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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: This week on the podcast, I have a really interesting guest.

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Speaker 1: You've probably never heard of him before, and I suspect

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Speaker 1: you will be hearing a lot more from him and

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Speaker 1: his fellows in the future. His name is Matthew Wetherley

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Speaker 1: White and he runs the cap Rock Group. Uh. He's

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Speaker 1: kind of come to my attention because he specializes in

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Speaker 1: impact investing, which is we we began the process of

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Speaker 1: socially responsible investing as a thing some decades ago that

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Speaker 1: morphed were evolved into e s g. Environmental sustainable governance

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Speaker 1: or environmental social governance, and now what he describes as

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Speaker 1: impact investing. He defines in conversation really intelligent asset manager

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Speaker 1: located in of all places, Boise, idaho um, running about

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Speaker 1: three billion dollars, growing tremendously fast in the space that

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Speaker 1: that he focuses on. This very much is the wave

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Speaker 1: of the future. This is something that at one point

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Speaker 1: in time was a teeny tiny niche as he explains it, Uh,

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Speaker 1: all the money that exists that's investable is primarily owned

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Speaker 1: by one group of people, and it is destined to

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Speaker 1: be inherited by a different group of people. Who are

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Speaker 1: the folks that are really driving h E, s G

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Speaker 1: and environmental social governance issues in the investing world. Well,

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Speaker 1: they're they're women and their millennials. By the way, who's

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Speaker 1: going to inherit all this money? Well, it's likely to

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Speaker 1: be women and millennials. So you can expect this form

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Speaker 1: of investing to become increasingly popular over the next uh

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Speaker 1: a few decades, and his firm is in the vanguard

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Speaker 1: of this. I thought the conversation with quite fascinating. I

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Speaker 1: pushed back, as I know many of you who are

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Speaker 1: listening would have wanted me to to have some of

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Speaker 1: the things he said about active and passive and models

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Speaker 1: and what have you. But all told, I thought this

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Speaker 1: was a fascinating conversation. He's a really really interesting guy.

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Speaker 1: With no further ado. My conversation with Matthew weatherly White

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Speaker 1: of the cap Rock Group. This is Masters in Business

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Speaker 1: with Barry Ridholts on Bloomberg Radio. My guest this week

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Speaker 1: is Matthew weatherly White, co founder of the cap Rock

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Speaker 1: Group of Impact Investing, and we'll get into specifically what

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Speaker 1: that is. Born in Manhattan, a bit of a Globe

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Speaker 1: Trotter before you settled in Boise, Idaho. Graduate of Dartmouth

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Speaker 1: College class of eighty one, you co founded cap Rock

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Speaker 1: in oh five after an eighteen year stint at Smith Barney,

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Speaker 1: and you have been called the most fascinating investor people

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Speaker 1: have never heard of. Matthew weatherly White. Welcome to Bloomberg. Yeah,

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Speaker 1: thanks very it's great to be here. And obviously you

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Speaker 1: heard of me. So it's not that no one's heard

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Speaker 1: of me, but I'm putting you on the list of

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Speaker 1: people who have heard of me. So I read I

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Speaker 1: read a really interesting article about you, and Kiki had

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Speaker 1: reached out to me, and I said, oh, I know

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Speaker 1: who he is. I read this about him, and really

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Speaker 1: maybe she had previously sent me the link to it.

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Speaker 1: Normally I never look at anything that comes from pr people.

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Speaker 1: But when when someone sends me something and I say, oh,

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Speaker 1: I know who that person is, tell me more. So.

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Speaker 1: So let's let's describe why you're such a atypical finance guy.

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Speaker 1: So you play the bag pipes. You wrote an opera

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Speaker 1: in sixth grade. You've published poetry. You've competed internationally in

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Speaker 1: five different sports. You hold a world record in rowing

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Speaker 1: no longer hold. Oh it's it has been surpassed. I

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Speaker 1: think it might actually have been the shortest world record

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Speaker 1: holding tenure in the history of any competitive sport. I

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Speaker 1: set the world record in the heats of an event

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Speaker 1: that was then eclipse in the finals. So yeah, I

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Speaker 1: hold the distinction, but not for much time. So I

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Speaker 1: left out the fact that you are an accomplished chef.

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Speaker 1: You worked as a chef for a while. Oh and

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Speaker 1: by the way, you manage a three billion dollar investment funds.

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Speaker 1: So not the typical Wall Street definitely not. So so

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Speaker 1: let's let's talk a little bit about, um, what you do.

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Speaker 1: I want to begin with a quote that I read

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Speaker 1: of yours, where you had said capital markets are the

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Speaker 1: most powerful optimization vehicle on the planet. Explain that. Yeah, so, um,

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Speaker 1: I like to think of capital flows as being driven

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Speaker 1: by gravity. Capital flows to its most efficient utilization. But

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Speaker 1: that implies a set of assumptions that aren't always explicit

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Speaker 1: in the statement. And but that, I mean, what is

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Speaker 1: it that capital is optimizing for? Um? And usually it's

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Speaker 1: for for returns? Right the old joke, Um, I think

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Speaker 1: it was the former chairman of City Group. Capital goes

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Speaker 1: to where it's treated best and stays where it's most appreciated. Yeah,

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Speaker 1: And I think that's actually true. And that's why capitalism,

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Speaker 1: as both a sort of financial organizing structure and as

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Speaker 1: a cultural underpinning is so fascinating because it is it

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Speaker 1: is unarguable that capital flows where it is treated best

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Speaker 1: and stays where it's most appreciated. Right. It's very difficult,

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Speaker 1: if not impossible, to impose an artificial set of objectives

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Speaker 1: that will violate that fundamental premise. And so the question

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Speaker 1: that that I like to ask myself is not is

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Speaker 1: capitalism good? Is capitalism evil? Is capitalism intrinsically beneficial or

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Speaker 1: intrinsically destructive? And I'm thinking about Picatis book capital for example. Um,

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Speaker 1: I think that's not actually the right question. The question

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Speaker 1: is to what end do we seek to optimize? And

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Speaker 1: the question that I kind of keep coming back to

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Speaker 1: repeat that towards what end do we seek to optimize? Yeah,

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Speaker 1: And I think it's it's easy to go back to

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Speaker 1: that statement of the business of business is business and

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Speaker 1: the highest end of business is not you know those

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Speaker 1: And I don't like to say it that way, but

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Speaker 1: you're right. And the reason I say that is that

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Speaker 1: UM as an example, I think that the science around

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Speaker 1: climate change is crystallizing, and regardless of what one believes

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Speaker 1: relative demands relationship to the climate, we recognize that the

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Speaker 1: climate is shifting, and we recognize it on some level.

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Speaker 1: The increased concentration of greenhouse gases and carbon is part

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Speaker 1: of that, right and so and the more we know that,

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Speaker 1: the less defensible the position that we shouldn't care about

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Speaker 1: it becomes. Um. As an example, I like to use,

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Speaker 1: you know, the pricing of coal, and it's an easy

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Speaker 1: target right now because of what's happened over the last

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Speaker 1: couple of years in the coal industry, right, so you

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Speaker 1: have more people working in solar in America today. So

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Speaker 1: so it's a soft target, but nevertheless it's it's illustrative

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Speaker 1: if you are the CFO of an aluminium company and

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Speaker 1: the CEO comes to you and says, look, we need

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Speaker 1: to find another one percent net operating margin. Go find it.

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Speaker 1: You're gonna look at your inputs, right and your single

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Speaker 1: largest input in aluminium smelting process is energy, and so

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Speaker 1: you're gonna look for the cheapest energy. And today the

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Speaker 1: cheapest energy has been coal. That's why a lot of

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Speaker 1: the aluminium smelters are in Appalachia now. Isn't that changing though?

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Speaker 1: Aren't we seeing natural gas start to become more and

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Speaker 1: more clost effective versus coal, Yes, we are, and that's

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Speaker 1: part of the dynamics around the collapse of price and

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Speaker 1: the rate of bankruptcy filings among coal coal mining companies. UM.

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Speaker 1: But where I was going was a little bit different,

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Speaker 1: and that is that the price of coal to date

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Speaker 1: does not price in the externalities. And I'm not saying

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Speaker 1: climate change, just what comes out of your smoke stock, acid, rain,

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Speaker 1: everything else. Everybody everybody, And we know this right so

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Speaker 1: we know it's it's it's it's It's not debatable that

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Speaker 1: the Burningham coal imposes a cost on society, primarily in

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Speaker 1: environmental and healthcare costs, and those costs are not reflected

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Speaker 1: in the price of the commodity, so that the consumer

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Speaker 1: of the commodity is not actually bearing the cost of

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Speaker 1: consuming it. And I think that is a kind of

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Speaker 1: a thing, that's a kind of dynamic that is shifting

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Speaker 1: right now in the capital markets. UM. And that's why

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Speaker 1: when you think about optimization right now, the capital markets

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Speaker 1: are moving away from coal for a whole bunch of reasons,

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Speaker 1: some of which are regulatory, right, right. You also had

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Speaker 1: people blame regulation too much. You also had a huge

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Speaker 1: m and a spree at the peak of coal price,

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Speaker 1: way too much leverage. These companies who a lot of

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Speaker 1: people are blaming regulation for killing these companies just were

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Speaker 1: poorly managed a lot of bed. So we're going to

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Speaker 1: continue talking about this because I find this fascinating. I'm

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Speaker 1: Barry Ridhults. You're listening to Masters in Business on Bloomberg Radio.

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Speaker 1: My guest this week is Matthew weatherly White. Did I

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Speaker 1: pronounce that correctly? He did? Yeah, channeling your inner Englishman

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Speaker 1: and you'll get it. Of the cap Rock Group who

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Speaker 1: specializes in impact investing, So let's talk about the phrases

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Speaker 1: that that people have are probably more familiar with green investing,

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Speaker 1: Socially responsive investing better known as s r I, Environmental

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Speaker 1: societal and governance e s G, and of course what

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Speaker 1: you do impact investing. How do each of these relate

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Speaker 1: to what you do and how do they differ? And

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Speaker 1: will you laid it out quite well, perhaps unintentionally, from

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Speaker 1: a chronological perspective, sr I became e s G became impact. Um,

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Speaker 1: think about it pretty simplistically as s r I investing

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Speaker 1: was primarily about not owning companies that were perceived to

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Speaker 1: be doing something bad in the world. Gun companies, not

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Speaker 1: military companies, not vice and to backup companies, and a

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Speaker 1: lot of energy companies were thrown under that rubrical so

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Speaker 1: sometimes more more recently probably um so, s r I

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Speaker 1: really sort of had its um it's it's coming of

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Speaker 1: age moment in the seventies and eighties where a lot

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Speaker 1: of activists were turning to the capital markets and saying

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Speaker 1: we should be investing companies that do a better job

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Speaker 1: and we should not be investing in companies that aren't.

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Speaker 1: But that that was really in the seventies and eighties,

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Speaker 1: that was a tiny slice. It was. It was a

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Speaker 1: rounding error in the capital markets, and and in some

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Speaker 1: regards s r I tightly defined is still kind of

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Speaker 1: a rounding here in the capital markets because it's based

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Speaker 1: on exclusionary sometimes inclusionary screens. E s G was really

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Speaker 1: the evolution of that environmental social slash sustainable and governance,

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Speaker 1: and that really came of age in the mid nineties

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Speaker 1: when the European government said that large pension plans had

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Speaker 1: to incorporate E s G analysis in their stock picking

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Speaker 1: UM came from Europe, not the United States. Now, it

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Speaker 1: was really started in Europe. UM ubs did a lot

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Speaker 1: of really cool work around that early on. And yes,

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Speaker 1: she's a little bit of a different idea. One of

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Speaker 1: the one of the core tenants of E s G

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Speaker 1: s it's around misk risk mitigation, Understanding the risks related

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Speaker 1: to poor governance, understanding the risks related to climate exposure

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Speaker 1: or lack of sustainability issues, and then embedding that risk

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Speaker 1: mitigation into your discounting models to determine future castles for

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Speaker 1: a company, and making your stock selection accordingly. UM and

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Speaker 1: so E s G in my mind, is really a

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Speaker 1: little bit of a sort of a professionalization, as it were,

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Speaker 1: of the s R I. Yeah, and then the E

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Speaker 1: s G movement sort of became, you know, relatively mainstream. UM.

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Speaker 1: I say relatively only because there's still a lot of

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Speaker 1: asset managers that don't do that. UM, what percentage of

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Speaker 1: the total investible assets would you roughly guess plus or

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Speaker 1: mind as E s G is running now depends on

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Speaker 1: who you talk to and how deep you believe the

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Speaker 1: E s G methodology has penetrated the organization give me

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Speaker 1: a range, I would say somewhere between five and thirty five.

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Speaker 1: Al Right, okay, so the low end was what I

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Speaker 1: was expecting you to say. Thirty five is an enormous

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Speaker 1: self one out of three dollars has some s G relationship. Yeah. See,

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Speaker 1: that's where it gets really kind of slippery, because um,

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Speaker 1: E s G disclosure is being driven culturally at this

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Speaker 1: point rather than legislatively or regulatory. You know, the there's

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Speaker 1: no there's no government mandate you must do E s G.

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Speaker 1: It's sort of not not a self actualized said of

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Speaker 1: understandings that the finance community has kind of reached on

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Speaker 1: its own. Yes. And the reason I drew that distinction

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Speaker 1: between sort of cultural applications of vs G versus the

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Speaker 1: regulatory applications of E s G is that that determines

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Speaker 1: how deep it penetrates an organization. I think that saying

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Speaker 1: at this point that an asset manager is simply ignoring

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Speaker 1: all environment on social consequences when making an investment decision,

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Speaker 1: I think that's that's that's a that's an inappropriate assessment

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Speaker 1: of investment methodology. I mean even even even a firm

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Speaker 1: that would be like intentionally antagonistic towards the concept of

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Speaker 1: responsible investing might incorporate some kind of climate risk modeling

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Speaker 1: in the way that they think about doing their analysis

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Speaker 1: of oil and gas EPP exactly the whole run of

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Speaker 1: things where where there's some potential exposure and if you

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Speaker 1: don't think about it, you're adding risk to your model, exactly.

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Speaker 1: And that's why I think that the number could be

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Speaker 1: even higher than thirty, because when we talk to asset managers,

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Speaker 1: and we talked to a lot of asset managers, it

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Speaker 1: continues to surprise me how many of them say, yeah,

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Speaker 1: you know, we're starting to contemplate that we're starting to

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Speaker 1: integrate that into our underwriting, for example, for fixed income

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Speaker 1: UM we're starting to integrate that into our analytic models

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Speaker 1: around future discount of cash flows. You know, it's like

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Speaker 1: that that that approach is no longer antagonistic to the

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Speaker 1: notion of investing for finance return. Now how deep it

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Speaker 1: goes and it's only there's only one firm that I'm

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Speaker 1: aware of that does absolute sharp sharp thinking around the

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Speaker 1: materiality of h G risks, and that's UM. Al Gore

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Speaker 1: and David Blood's from Generation Asset Management, and they're they're

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Speaker 1: really a private equity, venture funds, no long only equity,

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Speaker 1: long only equity, long only equity really ten billion? They

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Speaker 1: capped their fund at ten billion. They probably got eleven

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Speaker 1: or so. Now, Um, is it? You're talking private venture

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Speaker 1: or publicly traded company, long only public equity. Really? Yeah,

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Speaker 1: that's fascinating, that's fascinating. They do have a private debt fund,

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Speaker 1: and I believe they do have a small private equity fund,

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Speaker 1: but the core, their core competence is long only global

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Speaker 1: private capital ten billion. If you want to really move

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Speaker 1: the neodle, it's an open question. I've had. I've had

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Speaker 1: that conversation with them, and I think they capped a

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Speaker 1: ten billion when they started the firm because they didn't

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Speaker 1: want to have asked growth be the primary driver for

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Speaker 1: their business decisions. Um, but I don't know what's interesting? Yeah,

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Speaker 1: I don't know. Really really quite fascinating. Yeah, and their

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Speaker 1: performance here's what gets really interesting. Five basis points compounded

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Speaker 1: over the index. Really, Yes, when did they launch ten

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Speaker 1: years eleven years ago? Oh? So they launched right into

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Speaker 1: the right into the mess, right into the mess. And

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Speaker 1: what's beautiful about that is that it both allows an

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Speaker 1: observer to discount their performance by saying, yeah, well, you know,

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Speaker 1: they didn't have an exposure to carbon and they didn't

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Speaker 1: have exposure to predatory landing because that's not their model.

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Speaker 1: But that's the whole point. Oh, you know you're cheating

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Speaker 1: because you're not exposed to all this bad stuff. Well,

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Speaker 1: by definition, isn't that what you're hoping to? That's the

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Speaker 1: whole point And what is baffling to me. And I

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Speaker 1: think this get this gets to the cognitive biases embedded

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Speaker 1: in Wall Street and the city of London. Why are

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Speaker 1: there no copycats? Why aren't I mean think about you

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Speaker 1: have the e t F she that focuses on governance

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Speaker 1: issues where companies with a decent exposure of women represented

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Speaker 1: in yes, senior management, in the board. I wouldn't say

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Speaker 1: that's a direct cop copycat, but hey, black Rock put

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Speaker 1: out an e t F that says, yeah, this is

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Speaker 1: our our corporate governan CTF that's certainly inspired by it's

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Speaker 1: got to be along the same lines. See, I would

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Speaker 1: suggest that that's a market share capture strategy more than

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Speaker 1: necessarily in investment methodology. And I'm maybe cynical here, um,

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Speaker 1: but I would suggest I would pose it that gender

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Speaker 1: diversification in the c suite is an important reflection of

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Speaker 1: the culture of a company, and it may parentheses or

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Speaker 1: may not in parentheses not be immaterial, may not be immaterial.

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Speaker 1: My guest this week is Matthew weatherly White of the

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Speaker 1: cap Rock Group. UH. He is Dartmouth class of eighty six.

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Speaker 1: He spent twelve years working in the trenches at Smith Barney.

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Speaker 1: Let's talk a little bit about Smith Barney before we

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Speaker 1: get back to impact investing in and E s g Um.

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Speaker 1: You don't strike me as a bulge bracket, big firm

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Speaker 1: sort of brokerage guy. How did how did that come about?

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Speaker 1: Part of it was timing. I joined Smith Barney immediately

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Speaker 1: following the Shearson merger. So Sheerson Sheerson Smith Barney when

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Speaker 1: I joined them, so it was pre Travelers Group, PRECD group.

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Speaker 1: Sandy While wasn't even there. I remember on the NASDAC

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Speaker 1: level three Sebashi was Smith Barney. Uh Shearson was was

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Speaker 1: there for digit code on on the on the trading desk. Yes,

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Speaker 1: it was much smaller firm then. I think they had

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Speaker 1: about seven hundred brokers across the country and he had

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Speaker 1: a small office in Boise, which is where I joined them.

