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Today’s podcast has us traveling all the way across the pond to Belfast, Ireland. Malcolm Johnston is the Executive Director at Angello Capital, where he and his team are working to provide sustainable social transformation by investing in enterprise-led development. 

He talked to us about the work that he did during a time when unemployment in Ireland had hit 65% and how God called him to use his understanding of business to help the community around him. 

Our conversation with Malcolm is a reminder that Faith Driven Investing has hands moving in every corner of the globe and as faithful men and women steward what God has given them, lives change…

Episode Transcript

Some listeners have found it helpful to have a transcription of the podcast. Transcription is done by an AI software. While technology is an incredible tool to automate this process, there will be misspellings and typos that might accompany it. Please keep that in mind as you work through it. The FDI movement is a volunteer-led movement, and if you’d like to contribute by editing future transcripts, please email us.

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Henry Kaestner: So welcome back to the Faith Driven Investor podcast. We’ve got a special guest with us today. We have Malcolm with us online, Malcolm Johnston from Northern Ireland. I was going to ask you why you talk with that funny accent. But now we all know and Malcolm, I’ve gotten to know you over the course of the last year or so and just been so impressed by the way that you process what God has put in front of you. You’ve got a great story and some really interesting places. So I’m really grateful for you to be able to be on our podcast with us to share some of those. Welcome.

Malcolm Johnston: Thank think it’s great to be here. And I hope that you can get my accent. I didn’t realize I had an accent until somebody told me. I hope you can get what I say.

Henry Kaestner: Yes. No, I think it’s phenomenal. It’s an awesome accent. I think it may be one of the best ones, maybe probably the best one we’ve ever had on the FDI podcast. And yet there’s a great story behind it, too. It’s more than an accent. It represents a culture and a great country and a society that had really been in the news when you and I were growing up. You were living it.

I was in the United States growing up in the 70s and always hearing about Northern Ireland and the troubles. And you’re in the midst of that. You now, as part of what you do, you go to places where there are troubles and you bring in light and you bring in investment and you bring in training for entrepreneurs. But you grew up at a time in a place where there were some troubles. Tell us about that. What was it like growing up in Northern Ireland in the 70s and 80s?

Malcolm Johnston: I think probably it was more influential than probably we thought at the time. It’s your normal that you kind of learn to live with it. But yeah, I was born in 1962 and the Troubles kicked off in 69. So it was very much part of my life. And the restrictions that we had and school and going into the city, a constant news flow that was pretty depressing, but effectively just tribal conflict and then a very small country. And yeah, it definitely shaped. And I find ways, I guess. Bit by bit to find out how to be salt and light in the middle of that trouble. And so apart from, you know, going into business fairly early on in life, the business I went down to was a family business. I joined my father and it was a wealth management and financial planning business. So we were advising wealthy people about their money, building their investment portfolios, helping turn a wealthy and successful people to try to think through some kind of purpose and objectives for themselves. But the thing was, probably more shipping was getting involved in inner city Belfast and very socially deprived communities politically of young people, and in many ways were the castoff ghettos that grew in the city because of the troubles.

Henry Kaestner: And let’s take just a quick step back, because I realize that you and I were born in the 60s. And I understand you say, by the way, that the troubles began in 1969 and I happen to be born in 1969. I like to think that you’re talking about two different things. But many people, listeners may not understand what were the troubles. I want you to tell us what was it all about, the IRA, etc..

Malcolm Johnston: Well, it’s complicated. I guess, that you’d find this when you go around the world that the conflicts in most places are not straightforward and very often they’re the consequence of depending whether you look back 10 years or 50 years or 200 years, and Ireland’s very much like that.

It’s been a place of amazing richness, but also a place where a lot of conflict and ultimately the conflict, I would say, was racial and tribal. It just happened to be called Protestant and Catholic, but it was basically two tribes of people whose background was a bit different, whose allegiance was a bit different to sense of national identity, was a bit different. And it happened to be called Protestant, Catholic, but it really wasn’t a religious difference. It was more about allegiance and flags. And it very much created a black and white divide in Northern Ireland, which erupted. It went way back that the conflict between Palestinian Catholic communities went way back. And then it erupted at the end of the 60s due to a series of events that just brought to a head and exploded and the IRA became weaponized to fight a war or a battle. And then the communities just polarized. It was pretty much a civil war that was called Protestant and Catholic, and it shaped everything. Everybody knew where they stood in that conflict and that defined community set defined borders and boundaries and parts of the city. And it was very much a coming to the head of years and years of history that went way back. And where you stood, everybody stood somewhere or not, depending on how far you look back in history.

Henry Kaestner: OK, good. So I want to come back to that in a little bit, but less than talking about the history, but talking about that as a platform that makes you uniquely equipped to do the amazing work that you’re doing right now. But I interrupted you during your biographical sketch. You’re talking about work in the family business, working with your dad, working and wealth management. So bring us through to the point in time where you really felt that God had really called you out of that. But what’s that process?.

Malcolm Johnston: Yes, I got involved in business, got married. Married now for Thirty three years this year. Two girls. Who are I? I can’t believe I’m saying this, but they’re twenty seven and twenty five. So I think God wired me to go to difficult places that started in Belfast going and to inner city ghettos with very high unemployment and starting to work with kids and young people. And the business gave me a great platform to grow the business, to be as successful as it could, to be as profitable as we could grow it completely and absolutely with the purpose of seeking the kingdom in the business. So we were never scared of trying to make it as successful as possible. And we saw our business very much as a platform to be salt and light to the people we were dealing with on our staff and all of that to very much Kingdom in the business building profitability so that we could do really cool stuff with the overflow of the profits, but then also using the business as a platform to build freedom of time to go and be involved in other things. Being on the business that allowed me to work in inner city Belfast for many years doing community development work in an inner city ghetto. And it also allowed me some time after that to go pioneering mission, pioneering and Eastern Europe, just after the fall of communism so early 90s, starting to go into Eastern Europe building mission.

Henry Kaestner: So what is that like? So Wall comes down. Lots of us remember just what it looked like on TV and in pictures. And you’re one of the first guys in with some others going in. Walk us through that experience that this time in history.

Malcolm Johnston: It was. Actually, over time, a number of business guys. People who were connected, strategic thinkers, entrepreneurial, not scared to jump into a challenge, but jumping into these places where they had been completely controlled through communism. The church had been underground. There was new enterprise system at all. Everything was centrally controlled. And then almost in a flash, it disintegrated and there was absolute mayhem. It was just chaotic. And me and some other business guys went down as practically mission and entrepreneurs, as volunteers with Youth for Christ and Youth for Christ basically said we’ve never been able to do anything in Eastern Europe. Now it’s open. Do you want to go and have a go at it, see what you can do and see if you need to build a team, build a team, if you need to raise money or, you know, find it. But it was kind of like a blank sheet. Go and see what you can do. It was harrowing in many ways. What we find as the churches started to come up from being underground, the poverty was absolutely terrible. We just had to respond to what we saw, especially starting to support pastors and learning to be beside people. And I kind of lived in this strange double life where at home I ran a business that worked with the wealthy and help them build their portfolios and think through what their purpose wasn’t and all that stuff. And then this other part of my life, I was working in abject poverty, trying to be beside people that were trying to get on their feet. And I made an agreement with my wife that I would travel short and often rather than go for long periods of time. The kids were young. I couldn’t be away for weeks at a time. So we kind of came to an agreement. I would go for maybe five or six days, just flat out doing stuff and then come back into this other world. And I had so many experiences of coming back absolutely broken hearted from what I’d seen on just trying to decompress and just sitting in the office I cried my eyes out with the suffering that we had been thrown into the middle of and trying to figure out how do we be beside these Christian communities and help them to get on their feet. And how do we reach young people and kids in that situation? So it was harrowing and it absolutely broke my heart and I never recovered from it. I start to tell you that talking about things that happened, it will still make me cry. So it was God threw us into a big challenge, first in Ukraine and then in the years that followed that we established a Youth for Christ program. There was great local leaders finding the right people. God brought us to the right people who had a passion for their own country. And we just learned to mentor them. And so we went from Ukraine to Moldova. Right, Russia, Belarus, Armenia, Georgia, setting up stuff.

Henry Kaestner: So tell us about the business and the economic environment at the time. And just to put some framing around our time together, you’re just really uniquely equipped to talk to us about faith driven investments, investing in Europe. You do investments in other places you and I met in Africa. But you are uniquely equipped to talk about. What does it look like to come into different economies and invest, whether it’s an economy like Northern Ireland, which at one point in time, I think had something like 65, did you say 65 percent unemployment?

Malcolm Johnston: Yeah. And that and the inner city ghetto where you work with young people. That was their reality. 65 percent unemployment.

Henry Kaestner: And then fast forward to, you know, behind the Iron Curtain as people are emerging in the state controls so many of the jobs. What does it look like when you’re ministering to people that don’t have hope? They don’t see commerce as a way out. They don’t see investments as a real thing. They see a class divide between rich and those they exploit. Just walk us through. What does that look like in your business? Because you’ve come from wealth management and you understand investments and how it drives economic gain. What’s it look like? So maybe we’ll go back to Northern Ireland later. But let’s focus right now in Eastern Europe. Walls come down you’re in with Youth for Christ. You’re going around to these different economies, you know, business. You know, Jesus. What did it looked like when you start putting your business and investment skills to work?

Malcolm Johnston: That’s a great question. And initially, we were very much we were a charity. You know, we were raising money in the rich world to bring it out into the poor world. We worked a lot with the churches. Even when they were small, they were beginning to get on their feet. And we reckoned that the best thing we can do is work with the churches to help them to do what they want to do in their communities. And we started to do a lot of work with street kids, helping churches to set up projects for the children that were living on the streets in their communities. I absolutely loved that. And I could live lots of lives. I would just keep doing that, getting to know those kids, letting them know that they were loved. And so we set up kind of typical rescue programs for kids that were charity based. The kids were generally coming from absolute squalor. Remember, they lived on the streets literally, or they just find somewhere to sleep in a friends house.

But they just lived in squalor around this kind of typical charity project of, you know, day centers feeding, somewhere warm to stay, hearing about Jesus. You know, it was a safe place for three hours a day and we helped the kids then go to school. And as I watched this program, I realized that when we closed the doors at night and I remember one particular situation, I went to visit one of these day centers in a little village. I had a destitute rural Moldova. And I watched the kids coming in, smiling, laughing. But you could see the pain in their eyes at the end of the program, five o’clock at night. It was getting cold. It was dark. And this little girl that I’d watched in the program, beautiful little eight year old and. When we were leaving, driving away back to the city, this little girl was sitting on the footpath outside the program where we had met in the little church building, and I asked one of the folks explains why she not going home. She said she’s no home to go to. And that absolutely broke me. And it was part of God’s call, which was these kids do just need projects. They need parents with a job. You know, this is huge sticking plaster. It’s typical charity stuff, but it’s sticking plasters. Little girls like that need parents with a job.

