WEBVTT - Interview With Matthew Weatherley-White: MIB (Audio) 0:00:03.240 --> 0:00:07.560 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:08.360 --> 0:00:11.360 This week on the podcast, I have a really interesting guest. 0:00:11.440 --> 0:00:14.720 You've probably never heard of him before, and I suspect 0:00:15.240 --> 0:00:18.000 you will be hearing a lot more from him and 0:00:18.480 --> 0:00:22.240 his fellows in the future. His name is Matthew Wetherley 0:00:22.320 --> 0:00:25.920 White and he runs the cap Rock Group. Uh. He's 0:00:26.120 --> 0:00:29.720 kind of come to my attention because he specializes in 0:00:29.920 --> 0:00:35.320 impact investing, which is we we began the process of 0:00:35.880 --> 0:00:39.839 socially responsible investing as a thing some decades ago that 0:00:40.080 --> 0:00:46.800 morphed were evolved into e s g. Environmental sustainable governance 0:00:46.920 --> 0:00:52.040 or environmental social governance, and now what he describes as 0:00:52.120 --> 0:00:57.680 impact investing. He defines in conversation really intelligent asset manager 0:00:57.840 --> 0:01:01.960 located in of all places, Boise, idaho um, running about 0:01:02.000 --> 0:01:06.160 three billion dollars, growing tremendously fast in the space that 0:01:06.319 --> 0:01:10.560 that he focuses on. This very much is the wave 0:01:10.640 --> 0:01:13.240 of the future. This is something that at one point 0:01:13.240 --> 0:01:19.720 in time was a teeny tiny niche as he explains it, Uh, 0:01:19.840 --> 0:01:24.959 all the money that exists that's investable is primarily owned 0:01:25.600 --> 0:01:29.200 by one group of people, and it is destined to 0:01:29.240 --> 0:01:31.880 be inherited by a different group of people. Who are 0:01:31.920 --> 0:01:34.840 the folks that are really driving h E, s G 0:01:35.160 --> 0:01:39.000 and environmental social governance issues in the investing world. Well, 0:01:39.040 --> 0:01:42.840 they're they're women and their millennials. By the way, who's 0:01:42.840 --> 0:01:44.959 going to inherit all this money? Well, it's likely to 0:01:45.000 --> 0:01:48.480 be women and millennials. So you can expect this form 0:01:48.560 --> 0:01:53.720 of investing to become increasingly popular over the next uh 0:01:53.760 --> 0:01:57.840 a few decades, and his firm is in the vanguard 0:01:57.840 --> 0:02:01.080 of this. I thought the conversation with quite fascinating. I 0:02:01.200 --> 0:02:03.800 pushed back, as I know many of you who are 0:02:03.880 --> 0:02:06.760 listening would have wanted me to to have some of 0:02:06.800 --> 0:02:09.360 the things he said about active and passive and models 0:02:09.360 --> 0:02:11.920 and what have you. But all told, I thought this 0:02:11.960 --> 0:02:16.120 was a fascinating conversation. He's a really really interesting guy. 0:02:16.160 --> 0:02:20.320 With no further ado. My conversation with Matthew weatherly White 0:02:20.600 --> 0:02:26.519 of the cap Rock Group. This is Masters in Business 0:02:26.600 --> 0:02:30.840 with Barry Ridholts on Bloomberg Radio. My guest this week 0:02:31.040 --> 0:02:34.720 is Matthew weatherly White, co founder of the cap Rock 0:02:34.760 --> 0:02:39.120 Group of Impact Investing, and we'll get into specifically what 0:02:39.280 --> 0:02:42.200 that is. Born in Manhattan, a bit of a Globe 0:02:42.200 --> 0:02:47.400 Trotter before you settled in Boise, Idaho. Graduate of Dartmouth 0:02:47.440 --> 0:02:51.560 College class of eighty one, you co founded cap Rock 0:02:51.639 --> 0:02:56.520 in oh five after an eighteen year stint at Smith Barney, 0:02:56.600 --> 0:03:01.760 and you have been called the most fascinating investor people 0:03:01.800 --> 0:03:06.480 have never heard of. Matthew weatherly White. Welcome to Bloomberg. Yeah, 0:03:06.520 --> 0:03:08.680 thanks very it's great to be here. And obviously you 0:03:08.800 --> 0:03:10.720 heard of me. So it's not that no one's heard 0:03:10.720 --> 0:03:12.800 of me, but I'm putting you on the list of 0:03:12.800 --> 0:03:14.880 people who have heard of me. So I read I 0:03:14.919 --> 0:03:20.040 read a really interesting article about you, and Kiki had 0:03:20.080 --> 0:03:22.560 reached out to me, and I said, oh, I know 0:03:22.600 --> 0:03:25.960 who he is. I read this about him, and really 0:03:26.720 --> 0:03:28.960 maybe she had previously sent me the link to it. 0:03:29.360 --> 0:03:32.840 Normally I never look at anything that comes from pr people. 