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As both an entrepreneur and an investor, Kola Aina has a unique perspective on Africa’s market. These days he spends most of his time building and investing in ecosystems that help communities flourish. He joins Henry and Ndidi to talk about the makings of a good deal and to inspire listeners with a vision for righteous capital.

Episode Transcript

Jacktone: Welcome back to the Faith Driven Entrepreneur Africa podcast. We are committed to spotlighting the voices of entrepreneurs and innovators shaping the marketplace in our countries across this vast continent. This week we’re featuring Kola Aina. Kola is the founding partner at Ventures platform and early stage discovery venture capital funding championing the next generation of African entrepreneurs. He’s a leading executive and board director who combines a powerful mix of entrepreneurial investment and technical experience across diverse industries, including technology, finance, media, agriculture, infrastructure and real estate. As a venture capitalist, Kola identifies and invests in early stage technology companies focused on the disruption of financial services, healthcare, education, agriculture and enterprise software. He has built a strong investment portfolio of best in class high growth companies. We are excited to talk to Kola about the makings of a good deal and how good work contributes to more flourishing communities.

Henry Kaestner: Welcome back to the Faith Driven Entrepreneur Africa podcast. We are in the early days here and I’m with as always with my co host Ndidi, Ndidi. Good morning. Even though it’s not morning.

Ndidi Nwuneli: Good afternoon. Good evening.

Henry Kaestner: Exactly. Ndidi, when we talk last, you and Reuben, who joined us on our first podcast, it encouraged me to listen to some more African music. And we had talked about so many folks in the United States, in the West think of getting involved in Africa through the lens of Bob Geldof and U2. And the challenge was, for me, the upserper on this podcast that’s coming from the West, but has a great passion and great love for Africa to be able to be brought up to speed more of my music. And so I listened to Burna Boy, and I think I need to keep on listening because it’s not exactly my type of music, but I need to get broadened out beyond, I guess, Lady Black and Bozo and Shot. A I know that there are lots of things that I and so much of our audience need to learn about African music. But this is also a good time to mention the fact that this podcast is primarily while we expect that a lot of folks will come over from our Faith Driven Entrepreneur, our Podcasts and our Faith Driven Investor podcast, which are, to be clear, global listen to in 130 countries, it does kind of skew to the West. So we anticipate that some folks from our audience that are interested in Africa will come over, but it’s primarily for African entrepreneurs, so they might see what God is doing in the marketplace, be encouraged by their brothers and sisters in Africa. And there’s no better way to do that, no better leader to lead us through that than you Ndidi, Ndidi, thank you very much for being with us again.

Ndidi Nwuneli: My pleasure, Henry. And thank you for this wonderful opportunity.

Henry Kaestner: We’ve got a great guest today. We’ve got a guy that really embodies so much of the spirit of what God has done through this movement that we have Faith Driven Entrepreneur Faith Driven Investor. And for those of you who are coming in new into the family, Faith Driven Entrepreneur and Faith Driven Investor are these decentralized movements that involve lots of great organizations and ministries from around the world. We have, I don’t know, maybe a dozen or so great ministries just in Africa alone that have all coalesced around this concept in the spirit of a shared cultural DNA of Christian business owners and entrepreneurs around the world, which include things like the identity in Christ, our call to create and daring to be faithful versus willful, etc. But we’ve got a great opportunity to be able to shed light on what’s going on in the continent through a person who is an entrepreneur and an investor. And so, Kola, welcome to the program.

Kola Aina: Thank you for having me. Henry Delighted to be here and to share and learn, but really just happy to get the chat going and share some of what God is doing on this end.

Henry Kaestner: Excellent. Ndidi is going to lead us through a lot of that. But before we get started, one of the things we like to do with all of our guests is get a biographical flyover. Who are you? Where do you come from? How has faith been brought into your life with time? And then we’ll get into meet of that. But give us a flyover, please.

Kola Aina: Yeah, sure. Kola is my name, Nigerian citizen. I was born in Lagos, but my family very quickly, like most like lots of families, moved to the northern part of Nigeria, precisely Kano in the first instance and then Kaduna. My father worked serving as a corporate salesman and then very quickly became a bottling entrepreneur. I like to say I grew up in a start up family because I would watch my dad go from business to business, and at some point he would have three different enterprises run at the same time. And so my life as a kid was between so watching my parents start businesses and turning in those businesses and going to church. It was very much a regulated upbringing that I went through. Very quickly because I’m the first of five kids, my dad ensured I got really involved in family business. I went to boarding school and my mom will always tell me, remember the son of whom you are, you know? And if you know anything about the you’re about culture, you know, there’s a huge responsibility on the first child to not sully the family name. Hmm. Very quickly as well. I grew up, you know, one of my dad’s most repeated sayings is a phrase I like very much. And it goes like this My father, God takes care of me in grand style. And, you know, because he was swinging so far out, taking so much risk both in businesses and extremely leveraged himself, he would always sort of declare this extreme levels of faith in God and what God was doing, you know, in his new businesses, that very quickly, I begun to see a direct correlation between my faith and the work that I did. And so that was sort of my upbringing. You know, growing up in Kaduna I went up to engineering school in the U.S. I went to business school, walked in, you know, corporate. But I always had this nagging desire to come back to Nigeria to be a part of, you know, how my country got better. And in 2009, I finally made that bold move, move back to Nigeria. I met my wife shortly after I got married. And as I say, the rest is history while I was in school certainly got carried away at some point as well as most young men do. But, you know, God bless my mother. She had put in so much work and instilling the fear of God in us as kids that even when we sort of, you know, got carried away, we always had a center. Right. And my mom would send us devotionals all the way from Kaduna to wherever we were in the world. You know, I definitely invested a great deal in my Christian journey once I gave my life to Christ in my teens. And so I’ll pause there. Happy to sort of continue the conversation all the way to where I am today.

Henry Kaestner: I think that’d be great. Yeah. So the question on my mind and I’m trying to place your accent, did you go to school in the States?

Kola Aina: I did, yes. I went to school in a small town called Savannah, Georgia.

Henry Kaestner: Yeah.

Kola Aina: And that’s because, you know, my my mom and I were plotting how I would go to school in the U.S. and my dad didn’t know about it. I got admitted, got a scholarship to study graphic design at a school in Savannah, a leading design school. And my dad, my dad kicked against that and said, no way. My son went to study design. And so I ended up it had to be in Savannah because we had family in Savannah, Georgia. And so I ended up at Savannah State University in Savannah, where I went for engineering school and moved out west to Bowling Green State, Ohio for my master’s. And yeah, my accent is a mix of different twangs. Very, very nice.

Henry Kaestner: Do you say y’all. Can you do that?

Kola Aina: I do. I do. I I’m quite the Southern boy, you know.

Henry Kaestner: That’s great. Okay, so you’re back to Nigeria and you said 2009.

Kola Aina: Yes.

Henry Kaestner: And then you started your own career. Give us flyover of your career and what you’ve done professionally till now.

Kola Aina: Yeah. So, no, I didn’t quite start my career right off the back. My first move back to Nigeria was my dad had asked me to he was looking to retire and in a move back to help run the family business, you know, until we worked together for a year and a half. But, you know, I had invested quite a bit of time in trying to understand the purpose of my life and what I was for. And, you know, I was one of those obsessive, purpose driven Life readers. The book by Rick Warren. Yeah. You know, the time I probably read it like five times. You know, I’d read the journal, I read all the versions of the book, you know, and I’d come to a clear realization what the purpose of my life was at the time I called it the way I coined it was the purpose of my life is to build platforms to enable other people. You know, it was pretty crystal clear. You know, most people are not that fortunate to have that level of clarity. I’m grateful to God for that insight that I had. And so I spent a year and a half working in my family. Business was a large publishing concern, but I always felt this hollow in my heart, you know? And I wasn’t doing what I really wanted to do. And so I left the family business a year and a half. And that’s always a difficult thing to do. As you can imagine, leaving the family business been the first born child and I initially relocated back to the U.S. when my family had a really rough patch, you know, a bit of a dry spell trying to figure out what next. And was in that time actually at a church program? At a church event? In DC that I met my co-founder. A gentleman by the name Chuka Esei Nigerian American. And we decided we were going to start a technology business that would build open source software for midsize businesses and, you know, development agencies and governments in Africa. At the time, you either were dealing with, you know, the large the Microsoft Oracles of this world or you were dealing with some random, small or random guy, you know, with a backpack to build your technology. And that had low risk with it. And so, you know, we decided we’ll start this open source technology company. He wasn’t going to move back. I decided to move back to Nigeria, started the company called Emerging Platforms and back to my idea of building platforms. And we had a really basic idea. We were going to build a platform to enable people and ideas emerge. It sounds kind of silly now thinking about it, you know, and came back.

Henry Kaestner: What sounds silly about it?

Henry Kaestner: It sounds awesome.

Kola Aina: Well, yeah. I mean, the logo as well had a line in the middle emerging was on top and platforms was beneath. I mean it was quite literal until we came back and you know, we started looking at different sectors. The education sector was one sector we focused on. And for instance, in education, we would walk to universities to take their courses online, enable them collect payments, ease the process for students to apply and get admitted. This was all manual, right before the time we started doing this. And, you know, God blessed our efforts. It was really tough. We didn’t have any funding. I couldn’t go back to my family for funding because I had been a a bit of a rebel, but I was convinced this was what God wanted me to do. I was convinced I was pursuing the purpose of my life. My mom was sort of in alignment. My dad eventually came around and, you know, it was a really slow process. I mean, fast forward today, it’s so easy to raise venture capital. At the time we started, there was no venture capital for the kind of business I was running. I was a software business right in Nigeria until was essentially funded the business off of customers, which is the way businesses traditionally are built, one customer after the other. And then in 2013, I really started getting curious about the role technology could play in making Nigeria a better country, you know, and a much more prosperous country. And that led me to start sort of angel investing in other sectors I was interested in, but didn’t feel I could personally pursue ideas in. And that, you know, very quickly, my angel portfolio grew to, you know, initially about 15 companies or so. And then I felt I needed a proper structure to manage those companies. And that really was what inspired venture platform being formed in 2016. Today we are one of the most prolific early stage funds in the region. We play a discovery role. Essentially, we’re discovery fund. We identify high potential companies early that we believe can be transformational. And I can talk a little bit more about thesis down the road, but we backed them early on. We help them scale. And this is with a Pan-African mandate with the goal that these entrepreneurs would, one, create new markets that ultimately allows the vast majority of Africans who are generally low income access the goods and services they need. By so doing, we can start to increase prosperity on the continent. But more importantly, when those founders themselves exit and make a success of their businesses, we start to unlock what I like to call righteous capital, right capital that is disconnected from the legacy wealth in Nigeria and in Africa. That really starts to impact the kind of change we need. Until I can impact that as a whole. But that’s the ultimate goal for why we invest and why invest now.