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Speaker 1: Um and not long thereafter, Sandy while went on his

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Speaker 1: acquisition spree, and by the time I left, I think

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Speaker 1: they had ten thousand brokers and it was a relatively

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Speaker 1: small division of City Group at the time. So when

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Speaker 1: I joined them, it wasn't really a bulge bracket firm

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Speaker 1: and it became one. And that that that that journey

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Speaker 1: was really just heartening for me. I just sort of

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Speaker 1: personally and and you know, part of it was my

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Speaker 1: naive te when I entered the business. UM. But I

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Speaker 1: remember when I went back to training, my first training session,

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Speaker 1: and in my imagination, training was going to be learning

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Speaker 1: how to be an investor and an teach us how

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Speaker 1: did the markets? What is modern portfolio theory? And it

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Speaker 1: was a month and they had us in this hotel

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Speaker 1: in Hartford, UM for a month and it was cold

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Speaker 1: calling and scripting, was all sales. And I remember leaving

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Speaker 1: at the end of that month thinking, Wow, this is

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Speaker 1: really not what I had expected. UM, But I figured, well,

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Speaker 1: I signed up for this, I'm gonna kind of plug

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Speaker 1: plug my way through it. And I got through the

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Speaker 1: first six months and then qualified for the next level

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Speaker 1: of training and went back to next level of training things.

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Speaker 1: This is where this is where investor you were. You

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Speaker 1: were an army grunt and now um, all right, now

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Speaker 1: I'm an officers training school. Now I'm a lieutenant. Um

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Speaker 1: more sales. Yeah yeah, And uh, I realized that as

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Speaker 1: much as I am fascinated by and compelled by capital markets,

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Speaker 1: capital formation and aggregation, etcetera, I just didn't really like

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Speaker 1: the job. Well it's a sales job. It's not. It's

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Speaker 1: not an intellectual pursuit. It's a sales which has its

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Speaker 1: own intellectual aspect, but it's not the same as capital formation, correct,

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Speaker 1: And it was. It was a great experience for me

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Speaker 1: just to really be in the belly of that beast

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Speaker 1: for for so many years. And along the way, I

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Speaker 1: was tapped to join the leadership development program, which was

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Speaker 1: really about uh, finding guys that was in the firm

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Speaker 1: that we're gonna move on to management. Um. And so

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Speaker 1: I got a two year crash course in big bald

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Speaker 1: bracket broker dealer management. And at the end of it,

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Speaker 1: I was I stepped off that train and I said,

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Speaker 1: not only do I not want to be a manager,

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Speaker 1: I don't even want to stay here. And it took

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Speaker 1: me about five years to figure out how to exit

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Speaker 1: in a way that worked for me. So when you

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Speaker 1: were at Smith Barney, did you try to say, hey,

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Speaker 1: here's an idea. So previously we um also a Smith

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Speaker 1: Barney alum was was it Smith Barney? Was is Rick

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Speaker 1: Ferry who turned around and said, hey, I have a

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Speaker 1: great idea, let's do low cost indexing and pitched them

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Speaker 1: on it. They said no. When it took him a

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Speaker 1: year or two before he said all right, I'm gonna

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Speaker 1: go do this on my own. Did you try to

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Speaker 1: move the dial there with hey, we could do something

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Speaker 1: interesting here and the clients will love it. I can't

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Speaker 1: believe you asked that question. We did not prep for this, Um. Yes,

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Speaker 1: I did. Actually wrote a white paper to senior management

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Speaker 1: where I said, look, there's these embedded conflict conflicts of

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Speaker 1: interest in this business model where you've got four primary

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Speaker 1: revenue streams, all riding on the backs of one or

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Speaker 1: two consumer basis, and those embedded conflicts of interests are

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Speaker 1: going to be revealed at some point, and here's one

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Speaker 1: way to strip that conflict. And I I suggested an

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Speaker 1: asset based account rather than a commission bay ssed account.

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Speaker 1: They called it Asset one and it became the fastest

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Speaker 1: growing account structure at Smith Barney. Nine months or so

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Speaker 1: into that pilot project, they terminated it because not not

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Speaker 1: because it was they were pulling money away from more

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Speaker 1: productive brokerage accounts. No, it was because the brokers were

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Speaker 1: using asset one as an excuse to get paid on

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Speaker 1: an account without doing anything. So what they realized was

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Speaker 1: that brokers were converting commission based accounts to fee based

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Speaker 1: accounts so they could basically ignore the client and still

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Speaker 1: get paid. Huh, that's fascinating. Yeah, it was really it

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Speaker 1: was a really interesting and you know, somewhat cynical view

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Speaker 1: into the mindset of the company. Couldn't you really impose

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Speaker 1: a set of conditions that if you're gonna run an

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Speaker 1: asset fee based thing, you're required to. If here's a

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Speaker 1: financial plan, here's a quotally update, he's an annual review,

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Speaker 1: you can impose exactly what they did. That's exactly what

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Speaker 1: they did in the broker force sort of rejected it,

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Speaker 1: and so let's work. It's actual it's actual labor. Yes,

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Speaker 1: the account die. Huh, that's that's amazing. I'm Barry rid Hults.

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Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My

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Speaker 1: guest today is Matthew weatherly White, who specializes in impact

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Speaker 1: investing and is the co founder of the cap Rock Group.

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Speaker 1: So let's let's talk about running a business that specializes

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Speaker 1: in in what you do. First question, I know your background.

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Speaker 1: I know you've been all around the world. You were

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Speaker 1: born in Manhattan. Where did you go from From New

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Speaker 1: York Tuna as one does, um, and then France and

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Speaker 1: then England and then Colorado, which is where I think

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Speaker 1: of as my home. And I went back east to

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Speaker 1: go to Andover and in Dartmouth, and then I lived

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Speaker 1: in Australia for a while, and then I moved to Idaho. Um.

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Speaker 1: Which so that's a natural progression that all roads leads

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Speaker 1: to boys. We've heard that, although I'm told that that

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Speaker 1: parts of Idaho are just big sky, spectacular country fishing, skiing,

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Speaker 1: mountain hiking, if you like doing anything in the outdoors.

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Speaker 1: Idaho is Colorado was like when I was a kid,

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Speaker 1: really just not as developed as Colorado has become. It's

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Speaker 1: a remarkable state. And I'm not getting paid by the

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Speaker 1: Ido Teamber of Commerce for this endorsement, but I chose

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Speaker 1: to live there. Um. It's been a it's been a

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Speaker 1: Hindrance in many ways professionally, but not a big financial community.

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Speaker 1: In Boise, it's the other center of the financial world.

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Speaker 1: It's the beating heart of the London, New York, Tokyo. Boise.

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Speaker 1: Absolutely it rolls off the tongue. But but for an outdoorsement,

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Speaker 1: it's a fantastic place. Yeah. Yeah. So, so let's talk

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Speaker 1: about running this business to begin with. So you're an

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Speaker 1: investment firm. When clients come to you, is it all right,

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Speaker 1: here's what we're gonna do with your investments. And by

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Speaker 1: the way, we'll put this much into impact. Is it

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Speaker 1: a what what drives that process and that decision? Yes,

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Speaker 1: that's probably a much deeper conversation than than the format

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Speaker 1: of the show we were all right, um so first

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Speaker 1: of all, um, you know, we have grown from a

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Speaker 1: relatively modest beginning. We had about four hundred million dollars

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Speaker 1: in assets under management in two thousand and eight. We

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Speaker 1: launched in two thousand and five and spent three years

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Speaker 1: basically building systems and capacity, started started marketing in two

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Speaker 1: thousand and eight and went from roughly four hundred million

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Speaker 1: to three billion now so ten years, ten x almost

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Speaker 1: in eight years. Yeah. So it's been gratifying growth um

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Speaker 1: and I think we can attribute that to a couple

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Speaker 1: of things. I mentioned a moment ago that you know,

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Speaker 1: being based in Boys has been hindrance. It cuts both ways.

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Speaker 1: We have had some families say to us they intentionally

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Speaker 1: want to work with us because we're not from New York.

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Speaker 1: They think that that leads to the capacity for independent thought,

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Speaker 1: which I think is accurate. And we also have had

428
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Speaker 1: some perspective clients who have said no to us because

429
00:24:45,600 --> 00:24:47,600
Speaker 1: we're not from a financial center and they think that

430
00:24:47,640 --> 00:24:49,560
Speaker 1: we're not going to be able to tap into sort

431
00:24:49,600 --> 00:24:52,600
Speaker 1: of the sharpest and best thinking. So that geography cuts

432
00:24:52,600 --> 00:24:55,200
Speaker 1: both ways. I think broadly it's been more of hindrance

433
00:24:55,200 --> 00:24:58,520
Speaker 1: than help. However, the way that we've chosen to structure

434
00:24:58,520 --> 00:25:01,840
Speaker 1: our business is based on a question that the six

435
00:25:01,920 --> 00:25:05,520
Speaker 1: founding partners asked ourselves, if we were to hire a

436
00:25:05,600 --> 00:25:08,960
Speaker 1: firm to manage our own capital, what would that firm

437
00:25:09,119 --> 00:25:12,280
Speaker 1: look like? And we spent three years answering that question,

438
00:25:12,560 --> 00:25:16,359
Speaker 1: using a combination of partner capital and of residual business

439
00:25:16,400 --> 00:25:19,960
Speaker 1: that we lifted at Smith Barney for operating revenue to

440
00:25:20,000 --> 00:25:23,359
Speaker 1: basically build the answer to that question. And one of

441
00:25:23,400 --> 00:25:26,240
Speaker 1: the things we did right away was rejected notional model portfolios.

442
00:25:26,640 --> 00:25:28,720
Speaker 1: And as soon as you as soon as you sort

443
00:25:28,720 --> 00:25:31,480
Speaker 1: of go through that intellectual process of understanding why a

444
00:25:31,560 --> 00:25:35,960
Speaker 1: model portfolios exist, i e. To optimize for the profitability

445
00:25:35,960 --> 00:25:38,840
Speaker 1: of the asset management firm, not necessarily to drive for

446
00:25:39,000 --> 00:25:42,000
Speaker 1: best solutions for your clients, then you realize you can't

447
00:25:42,080 --> 00:25:46,280
Speaker 1: use model portfolios. So let me let me push back

448
00:25:46,320 --> 00:25:48,120
Speaker 1: on that a little please, because I know half the

449
00:25:48,200 --> 00:25:50,919
Speaker 1: audience is pushing back. Oh, absolutely, this is a really

450
00:25:51,359 --> 00:25:57,000
Speaker 1: this is a uh, confrontational almost stance. Um. So the

451
00:25:57,040 --> 00:26:03,320
Speaker 1: counter argument is, look, people looking for appreciation relative to

452
00:26:03,359 --> 00:26:07,880
Speaker 1: the risk they're assuming, and depending on their personal risk

453
00:26:07,920 --> 00:26:11,960
Speaker 1: tolerances and depending on what their financial goals are, they

454
00:26:12,040 --> 00:26:14,720
Speaker 1: want either a lot of risk or a moderate amount

455
00:26:14,720 --> 00:26:18,840
Speaker 1: of risk, or a small amount of risk conventionally known

456
00:26:18,880 --> 00:26:22,639
Speaker 1: as conservative, moderate, and aggressive. Uh. We get compensated for

457
00:26:22,680 --> 00:26:25,119
Speaker 1: the risk we assume in the capital markets up to

458
00:26:25,200 --> 00:26:28,240
Speaker 1: a point. There's the efficient frontier and a point where

459
00:26:28,280 --> 00:26:31,879
Speaker 1: you are optimizing how much risk you're taking relative to

460
00:26:31,880 --> 00:26:37,959
Speaker 1: your expected returns. And everybody, while theoretically being a unique

461
00:26:37,960 --> 00:26:41,399
Speaker 1: individual and we're all butterflies, the reality is most of

462
00:26:41,480 --> 00:26:46,080
Speaker 1: us have some similar financial goals, be it saving for

463
00:26:46,160 --> 00:26:50,960
Speaker 1: college graduation, buying a home, generational wealth transfer, go through

464
00:26:51,000 --> 00:26:53,720
Speaker 1: all the usual things, and most people more or less

465
00:26:53,800 --> 00:26:57,919
Speaker 1: full into I am very risk averse, I'm moderately risk averse.

466
00:26:58,000 --> 00:27:01,159
Speaker 1: I'm not risk averse at all. And so the various

467
00:27:01,200 --> 00:27:05,640
Speaker 1: portfolios we could tell people were creating a unique perspective

468
00:27:05,720 --> 00:27:08,880
Speaker 1: for them, but really they all end, they all fall

469
00:27:08,960 --> 00:27:12,680
Speaker 1: into the three buckets. Fair fair bit of pushback, which

470
00:27:12,680 --> 00:27:15,280
Speaker 1: I assume you've heard before. Yeah, absolutely, that that's a

471
00:27:15,520 --> 00:27:22,360
Speaker 1: logical and defensible position. However, well, our experience is that

472
00:27:22,359 --> 00:27:27,000
Speaker 1: that's not actually true. And here's why. Um First, we

473
00:27:27,000 --> 00:27:30,159
Speaker 1: don't think that investors can articulate their risk tolerance in

474
00:27:30,200 --> 00:27:33,000
Speaker 1: a way that is reasonable, and there risk tolerance shifts

475
00:27:33,080 --> 00:27:37,040
Speaker 1: with market performance. In two thousand and seven, everybody had

476
00:27:37,119 --> 00:27:39,800
Speaker 1: high risk tolerance. In two thousand and nine, nobody had

477
00:27:39,880 --> 00:27:44,640
Speaker 1: high risk tolerance. And you can't flip portfolios, risk structure,

478
00:27:44,920 --> 00:27:49,520
Speaker 1: risk bucketing effectively to matt to the viscis tudes of

479
00:27:49,560 --> 00:27:51,760
Speaker 1: the market. But let me push back right on on that.

480
00:27:51,920 --> 00:27:55,480
Speaker 1: Right here, it's not that their risk tolerance has has changed,

481
00:27:55,840 --> 00:27:58,600
Speaker 1: it's that the headlines have changed and suddenly they're scared,

482
00:27:59,000 --> 00:28:01,960
Speaker 1: and their behavior and they're cognitive issues. The fact that

483
00:28:02,040 --> 00:28:06,120
Speaker 1: they're fearful and they're expressing that in a way they

484
00:28:06,160 --> 00:28:09,120
Speaker 1: think is restolerance. Really they're just saying, what's going on,

485
00:28:09,160 --> 00:28:12,440
Speaker 1: I'm nervous, And it's the advisor's job to say, look,

486
00:28:12,560 --> 00:28:15,159
Speaker 1: we had this conversation, here are your financial goals. This

487
00:28:15,240 --> 00:28:18,040
Speaker 1: too shall pass, but you can either change every six

488
00:28:18,119 --> 00:28:21,040
Speaker 1: months or you could ride this out for again, totally agree.

489
00:28:21,080 --> 00:28:23,800
Speaker 1: The problem is if you're basing your assessment on what

490
00:28:23,840 --> 00:28:27,040
Speaker 1: the client has told you at that moment, at that moment,

491
00:28:27,640 --> 00:28:31,120
Speaker 1: then you use automatically enter this really strange world where

492
00:28:31,160 --> 00:28:33,000
Speaker 1: you're not really sure what you should doing. But but

493
00:28:33,000 --> 00:28:35,040
Speaker 1: but that's one of the words they're what they're telling you.

494
00:28:35,040 --> 00:28:37,840
Speaker 1: The risk assessment is is only a function of what

495
00:28:37,960 --> 00:28:40,840
Speaker 1: just happened, not the next ten years, frequently and the

496
00:28:41,000 --> 00:28:43,360
Speaker 1: and that's part of it. But the bigger part is

497
00:28:44,240 --> 00:28:47,400
Speaker 1: when we go through this pretty brain cramping exercise of

498
00:28:47,440 --> 00:28:51,600
Speaker 1: doing lifetime discount of cash flow modeling, and when you

499
00:28:51,680 --> 00:28:56,040
Speaker 1: do that and you um derive from that process a

500
00:28:56,200 --> 00:29:00,360
Speaker 1: present value calculation on your future anticipate paid it in

501
00:29:00,440 --> 00:29:04,240
Speaker 1: known liabilities, and you compare that present value calculation against

502
00:29:04,240 --> 00:29:06,400
Speaker 1: the assets that they have, you can derive a target

503
00:29:06,520 --> 00:29:09,680
Speaker 1: after tax inflation rate of return. This is a big exercise,

504
00:29:10,120 --> 00:29:12,240
Speaker 1: but by doing that, you can then say to the client, Okay,

505
00:29:12,560 --> 00:29:14,920
Speaker 1: given the assumptions are in this model, and here they are,

506
00:29:14,960 --> 00:29:17,240
Speaker 1: here's our discount rate, and here's our rate of inflation

507
00:29:17,280 --> 00:29:19,400
Speaker 1: that we expect, and here's how old your kids are.

508
00:29:19,400 --> 00:29:21,720
Speaker 1: And you know it's it's a pretty logical exercise. You

509
00:29:21,720 --> 00:29:23,960
Speaker 1: can then say, we believe that you are after tax

510
00:29:24,000 --> 00:29:26,280
Speaker 1: inflation target rate of return is one and a quarter percent,

511
00:29:27,280 --> 00:29:28,880
Speaker 1: so you have a lot of wealth and a relatively

512
00:29:28,920 --> 00:29:32,320
Speaker 1: low burn rate. That's a modest rate of return. That

513
00:29:32,440 --> 00:29:36,000
Speaker 1: opens up a really interesting conversation because from that a

514
00:29:36,040 --> 00:29:38,440
Speaker 1: client can say, oh, you mean I don't have to

515
00:29:38,480 --> 00:29:41,880
Speaker 1: hardly take any risk, and I can have an enormous

516
00:29:41,920 --> 00:29:44,720
Speaker 1: sense of confidence that I've inoculated myself against the future

517
00:29:44,800 --> 00:29:48,680
Speaker 1: uncertainties of the market. Or somebody might say, oh wow,

518
00:29:48,960 --> 00:29:51,560
Speaker 1: I can swing for the fences because I can lock

519
00:29:51,640 --> 00:29:54,320
Speaker 1: down that one in a quarter percent with fort of

520
00:29:54,360 --> 00:29:57,120
Speaker 1: my portfolio and give sixty percent of my portfolio a

521
00:29:57,200 --> 00:29:59,760
Speaker 1: really high risk profile, even though they might not consider

522
00:29:59,760 --> 00:30:02,080
Speaker 1: them elves high risk but as soon as you unlock

523
00:30:02,720 --> 00:30:06,080
Speaker 1: that conversation, it suddenly becomes grounded in this like in this,

524
00:30:06,560 --> 00:30:11,080
Speaker 1: in this sort of hyper real relationship between the money

525
00:30:11,080 --> 00:30:13,200
Speaker 1: that they have and how they want to live their life,

526
00:30:13,320 --> 00:30:16,640
Speaker 1: rather than its abstract well, what's your risk tolerant? Mr. Investor?