0:03:32.919 --> 0:03:35.640 But when when someone sends me something and I say, oh, 0:03:35.720 --> 0:03:38.920 I know who that person is, tell me more. So. 0:03:38.920 --> 0:03:44.200 So let's let's describe why you're such a atypical finance guy. 0:03:44.360 --> 0:03:49.160 So you play the bag pipes. You wrote an opera 0:03:49.240 --> 0:03:54.200 in sixth grade. You've published poetry. You've competed internationally in 0:03:54.240 --> 0:03:58.360 five different sports. You hold a world record in rowing 0:03:58.600 --> 0:04:01.960 no longer hold. Oh it's it has been surpassed. I 0:04:01.960 --> 0:04:04.640 think it might actually have been the shortest world record 0:04:04.680 --> 0:04:07.280 holding tenure in the history of any competitive sport. I 0:04:07.280 --> 0:04:09.480 set the world record in the heats of an event 0:04:09.520 --> 0:04:13.400 that was then eclipse in the finals. So yeah, I 0:04:13.440 --> 0:04:17.480 hold the distinction, but not for much time. So I 0:04:17.560 --> 0:04:19.720 left out the fact that you are an accomplished chef. 0:04:19.720 --> 0:04:21.839 You worked as a chef for a while. Oh and 0:04:21.920 --> 0:04:26.000 by the way, you manage a three billion dollar investment funds. 0:04:26.000 --> 0:04:31.320 So not the typical Wall Street definitely not. So so 0:04:31.400 --> 0:04:34.279 let's let's talk a little bit about, um, what you do. 0:04:35.160 --> 0:04:37.920 I want to begin with a quote that I read 0:04:37.920 --> 0:04:41.560 of yours, where you had said capital markets are the 0:04:41.600 --> 0:04:49.320 most powerful optimization vehicle on the planet. Explain that. Yeah, so, um, 0:04:49.440 --> 0:04:52.560 I like to think of capital flows as being driven 0:04:52.560 --> 0:04:58.039 by gravity. Capital flows to its most efficient utilization. But 0:04:58.080 --> 0:05:01.640 that implies a set of assumptions that aren't always explicit 0:05:01.720 --> 0:05:04.920 in the statement. And but that, I mean, what is 0:05:04.960 --> 0:05:09.640 it that capital is optimizing for? Um? And usually it's 0:05:09.680 --> 0:05:14.360 for for returns? Right the old joke, Um, I think 0:05:14.400 --> 0:05:17.600 it was the former chairman of City Group. Capital goes 0:05:18.000 --> 0:05:22.320 to where it's treated best and stays where it's most appreciated. Yeah, 0:05:22.400 --> 0:05:26.120 And I think that's actually true. And that's why capitalism, 0:05:26.160 --> 0:05:30.320 as both a sort of financial organizing structure and as 0:05:30.400 --> 0:05:33.919 a cultural underpinning is so fascinating because it is it 0:05:34.080 --> 0:05:38.480 is unarguable that capital flows where it is treated best 0:05:38.520 --> 0:05:41.719 and stays where it's most appreciated. Right. It's very difficult, 0:05:41.920 --> 0:05:46.520 if not impossible, to impose an artificial set of objectives 0:05:46.560 --> 0:05:50.160 that will violate that fundamental premise. And so the question 0:05:50.200 --> 0:05:53.359 that that I like to ask myself is not is 0:05:53.400 --> 0:05:57.320 capitalism good? Is capitalism evil? Is capitalism intrinsically beneficial or 0:05:57.320 --> 0:06:01.680 intrinsically destructive? And I'm thinking about Picatis book capital for example. Um, 0:06:01.720 --> 0:06:03.599 I think that's not actually the right question. The question 0:06:03.680 --> 0:06:06.680 is to what end do we seek to optimize? And 0:06:06.680 --> 0:06:08.479 the question that I kind of keep coming back to 0:06:08.760 --> 0:06:12.760 repeat that towards what end do we seek to optimize? Yeah, 0:06:12.800 --> 0:06:16.120 And I think it's it's easy to go back to 0:06:16.680 --> 0:06:19.040 that statement of the business of business is business and 0:06:19.160 --> 0:06:22.880 the highest end of business is not you know those 0:06:24.720 --> 0:06:26.839 And I don't like to say it that way, but 0:06:26.880 --> 0:06:30.960 you're right. And the reason I say that is that 0:06:31.120 --> 0:06:34.280 UM as an example, I think that the science around 0:06:34.279 --> 0:06:38.080 climate change is crystallizing, and regardless of what one believes 0:06:38.120 --> 0:06:41.720 relative demands relationship to the climate, we recognize that the 0:06:41.720 --> 0:06:44.559 climate is shifting, and we recognize it on some level. 