Malcolm Johnston: It’s in the United States equivalent. There is going on a mission trip and painting the church. So you’re using sticking plaster is the term that you use in Europe.

Malcolm Johnston: Yeah, yeah. And that was God’s challenge to me because, you know, to build the charity programs, the street kids was very, very difficult, you know, to find the right leaders and build the funding. That was all tough. But to start to think through, what did it mean for parents to have jobs? Well, it was about business and what needed to happen to establish business and see businesses growing and these kind of very difficult circumstances. And that was God’s challenge to me. I remember clearly it was God’s challenge to me was Malcolm, if not you, who? You know, you understand business, you understand investment, and you love these kids dearly. If not you, who?

Henry Kaestner: So, where do you get started? That’s quite a challenge.

Malcolm Johnston: It was it actually turned out to be mission impossible before too long. I changed the dial tone in my phone to the Mission Impossible theme tune.

Henry Kaestner: Oh, that’s so cool,.

Malcolm Johnston: Because it literally was mission impossible. I mean, it was just excruciatingly difficult to find how to make that work. And this was like twelve, thirteen years ago when the whole idea of impact, investing, social enterprise, enterprise and development, faith driven investors. None of that existed. You know, twelve, thirteen years ago, it was literally a blank sheet of paper. How would we possibly go about this? It was God’s call, Henry and Bob and the feel. There are things that showed me that God was absolutely calling us to start to think about this. What the job creation, three billion business to the glory of God look like, and really tough places where the church was tiny business hardly existed, but it needed to happen and it was God’s call. But I think it showed me actually in hindsight that God has an amazing sense of humor. You know, it was brutally difficult. I look back and I couldn’t look back and paint an amazing picture of success. I think that we were pioneering and I think rather than building success, I think we find every possible way of getting things wrong and things not working.

Henry Kaestner: Tell us about some of those early stories. I love the Mission Impossible phone ring. By the way, I may or may not adopt that or may or may not give you credit once I do. But tell us about some of the early stories. Tell us about some of the mistakes and maybe even some of the victories. Definitely some many victories.

Malcolm Johnston: We formed Angello to gather together people who were thinking the same way, new faith driven people who were thinking the same way, who were looking beyond charity and business people who could see that these places needed business to grow. So we formed Angello without actually really any clue about what was going to be the right approach. And we decided and then at the beginning that we would try to build a small investment fund to invest in small businesses in Moldova. And at that time, we had to build everything from front to back. We had to try to find entrepreneurs, bearing in mind that the country wasn’t long gone of communism. So the entrepreneurial culture was very, very early stages and certainly faith driven entrepreneurs hardly existed, you know, in a country where the Christian population is less than one percent. So to find entrepreneurs who are decent business ideas was challenging. And then to find investors who would be willing to invest in small businesses in a place that they’d never heard of. Generally, you know, just a bit everything about it and building a structure. You know, the legal and tax structure that could accept people’s money and then deploy up and the small businesses in a place that had never, ever had any inward investment of any kind.

Other than a few, you know, big infrastructure projects through European Bank for Reconstruction Development or something. But this has never been done before. So every piece of it was difficult. And actually people agreed to invest because they knew that I wasn’t crazy. You know, they knew that I probably was well intentioned and it was like I probably was well intentioned. We have no clue what you’re talking about, but it sounds like this is the kind of thing that should happen. So we’ll make a small investment in your fund to getting people convinced to be investors rather than just philanthropists. They understood philanthropy, but the idea of building Kingdom through building business was not something that people really understood much about at the time.

Henry Kaestner: I’d imagine some of that dynamics is because and we see this in United States, so presumably you see some amount of it in Northern Ireland. The concept of building the kingdom through business is a novel concept even here, let alone Moldova. Right. Yeah. And so you’ve got some vision casting to be done that actually God cares about the marketplace. He actually cares better. Investment dollars. I want to do it in Moldova, but that was had some ripple effect back in as you’re building this consensus and building this fund. It must had some ripple effect back in Northern Ireland to right?

Malcolm Johnston: Honestly, Henry, most of the outcome from that was there were very, very few people who understood it. Very few people who, you know, would say we should go to crazy places like that. But I think that generally people did not really get what we were talking about. A few people were willing to invest. They were willing to come with us. But I think that we were probably way ahead of our time. Now, there are more people that have heard of impact investing and, you know, there’s few more stories about it. But actually, back then, we were probably ahead of our time. It was desperately lonely, actually, to persevere in what we knew. God had called us, too. And so it was tough.

You know, I didn’t bring a huge groundswell of change in people’s attitudes to invest in philanthropy. And it didn’t. It was lonely. And we had to go to London and into Europe to find people who got it, actually. And most people didn’t. They were still in a different paradigm.

Henry Kaestner: Yeah. I can empathize with that when we’re starting Sovereign’s capital. We went and talked to maybe 700, 750 different people and a very, very distinct minority, said, oh, that makes sense. You know, you can actually put investment capital and work with entrepreneurs driven by their faith for some sort of financial return and social impact. And I found myself at times feeling frustrated by that. You must really felt that.

Malcolm Johnston: Yeah. Very much so. It was absolutely mission impossible. And it was really tough, really tough.

Henry Kaestner: Because at least with us, we had some investment ideas lined up. You’ve got to build a market and demand on the investment side. And you also had to build a market in demand on the entrepreneur side. Right. So how do you do that? How do you take people who’ve been living under communism for so long? Bring the gospel to bear and help them understand there’s a God who love them, but then also that they were created in this image of a God who worked and who was entrepreneurial, who is creative. Tell us generally how you do it. But then give us an example of a company or two in Eastern Europe where you came alongside an entrepreneur and helped them to live that out.

Malcolm Johnston: Lots of things we tried. Didn’t work. One of the guys that was involved with us on the team back in the early days, even before Angello got going, he was a tech entrepreneur and he had gone to Moldova with a student ministry to volunteer the student ministry for a short time. And he could see that part of the legacy of communism was a pretty rigorous education system. So students were coming through university.

They were a lot of kids were coming through and learning IT, but there was no work for anybody. They came out of university with qualifications and ended up in the streets. And, you know, there was no work for anybody. And this guy decided that he’d set up a tech company with his own investment and start to hire these I.T. graduates and teach them modern day programing. So they basically built software in Moldova and sell it into first world markets. And so he started this company in the early we had been about 98, 99 at the same time as I went first to Moldova. When they started to recruit graduates from the universities and build a software development company, which was the first of its kind in the city, and began to employ people, pay them decent wages and pay tax. They became the biggest taxpayer in the country and the company grew like wildfire. Actually, they began to recruit more people. They were winning contracts outside the country. Fast forward a few years, a lot of difficulty, a lot of efforts to close the company through corruption and so forth. And actually, I give these guys credit for it. They have just floated that company in the New York Stock Exchange. hat is completely out in the left field compared to anything else that they have seen. But they went the right sector. They spawned an I.T. sector in the country. That’s nine, 10 to 15 percent GDP. And it was a raging success. But the challenge with any of those countries is to find entrepreneurs who have got the skill and the experience to grow and scale their companies.

And we made the mistake about 10 years ago of going investment first, make sure we just a small fund and then we needed to find companies to invest into. And on hindsight, we took the wrong approach. We shouldn’t have been trying to invest. We should have been doing what we talk a lot more now about had me is building the enterprise ecosystem. And hoping that after a period of time quality companies would come through that process, that were ready for investment. And in hindsight, that’s what we should have done.

Henry Kaestner: Yeah. And so the work that you and I are now doing in Africa, you know, brought to the Fairview Hotel, we got together in February with an eye towards doing faith driven investments. Where are the great entrepreneurs? Let’s invest in them. And I really came away from that trip. Really just encouraged by the opportunity. But then also understand that if we wanted this to really be a thriving marketplace in five or 10 years, we had spent a lot of time thinking about building capacity.

Malcolm Johnston: That’s exactly right. That’s exactly right. And I think that’s a big lot of our experience is where to start building that capacity and knowing that it’s just going to take time. Hard yards building relationships is one of the things that I learned and I’m deeply convinced and convicted about is that in these developing markets, guys with ideas and vision and all of that, how we behave when we turn up is incredibly important. We can really get that badly wrong with our enthusiasm to be agents of change. And I realize that so much of what we’ve got to do is to empower locally and not Short-Circuit, that by bringing in smart people from outside who can get from A to B faster.

Henry Kaestner: That’s pretty tempting, though, isn’t it? When you see how it will work in Northern Ireland or the West and then saying, we’ll do this, do that, and you can get pretty prescriptive pretty quickly, at least I feel like I can.

Malcolm Johnston: Yeah. We made all those mistakes, and I’m honestly we a lot of it for good reasons. You know, we cared about the poor. We wanted to see community change. And there’s times where we just drove too fast. And a lot of what we built that wasn’t based on local empowerment fell apart and we had to go back and start again.

Henry Kaestner: So tell us about, again, what brought us together is this group that got together in Kenya focusing on faith driven investments in East Africa. And then as a result of that, taking a step back and saying, gosh, what does it look like to you? Yes. Do some of that, but tread slowly, but also build out the Faith Driven Entrepreneur ecosystem. What are some of the things that they are starting to happen and have happened in Eastern Europe, as you’ve looked at some of the mistakes that you made and said, gosh, we need to focus on capacity building where some of the initiatives that you have been involved in.

Malcolm Johnston: Yeah. One of the best examples of that is a group of people we’re working with right now in Uzbekistan. And that’s a little part of the world, Central Asia. That was always fascinating to me, even when we were very much involved in Eastern Europe. We helped to start mission stuff in Kyrgyzstan because they were blessed a lot by having common language and Russian. So it’s a fascinating little cluster of countries East Pakistan, Kyrgyzstan, Kazakhstan, Tajikistan, Turkmenistan, very, very close. Islam is rampant, growing, and we find a cluster of Faith driven entrepreneurs who desperately wanted to have partners from outside. And we very readily agreed to this journey, this together, because I could see that they had good local leadership. They were smart. They had a vision for this themselves, not the vision that we had to try to sell to them. And so we came alongside this little group of faith driven entrepreneurs in Uzbekistan. And right now, we’re taking these steps with them to build that ecosystem. And they want to have programs in there, like the ones, for example, we saw in East Africa. They want the programing. But right now, what we’re doing is standing beside those guys to provide some very small level of loans and to faith driven entrepreneurs almost as a sign of partnership. We’re with you. We’re gonna do what we can to help you..