Ndidi Nwuneli: I love that Kola, really inspiring and I love how you’ve evolved through your story and one experience has built on the next that’s very inspiring. You know, when you talk about Nigeria, you made a bet on Nigeria, you made a bet on Africa. Your co-founder didn’t want to come back, but you did. What excites you about Africa? Why do you see what others don’t see and what opportunities have you seen that have kept you motivated and going?

Kola Aina: I think at the time in the early 2000, you know, when I moved back, what excited me was more the possibility what was yet undone. Right. You know, using my family business as an example, my family had this large printing business. And if you wanted to print anything, you. You would have to travel all the way to the press in Kaduna physically. But in the US we had the Kinko’s stores everywhere. And you come in, we could drive and you could produce it, you know? And I would tell my dad, I, look, I think the future of printing is going to be real time. Like literally everyone will print all over the, you know, and so being in the US gave me an opportunity and because I kept in touch with Africa, I was very much aware of the gaps that existed and I had a burning desire to try to bridge some of those gaps. And you can say that perspective was based off of my youth and sort of my desire to create nicer things on the continent. Today, it’s a more urgent mission. You know, Africa has one of the fastest growing populations, a largely youthful population and, you know, the largest concentration of poverty in the world. And ultimately, we have to create prosperity at scale, you know, because that’s how you solve for insecurity. That’s how you solve for terrorism. It’s all connected. And so for me, I see a real opportunity to utilize innovation and capital to create new markets that enable more people, gain access to the goods and services they need. You know, and when people have access, they gain agency, right? They become citizens that have agency and then they start to hold governments accountable, right? And then they become more empowered. And so this is as much as it’s, you know, venture capital strategy, the ultimate goal is to empower people and really build prosperity on the continent.

Ndidi Nwuneli: That’s really excellent. You know, when you think about catalytic capital and I love the term righteous capital, we would love to unpack that some more. But you mentioned innovation. You know, and innovation is critical in landscapes where there are still evolving sectors and growth sectors. So when you think about innovation, what does it mean to you and how have you built that culture within your own company and the companies you’ve invested in?

Kola Aina: Yeah, I think the topic of innovation is a super interesting one and it took us a while to, like I said in the early days, I was very excited about the shiny things that you find in the West at the time you couldn’t quite find in Nigeria or in Africa. I mean, I was shocked you to know that until 2016, when we invested in Paystack and Paystack launched a payment company, it was really hard to set up online payments for any business. But today our thinking around innovation has evolved to where we are interested in a particular kind of innovation. You know, it’s described as a market creating innovation, right? Because that kind of innovation essentially creates a new market that is more accessible. So it’s really not about enhancing the products. For instance, every time a new version of Henry’s mic that’s recording this podcast gets released or like an iPhone, you know, you get millions of people buying it. While the majority of the folks here on the continent don’t need a new iPhone, they just need a phone right to communicate on to find out the price of wheat in the market. And so for us, it’s really about investing in the kinds of innovation that allow the vast majority of people on the continent gain access to healthcare, to education, to, you know, to housing. And that’s why we are very specific thesis is very specific about the kinds of innovations that we like to support. And another way to put it is we are looking to back painkillers and not vitamins. And we think by backing those types of companies, we can not only make an impact here on the continent, but also create the outcomes around righteous capital that we talked about early.

Ndidi Nwuneli: At least I love that you’re addressing painkillers and vitamins I would like to dig into that a bit more because there’s a lot of temptation in the sector that you’re in VC to back those vitamins and the shiny new things. And, you know, Paystack has been extremely successful. Right. So how do you stick to that frame and stay grounded and rooted in your vision?

Kola Aina: Well, again, I guess it’s ultimately why I started, right. And for me, I consider the work I do in college, you know, because I could do this. I often tell there’s so many simpler ways to earn a living. Venture is actually really hard, you know? But it is a way that I feel a sense of responsibility. You know, and I like to think about careers as spheres of influence. I feel like God’s kingdom needs to be viewed as different spheres. And we get put in those spheres to dominate and to influence. And so my role and our role as Ventures platform is to do venture in a kind of way and venture that produces a kind of outcome.

Henry Kaestner: But you hit on something there that’s worth just just looking in a little bit more. You don’t hear that a lot from Christ followers talking about domination. You know, you’re getting something that’s very much from Genesis. It’s the creation mandate as to take dominion over all things and to claim it in the name of God and do it for the advancement of his kingdom, for his power under his for his glory. But when you talk about the creative process in innovation and maybe this is part of your design base, but lean into it a little bit more because we don’t hear that much. What do you mean about dominate? I like that.

Kola Aina: Yeah, I think as Christians, we are meant to dominate our sphere of influence as long as we’re dominating for the right reasons. Right. You know, my role is to try to establish the kingdom of God through the work that I do right here on Earth by dominating for the right reasons. Not necessarily. I mean, how much can I possibly need? how much do I possibly need. Right. But we have to minister to people through like when a jobless, young Nigerian is finally able to launch her online store because of paystack or flutterwave. That is impact right on. You know, I think as we spread the gospel, as we inspire people to give their lives to Christ, we also have to sort of reduce poverty and then show people, you know, can live a decent, modest life. And so that’s the way I view dominating, and connecting that to sort of genesis, which was an expressed sort of desire of God. Where I struggle with it is when the domination is for the wrong reasons, for personal gain and whatnot. And so and I learned that early because, growing up my dad had this library was full of books, autobiographies and lots of Christian books. And I remember once picking a book from his library called the Bible MBA, you know, and I quickly realized that there’s the way the world does business and that’s the way we do business. Right. And, you know, I think it sort of permeates the company culture, the policies and sort of how we operate in the market. So, for instance, when we launched our fund, we were very keen on being transparent and giving a fair deal because we felt, yeah, we may not necessarily insist that we would only fund Christians, right? But if our terms are fair and transparent and we don’t try to invest with any funny terms and play any games, that’s one way to let our light shine, right? And people get closer to us and they want to know who we are, why we believe, what we believe. That’s one way that we minister and the work that we do.

Henry Kaestner: I think that’s beautiful. I want to come back into the concept of righteous capital and building and taking dominion over all things for the support of building about an ecosystem that points to God. And I get a sense that you do some of that with the foundation that you have. Can you talk to us about the foundation? You don’t see a lot of foundations associated with relatively new venture capital funds. You see it maybe with Andreessen Horowitz or Bessemer or U.S.V.P or Battery, you know, when they’ve got billions and billions of dollars under management. But I get a sense that you have this philanthropic mindset in investing back into the ecosystem, and that was around since the beginning. Talk to us about that.

Kola Aina: Yeah. That’s great. Yeah, it’s counter-intuitive, right? I mean, who stocks foundation for a fund off of the first fund where you barely have any fees. But again, we came to this, our first few investments were all proprietary capital, right? So it was I had the technology business that had done really well and we decided we carved out a part of capital to invest. And very quickly we realized that there was so much ecosystem development that needed to be done if we would invest successfully in companies. You know, 2016, where we started, you would struggle to find high quality deal flow as we now have. And so in the early days, the mandate of our foundation was to invest in entrepreneurs that were not yet investment ready. Right? How could we help them sort of scale up their ideas? And in parts of the country, not Lagos, you know, for instance, I grew up in Kaduna, so I always had a heart for that. I’ve always had a heart for that part of the country, which, as you may know, is northern and mostly Muslim. Right. And again, this is part of letting our light shine. And so we set up there and we were doing campus outreach, helping campus students with their ideas, you know, teaching them how to start a startup and whatnot. Today, the ecosystem has changed significantly, and obviously we started funding the foundation off of our very meager fees. And I initially did a grant to the foundation to a set of grants very quickly. We had all the partners sort of chip in to support the work the foundation was doing. And today that work has come upstream as the market has matured. So most recently we’ve been working the foundation has been playing a lead role in getting a parliament passed called the Nigeria Startup Bill, which is an act of parliament that is meant to support the startup ecosystem and protect companies and galvanize a set of incentives for the ecosystem. And so it’s been an incredible journey, really working to build pipeline and create an enabling environment so that we can actually fund companies and the companies can go on to be very successful.

Henry Kaestner: I’d love for you to walk us through some of the stories that you’ve invested in and what is it that they make? I mean, I think about Paystack and Flutterwave. I mean, these are become very, very successful unicorns. I mean, I think in the case of Flutterwave, maybe even $1,000,000,000 valuation, 1,000,000,000 USD valuation. So achieving great scale. Talk to us about some of the companies that you invest in, what they do. And then also, what does it look like in the personal relationships that you have with some of these founders?

Kola Aina: Oh, yes. I mean, I’ll tell the Paystack story. For instance, you know, when I met Shola, the founder of Paystack, I had been dealing with the issue of just not being able to turn on payments on any website or any platforms we built. We will build for customers in my enterprise business. And here was this young guy who said he had built this outlet that you can set up an online payment checkout system in less than 30 minutes. And you could be live, you know, It sounded incredible, right? Because it just seemed impossible to do it locally in Nigeria at the time. And this was just as recent as 2016. It’s incredible, you know, so we invested early today. Paystack supports over 100,000 merchants. And these merchants range from, you know, the college graduate who’s not been able to get a job and decides to start making crafts and selling them online all the way to airlines. That process hundreds of thousands of tickets every month and really proud to say six years after making that investment, Shola is now an investor in our new fund, so it feels like full circle. And you know, when I talk about righteous capital, righteous capital as well can be deployed in the various spheres of society until paystack were sold to Stripe in 2020. And, you know, Shola had a nice exit. We did an exit on that one as well. And now he’s investing in community soccer. He set up a football team in Lagos in Surulere and identifying talent in the community. Surulere is, I guess could be considered mainland Lagos, probably not the best part of Lagos. Right. And, you know, they have players and they’re going to scout this place and help them build their careers internationally. And that, in my mind, is how you build a better country, right, in sports in in the church, in government. And I think that’s only possible when you start to unlock new sources of philanthropic and investment capital, which is why my definition of righteous capital is quite broad, ultimately, is capital that is not tether to legacy to the. Legacy that has cost Nigeria to underperform. And that is really interesting in building a better country and a better future in different sphere of influence. So Shola is a great story, and it’s one that I consider have come full circle. Another great example I like to give is a company called Reliance HMO. It’s one of the fastest growing health insurance providers in Nigeria. They’re digital insurance. We invested in the company in 2017. At the time, you know, they went to Y Combinator and they do a pitch in the telemedicine app. That product really struggled to scale. But I was super impressed with the resilience of the founders. They did the pivots and identified that the traditional insurance companies in the region were run very manual systems, and so they really couldn’t price their products as effectively as they should. Well, if you use technology, you could price the risk a little better. You could serve your customers a lot better. And today, they recently just closed a series B, led by General Atlantic Company, scaling really fast. And I’m super proud of what the founders have built. And so, you know, we’ve backed companies and fintech and Healthtech and Agtech across various verticals. And the majority of the stories of 0 to 1 where we meet the founders at the earliest stages of their development. Before now, we would just write one check and support them in every way we can. You know, as they scale and help them raise full on capital. But in December of last year, we closed on the fund and we’re super excited to be able to be a long term capital partner to these entrepreneurs, to not only invest at the Pre-Seed stage, but to follow on investment at Seed and Series A and hope that we can influence the founders both professionally and personally as well.