0:06:45.000 --> 0:06:49.719 The increased concentration of greenhouse gases and carbon is part 0:06:49.760 --> 0:06:52.000 of that, right and so and the more we know that, 0:06:52.800 --> 0:06:56.360 the less defensible the position that we shouldn't care about 0:06:56.400 --> 0:06:59.640 it becomes. Um. As an example, I like to use, 0:07:00.160 --> 0:07:02.120 you know, the pricing of coal, and it's an easy 0:07:02.160 --> 0:07:03.840 target right now because of what's happened over the last 0:07:03.880 --> 0:07:05.800 couple of years in the coal industry, right, so you 0:07:05.880 --> 0:07:09.720 have more people working in solar in America today. So 0:07:09.720 --> 0:07:12.280 so it's a soft target, but nevertheless it's it's illustrative 0:07:12.720 --> 0:07:18.160 if you are the CFO of an aluminium company and 0:07:18.200 --> 0:07:20.080 the CEO comes to you and says, look, we need 0:07:20.120 --> 0:07:23.240 to find another one percent net operating margin. Go find it. 0:07:23.880 --> 0:07:26.040 You're gonna look at your inputs, right and your single 0:07:26.160 --> 0:07:30.080 largest input in aluminium smelting process is energy, and so 0:07:30.080 --> 0:07:32.360 you're gonna look for the cheapest energy. And today the 0:07:32.440 --> 0:07:34.800 cheapest energy has been coal. That's why a lot of 0:07:34.840 --> 0:07:38.400 the aluminium smelters are in Appalachia now. Isn't that changing though? 0:07:38.400 --> 0:07:41.120 Aren't we seeing natural gas start to become more and 0:07:41.120 --> 0:07:43.640 more clost effective versus coal, Yes, we are, and that's 0:07:43.680 --> 0:07:46.000 part of the dynamics around the collapse of price and 0:07:46.040 --> 0:07:50.720 the rate of bankruptcy filings among coal coal mining companies. UM. 0:07:50.760 --> 0:07:52.400 But where I was going was a little bit different, 0:07:52.520 --> 0:07:55.440 and that is that the price of coal to date 0:07:56.400 --> 0:08:00.600 does not price in the externalities. And I'm not saying 0:08:00.640 --> 0:08:04.080 climate change, just what comes out of your smoke stock, acid, rain, 0:08:04.200 --> 0:08:07.040 everything else. Everybody everybody, And we know this right so 0:08:07.080 --> 0:08:12.080 we know it's it's it's it's It's not debatable that 0:08:12.320 --> 0:08:16.760 the Burningham coal imposes a cost on society, primarily in 0:08:16.920 --> 0:08:19.920 environmental and healthcare costs, and those costs are not reflected 0:08:19.920 --> 0:08:22.280 in the price of the commodity, so that the consumer 0:08:22.320 --> 0:08:24.520 of the commodity is not actually bearing the cost of 0:08:24.560 --> 0:08:26.560 consuming it. And I think that is a kind of 0:08:26.600 --> 0:08:28.920 a thing, that's a kind of dynamic that is shifting 0:08:29.000 --> 0:08:32.120 right now in the capital markets. UM. And that's why 0:08:32.240 --> 0:08:35.079 when you think about optimization right now, the capital markets 0:08:35.120 --> 0:08:37.280 are moving away from coal for a whole bunch of reasons, 0:08:37.280 --> 0:08:40.480 some of which are regulatory, right, right. You also had 0:08:40.960 --> 0:08:44.480 people blame regulation too much. You also had a huge 0:08:44.600 --> 0:08:46.800 m and a spree at the peak of coal price, 0:08:47.000 --> 0:08:49.920 way too much leverage. These companies who a lot of 0:08:49.920 --> 0:08:53.560 people are blaming regulation for killing these companies just were 0:08:53.679 --> 0:08:57.000 poorly managed a lot of bed. So we're going to 0:08:57.040 --> 0:09:00.400 continue talking about this because I find this fascinating. I'm 0:09:00.440 --> 0:09:04.480 Barry Ridhults. You're listening to Masters in Business on Bloomberg Radio. 