And I think that the conditions really exist there in Uzbekistan to build out this ecosystem. And they want to be an example out. ofUzbekistan for the Central Asian region. And that excites me. So that’s an example. And a little place like Uzbekistan that just desperately wants faith driven people whose faith puts me to shame. You know, it’s just such a privilege to be with, not to try to teach or push, just to be beside. It’s such a privilege and honor to be with these guys with friendship, actually, and just a commitment to journey. These are the kind of guys that can really make a difference in their country. And they’re so excited that there’s a movement happening. So as I tell them about the movement that’s happening with, for example, faith driven investors and Faith driven entrepreneurs and that kind of stuff that’s growing in East Africa. They are thrilled to bits that there’s a movement that they could be part of. That’s a great example of it.

Henry Kaestner: Tell me about this dynamic of going in and starting off with some low interest loans with these entrepreneurs. Just really, really impressive by their faithfulness in a really challenging spot. How do you balance coming alongside them and the discovery and the diligence that you would do as an investor if you’re looking in opportunity in Belfast or New York? Presumably they don’t have data rooms. They don’t have audited financials sometimes. How do you come alongside them in a way that’s not judgmental or prescriptive, but at the same time leads them towards a world in which they will be ready for more of a buttoned up presentation, maybe more accountability? How do you navigate through that whole dynamic with patience and wisdom?

Malcolm Johnston: Actually, it takes a lot of wisdom to let them come at their speed with appropriate support and. I think one of the things that I’ve seen most, Henry, is that if we build from where our investors willing to go with what they have with their current perceived wisdom. All right. What is impact investing look like if we go from that point of view of. Existing impact investment capital and an existing impact investment structures investment will never go to Uzbekistan. It’s just the demands of the money. The kind of due diligence that’s required currently. These frontier markets, the difficult places for the church is small, but for business, that’s definitely necessary to see that kingdom built then existing money and how it thinks would never go to these places. Now there’s a massive missing segment that is going to continue to be missed.

Malcolm Johnston: I guess I find that a bit depressing as I’ve watched the sector evolve, as I stay close to people in these difficult places determined that they should find the support that they need. It’s a bit depressing to watch the capital with its intentions. Being far away from where these guys are going to be for a long time. And so what I desperately want for these kind of guys who we need to support them with, with rigorous programing incubators and accelerators and mentoring and all that stuff, the good stuff, that there are no great programs available. We’ve got to push them to really develop their standards and so forth. But there needs to emerge, in my opinion, type of capital that see, that’s role as kingdom building, not as a new cool place to find an impact investment, because if the money wants a new cool place to invest, it’s never going to go to Uzbekistan or Moldova. Those countries will stay, still, on the frontier because they don’t have thriving enterprise ecosystems of faith driven people, because the church is tiny and it’s persecuted and they need commitment from people like us to go the journey with them over a number of years, and willing to see capital brought to it that’s appropriate to where they are and they can get to us their next step, not holding out capital that says we’re with you if you can make it to the fifth base.

But capital that is willing to come to the second base to serve what’s happening, what God’s doing in that country. So that’s one of the things that I see emerging. I think it’s exciting what we see emerging with the journey towards building ecosystems. The stuff that we’ve been talking about is super exciting and it can be done. I’ve been around it long enough to know that what we’re talking about can work on the kind of faith driven people that are building these ecosystems is exciting. The missing piece is the kind of capital that’s willing to come. So the faith driven investors, in my view, are going to need to apply their capital to serve in some of these difficult places. Just the way, you know, people like the guys that have followed with me and the difficult places where we’ve kind of gone with our time and our lives to serve, to see future in these places, capital is going to need to do the same to come to these difficult places and still with rigor and still with proper thought, not just throwing money at stuff that doesn’t make sense, but that’s what I desire for these kind of guys that will find ways of plugging the gaps with capital that will come to serve them because they are truly kingdom builders.

Henry Kaestner: I want to bring it back to Northern Ireland before we close out. Fast forward to present day in the ghettos. The slums now. Are things better? Over the last 20 years.

Malcolm Johnston: Yeah, they’re definitely better, and that gives me hope, you know, as I go into other frontier markets and see difficulty. I see a change comes, mindsets change. Innovation starts to happen. People start to have confidence to build something that isn’t going to be wiped out by the next terrorist attack or economic slump. So, yeah, there’s been massive change. People have hope now. And people stay to a greater degree when there’s a sense of hope. This is a place I can build a future than people choose to stay. And, you know, when I was growing up in Ireland. Ireland was a place that students come out of University and then left to go and build a future somewhere else. Now to a greater degree. People will stay and start businesses and that’s exciting to me as I see. Eastern Europe, Central Asia, one of their biggest problems is immigration. Bright people leave and the experience of Northern Ireland is that. when the steps are taken and she and starts to happen, then people even start coming back and bring their skills back with them that they learned elsewhere. I’m going to build a future here. And so, yeah, we see a huge change here in Northern Ireland. There’s a much greater understanding between people who are in the past diametrically opposed, that there’s a much greater sense of space has got potential.

Henry Kaestner: So, as you said, it’s a message of hope for some of the other places that you’re investing and that maybe 20, 25 years behind. And I’m very, very grateful for this conversation. I think that a big lesson that I’m taking away from it is making sure that we have a mind of service, that we’re not prescriptive or judgmental that would come alongside the entrepreneurs. We work with the right pace to bring them to a place that may take decades to where they are equipped to have the pro forma financials and cap tables and ability to talk about proff stacks and convert’s and those types of things. But we need to come along at a pace that is driven by a heart of service and driven by the Holy Spirit. And so I’m grateful for your perspective and your long obedience in same direction and in difficult places in emerging markets. Malcolm, one of the things that we’d like to ask people that are on any of our podcasts is something that they’re hearing from God through his word recently that they see really working in their life. And it could be through your Bible time this morning. Maybe it’s last week, maybe last month. But what’s one thing that you feel that God is speaking to you about now?

Malcolm Johnston: Yeah, I think it’s a great question. What God called us into and through in some difficult places. It took me a long time. I’m probably like you. I want to change the world where there’s brokenness. And Isaiah 61 is the call of God in my life when there’s brokenness and lack of hope and opportunity. I want to change the world. God brought me through a lot of tough stuff of realizing that, Malcolm, all I’m calling you to do is be faithful to what I called you to. You don’t need to have a big success story to shout about. Your success is that you were faithful to what I called you. And what God has taught me a lot about in the last while is from man Psalm 27 where David who was a go getter and he was a fighter. He was a king and all that stuff. And he got to the point of saying, in Psalm 27. He said one thing I ask of the Lord this is that I seek and I may dwell in the house of the Lord all the days in my life to gaze upon the beauty of the Lord and to seek him in this temple. And that was a go getter who got to that point of saying, this is the one thing I do. And I’m glad to say that God had to break me down from wanting to constantly be getting things done, to be able to say this is the one thing I value above everything else, to learn to gaze upon the beauty of the Lord and to learn what that means. To actually just gaze on the beauty of the Lord to spend time in his presence in silence, learning to appreciate his beauty, that these nations that I care about, wanting to see them being restored and transformed. God says these are my nations. I’m working. Even before you turned up, I’m working because I’m the God of all the earth. You learn to gaze on all my beauty and realize how big a God that I am. And you just be faithful to what I’ve called you to today. And don’t worry, if you don’t see it happen in your lifetime, you just be faithful and learn to gaze on all my beauty and enjoy walking with me. And so Psalm 27, I would say, is the big thing that has meant so much when seeking to learn to walk faithfully, whether there seem to be results or not.

Always is beautiful. I needed to hear that. I have a feeling that a lot of our audience needed to hear that. I’m grateful for your time. I’m grateful for your friendship and your encouragement. And I’m so much looking forward to doing work with you under God’s power, not ours, for his glory. And then my sense is that together we’ll have an opportunity to gaze upon the beauty of the Lord through the work he’s doing in Central Asia and Eastern Europe, in Africa and other places. I’m grateful for the message you had about the mindset that we have in investing in emerging markets. The history, the context. And again, grateful for your friendship. Malcolm, thank you very much.

Malcolm Johnston: My pleasure. Thank you. God bless.

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One of the things we love about the Faith Driven Investor movement is that it isn’t limited to just one corner of the globe, rather there are faithful men and women all around the world letting their faith guide their investing. 

One of those people is Sid Mofya. Sid helps steward the Draper Venture Network, a global alliance of over 20 independent venture capital firms investing in outstanding entrepreneurs across the globe. 

Their team is the coordination hub for the collaboration between the funds and provides post-investment support to a portfolio of over 800 companies. His insight on investing is Africa is one you won’t want to miss.

Episode Transcript

Some listeners have found it helpful to have a transcription of the podcast. Transcription is done by an AI software. While technology is an incredible tool to automate this process, there will be misspellings and typos that might accompany it. Please keep that in mind as you work through it. The FDI movement is a volunteer-led movement, and if you’d like to contribute by editing future transcripts, please email us.

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Henry Kaestner: Welcome back to the Faith Driven investor podcast. We’ve got a special guest with us today, Sid Mofya. Sid, am I anywhere close to the pronunciation of your last name?

Sid Mofya: You’re as good as it gets.

Henry Kaestner: Which means not exactly. Didn’t completely get it. But I met Sid through a friend, maybe nine or 10 months ago and connected with him. And if I’m honest, I didn’t know much about the country that he hails from Zambia. I surely had never heard of the Zambian kwacha, which is their unit of currency. But it seems that since I met Sid everybody I meet and that’s an exaggeration, of course, has something to do with Zambia. And so we’re actually getting ready to make our first of investment out of our family to Zambia. I’ve been meeting people in ministry in Zambia and now I can point it out on a map, and I’m very proud of myself for that. But Sid one of the things we’re trying to do in getting the background of every one of our guests is to understand where they hail from, what formed them. And we’ve got a unique opportunity with you before we get into what you’re doing at Draper to understand this country of Zambia. What’s unique about it?