Ndidi Nwuneli: I love that and well done. Those are great stories and the righteous capital theme, you know, good money from great sources following good projects that also results in good money coming back into the communities. I just it’s really phenomenal. And, you know, you are building on this issue of how you follow these founders and how you coach and mentor them. How does your faith show up in these relationships? Are you actively discipling young men and women who are looking for meaning and purpose? I don’t know if Shola is a Christian, but I’m just curious with those examples and others, how does your faith show up?

Kola Aina: Great question. I mean, I think, first of all, you know, like minds sometimes flock together. And so, of course, your team, we have members who are, you know, lovers of Christ. And I think over the years, some of my team members, my partner, for instance, has been on the team since 2016. What you see is that our faith sort of shines through our strategy, our policies and our culture. And that for us is probably one of the first pieces. I mean, you see folks sometimes who profess to be Christians and children of God and, you know, you look at their businesses and it’s a contrast. Right. And so we think the way we treat our employees, the way we treat our investees, the way we engage in partnerships itself is a reflection of our faith. Right. And when people interact with us, they should actually wonder, what is it about this guy or this people that’s so different? So that’s one. Secondly, yes, I very much play a mentorship role where lots of the founders entrepreneurship is hard stuff, and so you often find people burning out wondering if they’re doing the right thing, you know? And that often presents a great opportunity to sort of minister to these founders, because there’s no other moment when a founder is open then at that point. And so I guess first off, we want to ensure that how we deal and how we interact reflects God’s grace and God’s love. But then also we take our mentorship responsibility very seriously.

Ndidi Nwuneli: Terrific. And I wanted to push on this issue a bits around, you know, great success stories. Have you had some failures? And how did you deal with those from a place of faith and a place of grace?

Kola Aina: Great point. Really proud to say we have two founders in our portfolio whose companies failed and we back together. And that for me is somewhat reflective of how Christ, you know, we stumble as long as we, you know, we confess our sins and we ask forgiveness. God is gracious and kind to always forgive us. Right. And so in these cases, for instance, it was obvious to us that the founders gave it their all the companies failed, not because they didn’t try enough. I think it speaks to the kind of company that we invest in we are back in people. Right. We’re ultimately trying to make a judgment on the quality of the human being. You know, in some cases, you know, founders have conflict or the time is too early. But we would always back the right founder again and again. And I think we’ve had you know, we’ve had a few cases where companies have just haven’t worked out. Like I said, two cases where we’ve backed the founders again.

Ndidi Nwuneli: That’s phenomenal. I have to say, this is the first time I’m hearing that you back people who fail. Usually we try to run as far away from them as possible. So you are walking reflection of Christ, my brother. Well done. And one last question for me before I pass it back to Henry. You know, as we look at our landscape, it’s a difficult time, right? It’s a difficult time in Nigeria’s history. It’s a difficult time to stay optimistic and excited. We’re losing quite a few strong, talented people being poached all over the world in your sector. What keeps you excited and grounded and how do you keep your founders motivated? Thinking about the future?

Kola Aina: Yeah, that’s a tough one, right? Because particularly today, you know, I’m not sure if this is unscripted, but there’s a power crisis in Nigeria partly connected to what’s happening in Ukraine. And I mean, we had a meeting today and some of my folks are working remote, some are working in the office. And there’s no power. There’s no power, there’s no diesel. It’s really frustrating. Right. And so we decided to buy new power packs and battery packs wherever you want. And so it is tough, you know, but I think starting with our team, you know, everyone on the team is very missional, right? And we’re also very aligned in terms of our faith. You know, I’m not judging anyone, but I think the vast majority of our team members are Christ loving Christians. And so there’s a bigger purpose to the work that we do. And that does help, you know, I mean, kind of it’s reminiscent of the question I like to ask founders, what is your why? Why are you build in this business? In my case, why am I doing venture capital? You know, and it’s a purpose. I believe it’s what God wants me to do, what God has called me to do. And so that’s certainly keeps one going. But I have to say that it’s not all fluff. In the last few years, we have seen incredible successes. You know, our portfolio is up 12 X in aggregate today while multiples on investor capital.

Henry Kaestner: I am an investor and I’m grateful through what God has done through our track record, but it a12x that’s really impressive.

Kola Aina: We’re early stage. We’re early stage, right? So we come into this deals really early as a discovery fund and we’ve been really fortunate with the selection. We’ve recently started to experience liquidity events for some of our early investments and so there is an encouraging tailwind. But I think in terms of stepping out of venture start for my my team and our track record, I think the ecosystem is genuinely excited about some of the exits that have happened as well as the increase in valuations. Right. And so things like ESOPs are really starting to be meaningful when the company issues your stock. Oh, now, it does mean something. A couple of years ago it meant nothing. And so I think there’s a lot to look up to. But yes, the struggle is real for talent. Wages are rising because engineers are sought after all over the world. And so it’s the best of times. It’s also probably one of the most difficult times as well.

Henry Kaestner: Call it. This has been great. I’m grateful for you to be able to paint a picture of what the entrepreneurial ecosystem looks like in Africa and what investments look like. And one of the things we want to be able to do through this program is to change the narrative. In fact, Ndidi has an entire initiative on changing the narrative for Africa, and I can’t think of a better example that’s advance that agenda and that objective than this interview. So thank you very much for that. Thank you for talking about your faith and how that’s informed what you’ve done and what you’re doing. On that note, as we close out, we like to do this across all of our programs that we do have faith driven. Is there something that you’re hearing from God through his word? We believe that God continues to speak to us, and he absolutely does that through prayer and fasting, but very, very much so through his word, through the Bible. And it doesn’t necessarily mean it need to be something this morning, though. It could, of course be, but something recently where you feel like, you know, that’s something in scripture that really just speaks to me where I am and as God just continuing to point me along his path.

Kola Aina: Yeah. Recently I have been meditating on a scripture from Matthew 11. I think it’s Matthew 11 28-30 and it’s a beautiful portion of Scripture that describes the unforced rhythm of grace. And for me, in the world we live in today, which, you know, I’m not sure if we’re still in the pandemic or we are out of it. We’re all zooming from meeting to meeting. Yeah, it’s been. The number of emails I receive has quadrupled. But, you know, we also just closed the fund and are doing a final closed. You know, that scripture says, Are you tired? Are you worn out? Are you burnt out of religion? Come to me. You know, at the feet of Christ’s there is rest, there is grace. And that whole notion of the unforced freedom of grace, I think, is something that we all need to aspire to learn that world where, you know what? Frustrated about what’s happening in Ukraine and I’m frustrated with what’s happening with power in Nigeria and and the regulators. God’s grace is present. Right. And in that we can find rest, we can find calm. And that, for me is super reassuring, just knowing that in Christ it is rest.

Henry Kaestner: Amen. That’s a great encouragement to me. And thank you for sharing that with our audience, and thank you for sharing your time in your life. And may God bless you in the relationships you have with your entrepreneurs and in the community through your foundation. And may you continue to shine that light back in the region where you’re from in the north and through the capital city. And I’m just grateful to have spent time with you. And I know that our audience is as well.

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Christian investors are talking a lot about impact, but we’re often left with a tough question: how do you measure it?

Author and investor, Shundrawn Thomas has wrestled with this question in his career. Over the years, Shundrawn has run a trillion-dollar global fund and recently founded The Copia Group which offers a distinct approach to investing that marries the strategic investment of financial and relational capital with the holistic development of scalable business models.

In this episode, he opens up about how his firm makes and measures impact, the ways in which investing overlaps with pastoral work, and the Chicago food staple he likes best. If you like the content, give us a rating or share it with a friend and don’t forget to follow for new episodes every other week.

Episode Transcript

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman and I am here with my partner in crime, Luke Roush. Luke, how are you doing today?

Luke Roush: I’m doing great and looking forward to this conversation very much.

John Coleman: Well, we’re both looking forward to this conversation because we have an amazing guest, Shundrawn Thomas is with us today. I’ve had the privilege of knowing Shundrawn for several years now. He has an amazing personal story. He grew up in Chicago, wonderful parents that he may talk about, whom I’ve gotten to hear about just an extraordinary guy who’s bought and run different businesses and ended up running Northern Trust Asset Management out of Chicago, one of the biggest asset managers in the world before, and more recently breaking off to start his own firm, an impact investing firm called Copia Investment Group. And so Shundrawn is going to talk to us about that. In addition, he’s published multiple books, one of which I have here today. Shundrawn I tried to find your latest book, Discover Joy in Work, which is excellent. Instead, I found the 2006 version of Ridiculous Faith, which has a very youthful Shundrawn Thomas on the cover. But Shundrawn, we’re so grateful to have you today and to really benefit from your wisdom.

Shundrawn Thomas: John, it’s a pleasure to be here with both you and Luke, and good to see you both again.

John Coleman: Awesome. As we dig into this, you know, a lot of the listeners at Faith Driven Investor are interested in this idea of impact investing and how that ties to faith. Just to set the table. When people say impact investing, what are they talking about in your mind? Or how do you think about impact investing?

Shundrawn Thomas: Yeah, so I’ll start with I mean, just more so in the context of our business and then maybe briefly zoom out. So when you think about it in the context of our business, the business of investment management, when people say impact investment, we’re talking about investing that involves making investments with the intention of generating a positive, albeit also a measurable societal benefit. Now that societal benefit, as you know, can be environmental or it can be social, but you’re intentionally looking to generate this societal benefit alongside obviously delivering financial returns for the business. Now, zooming out, the thing contextually that I like to say is I think this is really important. Every single business makes an impact. That impact can be net positive or it can be net negative, right? And so one of the things to appreciate is that, you know, when we’re in the work of doing business, when we’re operating in the context of things that impact people and society, we’re always causing an impact. And so the real question oftentimes is what’s the nature of the impact that we’re generating?