0:09:04.840 --> 0:09:08.880 My guest this week is Matthew weatherly White. Did I 0:09:08.920 --> 0:09:12.720 pronounce that correctly? He did? Yeah, channeling your inner Englishman 0:09:12.760 --> 0:09:15.480 and you'll get it. Of the cap Rock Group who 0:09:15.559 --> 0:09:20.760 specializes in impact investing, So let's talk about the phrases 0:09:21.480 --> 0:09:25.120 that that people have are probably more familiar with green investing, 0:09:25.200 --> 0:09:30.840 Socially responsive investing better known as s r I, Environmental 0:09:31.000 --> 0:09:35.920 societal and governance e s G, and of course what 0:09:36.080 --> 0:09:39.720 you do impact investing. How do each of these relate 0:09:39.800 --> 0:09:42.080 to what you do and how do they differ? And 0:09:42.160 --> 0:09:45.440 will you laid it out quite well, perhaps unintentionally, from 0:09:45.480 --> 0:09:49.840 a chronological perspective, sr I became e s G became impact. Um, 0:09:49.920 --> 0:09:52.560 think about it pretty simplistically as s r I investing 0:09:53.120 --> 0:09:57.160 was primarily about not owning companies that were perceived to 0:09:57.240 --> 0:09:59.320 be doing something bad in the world. Gun companies, not 0:09:59.400 --> 0:10:03.480 military companies, not vice and to backup companies, and a 0:10:03.520 --> 0:10:07.199 lot of energy companies were thrown under that rubrical so 0:10:07.360 --> 0:10:10.640 sometimes more more recently probably um so, s r I 0:10:10.720 --> 0:10:13.320 really sort of had its um it's it's coming of 0:10:13.360 --> 0:10:15.320 age moment in the seventies and eighties where a lot 0:10:15.360 --> 0:10:18.000 of activists were turning to the capital markets and saying 0:10:18.360 --> 0:10:20.679 we should be investing companies that do a better job 0:10:20.720 --> 0:10:22.600 and we should not be investing in companies that aren't. 0:10:22.840 --> 0:10:24.960 But that that was really in the seventies and eighties, 0:10:25.000 --> 0:10:27.640 that was a tiny slice. It was. It was a 0:10:27.760 --> 0:10:30.400 rounding error in the capital markets, and and in some 0:10:30.520 --> 0:10:35.760 regards s r I tightly defined is still kind of 0:10:35.800 --> 0:10:38.360 a rounding here in the capital markets because it's based 0:10:38.400 --> 0:10:43.680 on exclusionary sometimes inclusionary screens. E s G was really 0:10:43.679 --> 0:10:47.840 the evolution of that environmental social slash sustainable and governance, 0:10:48.080 --> 0:10:51.040 and that really came of age in the mid nineties 0:10:51.480 --> 0:10:55.600 when the European government said that large pension plans had 0:10:55.640 --> 0:10:59.160 to incorporate E s G analysis in their stock picking 0:10:59.480 --> 0:11:02.040 UM came from Europe, not the United States. Now, it 0:11:02.080 --> 0:11:04.800 was really started in Europe. UM ubs did a lot 0:11:04.800 --> 0:11:06.959 of really cool work around that early on. And yes, 0:11:07.040 --> 0:11:08.640 she's a little bit of a different idea. One of 0:11:08.640 --> 0:11:10.240 the one of the core tenants of E s G 0:11:10.400 --> 0:11:14.959 s it's around misk risk mitigation, Understanding the risks related 0:11:14.960 --> 0:11:18.479 to poor governance, understanding the risks related to climate exposure 0:11:18.600 --> 0:11:22.040 or lack of sustainability issues, and then embedding that risk 0:11:22.200 --> 0:11:26.640 mitigation into your discounting models to determine future castles for 0:11:26.640 --> 0:11:30.520 a company, and making your stock selection accordingly. UM and 0:11:30.559 --> 0:11:32.400 so E s G in my mind, is really a 0:11:32.440 --> 0:11:35.600 little bit of a sort of a professionalization, as it were, 0:11:35.720 --> 0:11:40.280 of the s R I. Yeah, and then the E 0:11:40.400 --> 0:11:44.480 s G movement sort of became, you know, relatively mainstream. UM. 0:11:44.480 --> 0:11:46.560 I say relatively only because there's still a lot of 0:11:46.760 --> 0:11:50.280 asset managers that don't do that. UM, what percentage of 0:11:50.320 --> 0:11:54.640 the total investible assets would you roughly guess plus or 0:11:54.679 --> 0:11:57.320 mind as E s G is running now depends on 0:11:57.320 --> 0:12:00.680 who you talk to and how deep you believe the 0:12:00.720 --> 0:12:04.000 E