Martín Cabrera, CEO of Cabrera Capital
This interview is part of The CEO Series by Executive House.
You've been to Rome several times to meet the Pope. Why?
It's good to have a Chicago Pope. He is an amazing man. I've been out to meet with him about three times in the last two months. Part of it is Father Manny Dorantes, who was here in Chicago and has been in Rome for a while. He's heading up an initiative for the Pope, Borgo Laudato Si', at the Pope's summer home, where Popes go on their days off. They're going to open it up to the public and bring folks from around the world, really to get tied into the mission, which is sustainability. There'll be a farm-to-table restaurant and an educational piece for high school and college students. Notre Dame is taking part. The grounds are about 136 acres. It's been part of the Vatican for 400 years, and before that the Roman emperors went there to relax for 2,000 years. Some major decisions have been made there.
I think global leadership is at a low point, and the Pope has stepped up. Did you get that sense?
Yes. I encouraged him to continue speaking up for the undocumented community, because when he does, it makes them feel seen and heard and human. What's taking place in this country is not right. It's not just, and it's not in line with our Catholic or Christian values. Some people have put aside their values for business purposes. I'm an entrepreneur, I'm a capitalist, but we don't sacrifice our values just for business. He mentioned it's not just the U.S. Globally he's welcoming immigrants, and it was great for him to speak up on July 4th on behalf of immigrants all over the world.
How is AI changing your industry and Cabrera Capital?
For every industry, AI is disruptive, and I've encouraged folks at my firm that we have to embrace it, embrace the change, and stay ahead of the curve. We brought in an individual who was running all of AI for PricewaterhouseCoopers for North and South America to help our bankers, our sales and trading, our back office, our operations, and to help our clients with their issues. For some folks it's scary. They think it'll take their job. I tell them, utilize it, embrace it, and see how you can use it as a tool to make you more valuable to our clients. It's changing every day, what's taking place in China or Europe or here, and we have to adapt and use it as a tool for good.
Does AI help or hurt financial literacy?
We're big proponents of financial literacy starting in kindergarten. In the Latino community, we typically don't talk about finances or investments. Growing up, we didn't have any money, so we never talked about stocks or bonds. I thought a bond was something between a man and a woman. Younger folks can depend on AI, but you have to challenge it. Where's the data coming from? You should be more of a critical thinker. Goldman Sachs and JPMorgan aren't necessarily hiring finance or econ majors. They're going back to humanities and liberal arts, critical thinkers who can take apart a problem and put it back together. I was at the University of Wisconsin talking to finance majors, and the first four or five questions were, "Is it going to be a better environment when we graduate?" The unemployment rate for new grads was 16% the year before. I had to tell them it's not getting better. It's getting worse, maybe 25% this year. So make yourself more valuable. Work on your people skills. I tell my people, don't just text. Pick up the phone and call someone. Those old-school values go a long way. It's easier to replace an analyst crunching numbers than somebody with a great personality who can network, build relationships, get knocked down and rejected, and get back up.
Are you worried about the capital pouring into AI and data centers? It seems circular.
There's a lot of investment going in. The concern is some of the hyperscalers are issuing debt and doing business with each other in a circular way, and there's risk there. The markets are at all-time highs, and at some point we'll have a correction, maybe more than a correction, a crash of 20%, even 30%. But technology continues to grow. I started in the markets in the early '90s. We're at the forefront here, and there are other tech hubs like China and Israel, and we have our quantum campus here, which could be disruptive to some crypto technology. Even with a 10% correction, you're still better off having invested than not. You can't time any investment. Hold longer term, in good companies that aren't concentrated in certain revenue streams. People who've sat on the sidelines saying it's too high were saying that six years ago and missed almost a double.
When do you think that correction might come? Not financial advice.
I think it's today in about 10 minutes. No. I'm not sure. When things get lofty, you see bubbles, like the late '90s tech bubble. K-Tel Records, with commercials for old disco songs, put .com at the end of its name and the stock shot up from about $4 to $90. When everybody's putting AI in their name and the stock shoots up, you start to worry things are getting lofty.
Is private credit a risk? It's a multi-trillion-dollar market that barely existed 15 years ago.
Private credit is lending to companies the banks wouldn't lend to. A lot of people are getting into it. There's a Latina-owned firm, Avante Capital, about a $2 billion private credit fund, run by one of three Puerto Rican girls who grew up in Pilsen and went to St. Ignatius. She's had the fund over 15 years with zero losses on the portfolio and 14% returns, lending to a lot of women-owned businesses around the country, tapping her network. She's very focused on the criteria, and if borrowers can't pay back, she takes a piece of the company. She's on her sixth fund. When people see returns like that, the bigger funds jump in, returns come down, and you question whether they're doing the real due diligence. You're seeing some private credit companies get hit on their stock prices where there's concentration risk. Every industry goes through peaks and valleys. But it'll still have a place, because businesses that can't borrow from major institutions turn to private credit, pay a bit more, and grow.
How much do interest rates affect your business?
Very much so. Our bond business, whether it's municipal bonds or corporate debt we're issuing for Google, Microsoft, JPMorgan, Morgan Stanley, is all based on it, and so is our real estate business. Lower rates mean better returns. And our private equity clients: as rates move up, highly leveraged companies get squeezed. We watch our client base to make sure they're not over-leveraged.
What's the difference between Powell and Warsh?
It's still early on Warsh. He's trying to be very measured. I think Donald Trump brought him in to lower rates, but based on the data and inflation, it's so apparent he can't cut right now. He's going to have to wait it out. Powell looked at the data, even though he got beaten up daily by Trump, and stuck to his guns. If the 10-year bond, which impacts home mortgages, real estate, the stock market, and the debt markets, gets closer to 5%, and we're getting close to 4.7, you'll see real pressure and a slowing of the economy. Even the hyperscalers would start cutting back on spending.
Is America still the land of opportunity?
Yes, it is. Even with Donald Trump or others in his administration speaking ill of Latinos, we're probably not going to change his perspective on the Latino community. But I hope it pisses off Latinos enough that we start to vote more. One thing I know about our community is we're resilient. I don't care if you build a wall on the border. We're going to find a way over it or through it or under it. That's how we are as businessmen and businesswomen. All those challenges are an asset to us. We'll stretch a dollar, work till 1:00 in the morning and get in at 5:00. Nothing's going to stop us. We're the third fastest-growing market in the world: China, India, then the Latino cohort here in the U.S. Not a president, not the policies they're putting in place. That grit you learn in tough neighborhoods is our biggest asset. It's going to be some of those undocumented individuals who've been rejected 40 or 50 times who become the next CEO of Google or Meta. I think he's actually doing us a favor. It makes everybody upset, but we have to channel that anger and energy into something positive for our community. Not that Latino crab syndrome of pulling each other down, but coming together to support one another, putting people in positions to do well, and doing business with each other.