Underwriting Careers

Underwriting Careers

For she who knows, and knows she knows,
shall leap beyond this carousel.
But she who knows, and doubts she knows,
wake her and end this dreary spell!
And she who knows she does not know,
will falter unto her abode.
Yet heedless he who does not know,
Is lost etern on folly’s road.
– Ibn Yamin

Almost seven hundred years ago, the Persian poet, Ibn Yamin, codified the aforementioned aphorism within the mould of classical Persian rhyme and metre. The didactic couplets articulate an ontology of “knowing”, descending from knowledge and awareness thereof, all the way to “unknowing” and unawareness thereof.

In 2002, Donald Rumsfeld infamously brought new life to these ancient words of wisdom when he spoke of, “known knowns, known unknowns, and unknown unknowns” at a press conference in advance of the ill-fated U.S. War on Iraq.
Since then, “unknown-unknowns” has become shorthand for those risks that arise from situations so unexpected or so inconceivable, as to be considered unworthy of serious consideration or analysis, whether that be in a geopolitical, investing, or even career-planning context.
Although this ontological framing has untold applications, and humanity would do well to heed Ibn Yamin’s entreaty – especially as relates to those whom we place in positions of power – such a comprehensive analysis is well beyond not only my capabilities, but also the scope of this blog.

Instead, I want to bring attention to the importance of discerning true unknown-unknowns from those that might better fall into the category of known-unknowns – especially in the context of emerging infrastructure asset classes and careers.
One repeated question posed to me by aspiring career professionals interested in infrastructure finance, and or climate-related or adjacent sectors is as follows: how do I pick between all these interesting emerging industries? Are small-modular nuclear reactors (“SMRs”) the future? Advanced geothermal technologies? Or is green hydrogen the silver bullet par excellence?

Too often I am confronted by students and professionals who effect career decisions on the basis of perceived momentum or buzz around an industry. Whilst this can be a compelling heuristic device, as it feels natural to assume that respected individuals or even media outlets within a sector, would only cover a topic after having conducted the requisite research to justify such optimism, such a heuristic device falls squarely into the ad verecundiam, or appeal to authority fallacy. This is when a claim is asserted – whether that be consciously or subconsciously – solely on the basis that it is so asserted by an authority figure, rather than substantiated by actual evidence.
I suspect most would agree that this approach would be dangerous not only for business outcomes, but also for an individual’s career prospects in a professional context. Imagine presenting a multi-hundred-million dollar deal to an investment committee. When challenged on an assumption, you would be remiss to retort with “well, that is what everyone is saying!” That could be career suicide for an investment professional. And yet, we often make multi-year career decisions without applying the same logical frameworks, rigorous processes, and analytic tools to our own lives.

Let’s take small-modular nuclear reactor technologies: they seem to be amongst a few emerging energy technologies with political support from both sides of the aisle in the United States. They promise the prospect of cheaper, base-load, zero-emissions electric power, and at a time when diversifying electric power systems feels like an imperative not only for reliability, but energy security purposes.
But do not take my word for it. I may be wrong. I probably am! Instead, what I might encourage professionals seeking to break into these spaces, is to do some back-of-the-envelope financial modeling. What needs to be true for small-modular reactors to be viable technology? Qualitatively speaking, there are two buckets, namely (i) regulatory approval, and (ii) economic viability.

On the former, there is no substitute to understanding what regulatory requirements actually are, speaking to professionals and regulators in the space, and tracking key companies seeking approval for new reactor designs. Do not take the company at its word: what are their competitors thinking about their own approaches? What are their competitors saying about the company’s approach? What are suppliers, or other interested parties thinking? And what does historical precedent suggest?

And on (ii), going back to unknown-unknowns, whilst no one possesses the figurative crystal ball to know whether SMR technologies will truly be economically viable, we can use financial modelling tools to at least assess what we would need to be true for such technologies to compete. In broad strokes, energy technologies can only compete if they are (i) cheaper, and or (ii) provide a unique value proposition.

So, what should an aspiring SMR professional do, then? Don’t just listen to the podcasters: make a model! What do historical operating, capital, and financing assumptions look like for conventional nuclear power? What sort of returns do such assumptions suggest at various electricity sale prices? Are these viable in the current market?
If not (and the answer is they are likely not viable, though perhaps not solely for economic reasons, otherwise we would have built more nuclear plants in the last thirty years), then let’s understand what would need to be true for SMRs to be a truly disruptive substitute. What would the reduction in upfront capital expense, and construction time have to be to improve the average electricity price whilst still covering an acceptable cost of capital? How might operating costs improve for smaller, modular reactors that require less bespoke O&M? At smaller scales, might more innovative power purchase agreement or offtake structures be available?
The point of this exercise is not to get to a right answer per se, but to understand what would need to be true, ceteris paribus, for the emerging technology to be a viable alternative to incumbent solutions. If, for example, the modelling shows that capital expense in the SMR case is the largest driver of outcomes, then – as you evaluate a potential SMR employer – do their designs have the potential to result in a meaningful step-change in capital cost for a project? Perhaps rather than fabricating bespoke reactors, they will benefit from economies of scale and mass production in a factory (is there any precedent for this – do the research!)? Or maybe the design can be dropped into a refurbished existing power plant, cutting down construction time by years?
In any case, I do not purport to know the answers, but I would contend that going through this exercise will support better informed career decision making. If you at least have a directional sense of what needs to be true, then you can assess whether that is even possible by looking at current plans, projections, and historical parallels and analogs.

As a side benefit, in going through this exercise, you will begin to expand your command of the vocabulary used in an emerging sector. That command, coupled with the intuition of key economic drivers and metrics, ends up being exactly the kind of distinction between two candidates that may be decisive in who gets the job.
Said another way, if one candidate knows exactly where your reactor design needs to be in five years from a dollars-per-MW-installed basis, what key regulatory hurdles remain, and how novel offtake structures may be more viable for smaller reactors, whilst the other demonstrates their passion by listing just the newspaper articles, LinkedIn posts, and podcasts to which they’ve listened, who do you think the hiring manager is going to choose?

Ibn Yamin would likely be amused and perplexed that seven hundred years hence, I am using his ontology of knowing to explain how one might pursue a career in energy and infrastructure finance. With that said, I suspect he would agree that not all unknown-unknowns are truly so. Dig deeper. What is the worst thing that can happen if you realize the leap of faith required is unbelievable? What then? Well, Ibn Yamin would say, fear not: this, too, shall pass.