s G methodology has penetrated the organization give me 0:12:04.040 --> 0:12:07.199 a range, I would say somewhere between five and thirty five. 0:12:07.760 --> 0:12:10.200 Al Right, okay, so the low end was what I 0:12:10.280 --> 0:12:12.800 was expecting you to say. Thirty five is an enormous 0:12:12.800 --> 0:12:16.680 self one out of three dollars has some s G relationship. Yeah. See, 0:12:16.679 --> 0:12:19.400 that's where it gets really kind of slippery, because um, 0:12:21.679 --> 0:12:26.720 E s G disclosure is being driven culturally at this 0:12:26.800 --> 0:12:31.120 point rather than legislatively or regulatory. You know, the there's 0:12:31.120 --> 0:12:33.800 no there's no government mandate you must do E s G. 0:12:34.520 --> 0:12:39.000 It's sort of not not a self actualized said of 0:12:39.200 --> 0:12:42.520 understandings that the finance community has kind of reached on 0:12:42.559 --> 0:12:46.400 its own. Yes. And the reason I drew that distinction 0:12:46.440 --> 0:12:49.600 between sort of cultural applications of vs G versus the 0:12:49.640 --> 0:12:52.920 regulatory applications of E s G is that that determines 0:12:52.960 --> 0:12:56.480 how deep it penetrates an organization. I think that saying 0:12:56.520 --> 0:12:59.480 at this point that an asset manager is simply ignoring 0:13:00.200 --> 0:13:03.320 all environment on social consequences when making an investment decision, 0:13:03.360 --> 0:13:06.840 I think that's that's that's a that's an inappropriate assessment 0:13:06.840 --> 0:13:09.320 of investment methodology. I mean even even even a firm 0:13:09.360 --> 0:13:12.840 that would be like intentionally antagonistic towards the concept of 0:13:12.840 --> 0:13:16.960 responsible investing might incorporate some kind of climate risk modeling 0:13:17.320 --> 0:13:19.680 in the way that they think about doing their analysis 0:13:19.720 --> 0:13:23.840 of oil and gas EPP exactly the whole run of 0:13:23.880 --> 0:13:27.280 things where where there's some potential exposure and if you 0:13:27.360 --> 0:13:31.560 don't think about it, you're adding risk to your model, exactly. 0:13:31.559 --> 0:13:33.360 And that's why I think that the number could be 0:13:33.360 --> 0:13:36.760 even higher than thirty, because when we talk to asset managers, 0:13:36.760 --> 0:13:39.440 and we talked to a lot of asset managers, it 0:13:39.600 --> 0:13:43.640 continues to surprise me how many of them say, yeah, 0:13:43.679 --> 0:13:45.520 you know, we're starting to contemplate that we're starting to 0:13:45.600 --> 0:13:49.440 integrate that into our underwriting, for example, for fixed income 0:13:49.800 --> 0:13:52.480 UM we're starting to integrate that into our analytic models 0:13:52.480 --> 0:13:54.800 around future discount of cash flows. You know, it's like 0:13:55.200 --> 0:13:59.319 that that that approach is no longer antagonistic to the 0:13:59.360 --> 0:14:03.560 notion of investing for finance return. Now how deep it 0:14:03.600 --> 0:14:07.959 goes and it's only there's only one firm that I'm 0:14:08.000 --> 0:14:14.080 aware of that does absolute sharp sharp thinking around the 0:14:14.160 --> 0:14:17.960 materiality of h G risks, and that's UM. Al Gore 0:14:18.320 --> 0:14:21.240 and David Blood's from Generation Asset Management, and they're they're 0:14:21.240 --> 0:14:24.640 really a private equity, venture funds, no long only equity, 0:14:24.800 --> 0:14:28.680 long only equity, long only equity really ten billion? They 0:14:28.680 --> 0:14:30.800 capped their fund at ten billion. They probably got eleven 0:14:30.880 --> 0:14:34.840 or so. Now, Um, is it? You're talking private venture 0:14:35.040 --> 0:14:38.480 or publicly traded company, long only public equity. Really? Yeah, 0:14:38.520 --> 0:14:42.000 that's fascinating, that's fascinating. They do have a private debt fund, 0:14:42.680 --> 0:14:45.720 and I believe they do have a small private equity fund, 0:14:45.760 --> 0:14:49.120 but the core, their core competence is long only global 0:14:49.120 --> 0:14:52.080 private capital ten billion. If you want to really move 0:14:52.120 --> 0:14:54.600 the neodle, it's an open question. I've