Sid Mofya: Great question. It’s great to be here. Thank you so much. So I was born in Zambia in the late 70s. And I say the time because it’s about 20 years after Zambia had been independent from the British and after the British had been basically ruling Zambia for, I guess, close to hundred years, depending where you come from. So I was growing up in effectively post-colonial Zambia. So I grew up in a small town, which was a mining town. We mined copper and that’s the main product that comes out of Zambia and that’s the mainstay of the Zambian economy. My parents both worked for the mining company there. I went to the mine school and my whole schooling in Zambia was through the schools that were put on by the mines to train more Zambians to come and work for the mines. So that, for me, meant I got a better education than the regular person who went to a government school because that those schools were well resourced. So I grew up speaking both English and my local language, and I think in both languages. I’m one of four children. I’m the oldest of four. And all my brothers and sisters also went through that whole school system in terms of how we grew up. I guess our parents were, I would say, middle class. So they had decent jobs. They lived in a decent neighborhood. But Zambia is a poor country. It’s at least in living memory has always been a poor country. Lots of infrastructure gaps that need to be filled.

And when I was a kid, I felt that because there was I think when I was about 10 and I didn’t know this is what was happening, but the government had defaulted on some big debt. No, you don’t do that. And there was a time when everybody around us. My friend’s parents were losing their jobs. And my biggest fear was that my parents would lose their jobs and then we would have to move from our house and go live somewhere else. It didn’t happen, thankfully, but I remember that time being a very difficult time for just getting the basics like sugar and salt and so on and having to line up the big, long lines to try to get those basics. And then we kind of got out of that. And since then, it’s been a period of growth for the country. There’s still a lot of gaps to fill, but there has been a tremendous amount of growth in the last thirty years. And if you go to Zambia now, it looks a different place to what you’d have seen in, say, the 80s.

So that’s kind of where I grew up up until college age and then I left Zambia and went to the UK again. I was privileged to have a scholarship from the mining company to go and study in the UK, went and studied chemical engineering. And the goal was for me to come back and work for the mining company. But while I was in the UK, the mining company was actually sold to a different owner. And the new owners did not want anything to do with the people that they are paid for to study. So I got a free pass to then go to a lot of different things, which I’ve been doing since.

Henry Kaestner: So you could’ve been working in the mines now?

Sid Mofya: Absolutely. Yeah, that was my destiny.

Henry Kaestner: More proof that God loves you. I know. Presumably there are lots of great careers in the mines, but the mines losses clearly are…I want to get back to Africa here in a bit because that’s been much of what you and I have talked about in the past. But fast forward, if you will. What do you do right now? Tell us about the Draper venture network, because actually that doesn’t have a lot to do with Africa necessarily. But once you explain what you do right now for your day job and then let’s let’s talk more about that and let’s talk more about Africa.

Sid Mofya: So I work for an organization called the Draper Venture Network. It’s a pretty unique organization in the venture capital ecosystem, because what we are is an alliance of different firms around the world that are all investing in early stage technology companies. So we have currently I think it’s 20 for now. We brought on some new funds, funds that are investing all the way from seed stage through late stage venture capital. They all have their own investment thesis.

They invest independently, but they are part of an alliance that looks, I guess, similar to the airline alliances where, you know, sensitive times we talk about airlines, but, you know, the airline alliances, those shared codes, they’ll share assets, but they are still independent companies. They have their own key now and we’re similar. So I work for the team that’s based in Silicon Valley that basically coordinates collaboration between all these different funds.

Henry Kaestner: And so there are advantages of some of these small firms getting together and some of medium size. But in terms of technical expertize or relationships or deal flow, it tell us more about what it advantage is when you’re part of that larger network.

Sid Mofya: Yeah. So the big reason that smaller funds, for example, would join is because the bigger funds and the whole network as a whole provides them a stronger connectivity to the centers that they want to be connected to. So, for example, as part of my job, I spend quite a bit of time in Silicon Valley talking to large corporations that either are native to Silicon Valley or have set up operations in Silicon Valley with the goal of working closer with the technology ecosystem. So they have people whose job it is to go find companies to invest in or do pilots with so they can learn more about where are the next threats coming from. So I build relationships with these folks and then these relationships become our network relationships. So a small fund in, say, Chile doesn’t need to do that because the network has those relationships and because the network has a big critical mass of relationships we had where attractive to the corporations for wanting to work with us, because when they’re looking for solutions, they can come to an organization like us that has thousands of companies that we’re invested in globally.

Henry Kaestner: So you’re working with, say, a venture fund that’s in Chile. And they’ve found brilliant young entrepreneur who’s invest in storage devices. But because they’re in Chile and while there’s a lot of great commerce going on in Santiago, it’s not Silicon Valley. They call you and say, we’ve got this new investment and they could benefit from getting some counsel. They could benefit from having maybe some supplier relationships. And then you go to work for them.

Sid Mofya: Yes, absolutely. So we would plug the entrepreneur into our portal, which has all the information that we have access to. So it shows them all the people that we know that we can connect them to. It shows them resources that we negotiated on behalf of our entrepreneurs for them to be able to get no preferential prices on some of the things that they need for their business. And it gives them a way to connect with other entrepreneurs in our network. And the fund or the company can call us at any time and say, hey, I’m looking for a connection at company X. Do you know anybody? Can you help to connect us? And we do that.

Henry Kaestner: Got it. Do you ever share deal flow? You know, when I think about running a venture fund, the most important thing for somebody running to fund isn’t fund raising, is not negotiating the deal. It’s not LP. All those things are important. The most important thing is really getting deal flow. If you can get great deal flow, all the other things seem to happen. Do you ever have some of your member funds who say, gosh, I got this interesting article or came across this and it’s not really in our space, but maybe somebody else in the network has some expertize here?

Sid Mofya: Yeah, absolutely. We do that quite a lot actually, and we do syndications among the network members. So there are two types of sharing deal flow. This is not a fit for me, but it could be a good fit for somebody else to share that deal. Or this is a fit for me. But I really want to bring on other network funds to invest with. And we do both of those with the kind of co investing. Sometimes it’s limited by geography because our funds, each of our funds, has a geographic footprint. And so it depends on the company. And, you know, whether, you know, if it’s a Singapore company, which you may or may not be interested unless that companies may be doing business in Chile. So there’s all these combinations and sometimes, you know, lightning strikes and we get more funds investing together.

Henry Kaestner: OK. So I want to go back to Africa. But before I do that, I know you well enough to know that you’re really motivated by your Christian faith. And clearly that has applications in some of the things that we’ve talked about in Africa. But how do you see your faith manifests itself in the work that you do right now at Draper?

Sid Mofya: Good question. I think for me, it’s. More how I do my work. My approach to my work.

Henry Kaestner: Tell me more about that. What does that mean?

Sid Mofya: I think for me it means I wanted to do well by people. So the people that I work with, I’ll make promises that I keep. Yeah, I will try to do my best. Yeah. Basically trying to be a good person. And I’m not sure I don’t do it all the time, but that’s my goal. I really kind of go into relationships with trust. Trusting the other person to hold their end of the bargain. And sometimes that doesn’t pay off. But I think I’m naive like that.

Henry Kaestner: So you’re in a space you’re in Silicon Valley where I characterize this particular geography as having a God complex. There’s this famous scene, by the way, for our listeners from the movie Malice, where Alec Baldwin talks about this God complex, your back on vid clips or YouTube, and you’ll find out. But when firms out here are working on things like Khalikov, the initiative to end longevity or we’re talking about sending people to Mars or we’re talking about hyper loops or all these different things, or quantum computing, you know, just amazing the strides that are being made in technology, those that are in it can almost get a God complex, especially entering longevity. This last final frontier between us in immortality. Do you get that feeling that Silicon Valley is a godless economy or do you get a sense that God is at work and are you hopeful? Tell me about your experiences, as a Christ-follower and investor in this kind of larger ecosystem?

Sid Mofya: I think God’s at work, even in people that do not profess God. You know, anybody who sets out to try and find an all time cure for cancer, in my mind is doing God’s work. Whether they say I am doing this because God told me to do it or I am doing it because I want people to be healed of cancer or even if they say I’m doing it because I want to make a lot of money. I believe God is at work in all of that because I think God is so brilliant and works in all those situations.

Henry Kaestner: I spent a lot of time thinking about it and I found another guy that’s living out here and trying to process it. You know, I think that’s actually a really interesting take. I go on runs in the morning and increasingly I’ve been listening to books on audible, on articles and things like that. But right now I’m reading or listening to the book. The Future Is Faster Than You Think. By Peter Diamandis. And he’s got a coauthor whose name I can’t think of right now. But he also wrote Bold in Abundance. And Reading and Listen to these things gives me the sense of just the amazing work that is being done. And a lot of times people aren’t giving credit to the author of all these things and seeing how God is at work in this technology. And I get a lot of sense of that in Peter, his work in particularly as we talked about how he spends a lot of time talking about Chalco. One of the things that I was really interested in that got me on a run yesterday was talking about in 1844 when Samuel Morse invented the Telegraph. And the first words that were broadcast over the telegraph wire were, what hath God wrought?

Which does speak to this concept that you’re talking about, of course, which is God using us to accomplish his work for his aims. And as you have this broader sense of where he’s working and what is the meaning of all these things, I think that the scientists out here are increasingly saying, you know, everything can’t be explained by science. Actually, the more complex things get, they actually speak to something greater than just a finished. Kind of like walking out of the ocean. There’s something more at play here. And what is it about the human brain that is uniquely human? And how did it happen? So I’m getting my sense when I’m talking to folks that they’re starting, even though they’re actually answering all these questions and kind of confronting these final frontiers. They’re also, at the same time, more open to faith. And there have been and that’s why you see these emergence of faith driven employee resource groups, which, by and large, if from Apple, didn’t really exist out here until two or three years ago. But now you’re going to Google. You got them a Facebook, you got them a salesforce and Intuit. I understand that they’re doing praise and worship music in the Dropbox lunchrooms on Fridays. So I’m hopeful, as you are at seeing God work through all of these things. And I think that more and more people are trying to understand how is he working and investigating the faith in it, maybe for the first time in a long time. People in Silicon Valley, as they’re inventing or understand, they’re really co creating and are open to what does it all mean? So, okay, let’s get back to Africa. You and I connected over Africa with this heart towards faith driven investing. What does it look like when we as investors might understand we can participate in the work that God is doing in the world, bringing about his kingdom on earth as it is in heaven? Some of those things that we’re seeing maybe in so many technologies. But how does that work in a continent that is going to count for more job creation and growth than any other place in the world, more than India and China combined over the next 20 years? My hope is that as the listeners podcast will say, gosh, you know, Africa seems like it’s very far away. It is. And yet there’s so much hope and so much potential and our sense that I got from some of conversations before that. You also have a hopeful expectancy of what is it look like to invest in a ecosystem and entrepreneurial ecosystem providing capital, but also hope through a hope in jesus. Talk to me a little bit about that. And how much of you is still in Africa and how much of your hope and your spirit is still there and what are your hopes for the continent?