527
00:30:17,120 --> 00:30:18,600
Speaker 1: You know, they don't they don't know. When you ask

528
00:30:18,640 --> 00:30:21,240
Speaker 1: people that they don't know. They obviously don't. They don't

529
00:30:21,280 --> 00:30:23,560
Speaker 1: know you have to. And yet that is the that

530
00:30:23,680 --> 00:30:27,120
Speaker 1: is the fundamental assumption that almost all of these risks,

531
00:30:27,160 --> 00:30:29,680
Speaker 1: that all these model portfolios are based on what's your

532
00:30:29,760 --> 00:30:33,000
Speaker 1: risk tolerance? Mr. Investor. You talk to a real estate

533
00:30:33,000 --> 00:30:35,560
Speaker 1: developer and you'll say, I'm really conservative. All I want

534
00:30:35,240 --> 00:30:39,240
Speaker 1: is and you'll talk to over ten years, not over

535
00:30:39,240 --> 00:30:44,040
Speaker 1: ten years, not compounded annually, because if you're or, you

536
00:30:44,040 --> 00:30:46,280
Speaker 1: can talk to somebody else and says, I'm super aggressive,

537
00:30:46,520 --> 00:30:49,320
Speaker 1: I want to get like eight percent. Well that is

538
00:30:49,320 --> 00:30:51,720
Speaker 1: as it is these days. It is these days. Yeah,

539
00:30:51,800 --> 00:30:55,240
Speaker 1: but I definitely understand the point. The thing that I

540
00:30:55,280 --> 00:30:57,480
Speaker 1: find fascinating and I wonder if you could talk to

541
00:30:57,520 --> 00:31:01,320
Speaker 1: this is there are people who, in the early part

542
00:31:01,320 --> 00:31:05,240
Speaker 1: of their career are, uh, go go go acquire, acquire,

543
00:31:05,560 --> 00:31:09,520
Speaker 1: take embrace risks and suddenly they find themselves with a

544
00:31:09,600 --> 00:31:12,120
Speaker 1: huge pile of money and getting them out of that

545
00:31:12,280 --> 00:31:18,000
Speaker 1: former risk embracing headspace sometimes could be a challenge because hey,

546
00:31:18,200 --> 00:31:20,400
Speaker 1: Mr Jones, you have a hundred million dollars, you don't

547
00:31:20,400 --> 00:31:23,360
Speaker 1: have to keep swinging for the fences. You can throttle

548
00:31:23,400 --> 00:31:25,640
Speaker 1: back and take less less risk. And that's where that

549
00:31:25,680 --> 00:31:28,880
Speaker 1: lifetime just kind of cash amo really helps. And it's

550
00:31:29,000 --> 00:31:31,080
Speaker 1: super detailed. I mean it can take us six months

551
00:31:31,120 --> 00:31:34,600
Speaker 1: sometimes to build that totally out, and it's an iterative

552
00:31:34,640 --> 00:31:37,720
Speaker 1: process and all the assumptions get tweaked and revisited. But

553
00:31:37,920 --> 00:31:42,040
Speaker 1: once you take somebody through that process, the conversation shifts,

554
00:31:42,520 --> 00:31:44,200
Speaker 1: and I want to get back to one of the

555
00:31:44,280 --> 00:31:48,640
Speaker 1: questions you asked, impact funds versus Yeah, so we are

556
00:31:48,680 --> 00:31:52,920
Speaker 1: not an impact investing firm. We are an investment firm

557
00:31:53,120 --> 00:31:55,640
Speaker 1: that has an interest for it. And I would argue

558
00:31:55,640 --> 00:31:57,800
Speaker 1: and expertise in impact investing, it's not the same thing.

559
00:31:57,800 --> 00:32:00,840
Speaker 1: There are a handful of firms that are exclusively impact

560
00:32:00,880 --> 00:32:04,160
Speaker 1: investment firms. We don't do that for two reasons. One,

561
00:32:04,480 --> 00:32:07,800
Speaker 1: we think that you cannot simply throw a switch and

562
00:32:07,840 --> 00:32:11,360
Speaker 1: just convert to impact overnight. So by definition, all of

563
00:32:11,360 --> 00:32:14,880
Speaker 1: our clients, even those who are passionate about impact investing,

564
00:32:15,160 --> 00:32:18,320
Speaker 1: have some conventional investments in their portfolio, so we wouldn't

565
00:32:18,320 --> 00:32:20,520
Speaker 1: be able to manage the whole balance sheet. Um and

566
00:32:20,560 --> 00:32:22,400
Speaker 1: the second pieces. We think that at some point in

567
00:32:22,400 --> 00:32:25,440
Speaker 1: the future the term impact investing is going to lose

568
00:32:25,440 --> 00:32:28,360
Speaker 1: its meaning, and we don't want a self pigeonhole into

569
00:32:28,360 --> 00:32:31,880
Speaker 1: the future. We've been speaking with Matthew weatherly White of

570
00:32:31,920 --> 00:32:35,320
Speaker 1: the cap Rock Group. If you enjoy this conversation, be

571
00:32:35,360 --> 00:32:37,760
Speaker 1: sure and stick around for the podcast aftrus where we

572
00:32:37,880 --> 00:32:40,840
Speaker 1: keep the digital tape rolling and chat for another hour

573
00:32:41,000 --> 00:32:43,520
Speaker 1: or so. Be sure and check out, By the way,

574
00:32:43,560 --> 00:32:45,959
Speaker 1: where can people find your work, your research, your writings,

575
00:32:45,960 --> 00:32:48,760
Speaker 1: your white papers. Yeah, so the best place is our

576
00:32:48,880 --> 00:32:54,640
Speaker 1: blog site, which is www I three impact dot com.

577
00:32:54,720 --> 00:32:58,080
Speaker 1: That's integrated Impact Investing impact dot com I and the

578
00:32:58,200 --> 00:33:01,680
Speaker 1: numeral three Impact Investing dot com just I three impact

579
00:33:01,800 --> 00:33:05,720
Speaker 1: dot com. And then my Twitter feed is uh at

580
00:33:05,920 --> 00:33:10,480
Speaker 1: I three impact I three Impact. Be sure and check

581
00:33:10,520 --> 00:33:13,920
Speaker 1: out my daily column on Bloomberg View dot com. Follow

582
00:33:13,920 --> 00:33:17,040
Speaker 1: me on Twitter at rit Halts. I'm Barry rit Halts.

583
00:33:17,080 --> 00:33:21,000
Speaker 1: You're listening to Masters in Business on Bloomberg Radio. Welcome

584
00:33:21,040 --> 00:33:23,040
Speaker 1: to the podcast. I do this every time. I don't

585
00:33:23,080 --> 00:33:26,120
Speaker 1: know why I'm talking with Matthew Weatherley White. It's it's

586
00:33:26,120 --> 00:33:28,480
Speaker 1: a different segment. So I feel open and free and

587
00:33:28,520 --> 00:33:31,000
Speaker 1: not I don't have to worry about the time. Matthew,

588
00:33:31,000 --> 00:33:32,560
Speaker 1: thank you so much for doing this. This has really

589
00:33:32,640 --> 00:33:36,239
Speaker 1: been quite quite interesting. Yeah, I love your questions very

590
00:33:36,280 --> 00:33:39,240
Speaker 1: It's great to sit with somebody who knows the fancom

591
00:33:39,240 --> 00:33:41,040
Speaker 1: markets as well as you do. And for those of

592
00:33:41,040 --> 00:33:44,320
Speaker 1: you who obviously everybody's listening to this everybody. Barry just

593
00:33:44,400 --> 00:33:47,640
Speaker 1: did this like I'm embracing the world gesture And if

594
00:33:47,640 --> 00:33:51,320
Speaker 1: anybody's seen an Cutty's ted talk about how body language

595
00:33:51,360 --> 00:33:55,480
Speaker 1: informs like that's I just saw like her deal right there. Really,

596
00:33:56,200 --> 00:33:58,640
Speaker 1: I don't know how I what how that came about.

597
00:33:58,880 --> 00:34:01,880
Speaker 1: I just spread my arm. And the first time I

598
00:34:01,880 --> 00:34:04,480
Speaker 1: did it was like, you have to understand, I'm not

599
00:34:04,560 --> 00:34:06,920
Speaker 1: a professional radio person. I have no training, I have

600
00:34:07,000 --> 00:34:11,719
Speaker 1: no background. This whole project was a skunk works exercise

601
00:34:11,760 --> 00:34:13,640
Speaker 1: here at Bloomberg and it was kind of snuck in

602
00:34:13,680 --> 00:34:15,919
Speaker 1: the back door. They were like, yeah, go ahead, kid,

603
00:34:15,960 --> 00:34:17,680
Speaker 1: go do that. And the next thing you know, it

604
00:34:18,080 --> 00:34:21,879
Speaker 1: became the most popular podcast at Bloomberg and they've been

605
00:34:21,880 --> 00:34:24,839
Speaker 1: nothing but supportive, encouraging. But it was how did this

606
00:34:24,920 --> 00:34:29,000
Speaker 1: come about so early? I was trying to signal in

607
00:34:29,040 --> 00:34:31,960
Speaker 1: the first few podcasts this is a different segment, and

608
00:34:32,000 --> 00:34:35,560
Speaker 1: it was just welcome to the podcast, because in my

609
00:34:35,640 --> 00:34:38,960
Speaker 1: ear I hear the engineer saying halfway two minutes, one minute,

610
00:34:39,000 --> 00:34:41,919
Speaker 1: thirty seconds, and I'm so when you see me sort

611
00:34:41,960 --> 00:34:44,600
Speaker 1: of hurrying you along, it's because I'm trying to make

612
00:34:44,680 --> 00:34:47,760
Speaker 1: the the guy who has to cut up my messy

613
00:34:47,920 --> 00:34:51,680
Speaker 1: conversation into precisely seven and a half eight and a

614
00:34:51,680 --> 00:34:56,640
Speaker 1: half six and segments. And now this is open ended,

615
00:34:56,680 --> 00:34:59,880
Speaker 1: so it's freeing. I don't have to, uh, but you

616
00:35:00,000 --> 00:35:02,399
Speaker 1: of the first person who's ever commented on it. So

617
00:35:02,640 --> 00:35:06,920
Speaker 1: I have a ba jillion or maybe twenty questions that

618
00:35:06,960 --> 00:35:10,160
Speaker 1: I didn't get to, and uh, I wanted to push

619
00:35:10,200 --> 00:35:11,920
Speaker 1: back on what you said, because I know there are

620
00:35:11,960 --> 00:35:14,160
Speaker 1: people who are going to push back on that. Listen,

621
00:35:14,280 --> 00:35:18,080
Speaker 1: models or how most of I shouldn't say most on

622
00:35:18,120 --> 00:35:23,120
Speaker 1: the i A side, on the investment advisory side, the

623
00:35:23,200 --> 00:35:29,359
Speaker 1: academic studies show that very often passive beats active and

624
00:35:29,520 --> 00:35:34,320
Speaker 1: models beat the sort of sector rotation, chin stroking I

625
00:35:34,480 --> 00:35:37,280
Speaker 1: think now energy is going to be good and we rotate,

626
00:35:37,440 --> 00:35:39,239
Speaker 1: or energy is gonna be bad and we rotate out

627
00:35:39,239 --> 00:35:42,719
Speaker 1: of energy. So the idea of models being more passive

628
00:35:43,520 --> 00:35:47,960
Speaker 1: and less, less costly, less turnover, less taxes in the

629
00:35:47,960 --> 00:35:50,359
Speaker 1: long only it's an improvement from what came before totally

630
00:35:50,400 --> 00:35:52,680
Speaker 1: and in the long only equity world, which we would

631
00:35:52,760 --> 00:35:55,160
Speaker 1: we would consider not only an asset class, but a

632
00:35:55,160 --> 00:35:59,879
Speaker 1: subasset class um that's lonely. Yeah, of course, that's exactly right.

633
00:36:00,000 --> 00:36:05,359
Speaker 1: It's exactly right, like active management. Really it there are

634
00:36:05,440 --> 00:36:08,920
Speaker 1: people who who outperform, like Generation, who I mentioned on

635
00:36:08,960 --> 00:36:12,080
Speaker 1: the call before, and we do. We do have exposure

636
00:36:12,120 --> 00:36:17,040
Speaker 1: to some actively managed long only public equity, but it's

637
00:36:17,080 --> 00:36:20,640
Speaker 1: typically people that have high conviction, low low demonstrated correlation

638
00:36:20,640 --> 00:36:23,160
Speaker 1: of the broad markets. Most of our long only equity

639
00:36:23,280 --> 00:36:26,319
Speaker 1: is managed for beta right, and it's we we do

640
00:36:26,400 --> 00:36:29,680
Speaker 1: tax matches essentially a model. It's a model, and that's why.

641
00:36:29,960 --> 00:36:33,040
Speaker 1: And I wanted to get to that in the official interview,

642
00:36:33,400 --> 00:36:36,520
Speaker 1: but I felt you hustling me along, and so I didn't.

643
00:36:36,760 --> 00:36:38,960
Speaker 1: You shouldn't feel that way. You should. You should always

644
00:36:39,360 --> 00:36:43,440
Speaker 1: so media advice, Always get your answer out because they'll

645
00:36:44,320 --> 00:36:48,480
Speaker 1: years ago big digression this is this shouldn't be about me,

646
00:36:48,560 --> 00:36:52,200
Speaker 1: this should be about you. But I did Nightline and

647
00:36:52,239 --> 00:36:54,880
Speaker 1: it was long after the glory days of the first

648
00:36:54,880 --> 00:36:58,120
Speaker 1: direct Warren, and so I gave them an answer and

649
00:36:58,160 --> 00:37:00,640
Speaker 1: I could tell. So here's the way they they shoot

650
00:37:00,680 --> 00:37:05,360
Speaker 1: these things to tape. There's a storyline that their writers

651
00:37:05,480 --> 00:37:08,120
Speaker 1: and their legitimate writers think they're telling the media story,

652
00:37:08,440 --> 00:37:10,600
Speaker 1: and they write this out, and they go out to

653
00:37:10,680 --> 00:37:13,799
Speaker 1: the universe of possible pundits and they find people who

654
00:37:13,840 --> 00:37:16,640
Speaker 1: will say different things relative to that storyline, and they

655
00:37:16,680 --> 00:37:19,200
Speaker 1: sort of assemble this jigsaw puzzle. And when it works,

656
00:37:19,640 --> 00:37:23,440
Speaker 1: it's great. And when their storyline is wrong or off

657
00:37:23,680 --> 00:37:27,920
Speaker 1: or diverging from reality, it's not so great. So and

658
00:37:27,960 --> 00:37:30,640
Speaker 1: the way they the little trick that they do is

659
00:37:30,920 --> 00:37:32,959
Speaker 1: if you give you them an answer that they don't

660
00:37:32,960 --> 00:37:36,840
Speaker 1: like or it doesn't fit into their prefab storyline, um,

661
00:37:36,880 --> 00:37:39,279
Speaker 1: they'll ask you the same question slightly differently, and they'll

662
00:37:39,320 --> 00:37:43,000
Speaker 1: do it twenty times until you finally say what they want.

663
00:37:43,760 --> 00:37:46,480
Speaker 1: But I I've been doing this long enough that I

664
00:37:46,600 --> 00:37:48,880
Speaker 1: know the game, And so they asked me a question,

665
00:37:48,880 --> 00:37:51,919
Speaker 1: how much is two plus two four? Let us ask

666
00:37:51,960 --> 00:37:55,520
Speaker 1: you this differently? How much is two plus two in

667
00:37:55,600 --> 00:37:59,480
Speaker 1: the universe where it's four, you can ask me a

668
00:37:59,480 --> 00:38:03,680
Speaker 1: different way. So the third or fourth question was asked,

669
00:38:03,680 --> 00:38:06,600
Speaker 1: an answered, move on to the next question. And they're

670
00:38:06,600 --> 00:38:09,000
Speaker 1: not used to I'm the guest, I'm not the director,

671
00:38:09,080 --> 00:38:11,759
Speaker 1: but I know what the what they're pulling, and I'm

672
00:38:11,800 --> 00:38:15,120
Speaker 1: not gonna say something and I'll believe. And I really

673
00:38:15,160 --> 00:38:18,680
Speaker 1: deeply think that anybody who goes in the media should

674
00:38:18,760 --> 00:38:22,640
Speaker 1: always say what they believe and not just respond in

675
00:38:22,680 --> 00:38:25,160
Speaker 1: a way that they think the Uh. So you should,

676
00:38:25,160 --> 00:38:28,000
Speaker 1: I I apologize if I meant you felt hurried along.

677
00:38:28,239 --> 00:38:31,399
Speaker 1: I wasn't my intention. You should always say, hey, part

678
00:38:31,400 --> 00:38:32,799
Speaker 1: of what we do is this, and part of what

679
00:38:32,800 --> 00:38:34,839
Speaker 1: we do is that. And so that was my bad.

680
00:38:34,880 --> 00:38:37,480
Speaker 1: But I felt obligated to push back because I could

681
00:38:37,520 --> 00:38:42,839
Speaker 1: hear a million listeners saying, hey, this model. Uh pushed back.

682
00:38:42,880 --> 00:38:46,160
Speaker 1: There's a ton of interesting Yeah. And I think the

683
00:38:46,200 --> 00:38:47,799
Speaker 1: other the other place where it makes a ton of

684
00:38:47,840 --> 00:38:51,280
Speaker 1: sense is in the endowment model. Because the endowment model,

685
00:38:51,320 --> 00:38:57,600
Speaker 1: where you have clear, consistent, long term cash flows, you

686
00:38:57,640 --> 00:39:00,239
Speaker 1: can discount that with an enormous amount of certainty, and

687
00:39:00,280 --> 00:39:02,520
Speaker 1: you can build optimized models. They are going to be

688
00:39:02,560 --> 00:39:05,480
Speaker 1: in place for decades. They don't have a specific funding

689
00:39:05,520 --> 00:39:09,960
Speaker 1: that you'd beyond. They don't require flexibility, don't have to

690
00:39:09,960 --> 00:39:13,319
Speaker 1: worry about providing increased liquidity. They don't have to know

691
00:39:13,320 --> 00:39:15,160
Speaker 1: whether or not your client is going to have a kid,

692
00:39:15,280 --> 00:39:17,040
Speaker 1: or want to build a second home, or want to invent.

