeing is much more pronounced in the riskiest markets that are exposed to climate change, than in non-risky markets.

Jason Jacobs: What are some examples of those risky markets?

David Burt: Well, a lot of it is southeast coast. So the metropolitan statistical area that screens the worst is a city area called Gulfport, Mississippi, which is right down on the Gulf. And it lost almost a full year of GDP just as a result of Katrina, was almost completely wiped out and has been getting hit time after time since then by almost every coastal storm. So that's something that's really impacted, and you're starting to see a lot of concern anecdotally in the local real estate rags and from a macro perspective based on some of the appreciation data for the area. That indicate that it is starting to suffer as a result.

So that's one. The main areas that have been impacted, Gulf coast, Southeast coast. Those are both tropical storms and storm surge. Over the longterm, sea level rise. Also California, given the two years of extreme wildfire damage. That's starting to pop as some of those regions are having a lot of trouble getting insurance. And that's starting to impact real estate values in those areas.

Jason Jacobs: And what's the thought? How many different types of products will you have, and then how concentrated will those products be and in what way?

David Burt: Well, I have done this analysis. And we don't have the time to go through really how it all works. But essentially, the idea is to find the cheapest and the richest assets that are out there when this theme is considered. And unfortunately, there are no real cheap assets to be found against this theme because it's almost an outright negative theme.

So there might be some economies that benefit from migration by being safe. But generally, I'm focused on the regions that are being impacted in a negative way based on costs.

So I've applied my models to look at the various parts of the capital markets in real estate. And this is really looking at all the available investments that one might make across four quadrants. So public, private, debt, and equity, and single family and commercial. And securitized. And ultimately what I've found is the richest security type out there by far is a niche area of the mortgage credit markets called credit risk transfer. And it's the means by which the federal housing agencies, Fannie Mae and Freddie Mac are protecting themselves against losses in the real estate markets by issuing bonds that are particularly sensitive to this theme. So for instance, one of the securities I might short would be wiped out if the securitization that issued it or the reference pool of loans that stood behind the securitization being issued by the agency incurred 3% losses. And a typical pool that looked similar would have what stood about 4% losses in the 2007 to the 2012 period.

It's that magnitude of event. I think it's going to look different this time around because it's not going to be about this big pull away of demand that happened as a result of mortgage credit bubble popping. It's going to be more of a regional story, but that can be just as impactful. And again, my early estimate suggests that this is already beginning. And is probably going to be coincidental with the next economic cycle, which I would imagine would be coming about in the next 12 to 36 months. It could be as soon as a year from now that some of these trades start to perform.

Jason Jacobs: You had mentioned that if the markets move towards efficient, it's better. Because once people lose their money, then it will unlock the money that needs to be spent on mitigation. So does having a vehicle like this or if there were 100X of vehicles like this, does that actually help accelerate that transition? Or like I said another way, does that cause the pain to be felt sooner?

David Burt: That's the hope. Ultimately, and this is part of the reason for the pivot. Is I think the bubble may be bursting already. So we may be less needed for that first mission element of bringing awareness, popping the bubble. Like you're discussing, to start that more rational flow of capital towards mitigation. So that may be already happening without our help. But that is a key element of the business strategy.

Jason Jacobs: Yeah. I feel like the obvious thing the critics would say is looking from a distance, it's like okay, so you have this aha that there's a bunch of mispriced real estate and that it's going to tank for this subset that the model tells me that it will. And then there's a bunch of things one could do with that information, right? They could go and they could go on an education campaign. If you're a homeowner or an asset owner, a building owner in those areas and say yo, get out. Right? Or you could do what you're doing, which is essentially trying to profit off the fall. Right? So I guess talk through that with me a little bit just in terms of how you think about that and why that feels like the right thing for you to do now that you have been awoken with this piece of data that you think that you know before the market does?

David Burt: I think it's going to happen regardless. I do think the way to accelerate it, I think it's these institutional capital moves that are the tail that wags the dog. So I think you're going to get a lot more out of waking the investing public. So the people who are actually making decisions about where these vast sums of capital get allocated. Than doing local education campaigns. Not to be cynical. But just from my experience, if you really want policy to change, if you really want behaviors to change at a systemic level, you have to affect the capital.