John Coleman: And Shundrawn, a question for you because you’ve worked in very diverse investment environments. We like to say all investing is impact investing. We totally agree with your thesis that every business, every investment makes an impact, whether positive or negative. How did you come to that belief in your journey within this broader asset management world? Is that something you kind of knew from the beginning? Did you have an evolution to come to that belief? Talk to us about your journey towards that.

Shundrawn Thomas: Yeah, so I think the journey is integrated, but it’s two parts, right? It’s how do I think about my role as a business leader being in the profession, which I have for most of my career of investing. So a business leader in the area of professional investing. Right. And one of the things I would say is it’s an evolution that’s occurred for me over time, John, and it’s how I think about approaching business and leading. I would say, broadly speaking, my philosophy has evolved to where I believe that if you are running an enterprise at its best, there is a triple bottom line that you want to deliver. First and foremost, you want to deliver profit. It’s very fine to say companies have a profit motive, so think of that as income. But second impact, when you think about the fact that when you’re running an enterprise, right. First of all, it’s made up of people. It’s not only the people in your organization, but it’s the partners, the vendors that you work with, the communities that you do business in. And now you have, by virtue of your vision and mission and opportunity to have a positive impact. And it happens by result of either your intentional action or inaction. Now, the third part of that, which it’s complementary, it’s not one the same is inclusion. And one of the things is we work in a multicultural society. We work with people who are created to be wonderfully different. And if we run our businesses in such a way that we value and we respect, we acknowledge and we integrate the value of those differences, we create greater value. And so what I would say is the wonderful thing is it allows us to not only become better at producing profit, it allows us to be better professionals at our craft, but ultimately better people. So I would say that philosophy of just generating in my mind that triple bottom line ultimately informed increasingly how I thought about investing and then ultimately a focus on impact investing.

John Coleman: Yeah, we see that a lot in our work. You know, even just the types of businesses, types of people, there is such a diversity of ways that people can have impact, can create flourishing environments that might look different for an investment manager and a fire truck company or something of that nature. I want to pivot to Copia, and I know Luke wants to jump in with that before we do. Just a quick note. You know, most people associate impact with ESG now. I think ESG become such an omnipresent term for values based investing, at least in the mainstream world. How do you think about the difference or similarities between impact investing and ESG?

Shundrawn Thomas: Right. So I’ll start with this context, John. As you know, I had the great privilege when I led our global asset management business at Northern Trust is really focusing on sustainable investing and socially responsible investing. And if you look, there’s a continuum now there related when you talk about sustainable investing or ESG, you talk about socially responsible investing, you talk about impact investing. But specifically, when you talk about ESG investing in impact, it is important to acknowledge that there are differences, right? Impact investing. As I alluded to earlier, it involves making investments with the specific intent of generating positive and measurable societal benefits alongside those financial returns. And while again, you hear it interchangeable with ESG, one of the reasons it’s notably different is just because the inception. So, like you would know this well, because I know you’re a student of this ESG at its core is really a framework. And actually, if you look at the history, it was really ushered in really in the public sector because they wanted to say, are we considering right the factors of environmental, social or governance concerns? And is that going into the investment decision making? But to be clear, at that inception, that framework was principally about impacting the investment strategy right at its inception, If you think about impact investing, the very intent of it was to integrate into an approach, something that was going to deliver a measurable outcome. So in its inception, impact investing is by definition affirmative. Whereas in many respects, first and foremost, ESG was a framework that was used for measurement and to think about how you incorporated into the risk management. And ultimately it became integrated into various investment strategies. So not bad or good, but those differences are relevant. The last difference I would note, which you would know well, is generally speaking, most of what we see in ESG strategies are applied in the public markets. And interestingly enough, you see more of a prevalence of impact investing in the private markets.

Luke Roush: I’d love to just unpack a bit more. One of the things we talk a lot about with our managers is focus and sort of know what you know and then kind of keep going deeper in spaces that you understand, where you understand kind of what the opportunities are, what the risks are. All that thinking about Copia group and just what you’ve defined is like, All right, this is what we really want to go deeper in love to have you comment on some of the impact metrics, both inputs as well as outputs that you guys are thinking about.

Shundrawn Thomas: I appreciate you asking that Luke. And we are certainly cut from a similar cloth. Like one of my basic rules for myself and personal investing is, look, I don’t invest in anything. I can’t, you know, understand at basic level. But what I would say is this there are a couple of elements to our value proposition are very simple. The first and foremost is we believe in focus. And so to your point on that, Luke, we’ve decided that we want to focus on the lower middle market. When we think about the lower middle market, we’re talking about established companies. Generally, the sweet spot is revenue base from 5 million to 100 million in revenue there. Variety of reasons why we like that. You probably well know that market is increasingly underserved. Banks have pulled away from providing capital there. Many private investors have moved to the higher end of the private markets. And what we find is these companies, we have a true partnering orientation and they very much look for the value add that we want to provide being more than just a financial sponsor. So that’s a part of the focus. The second we talk about is our focus on impact investing. But even there, we’ve decided to focus even more Luke, now. I’m a believer in both the ability to have a positive impact from an environmental and a social standpoint, but we decided we wanted to specifically focus on social impact. And as you well know, if you look at the breadth of impact investing strategies today, they are predominantly focused on the environmental side. So one with impact investing as we know it more formally. It’s one of the few places an investment. Management where the developed world outside of the U.S. is leading the U.S. in terms of dollars invested in focus and the like. And it’s been a prevalence on environmental. And I think, to be frank with you, Luke, I think people look at social sometimes as too hard to solve where it’s the opportunity and sometimes the biggest need. And then the last thing and this is a compliment. We do fundamentally believe in economic inclusion. So again, we think there’s a huge opportunity. If you think about, you know, a simple statistic, like if you look across, you know, private markets, for example, I believe that all told, the amount of capital that is allocated to women and ethnically diverse entrepreneurs falls somewhere below 4% in these cohorts, make up over 70% of the population. So that tells me from a very basic sense, there is a huge mismatch in terms of talent, in energy, in innovation relative to access to capital. So what we say is we want to unlock that so we don’t invest exclusively in firms that are led or owned by women in ethnically diverse people. But we do say we want to target 50% or more of our investments there, because, again, we think there’s a huge opportunity [….] and a huge need.

Luke Roush: And just maybe one follow up, As you first started to wade into that kind of core focus, what were the behaviors as a firm that you adopted and encouraged amongst your team to try to really enable that flow of opportunities coming across your desk? Like what did you do that really triggered that strategy?

Shundrawn Thomas: Yeah, well, Luke, I know you and John can appreciate this from the work that you all do. The first thing that we had to really instill in our culture, and I believe in this, we have to be truly intellectually curious, because what happens is there’s a predominant way in which people invest, Right? And what we’re looking to do is to be different and to be more innovative. Right? It’s no different than how we might think about our role as believers. It says where to be in the world, but not of the world. It talks about when we read scripture, You know, your ways are not my ways. And so literally, there’s a transformation of our thinking that happens when we become believers. And I’m not trying to overstate this, Luke. There has to be a transformation sometimes of your thinking when you’re trying to innovate or you’re trying to approach the marketplace in a new way. So that’s the first thing. The second thing that we drive in our culture is before we can try to compel anybody else of our vision or our value proposition, we first have to believe. And so what I tell people is we’re not just looking for intellectually bright people in our culture. We’re not just looking for people with deep expertise. We are fundamentally seeking to find people that believe in the vision and the mission and the value proposition that we think we’re uniquely called to. And that’s important because it’s a hallmark of the culture. The last thing that I would point out is the way that you reinforce those beliefs is how you organize around a value. And so everybody has maybe differing values, but we think it’s important in a firm to have certain shared values, and those build a load bearing walls. And I think if you look over time, if you really want to have a really, truly great enterprise, culture is only one of the only competitive advantages that you actually have. And so we focus a lot on that Luke.

John Coleman: Shundrawn, I want to dig into something. So you touched on a little bit. Knowing you, you’re a person of deep faith. I think you’re your family are people of faith, and you’re really well grounded in that. You’ve written Christian books. I believe you’re also one of the assistant pastors at your church. If if memory serves. Talk, if you don’t mind, about the way in which your faith has informed your approach to this theme of diversity in particular, and how Christians should think about this and why that’s important to Christians.

Shundrawn Thomas: Yeah. So I love I’m a lover of words. I’m a student of many things and I love the word of God. And, you know, it truly does give us so much practical wisdom that influences if we allow it, every aspect of our lives. But I think including in especially many times how we approach our work. Right. And so, you know, one of the most fundamental and basic things that we know as followers of Christ, he doesn’t make it very complicated. He says, Follow me. Yeah. And that means that there is a blueprint. There is an example that he put forward. And so I’m very much a student of, you know, the life and times of Jesus Christ, right, the way in which he led. And I think it would be impossible for anybody to objectively look at the leadership of example of Christ and say anything short of that. He for sure was the most inclusive leader that you would ever see. Think about how he approached those not only in his immediate circle that were different from different backgrounds, from different ethnic or racial or however we want to characterize it. Right. And what’s always amazed me, if you really just with open eyes, look at it. Not only was he inclusive, he extended himself. He encouraged his followers not to just go with the status quo, to always think about the least of those. Right. And he had this amazing quality to see the unique value in every person. He unlike us in our fallen state, we see differences as ways to divide. But he saw things that were different as attributable value that could be brought into the whole to make the whole greater. And so to me, it’s just literally following that example. And I can tell you unequivocally, John, you know, when I joined our leadership team at Northern Trust, it happened to be the case. When I joined, we had 16 executives on the asset management leadership team. I was the only person of color and we had no women. I’m using that as one example. There are lots of characteristics of diversity. When I left, the team that I left was two thirds women in ethnically diverse. I can tell you without a hesitation that that wonderfully talented and diverse team that I work with over time that we got there on purpose, not an accident made me a better professional and a better person. So it’s not just something intellectually I know in my head. I know through my experience what the value of that is. I can also tell you, John, we had incredible success in the business in terms of increasing our innovation, our product development, our revenue growth. And so it tells me more than just something that’s a nice to do, that’s a philosophical good that there is real value in it.