693
00:39:17,200 --> 00:39:20,799
Speaker 1: It's like all the liquidity factors that you have to

694
00:39:20,840 --> 00:39:24,560
Speaker 1: think about with individual clients that directly inform the construction,

695
00:39:24,680 --> 00:39:28,040
Speaker 1: viability and durability of a long term portfolio allocation. That's

696
00:39:28,040 --> 00:39:30,839
Speaker 1: not an issue. And so model portfolios work really well

697
00:39:30,920 --> 00:39:33,399
Speaker 1: in that endowment model. And people like Katie Hall at

698
00:39:33,400 --> 00:39:36,120
Speaker 1: Hall Capital have taken the endowment model. And she's the

699
00:39:36,120 --> 00:39:41,680
Speaker 1: CIO at Princeton, founder of Laurel Capital Management, wicked smart,

700
00:39:41,800 --> 00:39:45,439
Speaker 1: super cool woman. She founded Hall Capital um. She's got

701
00:39:45,480 --> 00:39:48,400
Speaker 1: twenty five billion, maybe more than that a U m

702
00:39:48,480 --> 00:39:51,520
Speaker 1: um And the whole thing is endowment model. That's it

703
00:39:51,600 --> 00:39:54,200
Speaker 1: just running a model and looking thinking long term and

704
00:39:54,280 --> 00:39:58,000
Speaker 1: not not worrying about capital calls or hey, we're gonna

705
00:39:58,000 --> 00:39:59,600
Speaker 1: have to take time out of this. And she's in

706
00:39:59,640 --> 00:40:01,680
Speaker 1: a great job with that, I think, and there are

707
00:40:01,760 --> 00:40:03,960
Speaker 1: firms that have done that with really high i Q

708
00:40:04,160 --> 00:40:07,640
Speaker 1: solutions around model portfolios. But they have a wickedly smart

709
00:40:07,880 --> 00:40:10,480
Speaker 1: investment committee. They do a lot of work with you know,

710
00:40:10,760 --> 00:40:15,160
Speaker 1: controlling steak and direct companies, lots of alternative um, private

711
00:40:15,200 --> 00:40:18,240
Speaker 1: assets and real asset investments. They don't do a whole

712
00:40:18,360 --> 00:40:21,800
Speaker 1: ton of sort of convention along only public equity investing.

713
00:40:21,840 --> 00:40:24,759
Speaker 1: And so the model portfolio looks more like Swinson's portfolio

714
00:40:24,960 --> 00:40:26,880
Speaker 1: Yale than it would for somebody who has, you know,

715
00:40:26,920 --> 00:40:29,399
Speaker 1: ten million dollars. So now what do you do? That's

716
00:40:29,520 --> 00:40:32,960
Speaker 1: raised an interesting question close to the Swinson model was

717
00:40:33,040 --> 00:40:35,240
Speaker 1: such a home run when it was a unique model,

718
00:40:35,840 --> 00:40:38,680
Speaker 1: and the past ten twenty years, even though Yale has

719
00:40:38,719 --> 00:40:42,120
Speaker 1: done well, when you look at all the Swinson imitators,

720
00:40:42,160 --> 00:40:45,600
Speaker 1: they've stunk to join up. Yeah, I mean, imitation is

721
00:40:45,640 --> 00:40:48,600
Speaker 1: always hard in the capital markets, right, I mean, you

722
00:40:48,680 --> 00:40:53,000
Speaker 1: chase performance because somebody found an opportunity for alpha and

723
00:40:53,080 --> 00:40:55,440
Speaker 1: you arbitrage away the alpha b capital flows. I mean,

724
00:40:55,440 --> 00:40:58,040
Speaker 1: that's how the capital markets work. And that's one of

725
00:40:58,040 --> 00:41:00,360
Speaker 1: the things that I find so interesting right now out

726
00:41:01,000 --> 00:41:03,959
Speaker 1: E s G materiality because there's not very many firms

727
00:41:04,000 --> 00:41:06,640
Speaker 1: I mentioned generation asset management. There's not very many firms

728
00:41:06,640 --> 00:41:09,440
Speaker 1: who are doing E s G with an eye towards

729
00:41:09,520 --> 00:41:13,200
Speaker 1: materiality rather than E. S G with an eye towards

730
00:41:13,280 --> 00:41:18,280
Speaker 1: let's say responsibility. Look unpacked. The two of those sore.

731
00:41:18,520 --> 00:41:22,160
Speaker 1: The eye towards materiality means they think it's topical and

732
00:41:22,239 --> 00:41:24,840
Speaker 1: interesting or they think it's it's material to the operations

733
00:41:24,840 --> 00:41:29,880
Speaker 1: of the business. So so Coca Cola the largest consumer

734
00:41:29,920 --> 00:41:33,960
Speaker 1: of water, largest corporate consumer of water worldwide, right, so

735
00:41:34,040 --> 00:41:37,560
Speaker 1: Coca Coca Cola needs to be thinking about how they

736
00:41:37,560 --> 00:41:40,239
Speaker 1: manage that resource everywhere in the world, all the time.

737
00:41:40,280 --> 00:41:45,000
Speaker 1: It is material to the operations. Makes sense. Conversely, I

738
00:41:45,000 --> 00:41:49,920
Speaker 1: would suggest cautiously that gender diversification the C suite at

739
00:41:49,920 --> 00:41:53,799
Speaker 1: Co Coca Cola might be relevant to how they think

740
00:41:53,840 --> 00:41:57,719
Speaker 1: about their consumer base. It might be relevant to the

741
00:41:57,760 --> 00:42:00,640
Speaker 1: conversations that go on about strategic direct to the company.

742
00:42:00,680 --> 00:42:03,960
Speaker 1: It might not be material to the net operating profitability

743
00:42:03,960 --> 00:42:06,880
Speaker 1: of the company. Flip that look at Mabeline, for example,

744
00:42:07,360 --> 00:42:11,719
Speaker 1: water is not a material factor for them, but it

745
00:42:11,800 --> 00:42:15,080
Speaker 1: might be that having a diverse gender base in the

746
00:42:15,080 --> 00:42:19,239
Speaker 1: C suite Mabeling is actually central to their operation viability

747
00:42:19,280 --> 00:42:22,280
Speaker 1: because their consumer base is going to be buying products

748
00:42:22,280 --> 00:42:24,440
Speaker 1: that are designed by the C suite team, right, and

749
00:42:24,480 --> 00:42:27,279
Speaker 1: so buy women for women? Yeah, And I don't. I don't.

750
00:42:27,360 --> 00:42:30,680
Speaker 1: I don't want to imply that only women can make

751
00:42:30,719 --> 00:42:33,799
Speaker 1: good marketing decisions for women. That's a reductionist exercise that

752
00:42:33,840 --> 00:42:38,040
Speaker 1: I think breaks down with relatively shallow scrutiny. But I

753
00:42:38,080 --> 00:42:43,520
Speaker 1: think that having a a homogenized management perspective in a

754
00:42:43,520 --> 00:42:46,239
Speaker 1: company that selling consumer products doesn't make any sense, and

755
00:42:46,239 --> 00:42:49,080
Speaker 1: it might be material. And so from a reporting perspective,

756
00:42:49,120 --> 00:42:52,160
Speaker 1: from an investment perspective, if you are looking at Coca

757
00:42:52,239 --> 00:42:54,880
Speaker 1: Cola and they're not paying attention to their water exposure,

758
00:42:55,200 --> 00:42:59,080
Speaker 1: that's a material right. Conversely, if you're paying attention to

759
00:42:59,120 --> 00:43:02,040
Speaker 1: Coca Cola because they great gender diversification at the C suite,

760
00:43:02,080 --> 00:43:04,920
Speaker 1: that might not be material to the profitability of the company.

761
00:43:05,000 --> 00:43:06,880
Speaker 1: And so what's happened in the s R I E.

762
00:43:07,160 --> 00:43:10,520
Speaker 1: S G Impacts sort of translation is that a lot

763
00:43:10,560 --> 00:43:14,200
Speaker 1: of the early practitioners who really built the discipline were

764
00:43:14,280 --> 00:43:16,680
Speaker 1: and they say this with an enormous amount of respect

765
00:43:16,760 --> 00:43:20,720
Speaker 1: and affection, um were activists. You know, they were saying

766
00:43:20,760 --> 00:43:23,520
Speaker 1: doubt about that. They were saying the capital markets need

767
00:43:23,560 --> 00:43:26,440
Speaker 1: to be a more just system. Remember, a lot of

768
00:43:26,440 --> 00:43:30,560
Speaker 1: this goes back to the diversification of South Africa in

769
00:43:30,600 --> 00:43:34,279
Speaker 1: the seventies. I mean you could you could trace S R, I,

770
00:43:34,400 --> 00:43:39,640
Speaker 1: E s G and impact too handful of Yale. However

771
00:43:40,120 --> 00:43:44,280
Speaker 1: it was mostly I VS. Where the agitation to our endowments,

772
00:43:44,280 --> 00:43:47,680
Speaker 1: which even back then were enormous, are investing in a

773
00:43:47,760 --> 00:43:51,640
Speaker 1: system that supports apartheid. How can we support that that success.

774
00:43:51,760 --> 00:43:56,160
Speaker 1: We've got a whole run of subsequent uh subsequent thing. Yes,

775
00:43:56,200 --> 00:43:58,040
Speaker 1: And I am in no way saying that that is

776
00:43:58,080 --> 00:44:02,759
Speaker 1: an ineffective or irrest onsible or corrosive force in the

777
00:44:02,800 --> 00:44:06,600
Speaker 1: capital markets right. However, it's evolved. It's evolved a lot.

778
00:44:06,680 --> 00:44:11,080
Speaker 1: And I don't think that even a a committed E.

779
00:44:11,280 --> 00:44:14,360
Speaker 1: S G practitioner would look at divestment of investments in

780
00:44:14,400 --> 00:44:17,320
Speaker 1: South Africa and say that was the exclusive cause of

781
00:44:17,320 --> 00:44:20,799
Speaker 1: the collapse of the apartheid regime, nor that it led

782
00:44:20,840 --> 00:44:23,920
Speaker 1: to some influence on performance, because that what happened was

783
00:44:23,960 --> 00:44:27,480
Speaker 1: I mean cynically, there was an asset transfer, you know,

784
00:44:27,680 --> 00:44:30,480
Speaker 1: into the hands of people who are willing to do

785
00:44:31,000 --> 00:44:33,239
Speaker 1: antities are willing to do business in South Africa and

786
00:44:33,280 --> 00:44:37,320
Speaker 1: at a discount. People forget that when when you sell

787
00:44:37,520 --> 00:44:41,839
Speaker 1: your South African investments. The thought of the trade right,

788
00:44:41,880 --> 00:44:45,200
Speaker 1: it's and it's the old joke about cash on the sidelines. Well,

789
00:44:45,320 --> 00:44:47,480
Speaker 1: how is that cash on the sidelines? I sold my stock,

790
00:44:47,560 --> 00:44:50,200
Speaker 1: someone bought the stock. What we did was transferably. And

791
00:44:50,239 --> 00:44:53,720
Speaker 1: that's where I have a real, real um, a quiet

792
00:44:53,840 --> 00:44:57,400
Speaker 1: but sincere objection to the notion that s RI E

793
00:44:57,520 --> 00:45:01,720
Speaker 1: s G investing will transform corporate behavior. It draws at tension.

794
00:45:01,800 --> 00:45:06,360
Speaker 1: I think the diversification, the the diversifying away from South Africa.

795
00:45:06,920 --> 00:45:09,000
Speaker 1: It created a whole lot of awareness and a whole

796
00:45:09,000 --> 00:45:12,799
Speaker 1: lot of media coverage. How much it actually influenced the

797
00:45:12,880 --> 00:45:17,080
Speaker 1: government in South Africa. Really, it's a tough correlation. So

798
00:45:17,080 --> 00:45:18,880
Speaker 1: so let me bring you back to the issue about

799
00:45:18,920 --> 00:45:23,919
Speaker 1: diversification and governance and looking at companies that have more

800
00:45:23,960 --> 00:45:27,759
Speaker 1: women represented on the board in c suite. So there

801
00:45:27,800 --> 00:45:29,120
Speaker 1: was a study that just came out. There was a

802
00:45:29,120 --> 00:45:32,319
Speaker 1: Bloomberg article not too long ago that talked about and

803
00:45:32,320 --> 00:45:35,719
Speaker 1: they didn't make the causation argument. They only brought up

804
00:45:35,719 --> 00:45:41,040
Speaker 1: the correlation, which was, in general, on average, firms that

805
00:45:41,120 --> 00:45:43,520
Speaker 1: have more women represented on the board and in the

806
00:45:43,520 --> 00:45:47,799
Speaker 1: c suite tend to outperform firms that don't. So The

807
00:45:47,880 --> 00:45:51,800
Speaker 1: question I'm gonna ask you is are these firms better

808
00:45:51,920 --> 00:45:54,520
Speaker 1: managed and because they've been managed, they have a more

809
00:45:54,600 --> 00:45:59,840
Speaker 1: diverse corporate governance, or do women at the higher levels

810
00:45:59,840 --> 00:46:03,560
Speaker 1: of corporate governance not suffering from what my trader friends

811
00:46:03,560 --> 00:46:07,759
Speaker 1: call testosterone poisoning, helped make better decisions and and make

812
00:46:07,840 --> 00:46:12,319
Speaker 1: a more intelligent long term strategy. I think that's a

813
00:46:12,360 --> 00:46:14,279
Speaker 1: loaded question, a super loaded question. I think it's a

814
00:46:14,360 --> 00:46:17,480
Speaker 1: yes and yes, and that we don't know. Okay, that's

815
00:46:17,560 --> 00:46:20,799
Speaker 1: that's a fair answer, because it could go either way.

816
00:46:20,840 --> 00:46:23,359
Speaker 1: We really don't know. Sometimes it's here, sometimes it's not.

817
00:46:23,840 --> 00:46:26,799
Speaker 1: But ultimately nobody has been able to demonstrate it one

818
00:46:26,800 --> 00:46:29,920
Speaker 1: way or another. Well, I think that the demonstration is

819
00:46:30,120 --> 00:46:34,480
Speaker 1: UM is coming. Um. There are a handful of really interesting,

820
00:46:34,600 --> 00:46:37,240
Speaker 1: super focused research institutes that are focusing on this issue.

821
00:46:37,239 --> 00:46:39,120
Speaker 1: Criterion in Stude is one that I think is doing

822
00:46:39,120 --> 00:46:42,960
Speaker 1: some really cool work. UM. And I was just I

823
00:46:43,000 --> 00:46:44,640
Speaker 1: was just musing. The first time I read about this

824
00:46:44,680 --> 00:46:48,720
Speaker 1: out performance due to gender diversification in the C suite

825
00:46:49,200 --> 00:46:52,080
Speaker 1: was the Lord Davy's report to the House of Lords UM,

826
00:46:52,120 --> 00:46:53,920
Speaker 1: probably going back ten years ago. I was gonna say,

827
00:46:53,960 --> 00:46:55,759
Speaker 1: that's not a recent report. YEA as I think it's

828
00:46:55,800 --> 00:46:57,640
Speaker 1: about ten years ago, and he's he's they've they've done

829
00:46:57,719 --> 00:47:00,279
Speaker 1: follow up reports to that, and it's long and forgot

830
00:47:00,320 --> 00:47:01,960
Speaker 1: that I'm not going to remember these act numbers, so

831
00:47:02,000 --> 00:47:04,480
Speaker 1: I'll just I'll just claim that I'm making this up,

832
00:47:04,640 --> 00:47:06,880
Speaker 1: but it'll give you a sense of the numbers. But

833
00:47:06,920 --> 00:47:09,080
Speaker 1: they looked at they did a twenty five year regression

834
00:47:09,120 --> 00:47:12,799
Speaker 1: analysis of companies in the foot see that had more

835
00:47:12,880 --> 00:47:14,960
Speaker 1: than I think it was ten or fifteen percent of

836
00:47:15,000 --> 00:47:19,320
Speaker 1: their C suite were women, and the our performance was shocking.

837
00:47:19,400 --> 00:47:23,080
Speaker 1: It was like it was like company. It was like

838
00:47:23,160 --> 00:47:25,839
Speaker 1: it was like one of those eyeball rollers. It's like, yes,

839
00:47:25,880 --> 00:47:29,520
Speaker 1: somebody blew their math right. But even if you discount

840
00:47:29,560 --> 00:47:32,759
Speaker 1: that by right, it was still it was still a

841
00:47:32,840 --> 00:47:36,120
Speaker 1: huge difference. And so I started asking myself what could

842
00:47:36,160 --> 00:47:39,640
Speaker 1: account for that? Right? I mean, really, by having ten

843
00:47:40,200 --> 00:47:41,719
Speaker 1: of the C level be a woman, is that going

844
00:47:41,800 --> 00:47:44,040
Speaker 1: to really make that much difference in the operations of

845
00:47:44,040 --> 00:47:46,239
Speaker 1: the company. And you know, one thought that came to

846
00:47:46,280 --> 00:47:48,799
Speaker 1: mind was if you had risen to that level as

847
00:47:48,840 --> 00:47:53,120
Speaker 1: a woman, you had to be extraordinary, and so perhaps

848
00:47:53,200 --> 00:47:56,280
Speaker 1: the influence that you would have over the strategic direction

849
00:47:56,280 --> 00:47:59,759
Speaker 1: of the company would be outsized effectively because if you

850
00:47:59,800 --> 00:48:03,040
Speaker 1: made it there, you were exceptional. Okay, maybe that's part

851
00:48:03,080 --> 00:48:04,960
Speaker 1: of it, but I think when you look at some

852
00:48:05,000 --> 00:48:08,120
Speaker 1: of the research is being done around behavioral science and

853
00:48:08,360 --> 00:48:14,640
Speaker 1: group science and group i Q, it becomes suddenly more

854
00:48:14,920 --> 00:48:20,600
Speaker 1: clear that gender diversification is actually about making better decisions.

855
00:48:21,320 --> 00:48:25,879
Speaker 1: You're not dealing with the homogeneous decision making group less,

856
00:48:25,920 --> 00:48:30,360
Speaker 1: group think less. Everybody was in marsh depth and generally speaking,

857
00:48:31,239 --> 00:48:38,600
Speaker 1: probably a hipper savvier approach to buy that company, um

858
00:48:38,640 --> 00:48:43,160
Speaker 1: to their entire worldview of investment. Pretty square women. No, No,

859
00:48:43,200 --> 00:48:47,360
Speaker 1: I don't mean the women, the company itself. The company

860
00:48:47,400 --> 00:48:51,719
Speaker 1: itself that is engaging in that means they're fairly cunning edge,

861
00:48:51,719 --> 00:48:54,120
Speaker 1: They're up to speed on all the latest management things.