had. I've had 0:14:54.640 --> 0:14:56.680 that conversation with them, and I think they capped a 0:14:56.720 --> 0:14:58.680 ten billion when they started the firm because they didn't 0:14:58.720 --> 0:15:02.000 want to have asked growth be the primary driver for 0:15:02.080 --> 0:15:05.720 their business decisions. Um, but I don't know what's interesting? Yeah, 0:15:05.760 --> 0:15:08.160 I don't know. Really really quite fascinating. Yeah, and their 0:15:08.160 --> 0:15:12.240 performance here's what gets really interesting. Five basis points compounded 0:15:12.240 --> 0:15:15.800 over the index. Really, Yes, when did they launch ten 0:15:15.880 --> 0:15:18.560 years eleven years ago? Oh? So they launched right into 0:15:18.600 --> 0:15:20.880 the right into the mess, right into the mess. And 0:15:20.880 --> 0:15:24.400 what's beautiful about that is that it both allows an 0:15:24.400 --> 0:15:28.080 observer to discount their performance by saying, yeah, well, you know, 0:15:28.120 --> 0:15:29.800 they didn't have an exposure to carbon and they didn't 0:15:29.800 --> 0:15:32.040 have exposure to predatory landing because that's not their model. 0:15:32.200 --> 0:15:35.960 But that's the whole point. Oh, you know you're cheating 0:15:36.000 --> 0:15:38.280 because you're not exposed to all this bad stuff. Well, 0:15:38.440 --> 0:15:40.520 by definition, isn't that what you're hoping to? That's the 0:15:40.520 --> 0:15:42.520 whole point And what is baffling to me. And I 0:15:42.520 --> 0:15:45.640 think this get this gets to the cognitive biases embedded 0:15:45.720 --> 0:15:49.560 in Wall Street and the city of London. Why are 0:15:49.560 --> 0:15:54.120 there no copycats? Why aren't I mean think about you 0:15:54.240 --> 0:15:59.280 have the e t F she that focuses on governance 0:15:59.280 --> 0:16:05.720 issues where companies with a decent exposure of women represented 0:16:05.760 --> 0:16:08.480 in yes, senior management, in the board. I wouldn't say 0:16:08.480 --> 0:16:11.360 that's a direct cop copycat, but hey, black Rock put 0:16:11.360 --> 0:16:13.680 out an e t F that says, yeah, this is 0:16:13.680 --> 0:16:18.520 our our corporate governan CTF that's certainly inspired by it's 0:16:18.520 --> 0:16:21.440 got to be along the same lines. See, I would 0:16:21.680 --> 0:16:24.880 suggest that that's a market share capture strategy more than 0:16:24.920 --> 0:16:28.560 necessarily in investment methodology. And I'm maybe cynical here, um, 0:16:28.760 --> 0:16:33.720 but I would suggest I would pose it that gender 0:16:33.840 --> 0:16:37.640 diversification in the c suite is an important reflection of 0:16:37.680 --> 0:16:40.480 the culture of a company, and it may parentheses or 0:16:40.520 --> 0:16:43.920 may not in parentheses not be immaterial, may not be immaterial. 0:16:44.200 --> 0:16:47.480 My guest this week is Matthew weatherly White of the 0:16:47.520 --> 0:16:52.280 cap Rock Group. UH. He is Dartmouth class of eighty six. 0:16:52.320 --> 0:16:57.160 He spent twelve years working in the trenches at Smith Barney. 0:16:57.400 --> 0:16:59.440 Let's talk a little bit about Smith Barney before we 0:16:59.480 --> 0:17:03.760 get back to impact investing in and E s g Um. 0:17:03.840 --> 0:17:07.680 You don't strike me as a bulge bracket, big firm 0:17:07.800 --> 0:17:12.000 sort of brokerage guy. How did how did that come about? 0:17:12.800 --> 0:17:15.800 Part of it was timing. I joined Smith Barney immediately 0:17:15.880 --> 0:17:20.159 following the Shearson merger. So Sheerson Sheerson Smith Barney when 0:17:20.160 --> 0:17:23.440 I joined them, so it was pre Travelers Group, PRECD group. 