John Coleman: Yeah, I mean, that’s such a good word. Shundrawn. And it is, you know, we’re watching just like everyone else. I feel like the Chosen right now and it helps bring to light you know this you get to picture actually the way that Jesus behaved in the people. I mean, it really is. It’s amazing just how open and inclusive he was of the least of these of the outcasts of those who had been pushed to the margins and how much he was ready to challenge existing power structures and things like that. And he did you know, he saw that in a way, we are all created with dignity. And it’s also practically just really reassuring to me that that example, to your point, can help us unify, not divide that in this understanding that each person has immense worth and dignity in God, that we’re all created equal and that we have an equal worth to God. If you truly believe that it’s impossible to devalue someone or to not want to appreciate them for who they are and when done well, obviously it hasn’t been done well at all points in history for Christians. But when done well, that’s such a and the way that Jesus did it, that’s such a liberating message.

Shundrawn Thomas: It is

Luke Roush: And maybe we go over to just how you think, talk about one KPI in terms of percent or more of capital put to work. Maybe just talk a little bit more on kind of intermediate KPIs right there, sort of this ultimate where does capital go? Yeah, as you think about deal flows, you think about team composition as you think about hiring and being able to source an appropriate candidate pool that maybe looks and thinks differently right, than the existing team. How do you think about what are the, you know, your current team and what do you have them focused on in terms of performance indicators for 2023 as the example?

Shundrawn Thomas: Yeah. So let me split that in two categories. I’ll start with how do we think about it from the fund standpoint? So we have those five themes diversity, equity, inclusion, equal opportunities, health and wellness, workforce development and quality education. The way that we think about it is like if you look at something like workforce development. And so we’re very much focused on the ability of companies to not only create gainful opportunities for work, but investing in the growth and development of those professionals. And so whether we look at metrics like job creation and certain value added roles, we can look at actually in a company from the time we invest how people’s income grows or tracks over time, how we’re moving people into more sustainable jobs. So the same sustainability of their employee, all of these things we can see in terms of dollars spent, that’s a particular KPI in terms of direct to the investment of the development of employees and their skills. So just in the area of just workforce development, there’s this rich set of things that you can look at in terms of KPIs and you can measure them on an absolute basis for that particular enterprise. And you can also measure it across, say, similar enterprises. The thing that we do from this is very important. Luke, we seek to be practical. So we don’t expect that a single company touches every theme. We say, where is the place, given their unique mission or of calling? They are making a meaningful difference. And then what we do is, you know, some people are just I say we got lots of critics in the world. We’re not coming alongside as a critic. We’re saying it looks like you have a great opportunity here. It’s important to you. Let us help you do that even more. And that’s how we’re adding value now within the company. What we say is we have to hold ourselves to the same standards. And so in the same way that we’re going to be delivering impact investment reports as part of our report, we’ll talk about things that we’re doing at our company. So whether it’s everything from the diversity of our or to our leadership team, whether it’s the investment that we make in our employees. Like, if we’re going to expect this at companies we invest in, we have to hold ourselves accountable for it. And one of the basic ways you hold yourself accountable for Luke is you’re transparent. And so you let people know what you’re doing along those lines.

Luke Roush: That’s good. That’s good word. I think the transparency is a really that’s a word that’s come up like three times in the last week. And, you know, when you shine a light on things, you build trust and you build credibility and you just build. I think there’s a with whether it’s with your limited partners, whether it’s with portfolio companies, CEOs, whether it’s with teammates, creating more visibility helps to establish a foundation for trust. And so I think it’s an important point. Yeah.

John Coleman: Can I ask you, Shundrawn, on, you know, a key topic here, obviously is in certain types of impact investing. There’s a belief that it’s going to be concessionary or there’s a stated fact that it’s going to be concessionary. A lot of the impact you’re talking about is going to be delivering both financial return as well as social impact. How do you see the interplay of those two things and are they mutually reinforcing or are you approaching them as a tradeoff?.

Shundrawn Thomas: Yeah, so for us, so I want to be clear on this one. I think that we need a range of different types of impact investing. I think you can have impact investing that is done more specifically, I would say, in the philanthropic space or by social enterprises, and that takes on a certain character. I think there are organizations that I think are wonderful organizations like, you know, lists that works to get capital to underserved communities. And I would say some of what they do, by its very definition, is concessionary. And we absolutely have a need or a role for that, particularly when you have a partnership between public and private enterprise, in my opinion. And then there’s an example of the work that we do. Our premise is that you can also invest in a way that drives impact that is not concessionary. Now, when I say that is not to say that I think there’s anything wrong with concessionary investments, it’s just that I’m saying that’s not what we’re doing in this context. And I think you need that as well, because you’re going to have instances where people will say, Look, from the perspective of my fiduciary responsibility, I need to have as a basis that I am delivering investments that are going to have competitive market returns. And as a starting point, we won’t say that there’s anything inherently bad with that. Right. But I think there are folks like us, certainly. I think I look at the work that you all do, John, where we can say you can do that and still drive impact. You can do that and still have values based leadership. You can do that and still have impact for the kingdom. So the premise that these things are by definition antithetical, That is the premise. I think that we also have to be able to attack.

John Coleman: Shundrawn that is such a good articulation as we dive even deeper into this kind of measurement in the way that you look at impact, you look at financial return in that spectrum. One of the things I know that you all have done is partnered with Sustainalytics on ways objectively measure as you think about that partnership. Just help us understand that and how that reinforces the work that you’re doing.

Shundrawn Thomas: Yeah, I appreciate you asking that question. So Sustainalytics, which is now owned by Morningstar. So Morningstar Sustainalytics is a global leader in sustainable research, and so they work with many types of enterprises to focus on this area of measurement. So there were two important reasons there, others that we really wanted to partner with. Sustainalytics. First of all, when you’re trying to innovate, you want to work with people who can bring value, add and perspective that is complementary and different to yours, to the table to drive the best. So when we were working on this proprietary framework, we said, Listen, who could we partner with to really help drive innovation in this area? The second thing I think it ties to something that Luke and I were discussing earlier. I think there is value to having someone your partner with that brings an independent lens to what you’re doing. So there are three things that Sustainalytics does as it pertains to our framework. First of all, they provide a wholly independent assessment of our framework so that you actually as an investor can know that this is a genuine and a well inform impact investment framework. The second thing that they’ll be doing as part of the framework, John, is they’ll provide an independent assessment of each individual deal that we do. And the third thing that they will do is they will work with us on both the pulling together of the reporting of those KPIs or metrics they look was referring to, and then packaging that in the impact report. And so I think that creates not only a partner, but I think something that’s really important, a sense of accountability to what we’re doing and what we’re committed to.

Luke Roush: So that’s actually fascinating. I’ve got a whole bunch of other questions around Sustainalytics that we can maybe follow up on another time, because it sounds like a really powerful tool that is relevant in the midst of a fair amount of criticism sometimes around, you know, particularly public company funds that are being greenwash, so to speak, rather than real commitment to environmental stewardship. This idea of inviting other partners in to kind of help to create visibility and accountability. I think it makes a ton of sense. Thank you for your comments on that. One thing I want to talk about, just switching gears before we go to the Lightning Round is how your role as a pastor in your church is equipping you to take action on a different mission field, which is really more tied to your day to day work as an investor? Love to have you just talk about the Venn diagram between those two parts of how God equipped you.

Shundrawn Thomas: So, you know, it’s interesting, you know, over time, you know, as I grew in my level of responsibility in the workplace and I went into, you know, senior and then executive management. I mean, nobody gives you the memo beforehand about how much time that you will spend on the people side and how fast. So you need to be in that. Now, one of the things sometimes you don’t see it where sometimes God is preparing you in certain ways that you under appreciate. I’ve always served in the church, got involved as a teaching pastor, and then as ultimately associate pastor. And you deal with life on life issues with people. And the starting point to do anything that you do as a pastor has to be that you care intimately and deeply about the people. And that’s important because if we’re really honest in the workplace, that is not generally the starting point. The starting point is the self-interest of the organization or the profit motive and those things. And so I find that that experience as a pastor helps reorient me to what is the most important thing many times, which is the nature of that relationship. Because a lot of what you’re doing when you’re trying to do things in a professional setting is only going to come by the effort, the innovation, the hard work, the commitment, the belief of people. And so you have to appreciate then a big part of your job is actually to sow into the people. A big part of your job is to help them flourish. And so if your professional life is not different than your personal life, if you just have one life, if what you do whenever you interact with people is have a focus that says I actually want them to flourish, I think it’s incredible in terms of enhancing your effectiveness as a leader.

John Coleman: Amen. Fantastic. I mean, I can’t echo that enough Shundrawn. And that’s what we see in the best business leaders that we’re fortunate to partner with is just this real love of and belief in people. Right. Which I do think is founded in faith. Everybody’s created by the same creator. Everybody’s got talent. I’ve got a friend who says talent is universal, opportunity is not right. And in workplaces that create that I think are important. Now, I am an occasional writer. It would be absolute professional malpractice of me if I didn’t let you talk about a book. Shundrawn, I know you’ve written many books. I would love to hear about your journey as a writer, although I’m probably nerding out more over that than anything else. But your latest book, I believe, is Discover Joy in Work. Talk to us about Discover Joy in Work. How can we discover joy in work? And why is that topic important to you?

Shundrawn Thomas: So, you know, it frankly ties a lot to lose questions. So one is both about personal experience and it’s about my experience and leading people. So two things very quickly. One, I found that I, over time got to work with these incredibly talented people. And when you got to build real relationship with them, I was literally shocked at how many people were so deeply unhappy in their jobs. And I’m not exaggerating the fact that I’m [….] state truly the majority of people. The second thing that really put a light on this is for me personally, I went through a period where I was just struggling with a deep despondency from the outside looking in. It was at a period of time where I was seeing this incredible quote unquote success professionally. And so between being someone who had a sense, for lack of better terms, look at the past of people in the workplace. In dealing with my own experience, I really had to step back and think about, like the experience of work. And what I realized is, again, there is a joy I believe that God wants us to experience at work. I mean, if we have more time. I talk about the very opening passages of the Bible and we find a God not at rest, but at work. And if you were to describe his attitude towards his work, I would say, how could you describe in any way but joyful? And so how do we experience that same thing? I think it’s three things that are simple, not necessarily easy. All of them involve changing our perspective. The first is changing our perspective to the workplace. I think many of us have the wrong perspective about the workplace, and by that I mean the people that we work with in the environment we work in. The second thing is about work ethic, and that comes down to realizing that there external motivators that principally drive us from work. But if you’re external motivators, money, recognition and respect, I call it three R’s. It’s remuneration, you know, respect. In recognition. If your desire for those is greater than your internal motivation, you have imbalances, not the right work ethic. So you have to change your perspective on work ethic. The last thing is really important. We’ve kind of been talking around this. I call it work life. I say it simply this way, John, we focus so much on our careers, but the reality is your work life has to fit in the context of your overall life. There’s a purpose for which we are called. That’s bigger than any job, any role, any paycheck we have. And when we can see that we don’t have a occupation, we have a vocation, we have a life’s calling.