Sid Mofya: Well, what a big question. A lot of me is still in Africa and I still do quite a bit of work with folks that are working in Africa, mostly from a distance that I work with an organization called Lions Africa, whose main task is to bring exposure to ways to give investors exposure to African entrepreneurs for them to see what’s happening. So they host an Africa wide competition which results in 30 finalists, and then a big conference to have those finalists present and then choose five winners and then bring those five winners to Silicon Valley to basically go tour everything. Google, Dropbox, they come to our Draper offices and they get exposure to how entrepreneurs in Silicon Valley are working and those entrepreneurs get mentorship. So that’s kind of one way of connecting the ecosystems.

I also work with a venture fund called CRC Venture Capital. So I’m an investor and an advisor to the fund. And CRT in venture capital is one of the leading lights as far as early stage investing in Africa goes. So they invest very early stage seed stage and series A companies and some of the tech successes to come out of Africa. Companies like Andela, you might have heard about who are training young great Africans to be developers for large Fortune 500 conglomerates, but still based in Africa and every, you know, a lot of money. And I think they’ve given the Proofpoint that there’s potential for building companies in Africa that can compete at a global level by tapping into the African human capacity. Another company that Sciarra invested in is a company called CPS in South Africa who are similar to Thumbtack, but specifically for domestic work. So it’s connecting homes to domestic workforce and they’ve created 15000 jobs with that company. So, you know, things like that give me hope that, you know, entrepreneurs who apply themselves and work with others, they can do pretty remarkable things. I also work with a fund in Zambia called the Kaleena Education. And this one is a play on microfinance. So the question is, can we use microfinance to fund education and have like an insurance kind of a product which helps families manage their cash flow so that typically in Zambia and many other African countries, school fees are paid on a three monthly or semiannual basis. And typically, for most households, they’re living hand to mouth.

But they. So even when they have enough cash overall to pay for the school fees, the cash doesn’t flow at the right time. And this creates an insurance like product so they can manage their cash flow and pay for the school fees for their children without having to worry about it. So that’s an experiment to see if something like this could work. And I know the entrepreneur is doing that, actually went to school with him and is a brilliant entrepreneur. So I have a lot of hope. I guess the flip side of that is I have hope in the human capital that’s available in Africa. And you alluded to that this is where most of the jobs in the world are going to come from. The flip side of it is that the infrastructure lags everything from, you know, just roads and health care, infrastructure, financial infrastructure, even, you know, to support all these businesses.

That’s lagging. And that’s where I think connecting capital that can help develop that is really key. And I think for investors that are thinking about Africa, I think that’s an interesting place to be investing in. I would say if you’re looking at investing in the continent as a small to medium size investor, move towards infrastructure, you know, build factories. Because when you build a factory, factory means roads. Factory means power systems. Factory means the water systems being built around that. And that builds an ecosystem around them. But not only that, it also builds the capacity for value creation to remain in the country instead of going outside. You know, typically for the African countries that are creating raw materials that they export. We capture, I think, 10 percent as generous of the value generated by that industry. You know, for example, the chocolate industry is 100 billion.

And I think the African countries that export cocoa don’t make five billion from the exports. So there’s a ton of value that’s simply being exported. But an investor who brings that value creation and keeps it in the country. That’s huge things for the economies. I think I kind of went on a wondering.

Henry Kaestner: Well, not at all. And I have no idea what question I ask, but I really like where you’re going. Because when we think about when you get to experience with this, of course, by being associate with the mining industry in a country where mining has been a big deal. Mines have traditionally been thought of as exploitative. And with this new wave of investment, it is interesting to think about, well, what is a redemptive lens for the guys from Praxis that I’m such a big fans of? Talk about a redemptive lens to investing. What’s a redemptive lens toward putting an investment capital to work? And your suggestion here is that something as basic as factories. So a lot of us in Africa that are thinking about being serious about investments, think about this whole concept of leapfrogging, leapfrogging over the traditional telecom infrastructure into mobile and thinking about how Safaricom got started in mobile payments and things like that. And yet you’re suggesting something that I don’t think a lot of us have thought about, which is, yes, there’s probably opportunity jump for 100 years and think about software as a service and how the digitization of the economy is going to matter in places like Africa. But let’s not lose sight of the fact that we need to have roads and electricity in a way to think through redemptive investing is something as basic as a factory that spins out chocolate bars that are fully wrapped and branded and put in a case and then delivered right to the market in London or New Yorker or San Francisco. And so I hadn’t thought a lot about that. I think that that’s super interesting.

Sid Mofya: Yeah. And the other thing that that does for an economy is bring control in the economy. So right now, a lot of the African countries, you know, they go where the wind goes and there’s very little control in determining. So what do we do with our resources? So what tends to speak is the money. So the money says, oh, you should just keep digging and keep digging. But if we have agency, then we would say, no, we’re not going to dig some more. We need to preserve this for our children. But right now, there’s not a lot of agency, but something like that brings a lot of agency, which in turn, you know, circles back to governance and all that, all those good things that. We weren’t on the continent.

Henry Kaestner: So a lot of people, when they think about investing in Africa, they think about South Africa or they think about some places in maybe North Africa. My heart’s been drawn to East Africa and South East Africa or Zambia’s. And I love for you to comment just a bit about what that region looks like. I see each of those different countries having its own type of economy, own type of system. There seem to be some things that have worked well in Kenya. I wouldn’t say it’s the be all and end all. And yet some things seem to work there and other things don’t work in other places. In Rwanda, of course, they had a genocide and yet there seems to be some stability coming out of that. Was it that makes different countries work or not work in Africa? And if we’re thinking about the larger geopolitical context, what needs to happen in order for there to be joint progress?

Sid Mofya: I guess there’s several things that immediately come to mind. And I just mentioned them now so that I remember to come back to them. One is leadership. One is geographical integration. And the third is probably education from a leadership point of view. It’s pretty clear that countries that have had strong leadership towards growing economically and Rwanda is a good example. Kenya is actually a good example as well. They have grown leaps and bounds because they’ve strengthened governance. Then when the government is strengthened, I think the human capacity is amazing. Amazingly resilient entrepreneurs, they work hard after they’ve been living in the UK and they returned to Africa. We were living in Tanzania. I would go to the big open air market and I would just go speak with people because I just wanted to know, you know, what’s the entrepreneur locally about? What do they think about what are they concerned about? And I’d go to the open air market at this point. I’d learned enough Swahili that I could pass as a local person and I’d go speak, just ask questions. What do you do? How long have you been doing it? And it quickly became apparent I had gone with that initially with a little bit of a savior complex. You know, I’ve learned lots of things that I’m going to come and work with entrepreneurs and teach them.

And I quickly learned. There is very little teaching you can do with somebody who actually understands the lay of the land that are playing in very, very well. And I quickly learned, well, I don’t have a lot to teach. There may be some things that, you know, I could help with, but not a lot. You’re smart, you’re driven and you work so hard.

There’s really no big difference between you and an entrepreneur elsewhere that I’ve seen in other places that I’ve lived, except you’re working with different cards that you’ve been dealt. And part of that is governance, which allows the entrepreneur to then be able to raise capital and know that, you know, they’ll be able to pay that capital back. And the financial infrastructure allows them to basically operate a business. But that is lacking. And in countries where that has been built, Rwanda has done a lot. And, you know, you can argue about whether or not Kaigama style is good or bad. I think net net, it’s good because basically it drives the economy to a goal. He has a goal and he drives great grades towards it and he unites previously fighting parties towards that goal.

So that’s governance. The second thing was geographical integration. And so each of the African countries are generally small countries, small economies. So Zambia. Twelve million people. Zimbabwe, about the same. Tanzania is bigger, 45 million people. Kenya, I think, is about 30 million. So they are reasonably small economies. So, you know, GDP per capita across the sub-Saharan subcontinent is about fifteen hundred dollars a year. So there are small, small economies. And what tends to happen is. There’s a lot of trade happening within the country, but not a lot of cross-border trade, even between Zambian, say, Tanzania, which has no good road connection.

There is some, but not a lot, you know, compared to other economies like Europe, at least before Brexit, but probably still even now. But, you know, I think it’s something like 70 percent of GDP that comes from cross country trade. In Europe vs. 10 percent, I’m not sure of the number, but it’s really, really low in sub-Saharan Africa. So there’s a big opportunity there with just the countries working together or folks creating companies that are geography agnostic and can work across different borders. An example of a company like that is one that CRC actually invested in called Floods Away and Fuddle Wave is an integrator.

So they’re a glue. So if you’re a developer in Kenya, you can have somebody in Kazakhstan paid by connecting their payment system to your payment system in Kenya. So they basically pull up all these different payment systems and create a glue which allows all that all those transactions to happen. So the more we can see companies like that and the more we can have the geographical integration between the countries to allow freer movement of goods and services across the borders. And that’s going to be huge.

Henry Kaestner: So you mentioned something there that I want to campaign on a little is the savior complex. Many of our listeners are familiar with a book that Brian Fikkert wrote. That’s called When Helping Hurts. I think a corollary to that might be when investing hurts. You’re an investor in Africa. And Dallah, you’ve come across a lot of folks in America that would like to invest in Africa, too. What are some of the mistakes that are made there? And what counsel would you give to a faith driven investor that might be listeners podcast who wants to get involved in Africa?

Sid Mofya: I think some of the mistakes are thinking that Africa, or at least the economics in Africa are the same as the economics they understand so well in the economy that they work in.

Henry Kaestner: Give me some examples of that. Like somebody comes in from America and just assumes that it must work like this, but in Africa actually works different. Can you think of any examples?

Sid Mofya: So say you have, let’s say, a factory that’s not performing well. And you have 4000 employees at that factory. And efficiency is not that high. You know, in the 40 percent efficiency, capital efficiency or operational efficiency. And you can see as an investor that just cutting the workforce in half will. Improve efficiency to the point where the company will be solvent.

And that might work elsewhere. I mean, I think it’s tough even in Western economies to do that. But it’s tougher, even more so in Africa, especially if you factor in the fact that most people in Africa are not formally employed. Most people are running their own businesses. So if you have a factory that employs 4000 people, you’re probably accounting for eight to ten thousand entrepreneurs that are working with that factory, their suppliers to that family, their contractors and so on. And each of those employees that you have is accounting for another 10 people in their household. So the decision is a bit more complex than just saying will improve efficiency by reducing our workforce by two thousand or by half or whatever. So I think trying to get to the root of the complexity of the decision making would be helpful. And that takes time and spending time with local people to really, really understand what is going on. The other confounding factor with those kinds of decisions is as Africans and I’m speaking as an African, we have incredible resilience and incredible flexibility.