862
00:48:54,120 --> 00:48:56,319
Speaker 1: They know what works, they know what doesn't. And if

863
00:48:56,360 --> 00:48:59,920
Speaker 1: they're that self enlightened, yeah, you gotta think that, Hey,

864
00:49:00,080 --> 00:49:02,680
Speaker 1: these guys have already checked off all these guys have

865
00:49:02,760 --> 00:49:05,239
Speaker 1: already checked off all the other I use that as

866
00:49:05,280 --> 00:49:07,719
Speaker 1: a gender new phrase, but I know it's not interpreted

867
00:49:07,719 --> 00:49:10,319
Speaker 1: that way. UM. I could say hey, guys to a

868
00:49:10,360 --> 00:49:13,080
Speaker 1: group of men or women and it shouldn't make any different.

869
00:49:13,280 --> 00:49:15,799
Speaker 1: But they've checked off all their other boxes. And if

870
00:49:15,840 --> 00:49:18,680
Speaker 1: you're up to okay, let's make you know. When we

871
00:49:18,719 --> 00:49:22,279
Speaker 1: look at the prediction markets, when their uniform they don't

872
00:49:22,280 --> 00:49:24,640
Speaker 1: do that well. And when you have a prediction market

873
00:49:24,960 --> 00:49:28,040
Speaker 1: where you have a diverse group of traders, both in

874
00:49:28,160 --> 00:49:32,680
Speaker 1: terms of geographic location, politics, economic strata, you get much

875
00:49:32,719 --> 00:49:36,520
Speaker 1: better outcomes because you don't have you know, whenever, what's

876
00:49:36,560 --> 00:49:40,040
Speaker 1: the line when everybody's thinking like, nobody's thinking so so

877
00:49:40,200 --> 00:49:44,839
Speaker 1: I I'm inclined to think that smarter companies making better

878
00:49:44,880 --> 00:49:48,960
Speaker 1: decisions will tend to have this box checked off. And

879
00:49:49,040 --> 00:49:54,280
Speaker 1: so it's really an interesting is it which came first,

880
00:49:54,320 --> 00:49:58,680
Speaker 1: the really good company or the diversification. It almost doesn't matter,

881
00:49:59,120 --> 00:50:02,120
Speaker 1: you know, it's a of into the to the final performance.

882
00:50:02,320 --> 00:50:04,839
Speaker 1: But it's interesting to think about what's driving that. Yeah,

883
00:50:04,840 --> 00:50:06,719
Speaker 1: And I would take even one step further and say,

884
00:50:06,760 --> 00:50:10,239
Speaker 1: for those companies it's it's explicitly not a box checking exercise.

885
00:50:10,360 --> 00:50:13,000
Speaker 1: That's right. I think it's a really important point to

886
00:50:13,040 --> 00:50:15,200
Speaker 1: make that for these companies is not about what we

887
00:50:15,239 --> 00:50:17,640
Speaker 1: have to have women, but instead, let's make sure that

888
00:50:17,880 --> 00:50:22,239
Speaker 1: we get the best people. And frequently they're not looking

889
00:50:22,280 --> 00:50:25,240
Speaker 1: for gender, they're looking for the best people and build

890
00:50:25,280 --> 00:50:29,000
Speaker 1: in a lack of homogeneous thought that will give us

891
00:50:29,640 --> 00:50:32,680
Speaker 1: our process should give us a better outcome if we

892
00:50:32,760 --> 00:50:34,680
Speaker 1: make the process better. And here's one way to make them.

893
00:50:34,800 --> 00:50:36,440
Speaker 1: And it's hard. I mean, we're we're you know, our

894
00:50:36,440 --> 00:50:39,440
Speaker 1: company was founded by six middle aged white guys, right, um,

895
00:50:40,680 --> 00:50:43,560
Speaker 1: And I think our natural instinct is to hire in

896
00:50:43,600 --> 00:50:47,359
Speaker 1: our image. It's a comfortable hiring decision. It's certainly your

897
00:50:47,400 --> 00:50:50,719
Speaker 1: network of your networking to look like yourself. And so

898
00:50:50,760 --> 00:50:53,479
Speaker 1: to make that decision to hire somebody who is really

899
00:50:53,480 --> 00:50:55,120
Speaker 1: different from you, they have to it's harder to do.

900
00:50:55,280 --> 00:50:57,759
Speaker 1: There has to be a level of intentionality in there

901
00:50:58,200 --> 00:51:01,480
Speaker 1: that is not commonly reflect did in corporate America. And

902
00:51:01,480 --> 00:51:04,640
Speaker 1: I think that's the obstacle that we face, this um

903
00:51:04,640 --> 00:51:07,600
Speaker 1: cognitive bias for hiring in our likeness. And it's it's

904
00:51:07,640 --> 00:51:10,080
Speaker 1: as simple as you do an interview with somebody and

905
00:51:10,400 --> 00:51:13,319
Speaker 1: you know he played lacrosse at Duke whatever, and you

906
00:51:13,400 --> 00:51:15,080
Speaker 1: had a brother that played lacrosse at U n C.

907
00:51:15,200 --> 00:51:17,560
Speaker 1: And so you think of him as a really good guy, right,

908
00:51:18,080 --> 00:51:21,960
Speaker 1: And that that that that commonality becomes self reinforcing and

909
00:51:21,960 --> 00:51:23,560
Speaker 1: your hiring practices and so you do have to bring

910
00:51:23,560 --> 00:51:26,759
Speaker 1: a level of intentionality to sort of dismantle that, and

911
00:51:26,800 --> 00:51:28,799
Speaker 1: it's not easy to do. And so I think your

912
00:51:28,840 --> 00:51:32,560
Speaker 1: point earlier about companies that are more enlightened. It's a

913
00:51:32,600 --> 00:51:35,200
Speaker 1: bit of a loaded phrase, but more enlightened companies they're

914
00:51:35,200 --> 00:51:37,960
Speaker 1: going to do that naturally because they recognize that strength

915
00:51:38,040 --> 00:51:41,840
Speaker 1: comes from a diverse view disagreement in the C suite

916
00:51:42,120 --> 00:51:44,480
Speaker 1: leads to better decision making. But you have to do

917
00:51:44,520 --> 00:51:47,960
Speaker 1: that intentionally because it's hard. No, it's definitely, it's definitely

918
00:51:48,000 --> 00:51:51,240
Speaker 1: not easy. I know, I don't have you for for forever.

919
00:51:51,320 --> 00:51:54,520
Speaker 1: There's a runic questions I want to get that I miss. No,

920
00:51:54,680 --> 00:51:56,840
Speaker 1: not at all. This is really I find the stuff

921
00:51:56,880 --> 00:52:00,360
Speaker 1: to be absolutely um fascinating. So so let's talk a

922
00:52:00,360 --> 00:52:03,319
Speaker 1: little bit about your investment process, not so much for

923
00:52:03,400 --> 00:52:06,720
Speaker 1: the passive beta portion of it, but for the active

924
00:52:07,239 --> 00:52:12,399
Speaker 1: impact portion. How do you decide what what? First of all,

925
00:52:12,480 --> 00:52:14,879
Speaker 1: what do you're buying. You're buying stocks, you're buying mutual funds,

926
00:52:14,880 --> 00:52:18,120
Speaker 1: you're buying ETFs. What what's the vehicle of choice? Yeah, so,

927
00:52:18,160 --> 00:52:20,880
Speaker 1: in the public equity markets and public fixing income markets,

928
00:52:20,880 --> 00:52:23,480
Speaker 1: we use separately managed to counts with specialty managers that

929
00:52:23,480 --> 00:52:27,960
Speaker 1: focus on those markets. So it's mostly unhedged long only equity.

930
00:52:28,000 --> 00:52:31,239
Speaker 1: In our fixed income allocations, mostly relatively short duration, very

931
00:52:31,320 --> 00:52:34,080
Speaker 1: high credit quality. We don't like taking intest rate risk.

932
00:52:34,120 --> 00:52:35,640
Speaker 1: We don't want to take a ton of credit risk

933
00:52:35,680 --> 00:52:38,359
Speaker 1: with our fixing come portfolios because we think they serve

934
00:52:38,440 --> 00:52:40,760
Speaker 1: the roles boust in the portfolio. It's a pool of aquidity,

935
00:52:41,200 --> 00:52:42,920
Speaker 1: a little bit of income. It's not where we want

936
00:52:42,920 --> 00:52:45,320
Speaker 1: to take a lot of that investment grade. That's pretty

937
00:52:45,360 --> 00:52:47,480
Speaker 1: much pretty much a lot of meetings. So let's go

938
00:52:47,560 --> 00:52:51,759
Speaker 1: back to the equity side, um individual stocks, So we

939
00:52:51,800 --> 00:52:54,080
Speaker 1: don't pick individual stocks. Were not pick the pickers of

940
00:52:54,120 --> 00:52:57,280
Speaker 1: individual stocks. Yeah, and what we look for is either

941
00:52:57,320 --> 00:53:00,440
Speaker 1: as I said earlier, demonstrated capacity around data with a

942
00:53:00,520 --> 00:53:05,279
Speaker 1: tax managed overlay, or proven low correlation to the rood

943
00:53:05,280 --> 00:53:08,239
Speaker 1: equity markets with a defensible investment thesis that we think

944
00:53:08,280 --> 00:53:12,680
Speaker 1: can play out over time. That's a relatively small part

945
00:53:12,760 --> 00:53:15,600
Speaker 1: of our overall public equity exposure. But right now, I mean,

946
00:53:15,880 --> 00:53:19,719
Speaker 1: so I don't know if this is a disclosure or not,

947
00:53:19,760 --> 00:53:21,680
Speaker 1: but I'm gonna, I'm gonna, I'm gonna run the risk here.

948
00:53:21,880 --> 00:53:26,160
Speaker 1: So um I said, we don't use model portfolios, So

949
00:53:26,239 --> 00:53:29,360
Speaker 1: The way that um we sort of get around that

950
00:53:29,400 --> 00:53:31,320
Speaker 1: in terms of talking about it is that we aggregate

951
00:53:31,400 --> 00:53:36,400
Speaker 1: our twenty largest clients and we consolid all their portfolios

952
00:53:36,440 --> 00:53:38,719
Speaker 1: in a sort of a hypothetical exercise around what our

953
00:53:38,760 --> 00:53:43,520
Speaker 1: exposure across the firm is. And right now, we are

954
00:53:44,040 --> 00:53:48,040
Speaker 1: skeptical about the public fixing come markets and we think

955
00:53:48,040 --> 00:53:52,399
Speaker 1: it's it's basically in an environment of return free risk

956
00:53:53,280 --> 00:53:58,000
Speaker 1: um and so so our public fixing commallocations right now

957
00:53:58,000 --> 00:54:00,800
Speaker 1: are primarily for liquidity. And so we're sitting at about

958
00:54:01,480 --> 00:54:04,480
Speaker 1: across that turn of the largest clients. Our public equity

959
00:54:04,640 --> 00:54:07,160
Speaker 1: exposure has been steadily coming down over the last year

960
00:54:07,160 --> 00:54:08,760
Speaker 1: and a half and we're down in the mid teens

961
00:54:08,880 --> 00:54:10,960
Speaker 1: right now for that as well. So we've got about

962
00:54:11,680 --> 00:54:15,360
Speaker 1: of our assets in the public markets, which leads about

963
00:54:15,440 --> 00:54:20,359
Speaker 1: se in the private alternatives and real assets market, which

964
00:54:20,400 --> 00:54:24,319
Speaker 1: is really real you're talking real estate or something real estate,

965
00:54:24,320 --> 00:54:30,319
Speaker 1: it's real estate, timber, um agg um commodities that that

966
00:54:30,360 --> 00:54:33,719
Speaker 1: are all tied to a specific property. Yeah, we don't

967
00:54:33,760 --> 00:54:36,480
Speaker 1: do a lot of futures. So it's not it's the timber,

968
00:54:36,480 --> 00:54:38,879
Speaker 1: you're it's the land that the timber is harvested from,

969
00:54:39,000 --> 00:54:42,680
Speaker 1: not so much the timber itself. Yeah. Um. And so

970
00:54:43,239 --> 00:54:46,719
Speaker 1: that alone is a pretty unconventional approach. Rantham has been

971
00:54:46,760 --> 00:54:49,919
Speaker 1: pounding the table on timber for what fifteen years now. Yeah.

972
00:54:49,960 --> 00:54:52,320
Speaker 1: And you know the thing about timber which is interesting

973
00:54:52,400 --> 00:54:55,919
Speaker 1: is that the yields from timber are basically dependent upon

974
00:54:55,920 --> 00:54:58,200
Speaker 1: the rate of growth of the trees. And maybe you

975
00:54:58,239 --> 00:55:00,000
Speaker 1: get maybe you get a little bit of a little

976
00:55:00,200 --> 00:55:01,960
Speaker 1: in the land value if you're in the middle of

977
00:55:01,960 --> 00:55:04,920
Speaker 1: a construction boom um. But you know, basically, over the

978
00:55:04,960 --> 00:55:07,600
Speaker 1: long haul, you're gonna get rate of timber growth. So

979
00:55:07,719 --> 00:55:10,919
Speaker 1: in Canada, as the planet warms up, that's actually good

980
00:55:10,920 --> 00:55:14,520
Speaker 1: for the yield. It could be. Yeah, I mean it

981
00:55:14,520 --> 00:55:16,839
Speaker 1: has My mom, who's a who's a wonderful golfer, likes

982
00:55:16,880 --> 00:55:19,440
Speaker 1: to say every put makes somebody happy. He's got to

983
00:55:19,440 --> 00:55:22,960
Speaker 1: look around and see who's smiling, and you know you're

984
00:55:22,960 --> 00:55:25,400
Speaker 1: gonna laugh. But I spoke not long ago with a

985
00:55:25,480 --> 00:55:29,440
Speaker 1: fund that is raising capital to acquire farmland in Siberia. Uh.

986
00:55:30,120 --> 00:55:33,560
Speaker 1: There was just an article about the Northern Passage, which

987
00:55:33,600 --> 00:55:36,280
Speaker 1: has always been a dream, is now open and cruise

988
00:55:36,280 --> 00:55:40,640
Speaker 1: ships are going through the Northern Passage this summer. That

989
00:55:40,760 --> 00:55:43,560
Speaker 1: a hundred years ago was frozen solid. You couldn't get

990
00:55:43,840 --> 00:55:48,799
Speaker 1: from from Newfoundland to Russia that way. Um. And now

991
00:55:48,840 --> 00:55:52,840
Speaker 1: apparently there's a fairly clear passage for three months of

992
00:55:52,840 --> 00:55:56,160
Speaker 1: the year that that used to be frozen solid all

993
00:55:56,280 --> 00:55:58,400
Speaker 1: year round and that's no longer the case. And you

994
00:55:58,440 --> 00:56:01,960
Speaker 1: look north of the Crimea, for example, and if you

995
00:56:02,000 --> 00:56:04,279
Speaker 1: can extend the growing season by just a couple of

996
00:56:04,320 --> 00:56:08,360
Speaker 1: weeks on either end spring and fall, suddenly an enormous

997
00:56:08,400 --> 00:56:14,400
Speaker 1: amount of that land becomes arible. That is a huge

998
00:56:14,480 --> 00:56:19,600
Speaker 1: wind for holders of arable farmland in northern climbs. There's

999
00:56:19,640 --> 00:56:22,640
Speaker 1: a wonderful book called Windfall. I don't know if you

1000
00:56:22,360 --> 00:56:27,160
Speaker 1: mean you've read it, and um, the the author's uh

1001
00:56:27,440 --> 00:56:30,000
Speaker 1: is escaping me at the moment, but I'll find it.

1002
00:56:30,440 --> 00:56:34,680
Speaker 1: And the book basically tracked a whole bunch of um

1003
00:56:34,880 --> 00:56:37,880
Speaker 1: uh here it is. Wow, that was really impressive. Um.

1004
00:56:38,680 --> 00:56:41,960
Speaker 1: Windfall by Mackenzie Funk. How did I forget Mackenzie Funk's name.

1005
00:56:42,120 --> 00:56:44,600
Speaker 1: That's a great name. So anyway, he he tracks all

1006
00:56:44,680 --> 00:56:47,880
Speaker 1: these Deutsche Bank goman sacks, all these private funds that

1007
00:56:47,920 --> 00:56:50,800
Speaker 1: they had set up and following the money and seeing

1008
00:56:50,960 --> 00:56:55,960
Speaker 1: where people were investing based on expected climate change. Now

1009
00:56:56,080 --> 00:56:58,400
Speaker 1: in the United States, one of the two major political

1010
00:56:58,440 --> 00:57:02,040
Speaker 1: parties doesn't believe in in climate change, but they're pretty

1011
00:57:02,120 --> 00:57:04,719
Speaker 1: much the only major party around the world that is

1012
00:57:05,320 --> 00:57:09,000
Speaker 1: doesn't doesn't accept the science of climate change. Windfall doesn't

1013
00:57:09,000 --> 00:57:12,160
Speaker 1: even talk about climate change. It says the world is changing.

1014
00:57:12,360 --> 00:57:15,279
Speaker 1: Where are people putting their money to make a bed

1015
00:57:15,360 --> 00:57:18,080
Speaker 1: on it? And they find some in what you just

1016
00:57:18,200 --> 00:57:22,600
Speaker 1: reference farmland. There are now funds that are accumulating farmland

1017
00:57:22,640 --> 00:57:26,919
Speaker 1: that they expect will be arable or more arable years

1018
00:57:26,960 --> 00:57:32,040
Speaker 1: from now. Monsanto developing a salt resistant grain of rice,

1019
00:57:32,080 --> 00:57:34,280
Speaker 1: and you could grow you know, when you have salt

1020
00:57:34,400 --> 00:57:37,720
Speaker 1: come in on some of these marshes, you no longer

1021
00:57:37,800 --> 00:57:41,320
Speaker 1: can grow food there. You're so there are there are

1022
00:57:41,320 --> 00:57:44,680
Speaker 1: winners and losers. According to the book, what's dry is

1023
00:57:44,680 --> 00:57:46,760
Speaker 1: gonna get dryer, what's wet, it's going to get wetter,

1024
00:57:47,200 --> 00:57:51,680
Speaker 1: and parts of the world are going to be underwater.