John Coleman: Well, I’ll give a brief testimony to discover Joy in Work, which everyone on this podcast should buy. I’m pretty sure we can’t pitch securities on this podcast, but I think we can pitch books. You know, I did my own transition a couple of years ago when I joined Sovereigns and was writing a book called The HPR Guide to Crafting Your Purpose. And that was part of me switching to the type of firm I was in. And I actually got to interview Shundrawn for that book, and that turned me on to his writing. And one of the books I read through my own transition was Discover Joy in work in the frameworks that you laid out I thought were so thoughtful about crafting a life that was really aligned with your work and about the way in which you could orient yourself towards work. And that was super informative for me as I began my journey at Sovereigns. Luke still thinks my work ethic is a little bit not what it should be, but it’s improved at the very least. And I thought the book was just fantastic. So I do hope people will pick it up. It’s an important topic. Luke Maybe I’ll pitch it over to you.

Luke Roush: Yeah, I’d love to. Transition is recognizing that we’re short on time. One of my favorite parts of this podcast is we affectionately call the Lightning Round. And so I’m going to lead off and then we kind of go back ping pong, back and forth. Some of the questions are serious, some of them are less so. But the idea is that we just get kind of 30-60 seconds responses. And so we’re grateful for you playing the game with us. I’m going to start off Chicago native Shundrawn and we’re very, very curious about which is better. The Italian B sandwich or deep dish pizza?

Shundrawn Thomas: Yeah, well, I love them both. I have to go deep dish pizza. I have to go with deep dish pizza.

Luke Roush: Yeah.

John Coleman: All right. Shundrawn I’m pivot here a little bit. Chicago is known for its great sports teams that are maybe have a spotty performance track record, let’s say, other than the Chicago Bulls of the Chicago sports teams right now between the Cubs, the White Sox, the Bulls, the Bears, who are you most optimistic about winning a title over the next couple of years?

Shundrawn Thomas: Oh, my gosh. This is a tough one because I am a die hard and miserable Chicago sports fan. I think all of our major teams are really bad straits right now. So let me just tell you where my heart is because I’m a Cubs fan. Even though I grew up on the South Side, I am a Blackhawks and a Bulls fan, I’m going to go Bears, not because I think we’re anywhere close to sniffing a Super Bowl. It’s just that I’m such a Bears fan and hope springs eternal.

John Coleman: I love the optimism.

Luke Roush: Lot of history, Buddy Rich history there, coming back to discovering joy at work. I think a lot of people here discovering joy at work and they think about an operating company, But you’re an investor, so how would you encourage investors to better discover joy in their work?

Shundrawn Thomas: I think that’s a great question because I think one of the basic things I would encourage investors, one of the things that we can do is we can get so focused on the intellectual asset of the discipline of investing. We are all head and no heart. So my basic encouragement to investors is bring your heart alongside your head. There is nothing that is going to depreciate your ability as a great investor. If you also look for the things that you are passionate about and are meaningful for you. And I think taken together that will bring a level of joy in your work that maybe some have an experience here heretofore, because we all need that connection between your head and heart.

John Coleman: Shundrawn I think your dad is a pastor and not just a pastor, but perhaps your pastor.

Shundrawn Thomas: Yes.

John Coleman: What is the best piece of pastoral advice you’ve gotten about your career?

Shundrawn Thomas: Oh my gosh. You know, my father and my mother who founded our church, they’ve given so much great advice over the years. But I would say the piece of advice he gave me that it’s been so beneficial to me at work and at home is that he says, Look, son, you know, wherever you are, be there. And if you don’t pay attention, the depth of that can just get by you. But I think that what happens for so many of us, we live so much of our lives distracted. And some of the most important moments that we have are the engagement that we have with people. And I’ll tell to myself, you can look back over time and you can say, you know, I was there, but I wasn’t really there. I wasn’t locked in. I wasn’t focused on that. And I missed that special moment. And so I always hear his voice echoing in my mind, and it gives me a different level of engagement and focus, particularly with people. Wherever you are, be there.

Luke Roush: So I want to actually go outside of your work and outside of the church, maybe just another ministry or nonprofit that you’re personally excited about. You find joy through your engagement with them.

Shundrawn Thomas: Yeah, so I appreciate that question. Now, we’re very involved with a number of different nonprofits, and my wife and I are very charitably inclined. I would say one that is top of mind that’s doing some interesting work, particularly it impacts communities here in Chicago, but I think it’s an example for the nation. So I joined the board of Rush University Medical Center, and the thing that pulled me over the top because we’re very intentional about where we spend our time, is they do this innovative and groundbreaking work on health equity. I mean, it is truly an example for these. I mean, they focus on communities in particular on the west side of the city. These happen to be communities that are predominantly African-American and Hispanic, but predominantly African-American. A lot of these communities, when you see what happened over time, you have a lot of industry moving out of the city and so forth and so on. But your reality is what was left is communities where they are, among other things, not only banking and financial deserts, but health deserts. So providing expert health care, creating access. But then the last thing is they went even further. They start thinking about ways to engage the economic vitality of these communities. So they said, as a hospital, we’re not only giving care to people, but we are a business. So we can do business with and engage people in the community is such an innovative way to think about health equity in the fact they’re doing it out in the community. And so we’ve come alongside that. We give a lot to those particular initiatives and we serve in that capacity.

John Coleman: That is awesome Shundrawn. So one thing we love to know end on for every episode, given it’s the Faith Driven Investor podcast, is for our guests to just teach us one thing that they’re learning through Scripture right now that’s impacting your life. I know this is important to you, but what would you share with our audience about what you’re learning from Scripture right now?

Shundrawn Thomas: So it is going to be very timely and topical because one of the privileges I have of serving in our church is I said as an associate pastor, I serve as teaching pastor, a teaching pastor. And so what I always say whenever I have the privilege to teach, to deliver the homily or the sermon, it’s always impart things that God is working with me on, revealing to me, and I feel like there’s an importation you have to share. And so one of the things I’ve been focused on most recently, and I’m actually teaching a series of the church on it’s a three part series is focusing on the practical wisdom and the power of the Word of God. I think it’s so easy in times like this, you know, people’s hearts in some ways are failing them. Their confidence in political and governmental and business systems is shaken. We look at all the things going on in the world. And so where do we go to answers. But we have this incredible source, the word of God. And what I encourage in this service, in this series is understanding one, The word of God is active, right? It is continually working. It’s effective. It does exactly what it is intended to do. It’s time tested, it’s enduring. Right. And so there’s a source of this deep practical wisdom that we have that we can trust. And I think for me, that is such an encouragement, like all the things that are going around, to just refocus on that truth. And so that’s what’s been top of mind for me.

John Coleman: Shundrawn awesome look. We are grateful for you taking the time on the Faith Driven Investor podcast. We’re grateful for the witness that you are in the financial services world and your faith and how that’s reflecting on others and also for the great work that you’re doing in the community right now. And, and I think Luke and I would both agree that we’ve loved the conversation and we’re very hopeful about the work that you’re set out to do now and really appreciative that you’re sharing your story with the world. Thanks so much for joining us.

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Each month, we bring in experts to give an overview of the market’s current state. 

On this episode, we have frequent contributors Bob Doll and David Spika take us through their 2022 reflections and predictions for 2023. Bob is the Chief Investment Officer at Crossmark Global and David has the same role at GuideStone Investments. Both men bring incredible insight to the conversation.

Throughout the conversation, the two also chat about how Christian investors can think through layoffs, the potential recession, and ESG investing. David even makes a Super Bowl prediction. 

Check out the episode and don’t forget to rate and follow the show on whatever platform you use to listen.

Episode Transcript

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman and this is our monthly Mark’s On the Market podcast, where we talk to experts in the industry who are also people of great faith about what they’re seeing in markets and highlight some of the best Christian minds in faith driven investing. Today is a real treat because we certainly have some of the greatest Christian minds in Faith Driven Investing in Bob Dole and David Spika. Bob is the Chief investment officer of Cross Mark Global Investments. David is the President and Chief Investment Officer of Guide Stone Capital Management. Both have extraordinary careers in the industry. They have a record of success and we are so grateful to have them on today. So welcome, Bob and David.

Bob Dole: Thank you John.

David Spika: Thank you. Happy to be here.

John Coleman: Well, we want to dive right in. You know, we’re entering the month of February here. Before we look at this month and 2023, talk to us about your big takeaways from the market in 2022. And Bob, maybe you could kick us off.

Bob Dole: Sure first word that comes to mind is, wow, I mean, what a year it was in so many ways, mostly on the negative side. You know, when you do these ten silly predictions every year and we actually did say stocks and bonds would both be down in 2022, but never thought it would be by the magnitude. It’s the first time in 50 years that stocks and bonds were both down three quarters in a row.

John Coleman: Wow.

Bob Dole: I think that’s a superlative. I’m also struck by the amount by which value outperformed growth and the environment that transpired. You would expect that, but the magnitude was amazing. The final thing I would say off top of my head is how well international stocks did versus U.S. stocks. All those problems internationally and of course, international markets, most of them went down, but they went down less than the US.

David Spika: Yeah, I don’t want to trump you, Bob, but I had seen that we saw stocks and bonds both down more than 10% for the first time since the seventies in the 1870s.

John Coleman: Whoa.

David Spika: Yes, indeed. I don’t know what bonds we were trading in the 1870s, but something was being traded. So it’s been a long, long time. The thing that struck me about last year, though, was how ill prepared we all were for what occurred. If you go back and look at what the market expected for Fed rate hikes in December of 2021, I think we thought the Fed was going to raise 25 basis points two or three times. We ended up going up 450 basis points. Nobody is prepared for that. Nobody was prepared for 9% inflation and that caught everyone off guard. And I think what it taught us is that we can’t get too confident in our expectations and our predictions. We have to be willing to pivot and to humble ourselves and say, I was wrong because things often turn out differently than we expect.

Bob Dole: Well-said.

John Coleman: Well, and speaking of pivoting, we have flipped the calendar year, Bob. It was a crazy year in markets in 2022. It’s shaping up to be an interesting year in markets this year and in the business community. One of the trends that we’re seeing really prominently right now is layoffs among technology companies, including many companies that have never broached this before. Firms like Amazon, Google and Meta have had large layoffs, succeeding all those announced at Twitter previously in the Go Private there. And a host of other tech firms have made similar moves. David, I want to start with you. What does this tell you about tech companies in the U.S. And do you see these layoff announcements, apart from the human implications which will come to you as a positive or negative for the future of those companies?