That's one piece of it. Are there other ways of doing it then being involved in the investing part of it? Actually profiting from the downturn? Yeah, I think that's why I have this whole information services aspect of the business. And I still hope to make that available as cheaply as possible so that we can establish impact from that.

Ultimately, somebody is going to profit. Or not necessarily. But by putting on the trades and making big profits when the short opportunity comes to pass. And then making sure that those profits, at least a significant share of them get put into real impactful investments. I think that is probably the best thing that I could do with that information. I mean that's going to be the way that I can facilitate the most transfer of capital. Again, beyond hopefully creating a richer information environment. But is actually making money by taking the other side of the trades and then reallocating those profits into forward leaning causes.

Jason Jacobs: And then I guess the second thing that skeptics might say, and this is from a different angle. But it's just that while there might be significant scientific consensus in human caused global warming, there's still a whole lot unknown just in terms of how those symptoms will manifest, how much they'll manifest, over what time periods they'll manifest, where they'll manifest. So given how much is unknown, how does one build a forward looking model with any type of certainty?

David Burt: Yeah. Well, there's science and there's art. They come together in a complex system modeling project like this. Again, I feel like this is where I'm particularly well suited to tackle that type of synthesis project. So when I think about what could I be doing to impact this theme that really feels to me like anyone who can do anything should be doing something. Because the longterm negative outcomes are just so difficult to imagine coming to pass for future generations. That I think you got to do with what you can, you should do what you can. And for me, this is that contribution. Which is to focus that particular talent that I have, which is really connecting the dots between capital and outcomes through these very complex systems. In the best way I can, such that you can make slightly better informed decisions.

And you know there is no crystal ball, and that's really what my approach is. Is bring all the data that's available to bear into making the best decisions that you can. Again, it's not a crystal ball. But you can't even begin to do intuitive synthesis and make better decisions without at least constructing a framework to understand how these systems play out. There's really four complex systems that need to be modeled. One is the relationship between greenhouse gas emissions and actual outcomes. Again, that's being done by the scientific community and there's some really good information services firms out there tackling that problem. Two is given those outcomes, how do those costs end up landing in different real estate, pieces of real estate, property types, specific addresses, regions? That's very complex as well. And again, some of these firms are starting to think about that. I think there are some sort of market dynamics that I could add to that puzzle.

The third system is how do these costs impacts translate into actual asset value increases or decreases? That's something I know how to do a lot. I've been doing it for 20 years. And again, none of these are exact sciences. But trying to bring rigorous science to a problem that involves making assumptions is still a worthwhile endeavor in my opinion.

And the fourth model is given this or this awareness at least of how asset values are going to be impacted, what should that do? What does that likely to do to various aspects of the capital markets? So again, mortgage backed securities, private equity investments in commercial properties, REITs, etc. So that's another area. So those last two, I have exactly the experience and the skill to do as best of a job as one can. So that's what I'm trying to do.

Jason Jacobs: And how much do you think about just the broader climate fight? I mean I know you mentioned that the almost counter to the incentives of the fund to want to see climate change solved expediently, or at least under control as best as we can. But I mean to the extent that you've thought about it, what are the big levers beyond the ones that we've talked about to help bring that about and to just kind of get a handle on it as a species?

David Burt: I mean ultimately, there really has to be some policy overhauls. So government has to be involved. So there's a huge amount that can be done in terms of just people working towards a better government attention to these problems. So that's a lot of politics and advocacy stuff that I don't know anything about. I think there's a lot that can be done in technology.

Jason Jacobs: Any thoughts as it relates to what type of policy should be put in place, or is that-

David Burt: Yeah, well I mean we have some good, the Green New Deal. We got Paris Accord, there's global things like Paris Accord. There's Green New Deal people are talking about here. As much trying to get decision makers on the policy side focused on those types of frameworks as anyone can do as an individual. Right down to just calling your local congresspeople, and telling them that you care. I think that that could probably be impactful.

There's a lot on the technology side that needs to happen, and there's potentially some transitional technologies that could come about that could help a lot. Carbon capture technologies for instance. The thing is, is this theme is going to be impactful to everyone. And it's going to impact every, say professional track that someone could be on. It's going to affect demand, costs, in pretty much every job function that that one could think about. So I think, the way that I've approached this is what do I do best? And what can I do at the margin given my experience and expertise, and skillset? And you're going to find some way of incorporating this theme if you look deep enough.