1025
00:57:52,120 --> 00:57:54,520
Speaker 1: If you're a real estate investor and you're thinking about

1026
00:57:54,600 --> 00:57:58,800
Speaker 1: making investments into the coastline of Florida, I would imagine

1027
00:57:58,800 --> 00:58:02,920
Speaker 1: that you're view of global warming would be material. It

1028
00:58:02,920 --> 00:58:05,280
Speaker 1: would be material. And now it gets right to what

1029
00:58:05,320 --> 00:58:10,240
Speaker 1: I was saying earlier about capitalism being a fantastic optimization mechanism,

1030
00:58:10,280 --> 00:58:12,080
Speaker 1: the fact that people are thinking about that it's going

1031
00:58:12,120 --> 00:58:13,920
Speaker 1: to drive capital in that direction, and it may they

1032
00:58:13,960 --> 00:58:15,760
Speaker 1: may be right, they may be wrong, But it's a

1033
00:58:15,760 --> 00:58:20,160
Speaker 1: capital allocation decision based on however you're discounting the risks

1034
00:58:20,200 --> 00:58:22,920
Speaker 1: around climate change or the opportunities around climate change. Do

1035
00:58:22,920 --> 00:58:25,800
Speaker 1: we have do we have any really well understood way

1036
00:58:25,880 --> 00:58:30,600
Speaker 1: to actually figure out what what the appropriate discounting mechanism

1037
00:58:30,800 --> 00:58:33,760
Speaker 1: mechanism is for or it's really just a rational guest

1038
00:58:33,800 --> 00:58:35,160
Speaker 1: and it's it's a lot of I mean, you can

1039
00:58:35,160 --> 00:58:38,080
Speaker 1: look at all the climate modeling and yeah, you know,

1040
00:58:38,160 --> 00:58:41,320
Speaker 1: maybe there's some guiding you know, sort of guiding factors

1041
00:58:41,320 --> 00:58:44,000
Speaker 1: in those, but I think of them more like guardrails

1042
00:58:44,680 --> 00:58:48,400
Speaker 1: rather than train tracks. Right. The climate models are subject

1043
00:58:48,480 --> 00:58:51,480
Speaker 1: to revision, their subject to an enormous amount of variability,

1044
00:58:51,760 --> 00:58:55,360
Speaker 1: particularly on a year to year basis um and so directionally,

1045
00:58:55,440 --> 00:58:58,120
Speaker 1: I think they're pretty clear um and so directionally, if

1046
00:58:58,120 --> 00:59:00,960
Speaker 1: you're aggregating capital to acquire a potential future arable land,

1047
00:59:01,000 --> 00:59:04,840
Speaker 1: I'd be pretty diversified in my geographic FOOTPRINTE. But yeah,

1048
00:59:04,920 --> 00:59:06,439
Speaker 1: you know what's gonna happen in the next ten years.

1049
00:59:06,440 --> 00:59:09,560
Speaker 1: And how do you discount that value? That's a challenge. Yeah,

1050
00:59:09,600 --> 00:59:11,840
Speaker 1: so let me get to some of my favorite questions.

1051
00:59:11,880 --> 00:59:14,200
Speaker 1: I asked all of my guests because I know they're

1052
00:59:14,200 --> 00:59:18,320
Speaker 1: gonna come for you for TV and and momentarily. Um,

1053
00:59:18,360 --> 00:59:21,000
Speaker 1: so you talked about your background. You went right into

1054
00:59:21,040 --> 00:59:24,640
Speaker 1: finance right at a at a college. No, I did not, actually,

1055
00:59:24,760 --> 00:59:26,640
Speaker 1: so let's let's go over that. I No, I didn't

1056
00:59:26,680 --> 00:59:30,200
Speaker 1: join Smith Barney. Stuff was thirty So, uh, what did

1057
00:59:30,200 --> 00:59:33,200
Speaker 1: you do for the decade between college and Smith Barney.

1058
00:59:33,240 --> 00:59:36,200
Speaker 1: I was adventuring. I was writing, I was skiing, I

1059
00:59:36,240 --> 00:59:39,560
Speaker 1: was bike racing. I was a private chef. I worked

1060
00:59:39,560 --> 00:59:41,600
Speaker 1: at the Sun Valley Athletic Club. I mean, it was

1061
00:59:41,680 --> 00:59:44,160
Speaker 1: just cobbling together a life. They'll let me have as

1062
00:59:44,240 --> 00:59:47,240
Speaker 1: much adventure as I possibly could. And it sounds like

1063
00:59:47,280 --> 00:59:50,000
Speaker 1: you put in a good ten years of Uh Where

1064
00:59:50,040 --> 00:59:53,000
Speaker 1: were you in Australia? So I lived in Melbourne. After

1065
00:59:53,040 --> 00:59:56,680
Speaker 1: the World Championships of Rowing, I got invited by a

1066
00:59:56,680 --> 00:59:58,480
Speaker 1: couple of ASSI buddies that I met there to come

1067
00:59:58,480 --> 01:00:01,880
Speaker 1: and row with them. They really are serious when they party.

1068
01:00:02,400 --> 01:00:04,800
Speaker 1: I can't keep up with those guys even in my

1069
01:00:04,880 --> 01:00:06,680
Speaker 1: youth I could not keep So the best party is

1070
01:00:06,720 --> 01:00:10,000
Speaker 1: I joined Mercantile Rowing Club in Melbourne, which was sponsored

1071
01:00:10,000 --> 01:00:15,320
Speaker 1: by Carlton United Brewery, makers of Fosters. So Fosters so

1072
01:00:15,440 --> 01:00:17,800
Speaker 1: on our team, on our team Jerseys, we had the

1073
01:00:17,840 --> 01:00:19,960
Speaker 1: Foster's logo and it was it was that you couldn't

1074
01:00:19,960 --> 01:00:23,640
Speaker 1: make it up. So after every race the Fosters struck

1075
01:00:23,640 --> 01:00:25,880
Speaker 1: could show up with kegs and on you know Boathouse

1076
01:00:25,960 --> 01:00:28,760
Speaker 1: Row and Melbourne, right along right below Princess Bridge, on

1077
01:00:28,760 --> 01:00:31,680
Speaker 1: on the on the on the era um all the

1078
01:00:31,680 --> 01:00:34,440
Speaker 1: boat crews would come to Mercantile after the race because

1079
01:00:34,440 --> 01:00:38,720
Speaker 1: that's was that sounds uh And by the way, nothing

1080
01:00:38,800 --> 01:00:42,400
Speaker 1: like a solid workout and then tapping a keg that

1081
01:00:42,480 --> 01:00:45,520
Speaker 1: sounds interesting. So at third do you say, okay, no,

1082
01:00:45,680 --> 01:00:49,880
Speaker 1: I need to get serious. You joined Smith Barney, not

1083
01:00:49,960 --> 01:00:52,440
Speaker 1: just at Smith Barney but across your career. Who do

1084
01:00:52,440 --> 01:00:54,800
Speaker 1: you think of as your mentors? So when I was

1085
01:00:54,840 --> 01:00:57,120
Speaker 1: living in catch um Um, there were two guys that

1086
01:00:57,200 --> 01:01:01,560
Speaker 1: were really my mentors. One um catch them catch him, Idaho,

1087
01:01:01,560 --> 01:01:05,000
Speaker 1: which is where Sun Valleys located. Um one was was

1088
01:01:05,040 --> 01:01:07,240
Speaker 1: a retired pretty young guy who was a bond trader,

1089
01:01:07,280 --> 01:01:10,560
Speaker 1: at Solomon UM and he had made enough money to

1090
01:01:10,600 --> 01:01:14,000
Speaker 1: punch out relatively young, lived a very modest life and

1091
01:01:14,040 --> 01:01:16,400
Speaker 1: catch him but had a lot of adventures UM and

1092
01:01:16,440 --> 01:01:17,400
Speaker 1: he and I spent a lot of time in the

1093
01:01:17,400 --> 01:01:20,280
Speaker 1: mountains and he just got me super inspired. He was

1094
01:01:20,320 --> 01:01:24,640
Speaker 1: a crusty, salty I mean, you knew the solid guys

1095
01:01:24,640 --> 01:01:29,320
Speaker 1: from the ages, right, Yeah, not pgrated, not PD rated

1096
01:01:29,360 --> 01:01:32,320
Speaker 1: at all, and he was just this oddly inspiring guy

1097
01:01:32,440 --> 01:01:34,760
Speaker 1: like I just I just really liked hanging out with him,

1098
01:01:34,760 --> 01:01:38,680
Speaker 1: and his worldview was was really compelling. And then this

1099
01:01:38,720 --> 01:01:42,360
Speaker 1: other guy by the name of Tom Campion, quite older

1100
01:01:42,360 --> 01:01:44,800
Speaker 1: than me, but he had gone to and over in Dartmouth,

1101
01:01:44,880 --> 01:01:48,560
Speaker 1: super educated in his had a parallel background, very much so,

1102
01:01:48,600 --> 01:01:50,000
Speaker 1: and he was a bike racer and we sort of

1103
01:01:50,080 --> 01:01:52,280
Speaker 1: ended up going along bark rides together and his family

1104
01:01:52,320 --> 01:01:54,960
Speaker 1: had a multi hundred million dollar private foundation that he

1105
01:01:54,960 --> 01:01:57,440
Speaker 1: was running. And so I had these two different, completely

1106
01:01:57,440 --> 01:02:00,840
Speaker 1: different views of the capital markets. And I'd go out

1107
01:02:00,920 --> 01:02:03,720
Speaker 1: and climb mountains with Martin Adams and I'd go out

1108
01:02:03,720 --> 01:02:06,040
Speaker 1: and ride bikes with Tom Campion, and between the two

1109
01:02:06,120 --> 01:02:08,480
Speaker 1: of them, I just got completely fascinated by it. And

1110
01:02:08,520 --> 01:02:11,560
Speaker 1: so when UM Tom turned to me after working with

1111
01:02:11,640 --> 01:02:13,600
Speaker 1: him for about two years, he said, you need to

1112
01:02:13,680 --> 01:02:16,000
Speaker 1: leave catch him, because you don't leave now, you're never

1113
01:02:16,000 --> 01:02:18,840
Speaker 1: gonna leave. Um. He basically kicked me out to catch

1114
01:02:18,920 --> 01:02:20,840
Speaker 1: him become a scheme bomb and that's up. And I

1115
01:02:20,840 --> 01:02:22,960
Speaker 1: was super piste for a few months, and then I

1116
01:02:23,000 --> 01:02:25,320
Speaker 1: was really grateful because I realized he was right. And

1117
01:02:25,360 --> 01:02:27,320
Speaker 1: he set me up with a couple of interviews at

1118
01:02:27,680 --> 01:02:31,360
Speaker 1: Merrill Lynch and UH and Smith Barney and Prudential UM

1119
01:02:31,360 --> 01:02:33,360
Speaker 1: in Boise, and that's sort of how I started there.

1120
01:02:33,440 --> 01:02:37,200
Speaker 1: So the Merrill Lynch training program, I recall your your

1121
01:02:37,320 --> 01:02:40,160
Speaker 1: Smith Barney story, so I know someone who used to

1122
01:02:40,240 --> 01:02:42,680
Speaker 1: run that and it was one of the few on

1123
01:02:42,720 --> 01:02:45,920
Speaker 1: the street where they actually went through here's what capital

1124
01:02:45,920 --> 01:02:48,200
Speaker 1: markets are and here's how you converse fight bo It

1125
01:02:48,360 --> 01:02:51,760
Speaker 1: was so the first half what they actually educated people,

1126
01:02:52,200 --> 01:02:54,800
Speaker 1: and then the sales side came up and they felt

1127
01:02:55,240 --> 01:02:57,919
Speaker 1: that made them better salespeople because they understood it better.

1128
01:02:58,120 --> 01:03:00,640
Speaker 1: But they were the only ones I've ever heard that

1129
01:03:00,760 --> 01:03:03,320
Speaker 1: integrated what what you were looking for and didn't get it.

1130
01:03:03,520 --> 01:03:04,880
Speaker 1: And we had a little bit of that, but it's

1131
01:03:04,920 --> 01:03:08,480
Speaker 1: all product pitches, right. We'd have the head of theory.

1132
01:03:08,600 --> 01:03:11,800
Speaker 1: It was, let me explain why this fond is so good? Totally. Yeah, No,

1133
01:03:11,880 --> 01:03:16,040
Speaker 1: I I've witnessed enough of that. UM. So you mentioned, uh,

1134
01:03:16,360 --> 01:03:21,360
Speaker 1: the mentors. What's talking about investors? What investors influenced your

1135
01:03:21,360 --> 01:03:26,400
Speaker 1: approach to investing? You mentioned David Swainson at Yale? Who

1136
01:03:26,480 --> 01:03:29,320
Speaker 1: else has influenced you? You're gonna laugh at this, but

1137
01:03:29,880 --> 01:03:33,080
Speaker 1: everybody says Warren Buffett, So I won't laugh at anything. Well,

1138
01:03:33,320 --> 01:03:35,040
Speaker 1: I could probably get to warm Bufett, but at a

1139
01:03:35,040 --> 01:03:36,880
Speaker 1: really cool story about Warren Buffett, which I'll get you

1140
01:03:36,920 --> 01:03:39,920
Speaker 1: in a second. UM. I think that anybody who was

1141
01:03:39,960 --> 01:03:43,520
Speaker 1: thinking about entering the couple markets for a career needs

1142
01:03:43,560 --> 01:03:47,240
Speaker 1: to read Reminiscences of a Stock Operator, a classic like

1143
01:03:50,400 --> 01:03:54,480
Speaker 1: UM And there's a new annotated version of it that's beautiful,

1144
01:03:55,040 --> 01:03:58,120
Speaker 1: that's updated and annotated that a friend UM did. But

1145
01:03:58,960 --> 01:04:02,800
Speaker 1: I'll get I'll get the addition. Name of that UM.

1146
01:04:02,840 --> 01:04:07,440
Speaker 1: I think the two um um money Master's books. I

1147
01:04:07,440 --> 01:04:11,160
Speaker 1: think they were called by John Traine. I think it was, yeah,

1148
01:04:11,280 --> 01:04:15,160
Speaker 1: John Traine, and he basically interviewed guys who had built

1149
01:04:15,400 --> 01:04:19,040
Speaker 1: long term, really attractive rates of return in the in

1150
01:04:19,080 --> 01:04:22,200
Speaker 1: the public equity markets, and then basically published those interviews.

1151
01:04:23,000 --> 01:04:25,480
Speaker 1: And then you know, I got with an odd to

1152
01:04:25,480 --> 01:04:31,240
Speaker 1: Warren Buffettum, so, my grandmother's best friend, she's she's English.

1153
01:04:31,360 --> 01:04:33,600
Speaker 1: Her best friend was really good friends with Charlie Munger,

1154
01:04:34,640 --> 01:04:37,360
Speaker 1: and I was visiting them when not to dinner with them.

1155
01:04:37,440 --> 01:04:39,800
Speaker 1: And I was young, and it happened to be with

1156
01:04:39,840 --> 01:04:44,080
Speaker 1: this older guy who was involved in investing, and um

1157
01:04:44,160 --> 01:04:45,640
Speaker 1: I asked him. I said, so, if you were a

1158
01:04:45,680 --> 01:04:47,720
Speaker 1: young man thinking about getting in investing, what would you do?

1159
01:04:47,760 --> 01:04:50,640
Speaker 1: And he says, I would call this number. He wrote

1160
01:04:50,680 --> 01:04:52,280
Speaker 1: down this number. He call his number and asked the

1161
01:04:52,320 --> 01:04:55,920
Speaker 1: guy who answers to send you the bound copies of

1162
01:04:55,960 --> 01:05:00,080
Speaker 1: the chairman's reports for his company. And I did know

1163
01:05:00,120 --> 01:05:02,520
Speaker 1: anything about Berkshire Hathway. I've never heard of Warren Buffett.

1164
01:05:02,640 --> 01:05:05,640
Speaker 1: No idea. So I called the number and it's Warren

1165
01:05:05,640 --> 01:05:08,520
Speaker 1: Buffett's number. He answers the phone himself. He did not

1166
01:05:08,640 --> 01:05:11,480
Speaker 1: he was his assistant, but it was his office. It

1167
01:05:11,520 --> 01:05:14,080
Speaker 1: was like the direct line. And I say, yeah, I

1168
01:05:14,120 --> 01:05:16,960
Speaker 1: met this guy at dinner. His name is Charlie Munger,

1169
01:05:17,160 --> 01:05:20,000
Speaker 1: and he told me to call this number and asked

1170
01:05:20,000 --> 01:05:23,920
Speaker 1: for the bound copies. And it was like a combination

1171
01:05:23,960 --> 01:05:26,400
Speaker 1: of silence and laughter on the phone. So you have

1172
01:05:26,480 --> 01:05:29,760
Speaker 1: no idea who Munger was? You know who you're calling us?

1173
01:05:29,840 --> 01:05:34,400
Speaker 1: No idea. So this is like nineteen eighties, seven or

1174
01:05:34,400 --> 01:05:38,600
Speaker 1: eighty eight probably, so my Warren Buffet stories. I'm in

1175
01:05:38,600 --> 01:05:41,680
Speaker 1: grad school. I'm working with this guy named Lawrence Cunningham,

1176
01:05:41,680 --> 01:05:44,240
Speaker 1: all right, he's a year ahead of me, is one

1177
01:05:44,280 --> 01:05:47,000
Speaker 1: of the editors of the Lore Review. And he decides

1178
01:05:47,120 --> 01:05:51,400
Speaker 1: to take all of the annual letters from Warren Buffett

1179
01:05:51,920 --> 01:05:54,400
Speaker 1: and bound them in a book and published him. He's

1180
01:05:54,440 --> 01:05:56,400
Speaker 1: the first guy to do it. I got that. I

1181
01:05:56,400 --> 01:05:59,200
Speaker 1: think I went to school with him, and at the

1182
01:05:59,280 --> 01:06:02,080
Speaker 1: time I had I had. So I'm in law school.

1183
01:06:02,080 --> 01:06:03,880
Speaker 1: I have no idea who Warren Buffett is. I have

1184
01:06:03,920 --> 01:06:07,280
Speaker 1: no idea any of this stuff. And I'm like, Lawrence,

1185
01:06:07,320 --> 01:06:09,880
Speaker 1: you're you're going to be a lawyer. He's now a

1186
01:06:09,920 --> 01:06:13,600
Speaker 1: law professor. What are you doing? Well? He specialized in

1187
01:06:13,600 --> 01:06:17,320
Speaker 1: in corporate governance and things along those lines. And who

1188
01:06:17,360 --> 01:06:20,080
Speaker 1: better an example of the right way to run a

1189
01:06:20,200 --> 01:06:23,920
Speaker 1: company that they warn't Buffett, by the way, Reminiscence of

1190
01:06:23,920 --> 01:06:29,000
Speaker 1: a Stock Operator by Edwin lefev John Markham Markman has

1191
01:06:29,080 --> 01:06:33,400
Speaker 1: done uh. The updated version, and it's it's a beautiful book.

1192
01:06:33,400 --> 01:06:36,520
Speaker 1: If anyone wants to read that book, I think it's

1193
01:06:36,520 --> 01:06:39,120
Speaker 1: as a light. So we're talking about books now we've

1194
01:06:39,160 --> 01:06:41,880
Speaker 1: kind of viewed into that. What what other books, uh

1195
01:06:41,960 --> 01:06:47,680
Speaker 1: do you find? Um are interesting? Worthwhile? Finance? Nonfinance, fiction, nonfiction?