David Spika: I think what we need to recognize is that what’s happening in the economy, whether it be in tech companies or financial service companies, is we’re seeing the job market start to weaken. Now, there’s two things that have created the situation we had over hiring during the pandemic, particularly the financial services sector. And we’re also going into a weaker economic environment. Labor has got to weaken and that’s what has to happen. The Fed can’t engineer a better supply chain, but they can engineer weaker spending. And that’s exactly what we’re seeing with these layoffs.

John Coleman: Bob, do you have any thoughts on the layoffs that are happening?

Bob Dole: You know, first of all, I agree with David. What I add to it is, look, these companies are facing top line growth is slowing and inevitably they’re concerned about profits and profit margins. And where is the economy going? How long will this weakness last? And so they have to trim their costs. And for a lot of tech companies, the biggest costs, labor. And so we’re seeing these announcements probably more to come. I guess what I would add is tech companies don’t have a lot of people compared to a lot of other industries. So the reason the job market, so far has remained strong as the big employers, retail, restaurants, they’re still looking for employees. They can’t find them at the wage rates. And so we see these tech layoffs and they are big and they’re important. But relative, the size of the labor force still not affected things all that much.

John Coleman: Yeah, we’ve been talking in our firm a little bit about the movement in technology potentially being structural in that they had become extremely overstaffed, potentially. I think Twitter was the canary in the coal mine there. There were a lot of folks who weren’t performing functions that were critical to the operations of the business. And a reckoning was going to happen at some point. And David, you know, to your point about this being really a cut primarily of the over hiring from the pandemic, I think a lot of these layoffs that have been announced, even though they’re quite broad, are actually just returning to something like 2021 or 2020 staffing levels. You know, this hasn’t cut deeply. And from my point of view, it is, again, will come to the human implications. But just from a leadership of the company point of view, it’s encouraging them to see them emphasizing discipline as part of their management toolkit. Now, where they haven’t had to do that quite as much in the past.

David Spika: And John, on that point I saw recently where BlackRock, even though they’re laying people off, has stated that they want to keep employment levels flat this year. So they may be replacing higher wage workers with lower wage workers as a way to manage their costs. Bob’s right, 70% of their costs are labor, so that may be part of what’s going on as well.

John Coleman: Let me zero in on one topic here and maybe, Bob, you could lead us off. When we talk about layoffs. Obviously, there’s a financial component to that within companies, but there’s a human component. We may be heading into something like a recession. It may not be as deep as some people think, but it may. As Christian investors and business leaders. How do we think about layoffs and how do we think about treatment of employees in times like a recession when these reductions become necessary?

Bob Dole: Yeah, great question. I think we start with the observation that, look, business cycles are part of life and you get expansionary phases where you hire, hopefully not over hire or perhaps they do this, we just comment it and then you get the other side of it and you’ve got to trim your costs. And labor is one place that it goes. I love employers that have variable part of the compensation, so they may end up laying off fewer workers and spreading the difficult news across the workforce more so we pay attention. That sort of thing, of course, is how do you handle as a company the policy of a layoffs, You know, how do you treat your workers? Is there a period of time where you hold them over? Is there a method by which under certain circumstances you can come back? What is the safety net that might be put in place? Are we treating this people as human beings rather than just numbers? And that’s, in my view, part of the values based investing. How do companies approach the layoffs that can often be necessary?

David Spika: Now, something else to note is that we have a responsibility to God and to our clients to deliver the best products and services we can. So if you go back to the old Jack Welch model, what did he do every year he got rid of the D players. Now, that sounds very callous, but in an environment like this where the job market is so strong, this is an opportunity to help some of the folks that really aren’t a good fit in your firm, find a better opportunity someplace else. And the good news for them is there’s 4 million excess jobs today. Bob pointed this out and we’re three and a half percent unemployment. It’s not like when we go much higher than four and a half or 5%, My gosh, that’d be a big move. So this is not like what we saw in oh eight where you’ve got 10% unemployment. But at the end of the day, as Bob said, this is an important part of the cycle. Recessions are necessary to prune the economy of excesses. And it’s just unfortunate. But yes, how you treat people when you go through this process is indicative of whether or not you’re following the Lord.

John Coleman: And I want to pivot back to this idea of inflation and recession in a moment, which you guys are starting to talk to you. One thing I add, Bob, that I just saw today, to reaffirm this idea that you can use variable compensation reductions or comp reductions instead of layoffs, was Intel actually took that approach today where they announced 5 to 25% compensation cuts across the board, depending on seniority, which presumably helps them manage this downturn that they’re in specifically in the economy’s in without having to enact such dramatic layoffs. And that can certainly be a tool that companies utilize. I want to pick up now on this idea of recession and inflation. We talked about six months ago. At the time, inflation was running very hot and there were very few signs that we were in a recession. Now inflation is cooling and there are more signs of a potential recession or that we might be in a recession. What is your read on inflation and recession right now? What do you think is ahead for the Federal Reserve? And David, perhaps we could start with you.

David Spika: The Fed met today. We heard from Chairman Powell. He was very clear that they still have a 2% target for core inflation. We’re a long way from 2% on core inflation. Given that and given how strong the job market is, the Fed has to continue to tighten financial conditions. And one of the problems they have today is that the market is not helping them. So stocks are up eight or 9% since November and the ten year Treasury is down 72 basis points in the same period of time. That’s loosening financial conditions. The markets rallying today on the Fed’s remarks, I guess presumable because they only raised 25 basis points. Bottom line is the Fed has work to do. Chairman Powell was very clear on that. His reputation, his legacy is on the line. And the only way we can get inflation under control is by reducing consumer spending. And the only way we can reduce consumer spending on a sustainable basis is by bringing employment levels down, increasing the unemployment rate. It’s just how things work. And historically, inflation has only been tamed through recession. So we fully expect a recession at some point, maybe in the second half of this year going into next year.

Bob Dole: So I 1,000% agree with David. So let me just say a few things to emphasize that maybe a couple of different ways. I want to emphasize David’s first point. The Fed’s target is 2%. We are a long way from 2%. So if the Fed insists on 2%, I do not see, as David said, how we avoid a recession. It may be a mild one for a bunch of reasons, but avoiding a recession is really difficult now. The other path the Fed could choose is to say at some point, you know, maybe two’s not the right number, maybe three. Okay. And if we get to a three handle, say three and three quarters, they might say, oh, let’s round it down to three. And if they do that, we could have the proverbial soft landing, but their credibility will be shot. And David’s right. You don’t bring inflation down without cooling the economy, especially the labor market, which shows lots of signs of being pretty strong. So kind of the slide I’m envisioning I put together in December was 50% chance of a mild recession, 30% chance of a soft landing, 20% chance of a more average or more difficult recession. I don’t see how we avoid it. We could debate when it’s going to start, but the markets acting like, okay, maybe inflation is not a problem because we’re bringing it down. Maybe the Fed’s almost done. Maybe the economy’s okay, let me go out and buy high beta stocks. It may not have a whole lot of quality, and I’m not sure how long that can last if in fact, we are going to have a recession.

David Spika: So let me add one more thing to that. Great points, Bob. I agree completely. You might need to get two guys that argue with each other. John, Bob and I are on the same page.

This is way too friendly. Yes,.

This isn’t very entertaining is it? So maybe we’ll talk football or something later. But we have seen by virtue of Fed policy, the largest decline in the money supply as measured by M2 ever. There is no way that doesn’t have a meaningful impact on the economy, regardless of what the Fed sees as their ultimate goal. There is no way you drain that much money out of the system without it having a meaningful impact in the economy.

Bob Dole: At the risk of beating a dead horse. I want to add to that. Yes, the money supply is shrinking. The leading economic indicators have rolled over significantly. We have the most inverted yield curve in 40 years. The PMI is are almost all below 50 here and around many places around the world. And remember, the Fed raised rates, as David said earlier, at the fastest pace in U.S. history except for Paul Volcker. And we know monetary policy operates with long and unpredictable legs. So I think what the Fed did in 2022, we’re going to feel the effects of it in 2023. So it will probably both be wrong and the economy will sail forward. But I don’t see how we avoid a significant slowdown, if not a recession.

Bob Dole: When they both are wrong. But we can still be friends. Bob, how about that?

Bob Dole: I hear you. I hear you.

John Coleman: Well, let’s see if we can spark a little debate with the next one. I wanted to turn to this topic of ESG, and Bob, maybe we can start with you. You know, ESG has been this prominent trend in investment management for some time now. It’s close to a third of the assets in the world claim to be ESG in some way. And 2022 mark, one of the first years of sustained pushback against that, notably against BlackRock, which has become kind of the figurehead for the movement in many ways. And there were effectively two sets of pushback on that that were. Prominent one was for many state based institutions, saying, look, actually all that should matter is fiduciary duty. We should not take into account things that we think are unrelated to performance. And then a second set of pushback was just around the values inherent in ESG, saying that those were inherently progressive values or they were values that people disagreed with. People are of different opinions now on what the future of that holds. What is your view on ESG and how Christian should think about ESG or more broadly based values investing in their portfolio?

Bob Dole: So I think what we’re discovering is we don’t know what ESG is. It’s different for almost every investor and every money manager. And that’s why, among other reasons, we at cross mark, we never talk about ESG because we don’t know what it is. We talk about values based investing, which in our view is a subset of ESG, not a broader concept. And the standard we bring is what is God said? You know, we could talk all day about what we think and how we would like the world to look. We try to say, you know, God in his word gives us some black and he gives us some white and it gives us a lot of gray. And that’s why it gave us minds to think through and try to figure those areas out. So I think the ESG moniker is appropriately undergoing scrutiny, confusion. And look, it will take different forms. There is no ESG standard. That’s part of the problem. And so I think the debate is going to continue to rage. And a lot of people will say, let me figure out what my values are and let’s see if we can manage money that way and get rid of this broad ESG moniker. I know there’s some ESG factors that we think are great for values based investing and others where we want to actually reverse the sign. So it’s a very confusing subject, but one that we’re all trying to wrestle to the ground.

David Spika: Yeah, ESG has become a dirty word because of the association with the climate change agenda. And as Bob said, we at guide stone don’t practice ESG. We don’t want to get caught up in ESG. What we do is faith based investing. We want to invest in a way that has a positive impact on the kingdom. Only 15% of evangelical Christian investors invest in faith based investments. We want that to grow. We think that a tremendous opportunity to introduce Christians to faith based investing. We know about tithing, but they don’t really understand the opportunity or really the obligation they have to invest in a way that honors the Lord. And so there’s a big educational process that firms like cross mark and guide stone are in the process of doing and creating and going out and teaching folks about faith based investing about biblical values investing and how it’s different than ESG. And I think that’s on us to make sure Christians understand they have that opportunity.