Jason Jacobs: The next question, I'm almost asking this with your 13th generation Martha's Vineyard hat on versus here DeltaTerra hat. But if you had a big pot of money, say $100 billion, and you could allocate it towards anything to maximize its impact in the climate fight, where would you put it? How would you allocate it?

David Burt: Wow, that's a good question. I haven't gotten that far yet.

Jason Jacobs: I mean in the discussion today, I wouldn't think that you would have just because it seems like that's not, and this is not a judgment, it's just not your area of focus.

David Burt: No, no, it isn't. I mean if I had to take a shot, I'm interested in carbon markets. I'm interested in market solutions to problems like this. But then again, I don't know how you best influence ... what really needs to happen is the institutions, there needs to be short circuits in the institutional, the incentives problems that are driving an inappropriate level of attention being paid to this phenomena. So what that basically is, is there's a lot of people who are in seats that if they do entertain the theme and they embrace it and they try and do something about it, it negatively impacts their business going forward. So the obvious folks like that are people in the petrocarbon business and the oil industry. And then that industry is also very entrenched in policy and governments. So how do you change that system?

That's something where I wish if there was a way that you could just pay to have that fixed, that would probably be the most impactful thing that one could do. Again, I think by allowing markets to do what they should by making information, by fighting the fight with information to combat the disinflation that's being presented by these poorly incented market players. That's something I'm doing. But to the extent that people could put more money into things that make that apparent, and even combat it outright. I'm not sure how that gets done, but ultimately it's regulations I suppose, that force people to do things that might not be best for their personal gain and outcome. But are completely important to the outcome of the whole.

Jason Jacobs: So have you identified other short opportunities or mispriced situations of magnitude beyond the one that you've chosen to focus on?

David Burt: Yeah, I mean there's a lot. This particular one I'm focused on is just the ... any short can be difficult because it comes down to timing oftentimes, right? And the amount of time you can withstand paying or missing out on some sort of upside opportunity, that can take you out of a trade before it's been fulfilled.

So that's the biggest problem with any of these types of trades. I mean sure, you could short AHR, American Homes for Rent. Or any of the other buy to rent equity REITs, or you could short commercial REITs. That probably has that risk embedded in it. But that could be very, very expensive. If things continue to be okay for a couple more years, if the rationalization of these costs get pushed out for different reasons. For another two years, one of those trades could be very, very painful. So the reason I'm really focused on the one I'm focused on is it's a cheap way of doing it, which adds to your staying power. But yeah, there's a bunch of stuff out there. Municipal bond market is interesting, but a lot of the asset classes that you would want to short are difficult to short.

Jason Jacobs: I almost feel like I should ask you a different question. I mean typically what I ask guests is what advice do you have for people that are concerned about this problem and want to find a way to help? I feel like in your case, it's almost like if someone's listening and they think the shit's going to hit the fan and they want to capitalize, where should they look, what advice do you have for them? It feels weird saying it, but I feel like it's more relevant.

David Burt: Yeah, it's tough. I mean certainly, so those transition opportunities I talked about before. Those are good, right? I mean investing in clean energy. Not investing in carbon. I think that's the easiest one. And that's really, I would call that the transition trade. Which would be long wind, short oil that is going to come to pass at some point. Again, is it the most efficient expression? I don't know. But is it available to everyone? Yeah. I mean there's a bunch of clean energy ETFs you can get ahold of. I think those are probably, and maybe carbon credits. That's the other market that may take off that hasn't yet, but it's another transition trade. I think other than that, it's probably don't invest in coastal real estate or real estate that's likely to be by increasing insurance costs and tax rates.

Jason Jacobs: Now, anything I didn't ask you or any parting words for listeners?

David Burt: No, I think we've gotten through a lot of it. I really appreciate the time, and I would encourage listeners to think about what they do best and see if there's a way that they can bring more focus to this theme.

Jason Jacobs: Awesome. Well Dave Burt, thanks so much for coming on the show and best of luck to you.

David Burt: All right, thanks Jason.

Jason Jacobs: Hey everyone. Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note, that is .co not .com. Someday we'll get the .com, but right now .co. You can also find me on Twitter @jjacobs22 where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.