1196
01:06:48,120 --> 01:06:51,200
Speaker 1: So if you measure it by the books that I've

1197
01:06:51,240 --> 01:06:54,240
Speaker 1: given away the most in my life, that's an interesting question.

1198
01:06:54,400 --> 01:06:57,280
Speaker 1: But let's let's hear that that uh too come to

1199
01:06:57,360 --> 01:07:02,200
Speaker 1: mind immediately? Um me Amato Musashi's Book of Five Rings

1200
01:07:02,320 --> 01:07:04,680
Speaker 1: or Go Ring No Show, which was the Book of

1201
01:07:04,800 --> 01:07:07,080
Speaker 1: Five Rings and Book of Five Rings. It's it's just

1202
01:07:07,200 --> 01:07:10,360
Speaker 1: for the Japanese version of the Art of War, um

1203
01:07:10,400 --> 01:07:13,080
Speaker 1: because they don't love the Chinese version. They well, it's

1204
01:07:13,120 --> 01:07:16,920
Speaker 1: it's a different it's a different approach because you know,

1205
01:07:17,120 --> 01:07:21,200
Speaker 1: I'm Sun Zoo wrote really about strategy as applied to

1206
01:07:21,760 --> 01:07:27,040
Speaker 1: military maneuvers, and Musashi really writes about strategy as a

1207
01:07:27,040 --> 01:07:29,320
Speaker 1: as applied to one's life and everything is a metaphor.

1208
01:07:29,360 --> 01:07:31,120
Speaker 1: So it's a it's a very zen book. I love

1209
01:07:31,160 --> 01:07:34,880
Speaker 1: it and considered a classic treatise on military strategy, much

1210
01:07:34,920 --> 01:07:38,520
Speaker 1: like sun sus Art of War. Don't there we go Um,

1211
01:07:38,560 --> 01:07:40,320
Speaker 1: either you know it really well or you just read that.

1212
01:07:40,440 --> 01:07:43,440
Speaker 1: I just read that outstanding, quick quick, quick Google. I

1213
01:07:43,480 --> 01:07:45,760
Speaker 1: don't know the book at all. That's the first time

1214
01:07:45,800 --> 01:07:48,680
Speaker 1: I'm hearing of it. I know Sun Sue and everybody does,

1215
01:07:48,800 --> 01:07:50,240
Speaker 1: and I got it, used to get it. So I

1216
01:07:50,280 --> 01:07:53,000
Speaker 1: started as a trader, and every year someone would give

1217
01:07:53,040 --> 01:07:56,640
Speaker 1: me Sun Sus Art of War for Traders. Sure, so

1218
01:07:56,800 --> 01:07:59,920
Speaker 1: it's sat on my desk and then someone would bar

1219
01:08:00,000 --> 01:08:02,040
Speaker 1: throw it and I'm like, I finally get rid of that.

1220
01:08:04,440 --> 01:08:06,880
Speaker 1: Else it was like the book that was gone on

1221
01:08:06,960 --> 01:08:09,080
Speaker 1: my shoes? What was the other book? You? You've given

1222
01:08:09,080 --> 01:08:13,760
Speaker 1: away a lot of Marcus Relius his meditation? Um was it?

1223
01:08:14,400 --> 01:08:17,280
Speaker 1: I have to remember who just referenced that book and

1224
01:08:18,400 --> 01:08:22,040
Speaker 1: a previous show. It might have been Charlie Ellis or

1225
01:08:22,080 --> 01:08:25,080
Speaker 1: it might have been Burton. I have to go back

1226
01:08:25,120 --> 01:08:31,040
Speaker 1: and find but not so as a former philosophy major

1227
01:08:31,120 --> 01:08:34,679
Speaker 1: that that book has originally applied math and physics senior year.

1228
01:08:34,760 --> 01:08:38,800
Speaker 1: A little bit of a switch. But um, that book

1229
01:08:39,080 --> 01:08:43,200
Speaker 1: is fantastic, Tindal, because you could pick it up, read

1230
01:08:43,240 --> 01:08:45,080
Speaker 1: it for as long as you want, and put it

1231
01:08:45,120 --> 01:08:48,200
Speaker 1: down and start right where you left off. And it's like, oh,

1232
01:08:48,240 --> 01:08:51,360
Speaker 1: I'm right back into this. That's really interesting that you, uh,

1233
01:08:51,560 --> 01:08:56,000
Speaker 1: you like that anything else, non fiction or non or finance.

1234
01:08:56,160 --> 01:09:02,960
Speaker 1: Was everything you've mentioned other than reminiscence of the Buffet book. Um.

1235
01:09:03,520 --> 01:09:05,719
Speaker 1: I guess we have to consider fine, it's a master's

1236
01:09:05,760 --> 01:09:08,160
Speaker 1: class in investing, is the way I think about that.

1237
01:09:08,280 --> 01:09:11,320
Speaker 1: You know, the collection of his letters. Um. When you

1238
01:09:11,439 --> 01:09:14,400
Speaker 1: ask bibliophile what his favorite books are, you run the

1239
01:09:14,479 --> 01:09:17,200
Speaker 1: risk of paralysis, right, because there's so many. There is

1240
01:09:17,280 --> 01:09:19,760
Speaker 1: no favorite. It's many. Yeah. But one of the things

1241
01:09:19,800 --> 01:09:23,320
Speaker 1: that I like to think of his whether or not

1242
01:09:23,400 --> 01:09:24,640
Speaker 1: when I've read a book, if I wish I had

1243
01:09:24,640 --> 01:09:27,559
Speaker 1: written it. Oh, that's interesting, you know. And there's not

1244
01:09:27,840 --> 01:09:31,000
Speaker 1: that many books that I've read that. Even as I'm

1245
01:09:31,040 --> 01:09:34,720
Speaker 1: reading it, I'm thinking, oh, damn, I wish I had

1246
01:09:34,760 --> 01:09:38,679
Speaker 1: written that. And Anthony Doers All the Light You Cannot

1247
01:09:38,680 --> 01:09:40,759
Speaker 1: See comes to mind on that one. And Anthony Dors

1248
01:09:40,800 --> 01:09:42,840
Speaker 1: is a Tony Doors, a boisey guy, So I've got

1249
01:09:42,840 --> 01:09:44,800
Speaker 1: a little bit of a bias there. Um. But that

1250
01:09:44,880 --> 01:09:48,679
Speaker 1: book is just lyrical and beautiful and heartbreaking. Um. All

1251
01:09:48,720 --> 01:09:51,240
Speaker 1: the Light you Cannot See, All the Light you Cannot

1252
01:09:51,280 --> 01:09:54,240
Speaker 1: See fiction. Um. And then in the non fiction world.

1253
01:09:54,280 --> 01:09:56,960
Speaker 1: I mean, I'm always I'm always reading. I'm halfway through

1254
01:09:57,000 --> 01:09:59,719
Speaker 1: Sapiens right now that all the light we cannot see,

1255
01:10:00,000 --> 01:10:04,080
Speaker 1: all the light we cannot see. Um, Sapiens is really interesting,

1256
01:10:04,320 --> 01:10:08,040
Speaker 1: really interesting. Halfway through I'm really enjoying the badass librarians

1257
01:10:08,040 --> 01:10:12,880
Speaker 1: of timbucktwo, which you gotta check out. I've heard that. Um,

1258
01:10:13,040 --> 01:10:15,280
Speaker 1: I'm it's probably third of the way or quart of

1259
01:10:15,280 --> 01:10:18,920
Speaker 1: the way into Um. The hard thing about hard things

1260
01:10:19,560 --> 01:10:22,600
Speaker 1: Horowitz is book. Um. Yeah, I mean, this is just

1261
01:10:22,720 --> 01:10:24,439
Speaker 1: just and those are just the ones that I'm just

1262
01:10:24,479 --> 01:10:29,240
Speaker 1: reading recently. Yeah, the funny thing about Sapiens. So I

1263
01:10:29,280 --> 01:10:31,880
Speaker 1: read a book I really enjoyed called Last Ape Standing

1264
01:10:31,920 --> 01:10:37,960
Speaker 1: about who are we know of twenty nine human Like, yeah, primates,

1265
01:10:38,400 --> 01:10:40,960
Speaker 1: We're the last ape standing. And I referred the book

1266
01:10:40,960 --> 01:10:44,000
Speaker 1: to a friend and he liked it so much. It's

1267
01:10:44,080 --> 01:10:46,200
Speaker 1: gotta go fishing with. That's the next thing I know.

1268
01:10:46,320 --> 01:10:50,360
Speaker 1: Sapiens shows up on my doorstep. So when I'm interviewing

1269
01:10:50,439 --> 01:10:53,840
Speaker 1: Danny Kahneman a few weeks ago, I asked him the

1270
01:10:53,840 --> 01:10:55,840
Speaker 1: book question and he comes out and says, the best

1271
01:10:55,880 --> 01:10:57,960
Speaker 1: book I've read in the past five years of Sapiens.

1272
01:10:58,360 --> 01:10:59,960
Speaker 1: So now I have this book sitting on my night

1273
01:11:00,120 --> 01:11:03,160
Speaker 1: table that I literally just started. I went home and

1274
01:11:03,160 --> 01:11:05,479
Speaker 1: I just started plowing. If Danny Conneman said this is

1275
01:11:05,520 --> 01:11:08,040
Speaker 1: the best book you read in the last five years,

1276
01:11:08,160 --> 01:11:10,960
Speaker 1: that said, how do you not? And it's really quite fascinating,

1277
01:11:10,920 --> 01:11:14,360
Speaker 1: it is. I've been enjoying it. Um all right, So

1278
01:11:14,880 --> 01:11:19,000
Speaker 1: you reviewed a lot of the shifts you've seen in

1279
01:11:19,040 --> 01:11:25,040
Speaker 1: the world of UH S R, I, E S G impacting.

1280
01:11:25,120 --> 01:11:28,160
Speaker 1: So we know how that's transition. What sort of shifts

1281
01:11:28,160 --> 01:11:30,800
Speaker 1: do you see in that space over the next let's

1282
01:11:30,800 --> 01:11:33,280
Speaker 1: call it ten years. I think the biggest shift is

1283
01:11:33,320 --> 01:11:37,719
Speaker 1: the professionalization of impact investing, and we have moved out

1284
01:11:37,760 --> 01:11:40,800
Speaker 1: of what I like to call the anecdotal evidence collection phase,

1285
01:11:41,200 --> 01:11:43,280
Speaker 1: where there's a bunch of interesting people are doing pretty

1286
01:11:43,280 --> 01:11:46,560
Speaker 1: cool things and we've got, you know, exits like Tom's

1287
01:11:46,720 --> 01:11:50,920
Speaker 1: and Warby Parker and uh you know grouped An's acquisition

1288
01:11:50,960 --> 01:11:52,960
Speaker 1: of Happy Family Food. There's a there's a bunch of

1289
01:11:52,960 --> 01:11:55,679
Speaker 1: those sort of anecdotal evidence phase that you can run

1290
01:11:56,400 --> 01:11:59,800
Speaker 1: a business and exited at an attractive valuation that has

1291
01:11:59,840 --> 01:12:02,959
Speaker 1: a clear environmental or social mission embedded in the operations

1292
01:12:02,960 --> 01:12:05,960
Speaker 1: of the company. Tom's Toothpaste and all the no. I

1293
01:12:06,000 --> 01:12:09,840
Speaker 1: was thinking the um, yeah, who buy Tom's. Um, it

1294
01:12:09,960 --> 01:12:11,960
Speaker 1: wasn't Clorox. It was something like that. It was a

1295
01:12:12,000 --> 01:12:19,280
Speaker 1: big company. Yeah, big company, Claroxbot Bees, I remember which. Well,

1296
01:12:19,280 --> 01:12:22,479
Speaker 1: I was thinking actually of Tom's, the shoe company. But yeah,

1297
01:12:23,080 --> 01:12:25,719
Speaker 1: Tom's the toothpaste as well. You know, Tom's the shoe

1298
01:12:25,720 --> 01:12:27,880
Speaker 1: company with the one that invented the buy one, give

1299
01:12:27,960 --> 01:12:30,599
Speaker 1: one model. So for every pair of tom Shoes that

1300
01:12:30,680 --> 01:12:33,320
Speaker 1: a customer buys, Tom's gives a pair of shoes to

1301
01:12:34,080 --> 01:12:36,479
Speaker 1: a kid in in a frontier emerging market that needs

1302
01:12:36,479 --> 01:12:38,800
Speaker 1: a pair of shoes. Um. And and that by one

1303
01:12:38,880 --> 01:12:41,680
Speaker 1: give one model has become much more common over the

1304
01:12:41,760 --> 01:12:44,120
Speaker 1: last few years due to the success of Tom's. That's

1305
01:12:44,120 --> 01:12:46,960
Speaker 1: really fascinating. Barb warby Parker is another example of that

1306
01:12:47,000 --> 01:12:50,760
Speaker 1: by one give one model. Um. So, I think, I

1307
01:12:50,800 --> 01:12:53,320
Speaker 1: think the professionalization of impact as we move out of

1308
01:12:53,360 --> 01:12:56,480
Speaker 1: the antecdote evidence phase and move into the thesis validation

1309
01:12:56,560 --> 01:13:00,680
Speaker 1: phase before we move into the ubiquitous presence phase, right,

1310
01:13:01,200 --> 01:13:03,439
Speaker 1: um And I think that is starting to happen because

1311
01:13:03,439 --> 01:13:06,559
Speaker 1: you've got firms like Bank Capital raising an impact fund.

1312
01:13:06,600 --> 01:13:09,560
Speaker 1: You've got Blackstone hiring Deborah and black Rock excuse me,

1313
01:13:09,640 --> 01:13:12,600
Speaker 1: hiring Deborah win Shell and in the organ chart, you know,

1314
01:13:12,760 --> 01:13:15,840
Speaker 1: you know, Debora is former executive director of the Robin

1315
01:13:15,880 --> 01:13:21,040
Speaker 1: Hood Foundation. Super smart tutor, very data driven, understands sort

1316
01:13:21,040 --> 01:13:23,879
Speaker 1: of this world really well. In the organ chart, what's interesting,

1317
01:13:23,880 --> 01:13:26,519
Speaker 1: and she reports directly to the CEO. She doesn't report

1318
01:13:26,640 --> 01:13:29,559
Speaker 1: like the head of structured products. So that's a pretty

1319
01:13:29,600 --> 01:13:32,439
Speaker 1: clear statement. And when you think about the letter that

1320
01:13:32,479 --> 01:13:36,120
Speaker 1: he wrote to this last year. Last year, guys just

1321
01:13:36,280 --> 01:13:38,800
Speaker 1: stopped drinking around with stock by backs and do some

1322
01:13:38,960 --> 01:13:41,519
Speaker 1: R and D and some capital spending exactly. And that's

1323
01:13:41,560 --> 01:13:44,040
Speaker 1: the largest ascent manager in the world. Yeah, it's them

1324
01:13:44,040 --> 01:13:46,519
Speaker 1: in Vanguard are one and two. So so I think

1325
01:13:46,560 --> 01:13:49,000
Speaker 1: that when you know, when you have firms like Goldman

1326
01:13:49,280 --> 01:13:53,760
Speaker 1: acquiring Imprint Capital, black Rock hiring Debora win Shell and

1327
01:13:53,800 --> 01:13:55,920
Speaker 1: really elevating the role of their impact team in the

1328
01:13:55,960 --> 01:14:00,960
Speaker 1: company Bank Capital rolling out a fund and having hundred

1329
01:14:00,960 --> 01:14:04,360
Speaker 1: and fifty internal people apply to work on it. Um,

1330
01:14:04,400 --> 01:14:06,880
Speaker 1: I think that's a serious commitment of time and serious

1331
01:14:06,880 --> 01:14:10,320
Speaker 1: commitment or you know, even um what's his name, Vincent Mai,

1332
01:14:10,400 --> 01:14:14,479
Speaker 1: the former chairman and CEO of a e A he

1333
01:14:14,600 --> 01:14:17,280
Speaker 1: launched as a fund. Craney Mere Capital based here in

1334
01:14:17,280 --> 01:14:20,559
Speaker 1: New York to focus on private equity and light stage

1335
01:14:20,600 --> 01:14:24,200
Speaker 1: private equity investing in firms that have sustainability components to

1336
01:14:24,240 --> 01:14:26,360
Speaker 1: their business model. I mean, it's like it's just happening

1337
01:14:26,360 --> 01:14:27,800
Speaker 1: at a pretty quiet level. I was on the call

1338
01:14:28,160 --> 01:14:30,000
Speaker 1: on a phone yesterday with a woman from the World

1339
01:14:30,000 --> 01:14:33,599
Speaker 1: Economic Forum, and she was really interesting adjective to describe

1340
01:14:33,640 --> 01:14:37,680
Speaker 1: the conversations that she's having clandestine. She said that she

1341
01:14:37,800 --> 01:14:41,879
Speaker 1: is having this conversation with sovereign wealth funds, large pension plans,

1342
01:14:41,920 --> 01:14:44,240
Speaker 1: institutional pools of capital all over the world who are

1343
01:14:44,280 --> 01:14:47,559
Speaker 1: fascinated by and compelled by this notion of impact investing,

1344
01:14:47,760 --> 01:14:50,840
Speaker 1: but they don't want to go public with all down there,

1345
01:14:50,840 --> 01:14:52,880
Speaker 1: and they're talking with asset managers trying to figure out

1346
01:14:52,960 --> 01:14:54,680
Speaker 1: how to talk about it, how to integrate. I think

1347
01:14:54,680 --> 01:15:00,280
Speaker 1: it's just one of those subtle and pervasive conversations that

1348
01:15:00,320 --> 01:15:04,920
Speaker 1: nobody's really admitting to yet because it doesn't fit with

1349
01:15:05,200 --> 01:15:09,040
Speaker 1: the self schema that we as investors hold for ourselves.

1350
01:15:09,120 --> 01:15:11,000
Speaker 1: You're a philosopher, you know what, you know what that

1351
01:15:11,040 --> 01:15:14,800
Speaker 1: means um and as a result, and this is a

1352
01:15:14,880 --> 01:15:16,519
Speaker 1: kind of this is such a tangent, but I think

1353
01:15:16,520 --> 01:15:19,800
Speaker 1: it's a it's a relevant tangent to keep going. I

1354
01:15:19,840 --> 01:15:22,960
Speaker 1: think that because there is this cognitive bias against that

1355
01:15:23,760 --> 01:15:26,640
Speaker 1: valuations are more attractive. You're not getting a ton of

1356
01:15:26,640 --> 01:15:29,240
Speaker 1: money chasing these deals. And I talked to impact that

1357
01:15:29,280 --> 01:15:31,640
Speaker 1: makes a lot of sense. Possibly it's a it's a

1358
01:15:31,680 --> 01:15:34,760
Speaker 1: thesis that I have see see my um my view

1359
01:15:34,800 --> 01:15:38,720
Speaker 1: of self schemas that everybody creates three six degree worldview

1360
01:15:39,160 --> 01:15:42,439
Speaker 1: And the question, the most important question investors need to

1361
01:15:42,479 --> 01:15:48,920
Speaker 1: ask themselves is how far has my subjective worldview deviated

1362
01:15:48,960 --> 01:15:54,200
Speaker 1: from objective reality? And for most investors it's an enormous deviation,

1363
01:15:54,320 --> 01:16:00,720
Speaker 1: and for for some people it's close here off there.

