From co-owning Milwaukee’s NBA franchise to working with multiple U.S. presidents, Marc Lasry has worn many hats during his career. However, the co-founder of Avenue Capital Group says his core strategy for making money today does not resemble the approach he took a decade ago. In this in-depth interview, Lasry speaks with Illinois State Board of Investment chairman Marc Levine about running a successful hedge fund, finding value in Europe and Asia, and why he loves opportunities in aviation.
Transcript: So Avenue Aviation is a fund that-- that's actually how we met originally. And that's an asset that you've invested in back in the multi-- when you were doing multiple strategies, and then like energy, carved out. So can you sort of describe that business the way you do it? Sure. So really what you're doing is you're buying a hard asset. That's what a plane is. So think of it this way. Everybody wants a new plane. And the reason people are buying new planes, every five, 10 years, new technology comes out. And you add lighter frames, so you are saving money on fuel costs. And that was the biggest -- other than the new technology -- the biggest expense for airlines is really the fuel costs. So think of a car -- same thing. Everybody wants a new car. And you want it because of new technology, and it's more miles to the gallon. Now when all of a sudden oil goes from $100 to $50, you're not really as focused on saving money on fuel. So where we saw that there was a huge opportunity is end-of-life planes. That planes that used to cost $100 million when they were new, 15 years later, 20 years later, those same planes are $5 million. So you can buy those planes – think of it again as a car. So a 20-year-old car, whetherit's a Mercedes or it's a Ford or whatever, it's still a 20-year-old car. So you're going to pay what? $1,000, $500 for the car. But that car is still doing the same thing as every new car does. It gets you from point A to point B. And when you take a look at what's happened in the aviation side, we now-- today, if you're an airline, it's better or it's cheaper for an airline to keep flying older planes because what it's costing them on fuel costs, they're more than making up by not spending $100 million for a new plane. So what you're seeing in that space is that airlines are leasing older planes. So if you fly, when you came out here, you didn't look at it and go, wow, am I on a new plane or not? You just want to go from Chicago to here. And airlines know that. So they're making actually a lot more money today. And for us, they're leasing those older planes. So we buy those planes, lease them out, and we pretty much get back our cost over three years or four years. And now you still have the value of that plane. So what is a 20-year-old plane-- if it's worth $5 million today, what's it worth in five years? Still $5 million-- $4 million. It's already at-- and the reason-- it's at its liquidation value. And what I mean by that is we bought three planes for $5 million each. They had 12 engines. So what did we do with those planes? Well, right after we bought them, somebody needed engines. So we sold nine of the engines. But we sold nine of the engines for $16 million. So we sold nine of the engines for more than we had bought the all the planes. And now what do we have? We have three planes, can't really fly them. So all you do is part it out. And we'll probably make about $8 to $10 million on the part-out. So we spent 15, and we're getting back around 25. So you make $10 million, but your IR is very high because you got back the-- you got back all your capital within the first six months. Now, it's a great business. It's not a scalable business. I can't-- again, I can do that if I have $500 million or a billion. I can't do it if I've got $5 billion. Same thing-- it's easy to spend $100,000 or $50,000 on a new car, and you can grow that pretty quickly. But if you've got to spend $1,000 on a new car-- I mean, an old car-- you just can't buy enough. That's why you can make money. And it's a business where, for us, we're making high teens, low 20s.
Filmed on April 11, 2018 in New York.
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