0:17:23.560 --> 0:17:27.000 Sandy While wasn't even there. I remember on the NASDAC 0:17:27.119 --> 0:17:31.560 level three Sebashi was Smith Barney. Uh Shearson was was 0:17:31.600 --> 0:17:35.119 there for digit code on on the on the trading desk. Yes, 0:17:35.160 --> 0:17:36.520 it was much smaller firm then. I think they had 0:17:36.520 --> 0:17:38.719 about seven hundred brokers across the country and he had 0:17:38.720 --> 0:17:42.040 a small office in Boise, which is where I joined them. 0:17:42.440 --> 0:17:46.199 Um and not long thereafter, Sandy while went on his 0:17:46.240 --> 0:17:48.720 acquisition spree, and by the time I left, I think 0:17:48.720 --> 0:17:52.480 they had ten thousand brokers and it was a relatively 0:17:52.520 --> 0:17:54.560 small division of City Group at the time. So when 0:17:54.600 --> 0:17:56.520 I joined them, it wasn't really a bulge bracket firm 0:17:56.520 --> 0:17:58.640 and it became one. And that that that that journey 0:17:59.200 --> 0:18:03.960 was really just heartening for me. I just sort of 0:18:04.000 --> 0:18:05.800 personally and and you know, part of it was my 0:18:06.280 --> 0:18:09.800 naive te when I entered the business. UM. But I 0:18:09.800 --> 0:18:12.439 remember when I went back to training, my first training session, 0:18:12.520 --> 0:18:16.959 and in my imagination, training was going to be learning 0:18:16.960 --> 0:18:20.280 how to be an investor and an teach us how 0:18:20.320 --> 0:18:24.080 did the markets? What is modern portfolio theory? And it 0:18:24.119 --> 0:18:26.920 was a month and they had us in this hotel 0:18:27.000 --> 0:18:31.800 in Hartford, UM for a month and it was cold 0:18:31.840 --> 0:18:36.960 calling and scripting, was all sales. And I remember leaving 0:18:37.080 --> 0:18:39.679 at the end of that month thinking, Wow, this is 0:18:39.720 --> 0:18:43.200 really not what I had expected. UM, But I figured, well, 0:18:43.280 --> 0:18:44.800 I signed up for this, I'm gonna kind of plug 0:18:44.920 --> 0:18:46.119 plug my way through it. And I got through the 0:18:46.119 --> 0:18:48.320 first six months and then qualified for the next level 0:18:48.320 --> 0:18:50.120 of training and went back to next level of training things. 0:18:50.359 --> 0:18:53.159 This is where this is where investor you were. You 0:18:53.200 --> 0:18:55.359 were an army grunt and now um, all right, now 0:18:55.359 --> 0:18:58.960 I'm an officers training school. Now I'm a lieutenant. Um 0:18:59.359 --> 0:19:02.639 more sales. Yeah yeah, And uh, I realized that as 0:19:02.720 --> 0:19:06.760 much as I am fascinated by and compelled by capital markets, 0:19:06.840 --> 0:19:11.080 capital formation and aggregation, etcetera, I just didn't really like 0:19:12.280 --> 0:19:16.280 the job. Well it's a sales job. It's not. It's 0:19:16.359 --> 0:19:20.800 not an intellectual pursuit. It's a sales which has its 0:19:20.800 --> 0:19:25.080 own intellectual aspect, but it's not the same as capital formation, correct, 0:19:25.080 --> 0:19:28.399 And it was. It was a great experience for me 0:19:28.520 --> 0:19:30.679 just to really be in the belly of that beast 0:19:30.760 --> 0:19:32.639 for for so many years. And along the way, I 0:19:32.680 --> 0:19:35.960 was tapped to join the leadership development program, which was 0:19:36.040 --> 0:19:40.120 really about uh, finding guys that was in the firm 0:19:40.160 --> 0:19:42.359 that we're gonna move on to management. Um. And so 0:19:42.400 --> 0:19:48.000 I got a two year crash course in big bald 0:19:48.080 --> 0:19:50.840 bracket broker dealer management. And at the end of it, 0:19:50.920 --> 0:19:53.800 I was I stepped off that train and I said, 0:19:53.800 --> 0:19:55.280 not only do I not want to be a manager, 0:19:55.400 --> 0:19:57.680 I don't even want to stay here. And it took 0:19:57.720 --> 0:19:59.879 me about five years to figure out how to exit 0:20:00.000 --> 0:20:03.399 in a way that worked for me. So when you 0:20:03.440 --> 0:20:06.920 were at Smith Barney, did you try to say, hey, 0:20:07.040 --> 0:20:11.280 here's an idea. So previously we um also a Smith 0:20:11.320 --> 0:20:15.400 Barney alum was was it Smith Barney? Was is Rick 0:20:15.440 --> 0:20:18.720 Ferry who turned around and said, hey, I have a 0:20:18.800 --> 0:20:21.880 great idea, let's do low cost indexing and pitched them 0:20:21.920 --> 0:20:24.119 on it. They said no. When it took him a 0:20:24.160 --> 0:20:25.840 year or two before he said all right, I'm gonna 0:20:25.880 --> 0:20:28.199 go do this on my own. Did you try to 0:20:28.240 --> 0:20:30.800 move the dial there with hey, we could do something 0:20:31.320 --> 0:20:34.920 interesting here and the clients will