John Coleman: Yeah, and we think the same. I think I would agree 100% with both of you. You know, the Bible actually consistently has a lot of commands about how we live our financial lives. It’s obvious that God cares about how we steward capital in the Bible and in church history. ESG is a particular set of values. Like you said, Bob, some of which are aligned with biblical values or Christian values, some of which are not. Right. And I think what’s incumbent upon us now is for us collectively to develop a more nuanced set of views about what Christian values look like manifested in a portfolio. And David, then to your point, to encourage people who are Christians to take into account their values when they’re allocating capital as much of the world already has through ESG investing, but Christians have kind of lagged behind. I think.

David Spika: Amen.

Bob Dole: As David said, it’s an educational process. I think we would all agree. Most Christians think about how they earn their money. You know, they’re not going to rob a bank every other week to put food on the table. And at the back end, how they spend their money and where they give their money, they give that thought to from the faith. But this in between that and that’s investment part. Boy, a lot of people, they’re not even aware of that possibility. So it’s a fun education process.

John Coleman: So I’m going to pivot us now from a very fine and catchy topic like ESG to a very nerdy topic like bond markets. And David, I figure you might be able to kick us off here. You know, you guys mentioned at the beginning, 1870 was an interesting statistic that I didn’t know, but bond markets absolutely got hammered last year. And for the first time in a long time on the other side, fixed income, even money markets are starting to yield again, Right, Because the Fed rates are going up. Even I now see CCD advertised, which I haven’t seen since I was a kid, probably be prominent. What is your outlook for fixed income right now and how do you think about that in an investor portfolio in 2023?

David Spika: Well, John, thank you for giving me an opportunity to explore my nerdy side. I don’t get to do that as often as I would like. But I will tell you this at guide stone we’re big fans of Bonds. Today. We have seen for the first time ever back to back negative total return years for the Barclays Act. Never seen that before. Bonds consistently produced positive returns. Today you can get four and a half percent or more in short term, high quality bonds. Think about it. Most investors, what do they want to earn? A particular retirement? 6% or so. Wow. If I get four and a half percent in the safest part of the market, that’s a great opportunity. The thing that happened last year that scared a lot of people off was the rate volatility. As the Fed was raising rates, rates were going crazy. The MOVE index, unlike the VIX, was going crazy and that had a big impact on bond prices. And I think people got scared off a little bit. But we’re near the end, close to the end, obviously, of the rate hike cycle. You’re already seeing the longer end come down for rates. That’s positive for bond investors. So you buy these bonds at some point, you get an opportunity to go further out on the yield curve, benefit from current yields that are the highest we’ve seen in 15, 20 years and benefit from the capital appreciation that will occur as rates fall when we get into weaker economic times. So we’re big fans today and think investors really need to be taking a hard look at the bond market.

Bob Dole: So, John, as you know, I’m an equity investor, so I start with the phrase bonds are boring but boring is but boring is a good thing.

John Coleman: You’re breaking David’s heart over there. I see him tearing up just a little bit.

Bob Dole: I have to disagree with him once.

David Spika: I’ve been called a lot worse, Bob, Trust me than boring.

Bob Dole: So to continue with David’s history, he’ll look back. The last hundred years I focused on the ten year Treasury. 20% of the years you lost money in a ten year Treasury, only 3% of the time Did you lose money two years in a row. Three years in a row. We went back 250 years and there are no three year rates. So I think we can take it to the bank, maybe a little strong, but close to it. That will make a couple of bucks in fixed income this year. So how do we feel about fixed income? Have some. Unlike a year ago when one and a half percent ten year treasuries, it was a place to stay away from 3.5 a whole lot more interesting. And as David said, shorter maturities, you can get four approaching five. So we want to have some. And now the question in bond portfolios having length and duration from the shortest that we ever had to more neutral, now we’re playing the credit game with fear and trepidation, but that’s part of how we’re trying to add a buffer to above the benchmarks.

John Coleman: That’s great. Well, Bob, maybe they get back on firm footing with your territory. One of the biggest hits last year was to growth stocks. You mentioned high beta stocks earlier. We saw this in private markets and growth equity and venture as well. You know, 2022 was just brutal for growth equity for growth stocks in markets, at least partially because they had gone up so aggressively over the prior 15 years and even in the last 12 to 24 months. What is your outlook for growth stocks this year and how do you think about venturing growth, equity or even public growth equity in a portfolio?

Bob Dole: So first, to extend your observation last year, to oversimplify it, but not by much long duration, things were the worst place to be. When interest rates go up, the last thing you want to own is a long duration bond. When interest rates go up, the last thing you want to own is a long duration stocks, and those stocks got absolutely pummeled. Doesn’t mean they’re bad companies, a lot of good companies. But their stocks just got crunched because the discount rate went up as as interest rates went up. So fast forward to today and then back to my observation, how much value beat growth last year. So we want some of both in our portfolio. You put a gun to my head. I think value will be growth again this year for a whole bunch of reasons. But in the portfolios I manage, I want some value. I want it to be higher quality, predictable value given the economic landscape that Dave and I just posited for this year. But I want some girls too. I just don’t want to pay ridiculous prices, so maybe growth more at a price to get some balance in my portfolio.

John Coleman: David, this is your chance to get a little revenge for that boring comment. What do you think?

David Spika: Yeah, I’m still thinking about that one, so I’m going to be a little bit off the Bob train. We like growth and let me tell you why. Growth stocks, as Bob very articulately described, do better in a stable to falling interest rate environment because they’re longer duration assets. We believe we’re going to have a stable to falling interest rate environment this year. Secondly, investors pay up for growth when growth becomes scarce. And we believe that the economy is going to slow down earnings. Growth has already started to slow down. Growth will become scarce, so investors will pay out for growth. And finally, for long term investors, which I hope we all are for buying equities growth companies is where you get innovation, right. And you talked about venture capital and you talked about private equity. Obviously, you’ve got to be a long term investor because you can’t even get your capital for ten or 15 years out of those. But that’s where the innovation comes in. So to have a portion of your portfolio in those types of companies is really going to benefit you longer term and give you the opportunity, invest in really exciting parts of the economy, whether it’s AI and machine learning or whatever the case may be, that you can only access through growth stocks.

John Coleman: Yeah, it’s only a matter of time before we’re just using chatGPT, I think, for this podcast. So there is a lot of excitement.

David Spika: You could get rid off Bob and I and AI is going to be making up better stuff and we have.

John Coleman: Right, they might keep you, but my job is definitely in jeopardy here. You know, Bob, maybe pivot back to you and let you start. You do these ten predictions every year that are fascinating. I’m not going to ask you for quite that many, but to almost round us out today before we come to some lessons you’re getting through scripture right now. I wanted to get each of you just to give me your three best predictions for 2023. Bob, what do you think?

Bob Dole: Because you prepped as I looked through my ten and I singled out three. If singled out means three, I don’t know. But it is. Inflation falls substantially this year but does not get down to the Fed target. So good news but not good enough news. Two earnings falls short of expectations. We talked about earnings recession earlier. You know the number for the 2023 S&P 500 peaked at over $250 a few months ago, is now in the two twenties. I’m going to get down to $200 and three. The average equity manager beats the index this year, while last year, after eight years where more than 50% of managers lagged the benchmark. I think this will be the second year in a row, and there are a whole lot of reasons when interest rates are stable, when they’ve gone up, when interest rates are more market set rather than artificially set fundamental research matters. And so that’s the third one.

David Spika: Well, John, let me give you my three. I’m going to say the Fed takes the Fed funds rate to at least 5%, Stay it to the end of the year, and that pushes the economy into recession. Secondly, I think bonds beat stocks this year. And thirdly, I’m taking the chiefs over the Eagles in the Super Bowl. Sorry, Bob.

John Coleman: There we go, we got Mahomes guy here.

David Spika: Hey, Patrick. Mahomes is my guy. Okay.

John Coleman: So I’m worried about that. I’m worried about the ankle.

John Coleman: David, He looked okay, but that ankle’s making me nervous a little bit that I’d have to pick the Chiefs as well. Bob, you’re a little surrounded at the moment

David Spika: I’m outnumbered. We’ll talk. We’ll talk two Mondays from now, guys.

David Spika: Yes, we will.

John Coleman: Well, hey, this is the Faith Driven Investor podcast and the Faith Part of that’s really important. Y’all have touched on that a bit. But we do like to just in the podcast asking each of our participants about what they’re learning from Scripture right now that they think might be relevant to others. And David, if I could start with you, just be curious. Anything in your personal devotional life that you’re learning right now that you want to share with others?

David Spika: I love this question, John. Thanks for asking. In our small group, we’ve been studying the life of David, and one of the things that really stands out about David is even though he was anointed by God to be the king of Israel, he didn’t try and force it. He didn’t try and overtake Saul. He had chances to go and take over and to kill Saul and become king. But he didn’t because God wasn’t ready for him to do that. So he showed patience, he showed humility, He showed obedience to God, and he waited until God was ready to put him in the throne. And I think that’s a great lesson for us to learn in this business, particularly in an environment like this. Let’s don’t try and get ahead of things. Let’s make sure that we’re doing what honors the Lord every day, practice that humility, practice that patience and truly honor him and do what’s in the best interest of our clients.

John Coleman: Bob, what about you? What are you learning right now?

Bob Dole: Yeah, mine’s a simple one. God is sovereign. I mean, we know that factually, and I would say experientially, I’m just grabbing a hold of that and apply it. Some of the things we’ve talked about the economy, layoffs, people are going to lose their job and that’s not fun. But, you know, God knew that was going to happen because he’s sovereign over all things, all people at all times. And so I take comfort in that on the good days in the not so good days, that we can look to him as the God who wants the best for each of us. And if we accept his sovereignty in recognizing he has our best in mind, the days get a whole lot easier to live.

John Coleman: Amen. Amen to both of you on that one. And certainly, Bob, that sense of trust and. Sense that there is someone who cares about us and that we can take a very, very long term perspective with regards to our salvation. And also how all these things are going to work out is quite comforting in times like this. This is Bob Dole, CEO of Cross Smart Global Investments. David, Speaker, President and CEO of Guide Stone Capital Management. Gentlemen, as always, incredible insights. We’re really grateful to you for sharing them and they’ve been a great benefit to us today on the Faith Driven Investor podcast. Thank you very much.

David Spika: Thank you, John. Enjoyed it.

Bob Dole: The privilege.