And I also have to say, quite honestly, a lot of the times we don’t feel we have agency in a decision that is being made. And so if the investor says, well, this is what we have to do, they may not get the feedback. If they don’t dig deep enough, that tells them you’ve missed some major factor for your decision and I think your decision is wrong. So decision making, I would say, you know, have a good number of Africans and a good number of Africans that are willing to tell you the truth. And part of that is with time and training and with communication, they become comfortable doing that because sometimes the risk of telling the truth is so high that it’s like, OK, now that’s the decision.

Henry Kaestner: So I’ve seen that I went to a seminar that we did on Faith Driven Entrepreneur ship and future of universities. Two days in the Fairview Hotel in Nairobi is awesome if you ever do a conference, by the way. And we had a number of Africans that were there, but we also had a number of folks from America and Europe. And for maybe the first day or so, the conversation was erroneously focused on the Westerners who had different ideas trying to figure out how to deploy capital. And it wasn’t embarrassingly until the beginning part of the second day, we said, hey, let’s actually check in here. We’ve been involving Africans in the conversations, but we had thought that some of their silence on different things meant that they thought the ideas were good. And it wasn’t till I said, listen, before we go any further, let’s make absolutely sure. And then we were also present. He said, actually, there’s three other ideas that you may have thought we thought were good are actually terrible and horrible, and here’s why. But we had to really work on extracting that. Whereas a Westerner might otherwise, you know, just take by the fact that people are nodding their heads as they must. And so I’ve experienced that. So I want to ask you about this other dynamic that you talk about and just wonder if there’s an inherent conflict in that which is so you have a factory that’s not performing well in the West. We might go ahead and say, how do we think about streamlining this? How do we get more efficiency? How do we work in more automation in that the end result of if that implementation is done well is more efficient. Deployment of capital mean more innovation, more creativity, maybe more market validation in the economic divide which goes on. If in Africa. So much of the informal economy is there’s more than just the two thousand players in the factory. There’s all these other people. How does a factory owner in then in this type of conversation with investor? How does an investor in their factory acknowledge the informal work force and engage them, enfranchise them more earlier on? Because maybe there is a special thing there to harness that maybe make an advantage, because otherwise, if you say, well, you can’t lay off some people, you can’t find efficiencies in their factory, then theoretically then African factories won’t compete on the world stage because they’re never made more efficient. So you must have to you know, can you do a jujitsu move with that whole thing that you think would be this elephant on your back of all this informal workforce? Can you turn that into an asset?

Sid Mofya: That’s a great question. And I think one that companies are trying to grapple with. I think that’s the way forward. I don’t know the answer. And I’m certainly not saying we cannot look for efficiencies and find efficiencies. I think we have to. I think what I’m saying is the answer might be different, too. Hey, I’ve seen the numbers for the workforce efficiency, so let’s go there.

Henry Kaestner: OK, so I want to stop here in light of the most recent conversation and say I’ve been asking a lot of the questions so far. Hopefully you’ve gotten to know me well enough to know that I really actually do have a desire that I think that guy is put in to be involved in the African continent. But there’s a very good question, just like at the Fairview Hotel, that I’m asking the wrong questions. Where I’m thinking about the wrong way. So let me stop. What are the right questions. How should we be thinking about it? What might I have missed? What might our listeners have missed?

Sid Mofya: Yeah, I think. Your willingness to engage with some of the difficult, intractable questions that we haven’t found answers with. That’s probably what we need more investors to be doing. Just an ability to just slow down and say, well, is there more that I’m not seeing here? You know, as you’re making your investments in Africa, I think that’s a great approach. Is there more that I’m not seeing? Because it tends to be more that we’re not seeing.

Henry Kaestner: Thank you. OK. What in your quiet time or your devotions? Time reading God’s word. What are you feeling that God is speaking to you about now? And it could be in a Bible. So you’ve done recently. Maybe it’s in your time with the Bible this morning and maybe last week. What are you getting a sense that God is talking to you about right now?

Sid Mofya: Now, I think for me, the biggest thing right now is. Time and the battling of time. So our daughter was born a month ago. And that brings a very sharp focus on time and attention. One of my focus in my time on I tend to be the kind of person that wants to do everything.

And I can’t I focus on the very few important things and for a time, you know, I just finished my paternity leave and that month just went by so quickly and could easily have been six months on paternity leave. But really just valuing those moments and that time with her and with my family, there’s nothing more important.

Henry Kaestner: Hmm. Thank you Sid it’s been great being with you. Thank you for your time. Thank you for your investment in our relationship. As we try to wade into that awesome content. Thank you for introducing me to the country of Zambia. And God bless you and looking for your next conversation.

Sid Mofya: Thank you for having me. Great to chat with you.

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Did you know that 37% of all Americans live in apartments and other multi-family units? And they’re over 96% occupied? 

What used to be a form of transitional housing has become the centers of communities where marriages start and kids are raised. Multi-Family Real Estate investing is continuing to be a dynamic place for Faith Driven Investors, and we want to make sure you’re aware of this trend. 

To do so, we’re talking today with David Snyder of Continental Realty Group and Steve Vecchitto of Advenir. Few people know more about the social and spiritual changes happening within the multi-family real estate space than them. Let’s listen in…

Episode Transcript

Some listeners have found it helpful to have a transcription of the podcast. Transcription is done by an AI software. While technology is an incredible tool to automate this process, there will be misspellings and typos that might accompany it. Please keep that in mind as you work through it. The FDI movement is a volunteer-led movement, and if you’d like to contribute by editing future transcripts, please email us.

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Henry Kaestner: Welcome back to the Faith Driven Investor podcast. Special time today focusing on multifamily real estate. We’ve got two great leaders in the space, David Snyder and Steve Vecchitto. And when we think about expanding faith driven investing beyond private equity and some of you have been listening show for a while might know that my own personal background is in venture capital, private equity. But with time, we came to realize it is cause we think the private equity of venture capital might be to be able to express our faith in what we do and how we invest. There surely are other ways to do it as well across different asset classes. And maybe the best example that I go to first when I talk to somebody is multifamily real estate. So many of us are accustomed to real estate investing. We understand it. We understand how cash flows. We’ve come to understand what cap rates are. And it’s just such a great place to be able to minister to people who are in need because there’s a part of the investment we’re making. We’re investing in homes and in communities. And of course, where there’s communities, there’s great relationships. And it’s a great opportunity to love on people in a way that points to a God who loves them. And we’ve talked a little bit about multifamily real say in the past. We’ve had guests like P. Kelly on before, but today we’re going to get much deeper into multifamily real estate. I’m going to talk about that when we talk about the two leaders who really understand the space, who’ve invested in it successfully. And David and Steve, thank you very much, both of you, for joining us.

Steve Vecchitto: Thanks for having us on.

Henry Kaestner: So love to start the show by giving each of you a chance to give a brief overview of your background. We’re going to start with David. Want to start by giving us quick fly over about Continental Realty Group and the work that you are doing. And then, Steve, we’ll get right into what the work that you’re doing at Avanir Word Fundamental Realty Group.

David Snyder: We started this company in 1982. We’ve been doing it for a while. And all we’ve done for 37 years now is multifamily real estate. We don’t do any other type of real estate. One of the things I like to tell people is that we get a chance to make money by meeting people’s needs. And we specialize in their housing needs, where students and observers of people’s demographics and their needs that they have for housing. During the last 10 years, we’ve done about one point eight billion transactions, 1000 units, certified properties during a time. Over the last two years, we’ve sold off a lot of our portfolio that we bought about 10 years ago, and we’re down to around 4000 units now and expanding back up from there. So we’re involved in about 10 markets across the country and somewhat similar to Steve’s company, unexcusable, bigger than we are. We have similar amount of markets and it gives us a chance to walk alongside of people. We’re just not landlords. We’re walking more on side of people in their daily life and there’s spiritual responsibilities that come with that.

Henry Kaestner: Thank you for that, David. Steve, take us through Advenir and just a flavor of what you’re doing there. Then, I want to get back into talking about both of you and your faith journey and how you see it manifest itself through your different company.

Steve Vecchitto: David is a little more experienced than I am. We’ve only been in the business for 25 years instead of 37. Wow. We own currently about 14000 units in six states. That’s about 42 properties with a market value of around two point three billion of that, 800 million of it’s in equity and under management. We, like David, only do multi-family properties. We don’t do any other product type. We do also have our own management company. We believe that it’s essential for us to be able to operate and execute business plans to own our own management company and really be hands on. I think David’s formula works really well because you’re hands on and he’s found third party management companies that can operate in his system. So, you know, I think he’s unique to using third party management and it’s worked for both of us. You know, we think there’s a long future in multi-family properties and investments.

Henry Kaestner: Tell us about your faith journey. That’s one of the things, of course, that brought you onto the program. And you’ve been thoughtful about how your personal faith impacts the work that you guys do down in South Florida and as other five states. Tell us about how you came to know God.

Steve Vecchitto: Sure. I’ve got a storied past. I grew up in Connecticut. Roman Catholic really was a lukewarm Christian. I came down to Miami in 1996, pretty much a sinner and a heathen. And I did start at Viniar. Point in time and had a good friend who was in a church. He was drumming for Jesus and he became a special friend of mine and a brother, and we talked about faith. Then when we started our company, I decided that I really wanted to create a culture that was meaningful to our employees, our residents and our vendors and created four pillars. And the four pillars were really true fairness, love and kindness. And at that time, I was not a believer. And I have come to know the Lord over last 12 years, really, from my wife’s pushing and some other friends and I got through the Bible, you know, I started in Bible study 12 years ago and that changed my life. And since that point in time, everything has blossomed in my life from my business to my marriage, to my relationship with my kids, to my focus on what’s important and what’s not important. I’ve really left what is valuable to the world and are looking at it with a different lens. And what is it that Lord, what is it Jesus wants me to be doing in my life? And it’s turned me from being a greedy person to being a steward of what God has given me and for investors money. So it’s really changed my lenses in view of the world.

Henry Kaestner: Can I talk more about this space that you both are in? David, talk to us about the multi-family sector. I don’t think that a lot of people that are listeners appreciate how big it is in our country at least. I didn’t as an investor how big it’s in our country. The world. And just also how much it’s changing. So give us a flyover. Tell us about this industry that you guys both are experts in.

David Snyder: Well, the multifamily sector, I feel, is a very oftentimes misunderstood sector for the average investor or many investors think that the minute you talk about multifamily, you’re talking about low income housing. There are people of all demographics in the United States who choose to live in multifamily. We have very, very high end rentals. We have workforce housing. We have low income housing, affordable housing. And also just to keep pace with the housing demand, the US has to add 300000 housing units per year in the multi-family sector. And when the downturn of 2008 hit, we went through almost four years in the US where there was virtually no new housing built at that time.