love it. I can't 0:20:34.920 --> 0:20:38.080 believe you asked that question. We did not prep for this, Um. Yes, 0:20:38.119 --> 0:20:41.400 I did. Actually wrote a white paper to senior management 0:20:41.440 --> 0:20:43.800 where I said, look, there's these embedded conflict conflicts of 0:20:43.800 --> 0:20:46.360 interest in this business model where you've got four primary 0:20:46.400 --> 0:20:48.760 revenue streams, all riding on the backs of one or 0:20:48.760 --> 0:20:52.040 two consumer basis, and those embedded conflicts of interests are 0:20:52.080 --> 0:20:54.080 going to be revealed at some point, and here's one 0:20:54.119 --> 0:20:57.840 way to strip that conflict. And I I suggested an 0:20:57.880 --> 0:21:00.480 asset based account rather than a commission bay ssed account. 0:21:00.520 --> 0:21:03.679 They called it Asset one and it became the fastest 0:21:03.960 --> 0:21:08.200 growing account structure at Smith Barney. Nine months or so 0:21:08.400 --> 0:21:13.040 into that pilot project, they terminated it because not not 0:21:13.200 --> 0:21:15.320 because it was they were pulling money away from more 0:21:15.359 --> 0:21:19.800 productive brokerage accounts. No, it was because the brokers were 0:21:19.880 --> 0:21:22.520 using asset one as an excuse to get paid on 0:21:22.560 --> 0:21:25.320 an account without doing anything. So what they realized was 0:21:25.600 --> 0:21:28.440 that brokers were converting commission based accounts to fee based 0:21:28.440 --> 0:21:31.040 accounts so they could basically ignore the client and still 0:21:31.040 --> 0:21:34.359 get paid. Huh, that's fascinating. Yeah, it was really it 0:21:34.400 --> 0:21:38.120 was a really interesting and you know, somewhat cynical view 0:21:38.240 --> 0:21:42.680 into the mindset of the company. Couldn't you really impose 0:21:42.760 --> 0:21:45.680 a set of conditions that if you're gonna run an 0:21:45.720 --> 0:21:48.960 asset fee based thing, you're required to. If here's a 0:21:49.000 --> 0:21:51.840 financial plan, here's a quotally update, he's an annual review, 0:21:52.119 --> 0:21:54.760 you can impose exactly what they did. That's exactly what 0:21:54.800 --> 0:21:56.960 they did in the broker force sort of rejected it, 0:21:57.000 --> 0:21:59.480 and so let's work. It's actual it's actual labor. Yes, 0:21:59.480 --> 0:22:03.879 the account die. Huh, that's that's amazing. I'm Barry rid Hults. 0:22:03.960 --> 0:22:07.359 You're listening to Masters in Business on Bloomberg Radio. My 0:22:07.400 --> 0:22:11.760 guest today is Matthew weatherly White, who specializes in impact 0:22:11.800 --> 0:22:15.359 investing and is the co founder of the cap Rock Group. 0:22:15.840 --> 0:22:19.920 So let's let's talk about running a business that specializes 0:22:19.960 --> 0:22:23.720 in in what you do. First question, I know your background. 0:22:23.720 --> 0:22:25.399 I know you've been all around the world. You were 0:22:25.440 --> 0:22:28.160 born in Manhattan. Where did you go from From New 0:22:28.240 --> 0:22:33.479 York Tuna as one does, um, and then France and 0:22:33.520 --> 0:22:36.040 then England and then Colorado, which is where I think 0:22:36.040 --> 0:22:38.240 of as my home. And I went back east to 0:22:38.280 --> 0:22:40.360 go to Andover and in Dartmouth, and then I lived 0:22:40.359 --> 0:22:42.879 in Australia for a while, and then I moved to Idaho. Um. 0:22:43.080 --> 0:22:46.240 Which so that's a natural progression that all roads leads 0:22:46.280 --> 0:22:50.280 to boys. We've heard that, although I'm told that that 0:22:50.480 --> 0:22:55.280 parts of Idaho are just big sky, spectacular country fishing, skiing, 0:22:55.440 --> 0:22:58.840 mountain hiking, if you like doing anything in the outdoors. 0:22:59.280 --> 0:23:01.560 Idaho is Colorado was like when I was a kid, 0:23:01.840 --> 0:23:05.240 really just not as developed as Colorado has become. It's 0:23:05.280 --> 0:23:07.359 a remarkable state. And I'm not getting paid by the 0:23:07.480 --> 0:23:10.520 Ido Teamber of Commerce for this endorsement, but I chose 0:23:10.560 --> 0:23:12.760 to live there. Um. It's been a it's been a 0:23:12.840 --> 0:23:17.160