1364
01:16:00,760 --> 01:16:04,439
Speaker 1: You know, I picture am I picture like when you

1365
01:16:04,479 --> 01:16:07,439
Speaker 1: go into the old imaxes that were the circular or

1366
01:16:07,720 --> 01:16:11,599
Speaker 1: planetariums and they're composed of all these octagonal shape path

1367
01:16:11,840 --> 01:16:15,640
Speaker 1: how many of those panels actually are are hitting reality?

1368
01:16:16,040 --> 01:16:20,000
Speaker 1: And so you could create this three and sixty degree view. Uh.

1369
01:16:20,040 --> 01:16:22,800
Speaker 1: We learn a lot about about cognent of issues as

1370
01:16:22,880 --> 01:16:26,840
Speaker 1: as brains deteriorate or have have trauma involved, and so

1371
01:16:27,000 --> 01:16:29,720
Speaker 1: where different parts are off, Like we all have a

1372
01:16:29,720 --> 01:16:32,519
Speaker 1: blind spot behind us, but most of us have a

1373
01:16:32,520 --> 01:16:34,920
Speaker 1: blind spot in front of us, were wholly unaware of

1374
01:16:35,439 --> 01:16:39,479
Speaker 1: where you're two. Uh, And that's just a fascinating metaphor.

1375
01:16:39,600 --> 01:16:44,000
Speaker 1: So the idea that these giant sovereign wealth funds are

1376
01:16:44,120 --> 01:16:48,760
Speaker 1: embarrassed to publicly explore this space, that means that it's

1377
01:16:48,800 --> 01:16:51,640
Speaker 1: really early days. It's really it's really early days. And

1378
01:16:51,680 --> 01:16:53,960
Speaker 1: I think that when you have a firm like Generation

1379
01:16:54,000 --> 01:16:59,559
Speaker 1: Asset Management who is demonstrating repeatedly durable, persistent alpha right

1380
01:17:00,000 --> 01:17:02,160
Speaker 1: in the market that in theory shouldn't really offer that

1381
01:17:02,560 --> 01:17:07,160
Speaker 1: you know, is ten years sufficiently long sample. Maybe not,

1382
01:17:07,200 --> 01:17:10,680
Speaker 1: Maybe they're gonna blow up, but you still have the

1383
01:17:10,840 --> 01:17:14,120
Speaker 1: argument that is compelling and maybe it's a narrative and

1384
01:17:14,160 --> 01:17:17,960
Speaker 1: we all love stories. Is that nobody has embraced this

1385
01:17:18,080 --> 01:17:24,080
Speaker 1: yet fully. Look that my own so full disclosure, we

1386
01:17:24,160 --> 01:17:27,000
Speaker 1: run an asset management shop, and we run models, and

1387
01:17:27,040 --> 01:17:30,240
Speaker 1: we have clients occasionally ask us, what are you guys

1388
01:17:30,320 --> 01:17:33,240
Speaker 1: doing s g wise? What are you doing socially responsible wise?

1389
01:17:33,280 --> 01:17:36,920
Speaker 1: And and not even twenty or ten years, a year

1390
01:17:37,000 --> 01:17:41,640
Speaker 1: or two ago, we really couldn't construct something. We're not

1391
01:17:41,680 --> 01:17:45,439
Speaker 1: thinking what we were doing, and and the glib answer

1392
01:17:45,560 --> 01:17:48,080
Speaker 1: was tell you what, let it make more money. And

1393
01:17:48,080 --> 01:17:51,240
Speaker 1: then you'll have more money to to donate to your

1394
01:17:51,240 --> 01:17:54,000
Speaker 1: favorite charity and and that should be your e s G.

1395
01:17:54,760 --> 01:17:58,919
Speaker 1: But between the way things have changed in construction, constructing, ETFs,

1396
01:17:59,040 --> 01:18:03,080
Speaker 1: mutual funds, the availability of items as the costs of

1397
01:18:03,160 --> 01:18:07,519
Speaker 1: execution of compressed So we will eventually be able to

1398
01:18:07,560 --> 01:18:11,040
Speaker 1: say to clients, yes, we could give you nearly idea.

1399
01:18:11,120 --> 01:18:14,160
Speaker 1: It's not identical to the poor model, but we could

1400
01:18:14,160 --> 01:18:18,360
Speaker 1: give you an e s G compliant model that is very,

1401
01:18:18,560 --> 01:18:23,439
Speaker 1: very similar to our main portfolios. So instead of five

1402
01:18:23,520 --> 01:18:28,759
Speaker 1: thousand holdings, it's thirty. Instead of hundred countries, it's eighty countries.

1403
01:18:29,360 --> 01:18:33,400
Speaker 1: But it's so close you couldn't even be anywhere near that.

1404
01:18:34,160 --> 01:18:37,120
Speaker 1: Forget twenty five years ago, you couldn't even come close

1405
01:18:37,160 --> 01:18:40,559
Speaker 1: to that. And now it's just a function of technology

1406
01:18:40,600 --> 01:18:45,519
Speaker 1: that's available at a cost that wasn't two years ago.

1407
01:18:45,800 --> 01:18:49,200
Speaker 1: It's astonishing. So I don't want to talk. I want

1408
01:18:49,200 --> 01:18:52,320
Speaker 1: to ask you questions. When you guys were spending three

1409
01:18:52,439 --> 01:18:55,839
Speaker 1: years and I know I failed miserably at that. Today,

1410
01:18:56,000 --> 01:19:00,200
Speaker 1: when you guys were spending three years building out all

1411
01:19:00,240 --> 01:19:03,320
Speaker 1: of the infrastructure to this, I assume some of it

1412
01:19:03,400 --> 01:19:09,479
Speaker 1: is legal accounting, clients, administration, pay roll. But what was

1413
01:19:09,560 --> 01:19:13,880
Speaker 1: the process like building out the mechanisms, the process to

1414
01:19:14,040 --> 01:19:18,960
Speaker 1: put the portfolios in place for all clients. Are just

1415
01:19:19,000 --> 01:19:21,640
Speaker 1: for impact peace with the impact piece, Yes, so we're

1416
01:19:21,680 --> 01:19:24,639
Speaker 1: we're what we call finance first impact investors, and by

1417
01:19:24,640 --> 01:19:28,240
Speaker 1: that we simply mean that any investment needs to be viable,

1418
01:19:28,320 --> 01:19:30,120
Speaker 1: like it needs to be a good investment. First. We're

1419
01:19:30,120 --> 01:19:31,920
Speaker 1: not going to make an investment just because it has

1420
01:19:31,960 --> 01:19:36,000
Speaker 1: a sexy environmental story. So we start with our totally

1421
01:19:36,000 --> 01:19:38,800
Speaker 1: conventional diligence and determine whether or not this is likely

1422
01:19:38,880 --> 01:19:42,120
Speaker 1: to return the capital they say they're going to return

1423
01:19:42,200 --> 01:19:46,559
Speaker 1: right um. And then maybe a little bit in parallel,

1424
01:19:46,600 --> 01:19:50,200
Speaker 1: but we also focus on the intentionality around the impact strategy,

1425
01:19:50,360 --> 01:19:53,320
Speaker 1: either an environmental peace or you know, more of a

1426
01:19:53,360 --> 01:19:55,479
Speaker 1: social piece. And the social piece can be something like

1427
01:19:55,880 --> 01:19:59,599
Speaker 1: affordable housing, which is not particularly revolutionary now, but there's

1428
01:19:59,640 --> 01:20:02,840
Speaker 1: some really interesting cognitive biases around Section eight housing for

1429
01:20:02,880 --> 01:20:05,960
Speaker 1: an example, UM, which are just simply wrong, um and

1430
01:20:06,000 --> 01:20:09,160
Speaker 1: are demonstrably wrong. And so if you're thinking about affordable

1431
01:20:09,200 --> 01:20:12,160
Speaker 1: housing with a Section eight component that actually can be

1432
01:20:12,400 --> 01:20:16,439
Speaker 1: a performance enhancer rather than a drag on performance UM

1433
01:20:16,560 --> 01:20:18,479
Speaker 1: or environmental piece of it, you know, you might be

1434
01:20:18,520 --> 01:20:22,639
Speaker 1: looking at alternative renewable project finance, right, so project finance,

1435
01:20:22,640 --> 01:20:27,240
Speaker 1: there's no technology risk. Your counterparties are typically investment grade utilities,

1436
01:20:27,560 --> 01:20:31,000
Speaker 1: sometimes with very long power purchase agreements, and you're underwriting

1437
01:20:31,080 --> 01:20:33,760
Speaker 1: that based on the variability of the power rather than

1438
01:20:33,800 --> 01:20:38,160
Speaker 1: on the credit worthiness of the counterparty. And yet despite

1439
01:20:38,160 --> 01:20:40,360
Speaker 1: the fact that the sun shines pretty consistently and you

1440
01:20:40,400 --> 01:20:44,640
Speaker 1: can look at long term patterns, um you're seeing you know,

1441
01:20:44,680 --> 01:20:48,360
Speaker 1: even three or four years ago, uh, you know, double

1442
01:20:48,439 --> 01:20:53,360
Speaker 1: digit returns being backed by a public trade utility with

1443
01:20:53,400 --> 01:20:58,200
Speaker 1: a three handle under debt, and that asymmetry made no

1444
01:20:58,280 --> 01:21:00,800
Speaker 1: sense to us. And now you're seeing that cost of

1445
01:21:00,840 --> 01:21:03,200
Speaker 1: capital for the project finance being driven down by the

1446
01:21:03,200 --> 01:21:05,200
Speaker 1: amount of capital flowing into the space. And we're even

1447
01:21:05,280 --> 01:21:08,479
Speaker 1: now starting to see these you know, pretty high capex

1448
01:21:08,520 --> 01:21:12,720
Speaker 1: projects without power power purchase agreements backing them up, which

1449
01:21:12,720 --> 01:21:14,519
Speaker 1: three years ago would have been unheard of. And that's

1450
01:21:14,560 --> 01:21:18,040
Speaker 1: just shows you how far the capital markets have evolved

1451
01:21:19,240 --> 01:21:22,439
Speaker 1: changed totally. They're just underwriting these like conventional it's a

1452
01:21:22,479 --> 01:21:26,479
Speaker 1: conventional energy source. So they're they're yelling at me because

1453
01:21:26,520 --> 01:21:28,719
Speaker 1: you're they're they're coming to take you away to TV.

1454
01:21:29,320 --> 01:21:32,519
Speaker 1: So I'm gonna jump to my last two questions before

1455
01:21:32,680 --> 01:21:35,360
Speaker 1: uh uh and it takes thirty seconds to get ready

1456
01:21:35,360 --> 01:21:38,439
Speaker 1: for makeup and what have you. But what advice would

1457
01:21:38,439 --> 01:21:41,120
Speaker 1: you give to a millennial or someone just starting out

1458
01:21:41,160 --> 01:21:46,479
Speaker 1: their career in finance? I would say, develop an awareness

1459
01:21:46,640 --> 01:21:49,559
Speaker 1: of impact investing and expertise. You can be fluent in

1460
01:21:49,560 --> 01:21:52,719
Speaker 1: the language. Go to Wall Street and get your investment

1461
01:21:52,800 --> 01:21:56,479
Speaker 1: chops down cold, and then find a relatively small shop

1462
01:21:56,520 --> 01:21:58,960
Speaker 1: that is focusing on impact investing because in my mind

1463
01:21:59,000 --> 01:22:01,439
Speaker 1: that's the future, because right now there's a talent hole

1464
01:22:02,640 --> 01:22:07,760
Speaker 1: in impact investing that's really quite fascinating. Final question, what

1465
01:22:07,920 --> 01:22:10,200
Speaker 1: is it that you know about E s G Or

1466
01:22:10,240 --> 01:22:14,560
Speaker 1: impact investing today that you wish you knew when you started?

1467
01:22:15,000 --> 01:22:19,759
Speaker 1: However many years ago that was I wish that I knew?

1468
01:22:22,960 --> 01:22:25,080
Speaker 1: This is the question, by the way, that stumps people.

1469
01:22:25,600 --> 01:22:27,439
Speaker 1: What do you know today that? What would I tell

1470
01:22:27,479 --> 01:22:30,680
Speaker 1: myself ten years going back in time? What would you

1471
01:22:30,680 --> 01:22:37,360
Speaker 1: whisper in your own ear? Be more bold? Really? Yeah?

1472
01:22:37,560 --> 01:22:40,160
Speaker 1: No risk aversion here? Why does that not surprise me

1473
01:22:40,280 --> 01:22:42,519
Speaker 1: coming from you? It's not about the risk aversion with

1474
01:22:42,560 --> 01:22:45,080
Speaker 1: the capital allocation. I mean, I think you know whatever

1475
01:22:46,439 --> 01:22:49,519
Speaker 1: investment discipline you have in place to invest responsibly and

1476
01:22:49,560 --> 01:22:52,919
Speaker 1: well not from an riarty perspectively, just invest capital responsibly.

1477
01:22:53,439 --> 01:22:54,840
Speaker 1: You don't want to drop that, right, You don't want

1478
01:22:54,840 --> 01:22:56,879
Speaker 1: to just start swinging for the fences from an investment,

1479
01:22:56,920 --> 01:23:00,760
Speaker 1: but you mean be more bold in in your pro too,

1480
01:23:01,520 --> 01:23:05,439
Speaker 1: launching a business, embracing a different approach. Not hey, just

1481
01:23:05,560 --> 01:23:08,559
Speaker 1: let's leverage let's leverage up on these three x et s.

1482
01:23:08,800 --> 01:23:12,719
Speaker 1: I just think about how cautiously we talked about impact investing,

1483
01:23:12,720 --> 01:23:14,559
Speaker 1: and how hesitant we were to even let many of

1484
01:23:14,560 --> 01:23:17,240
Speaker 1: our clients know we were doing it, because we were

1485
01:23:17,240 --> 01:23:20,679
Speaker 1: afraid that our embedded client base would find that we were,

1486
01:23:21,040 --> 01:23:24,439
Speaker 1: you know, wandering off into the weeds building out our

1487
01:23:24,439 --> 01:23:27,320
Speaker 1: capacity impact investing where was. What we've discovered is that

1488
01:23:27,560 --> 01:23:31,920
Speaker 1: every one of our clients. That's probably a dramatic statement. Um.

1489
01:23:31,960 --> 01:23:34,240
Speaker 1: What has surprised us is how many of our clients

1490
01:23:34,280 --> 01:23:37,920
Speaker 1: that we perceived to be conventional investors have expressed an

1491
01:23:38,040 --> 01:23:41,280
Speaker 1: enormous amount of interest in impact investing. Not necessarily Hey

1492
01:23:41,320 --> 01:23:45,200
Speaker 1: I'm all in flip my portfolio, but I like this,

1493
01:23:45,439 --> 01:23:48,760
Speaker 1: I like the concept. Tell me more, tell me more,

1494
01:23:48,800 --> 01:23:50,400
Speaker 1: and you I've been getting a fair amount of press

1495
01:23:50,520 --> 01:23:53,439
Speaker 1: recently for the work that we're doing, and people read

1496
01:23:53,520 --> 01:23:56,880
Speaker 1: that and it gets passed around and suddenly they want

1497
01:23:56,880 --> 01:23:58,920
Speaker 1: to know about it. And I think that had I

1498
01:23:59,040 --> 01:24:01,400
Speaker 1: known there was gonna be this level of interest ten

1499
01:24:01,479 --> 01:24:04,600
Speaker 1: years ago, we would have been more demonstrative at the

1500
01:24:04,640 --> 01:24:07,320
Speaker 1: time instead of sort of hiding it. Yeah, that's what

1501
01:24:07,320 --> 01:24:11,639
Speaker 1: I would say to myself. Matthew Weatherley White, Uh, thank

1502
01:24:11,680 --> 01:24:13,519
Speaker 1: you so much for being so generous with your time.

1503
01:24:13,600 --> 01:24:17,360
Speaker 1: This is really been quite fascinating and really very interesting,

1504
01:24:17,400 --> 01:24:20,400
Speaker 1: and I'm glad you made the time to see us.

1505
01:24:20,439 --> 01:24:23,080
Speaker 1: I hope this has been too painful, Verry, this is

1506
01:24:23,120 --> 01:24:25,200
Speaker 1: been an absolute pleasure. Thank you for inviting me onto

1507
01:24:25,200 --> 01:24:27,640
Speaker 1: your show. Well, well my pleasure for those of you

1508
01:24:27,680 --> 01:24:29,840
Speaker 1: who are listening. I would be remiss if I did

1509
01:24:29,880 --> 01:24:34,519
Speaker 1: not think the team that puts this together, Reggie's our

1510
01:24:34,560 --> 01:24:38,679
Speaker 1: recording engineer Charlie Volmer, our producer Taylor Riggs, or booker

1511
01:24:39,160 --> 01:24:42,280
Speaker 1: Michael bat Nick is the head of research and does

1512
01:24:42,320 --> 01:24:46,960
Speaker 1: a yeoman job helping me come up with really interesting questions.

1513
01:24:47,520 --> 01:24:51,920
Speaker 1: If you have enjoyed this conversation, be suan look Up

1514
01:24:51,920 --> 01:24:55,160
Speaker 1: an Inch or down an Inch on Apple iTunes, where

1515
01:24:55,200 --> 01:24:57,960
Speaker 1: you will see any of the other one hundred or

1516
01:24:58,040 --> 01:25:01,880
Speaker 1: so previous such conversation stations. That's that's a painful number

1517
01:25:01,880 --> 01:25:06,759
Speaker 1: to state. We love your comments, suggestions, feedback, and email

1518
01:25:07,479 --> 01:25:11,759
Speaker 1: right to us at m i B podcast. That's Masters

1519
01:25:11,760 --> 01:25:15,880
Speaker 1: in Business m i B podcast at Bloomberg dot net.

1520
01:25:16,600 --> 01:25:20,360
Speaker 1: I'm Barry Ridalts. You've been listening to Masters in Business

1521
01:25:20,400 --> 01:25:21,519
Speaker 1: on Bloomberg Radio.