So we dug a hole where we were essentially a billion two in units below what was needed. Since that time, we’ve been building and trying to equalize out that that deficit. And we’ve only in recent years gotten back up to the three hundred thousand level. There still is a high degree of intensity for demand for multifamily housing. The occupancy rate on a nationwide basis is almost 96 percent. And that’s no nationwide figure. It’s not just Boston and Denver and Dallas. That’s nationwide. So Podunk, Arkansas, you have wherever Des Moines, Iowa, everywhere is. Therefore, there are full and there’s a tremendous backlog of demand. We still have 30 percent of millennials living with their parents. We have more boomers than ever living in multi-family housing. Our current boomer generation is the healthiest that we’ve had in decades. And the healthier the boomer, the more mobile they are. And one of these people don’t want to go live in single family homes and take care of the lawn and paint the house. They’re living in multifamily and being very mobile. So we have increased occupancy there. And then, of course, the millennials, which is right now the biggest generation, is a very mobile generation and they’re creating demand for millennials. The thing that I think that many people don’t realize is the impending tidal wave of people coming after the millennials, the gen Zs right now, or within two hundred and forty thousand the size of the millennials and their demographic won’t be cut off for another two years by the time we end up with the next two years. The Jameses will actually be bigger than the millennials, and they’re only the age of about twenty two right now. So they’re just starting to enter into the multifamily stage. And we have this tidal wave of demand that is coming from a demographic basis.

Henry Kaestner: Steve, tell us more about that. Tell us about some of the personalities that are going into multi-family. So it’s it’s not just the person is just getting started. Not just transitional. I’m 50 so I’m dating myself a little bit. But when I grew up, the American dream was I own a home, and that was everybody knew this was everybody’s goal wasn’t even up for discussion. That’s all changed now. Right. Who are you seeing in your properties?

Steve Vecchitto: Yeah. Look, I think that dream got crushed in the 08 09 recession. You know, you asked what is the size of this renter base? It’s 60 million households. So we are leasing to providing housing for 60 million households and a household. There’s two point three persons on average. So apartments are essential. Right. Everybody needs a home. And we see those that are getting out of college or from blue collar workers that are mechanics to plumbers to electricians all the way through tax base. And as David mentioned, the boomers are selling their houses and saying, I don’t want the responsibility, I don’t want the upkeep cost. And I’m moving, too. We see it here in Florida. They’re moving to the coast. And large apartment communities and they’re paying anywhere from Florida, literally twenty thousand dollars a month for rents and would rather have that than have the home. So I think you have whatever our nation looks like is what the rents are based looks like.

David Snyder: It’s making our job as landlords more complex because 30 years ago, all we had to do was worry about young people. There was a there’s just transitionary housing. I’m sure Steve will agree in today’s world. He’s got boomers sitting on the same property that he has millennials and they’ve got some gen X’s. And somehow you have to figure how to meet these people’s needs, even though you’ve got all these different demographics in place and not just meet their needs, but learn how to minister to them where they’re at, whether they’re very wealthy or older or whether they’re millennials or students at the same time.

Steve Vecchitto: Yeah, I agree. We have really two categories. It’s a renter by necessity, where they have no other alternative. They can’t go live with mom, they can’t afford a house. And you have renter by choice. And I think both categories are growing just as fast. So the renter by choice says, I don’t want to own the home. I’d rather live in rental property. It’s my lifestyle that I’m renting for. The rent, by necessity, has no other choice in that demographic. Certainly are different. The renter, by necessity, probably never will buy a home. The renter by choice may never go back to a single family home.

Henry Kaestner: So which space you find yourself saying so rener by necessity, I think I get. Renter by choice. I think 75 percent of millennials now would rather rent than own a home. So the whole idea whether they’re impacted by the financial crisis or not, just they have a preference to whether it’s mobility, flexibility, just value things differently. Seventy five percent would rather rent than own before gone. Where do you find each of yourselves? Is it evenly mixed based on the properties you have, or do you focus on renters by necessity, more in Class B and C spaces or more class? How does that break after each of you?

Steve Vecchitto: Well, for Advenir, we’re probably 75 percent rents are by necessity. So we call it workforce housing and families that are making between thirty five thousand and one hundred twenty five percent of our renter base. Probably makes more than one hundred thousand dollars a year is that rents or by choice.

Henry Kaestner: David, how about you? How’s that mix work out for you?

David Snyder: Well, the challenge and the opportunity that multi-family gives us as landlords is we have the ability to walk alongside of people in their lives, to walk alongside of the wealthy. Rohner, the lifestyle runner, to walk alongside of the runner by necessity. The ones that are going through budget problems and, you know, work problems and and that we’re in a very unique position as landlords. Landlords in the 80s used to be disguised, collected rent. If you didn’t pay me, you’re gone, you know, and that’s it. There’s landlords today. We have the opportunity to be candelas to encourage successful living in the residents of our community. And not just capitalists, but we’re stewards. I mean, we’ve been given these relationships of hundreds and hundreds of people living within our community. We’ve been given those relationships. We’re going to be held accountable for what those people receive from the relationships that they have with us. And so the landlord today is a very catalytic person that is after the the economic benefit of their tenants, the spiritual benefit, the social benefit of their tenants and. At the same time, we’re driving financial value from those people that live in our communities also.

Henry Kaestner: How about you, Steve? Talked about the ministry opportunity that you see as you’ve got these people that are living in your communities. And how do you see it being different? What does it look like to live on somebody in one of your properties where it’s workforce housing? And was it looked like in another one of your properties, the love on somebody that’s maybe a millennial? And when I say millennial makes it sound like they’re like some sort of kind of like alien or something like that, although sometimes I think we experience them that way. But we’re talking about this next generation that’s really starting to lead in the workplace that would rather just not own. But that’s a different demographic. It’s a different need. How do you love them both?

Steve Vecchitto: So, you know, I love the term millennial. I have two millennial daughters and they are pure millennial. It’s all I love them to death. You know, I think it comes from a different two different standpoints. One is the culture that we’ve created in our company and the management team side. We have seven core values that we continue to train our employees in, in some of the key words that are included in those seven core values, our teamwork, customer service, innovation, integrity, humility, balance.

And if we’re training our team members how to operate in their communities. It goes it goes downstream. So they’re able to pass that on to the residents. They’re able to pass that on to the demanders that we’re working with, you know, from a spiritual side. And I know you’ll probably talk about this later, but we use apartment, life and apartment. Life has just been a wonderful bolt on addition to what we do on the management level to connect with each one of our residents.

Henry Kaestner: Tell me about their model and how you how you all employ it.

Steve Vecchitto: So their model is pretty interesting. They do recruit team members, so there’s a family or couple that will come to our community and live in our community, become a part of that community. And the cost is relatively inexpensive to us as owners. And I think the benefits are just huge. The benefit to us is higher retention, building of community social activities that they create reputation management in our business, the reputation of our community and online leasing is so important and they’re able to raise that reputation.

Henry Kaestner: So presumably also makes your online ratings go up in some of those other things, too, and I know that there are different models. I know that David has had a different approach. He’s got mission that I don’t want to talk about that here and saying. But, Steve, before I let you go, comment on what you’ve seen in your properties over the course the last two or three months, just to timestamped this a bit, we’re talking about this in May of 2020. COVID 19, has shut things down and a lot of the country is going through really a loneliness problem. And pre-covid 19, we’re headed off the charts as a country in terms of depression, loneliness, etc., and that’s only got worse. Now, of course, what are you feeling from your communities and what role do you see? Apartment life. And then I want to ask David about the same, because the way that he dresses the same situation with loneliness.

Steve Vecchitto: So I think loneliness goes to fear and a large extent and the fear is how am I going to exist with no money or how am I going to exist? I just lost my job. I’m collecting unemployment. And in some states, it’s been hard to get those benefits because the unemployment system registration has not been functioning well. So we’ve actually been reaching out to every one of our residents, helping them through the process of payment, their rent and finding out. Are there issues? Are they having problems with health? Are they having problems with transportation? Do they have an elderly in the unit that needs special care? Our teams have gone out and raised money to bring food in so that the residents can come in into the leasing center and grab whatever they need for the night. And it’s interesting because we’re now seeing residents bring in food to the leasing center as part of the community as you drive through the properties which enjoy it. What’s interesting is the parking lots are packed. Everybody is at home, right? We’re all in lockdown. And apartment life has helped with virtual social events. They’ve done video nights where they’re streaming from Netflix or some other source. And as a community, everybody’s watching the same movie the same night in our apartment, life teams have really helped. So we don’t have them on every property. And you could tell the difference of the ones we do have apartment life teams on versus the ones we do. And I’ll say the reason we don’t have apartment life teams and some of our properties is we’re still searching for that right team that’s been provided through the church system.

Henry Kaestner: David talk to us about other models, other ways for people to love on the way that you love on people in your facilities.

David Snyder: You know, we also make use of apartment life in our communities and, you know, apartment life and groups like that, they give owners the ability to pay attention to the function of what they do, which is the business side of everything. And then they have people that they provide to us that help with our purpose of why we do it and taking care of people and taking care of their social and spiritual needs and that type of thing. And an apartment life is one of the groups that helps us do that. We’ve added on more employees during this time rather than fewer. We’ve hired more part metalized staff to do nothing but just be on the phone and talking to our people on a daily basis and doing needs assessments and then that type of thing. So they’ve been an instrumental part, but we also make use of other groups and we expand also apartment life’s mission on some of our properties in that we use some of our apartment life teams as a liaison or a coordinator to bring in the local church in the area to try to adopt some of our communities and to provide different services and activities to the residents of our communities through the local church. And it’s been a very rewarding option for us because it gives a lot of people in the local churches the ability to have an outlet for ministry and multi-family housing. I mean, we’ve got some properties that there’s mechanics from the church that go out twice a month and they’re maintaining the cars of all the single moms on our properties and stuff like that. And it actually is raising the spiritual self-esteem of some of these people in the church because it gives them an outlet.

We provide Mother’s Day out programs and other things through the church and then some of our apartment life people coordinate that. They’re also coordinators for social services where we have some local social services available. They’re not necessarily faith based and they act as coordinators for that. In addition, we also have other groups that we believe in very much. And one is Crown Financial, who is involved in teaching stewardship on some of our communities and that type of thing in dealing with people and providing studies on how to budget their time, budget, their finances, et cetera. Friends First dot org is a mentoring program that is designed to help teens and young people on the properties. And then finally, Mission Ninety Eight is a group that really is somewhat similar to apartment life that they specialize in just bringing in the local church and to a point where they can serve people in the multifamily community. And, you know, a lot of people run by apartment communities without giving them a second look. And 37 percent of Americans live in apartment communities saying multifamily housing. And it’s a big part of our population that the church has a responsibility to reach out to and to include in their community also.

Henry Kaestner: Talk to me a little bit about the difference between these two different models. One is an organization like an apartment life where somebody will go and live in a community. And then on the other hand, you might have a local church that might adopt an apartment complex. When I used to go to the Church of the Good Shepherd in Durham, North Carolina, for instance, we had a apartment complex that we as a community adopted and that seemed to be able to last through any type of a turnover of key personnel as it was the church that adopted them and offered up English as a second language type of classes and things like that. David, you’ve had experience with both. Talk about the pros and cons about each of those models.

David Snyder: I think the pros about apartment life is they’re often more proactive. They’re more national. So we can have them many other states, you know, as opposed to when we deal with the church adoption concept for lack of a better term. We’re having to reinvent the wheel in each location, you know. And so a partner in life has a model that can be mobilized and news nationwide. The downside or some of the negatives of apartment life that they know, too, and I’ve discussed with them, is that local time as a ministry teams that they put on the properties are there for a two year period. And so you get all these relationships made and everything, and then all the sudden the team is gone. And it may be four or five months or six months to a new team, maybe put in their place or whatever.

But that turnover affects the model bit. That’s one reason why we’ve married our apartment life teams with the activity by the local church, because we understand that sometimes teams, you know, graduate move on to other things. But the local church provides a consistency of the effort on the properties themselves. And so even though you may have a partner or wife team that comes in and out of churches there. The church hasn’t gone away. Some of the personnel may change, but the church is there and it provides a consistent ministry provision for the people on those properties.

Henry Kaestner: OK, so this is going to be a little bit of leading question. Obviously, you believe that this is something that works or you won’t be spending money on it, but maybe I shouldn’t be so presumptuous, somebody listening to this. They’re not the family real estate property, the money that you put into these programs. How much of it do you think that you get back? How much of it do you think accrues to the benefit of the limited partners and the investors you have? And or how much of it is something that goes above and beyond that that you actually think may not add to the investment returns but is instead something that you would otherwise allocate towards ministry spend and how you do discipleship or evangelism?

Steve Vecchitto: I think I’d answer in two ways. So there is the financial benefit to the property, which ignores to the benefit the investor, and that is higher retention. So I’ve got more people staying longer. Part of the reason is the social activity that’s been created and the neighborhood that’s been generated. And so I’ve now I’ve got friends there that I don’t want to leave. Right. So I get a higher retention rate that saves money for my investors. And I think the other part is the reputation. We’re building up our online reputation for the community. So as that builds, that creates a strong community itself. That’s a financial benefit that we realize.

Henry Kaestner: So if you spend 50000 thousand dollars on an issue like that for a property, do you think you get all 50 of that back or do you say, well, that 50? I think probably 35 or 40 that back, but because I’m motivated by my Christian faith and here’s an opportunity for me to love on people. I mean, I get all 50 back, but I’m happy having 10, 15 or 20 of that be kind of like my ministry spend. Do you ever think that way?

Steve Vecchitto: No. So I don’t think it’s cost us 50. What it cost is an apartment and our monthly fee. I always have a vacant unit. So to me, that’s a zero cost. I think my return is four to five bucks and that’s pretty high on any investment you can make.

Henry Kaestner: So you may give up the free apartment, but you still have to pay them. You still pay apartment, life, apartment. Life may be a ministry, but they charge a fee. And that’s what you’re talking about, getting the four to five extra turn on.

Steve Vecchitto: That’s correct.

Henry Kaestner: Yeah. David, how would you answer that?

David Snyder: Well, you know, I think that we have a spiritual benefit, obviously, from our extra effort with our residents. And we have a good financial benefit. And the financial benefits far outweigh the costs of the programs that we put in place. The typical turnover, and I’m sure some words in Steve’s mouth, but I’m sure he’s experiencing the same thing here. The average turnover in our industry is 75 percent a year. So if you have a 400 year. Apartment community, you’re turning over 300 of those a year, year in and year out. And over the last 10 years, that’s been the American average. With our history, once we’ve been in charge of an apartment community for a year and have our apartment life programs involved in some of our other management programs and ball are turnover down. The same property turned out to be somewhere between 47 and 49 percent. So we’re literally saving 25 percent turnover san in real dollars out of 400 unit community. If you’ve shaved 25 percent off of your turnover, that’s one hundred less units per year. That’s that’s turning over. And each of those units cost you an average of about 2000 or so to turn. There’s a term cost, says 200000. The bottom line and you keep that in your expenses. I would challenge Shane. I have tried. Many of my investors are not Christians. Many are of other faiths or no faith. And they oftentimes talk about the voodoo that we do on the property. And I think we’ll keep doing it because it makes us money. So I’m very high on this type of ministry and on those type of effort by apartment life and others in this space. But at the same time, I’m very transparent, very open that it actually makes us money to be good neighbors. To be good landlords is to love people. It is financially rewarding for us.

Henry Kaestner: Okay, that’s helpful. So we’ve made the case for multi-family and because of demographic shifts, this is going to be a sector that’s going to continue for a very, very long time. And as an investor, as a space you should be looking at also made the case that investing in ministry moves the needle in terms of loneliness and depression and community and sharing the gospel and discipleship without it necessarily costing. Why do you think the concept of faith driven investing in real estate? Why do you think there’s not more of a thing? It seems to be something that people are talking about very, very recently. And yet you’ve been implemented for a long time. Why do you think that faith driven investors, people who have a Christian faith who would like to see people in the workplace minister to. Why do you think that this idea hasn’t really caught on so much so that people are saying, I want to find a real estate manager that employs these things? If I’m going to deploy capital, whether I’m an institution, whether I’m a retail investor, I want it to go to those people. Why do you think that’s not a thing?

Steve Vecchitto: I think it’s not promoted. We do it because we want to. We do it because we believe in it. We think it’s right. It’s our faith, my investors, for the most part, trusting in what we do. As David said, the voodoo that he does on his properties, they get great returns and that’s why they’re in this. And they let us operate autonomously without really knowing what’s in the engine other than they know the performance. I can open a hood of a car and not really understand the engine, but I like the car. I like the way he drives. And I think that’s been the philosophy. We’ve sort of done this silently and maybe it’s our fault. But look, at the end of the day, our faith is driving, how we operate, what our morals are. We’re trying to expand the Lord’s kingdom. Then we’re doing that through the ministry that we’re able to provide while providing housing while we’re providing returns. It just becomes a win win win.

Henry Kaestner: We’d like to close out every one of the podcast episodes we do by asking our guests what they’re hearing from God and his word and see if you tell him that have gone through the Bible again recently. And David, want to hear from you about what you’re hearing, too. And so we’ll start there. Dave, what are you hearing from God in his word? Maybe it’s something that you heard this morning, maybe yesterday, May last week for some way that you feel that God is speaking to you.

David Snyder: I mentioned this to some of the guys on the podcast, the Steve and Justin before. For some reason, God has just brought the word sanctuary to my mind. And I probably haven’t thought about that word for forever. I don’t know why, but in the last few weeks, I’ve been studying how God gave sanctuary to Moses, who gave sanctuary, you know, to Jonah, to the King David J. Gave, say, a time of sanctuary and protected him. And I just feel I’m very at peace with one of the things I have been called to do in life is provide sanctuary for our residents and where it’s a peaceful place for them to grow, for them to grow socially, hopefully. Build or grow spiritually, and you try to take steps along the line. But this is very simplistic, open droid sanctuary myself during this time of. Because I’m up here in my mountain cabin. And I’m in sanctuary. And I think that’s maybe where this came from and that I’m just so excited. And so that piece about being able to provide sanctuary or residence.

Henry Kaestner: That’s a great word. Steve?

Steve Vecchitto: And if I may actually have two that are meaningful my life today. And the first is Galatians 522, which is the fruit of the spirit is love, joy, peace, forbearance, kindness, goodness, faithfulness, gentleness and self-control. I just love that if I live my life through those words and have a wonderful life. And, you know, in the season we’re in with this Kofod, I have really been dwelling on Matthew six thirty, which says, Do not be anxious about tomorrow for tomorrow, we’ll be anxious for itself. Sufficient for the day is its own troubles. And I think the Lord gives us plenty and mercy today and provides for all we need today in with the Kofod and wondering what the economy is going to look like in our business is going to run. I could quickly run to tomorrow and be anxious about that, you know, so I go to this passage that just gives me peace that I worry about tomorrow. Tomorrow, though, and worries tomorrow. And he’ll give me mercy tomorrow.

Henry Kaestner: May that be the case for you and for me and our listeners. Great. And thank you both for your time. Thank you for your faithfulness in the market and sharing your stories with us and disinterested to see how this expands over the course next 10 years. I’ve really compelled by the ministry opportunity, and it’s just amazing to see that this ministry opportunity ministry investment on this is actually something that accrues to the benefit of investors. So much so that investors that don’t share fears like I want more of that. So super compelling. Thank you both.

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“We have a financial and Biblical responsibility to steward the money that has been entrusted to us.”

Mike Silvestri taught us a lot about social impact bonds on this episode, and if you haven’t heard of these—or maybe you’re already familiar—it’s something you simply have to hear about it. The way he describes them, it’s a chance for everyone to win.

At the very least, Mike got our wheels spinning and helped us to think about a conversation that we may not have previously been involved in. We hope you can join us in this conversation moving forward.

Episode Transcript

Some listeners have found it helpful to have a transcription of the podcast. Transcription is done by an AI software. While technology is an incredible tool to automate this process, there will be misspellings and typos that might accompany it. Please keep that in mind as you work through it. The FDI movement is a volunteer-led movement, and if you’d like to contribute by editing future transcripts, please email us.

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Henry Kaestner: Welcome back to The Faith Driven investor podcast. We’ve got a special guest with us, Mike Silvestri. Mike, is here to talk to us all about some new and innovative financial vehicles along the concept of paying for success. Career impact bonds. Social impact bonds. We’ve spent time on this program talking about some of the traditional asset classes, public equities, private equities, real estate. But God is an entrepreneurial, creative God and has asked us to be fruitful and multiply. And so Mike is going to push the envelope and how we think about investments and how we think we might deploy his capital as we make investments that we think might make an impact in culture. So we going talk a lot about that. We can tell you about Mike’s background. But before we get there, Mike, I want to ask you, where are you recording this?

Mike Silvestri: Thanks, Henry. I am recording this podcast from a dorm at Harvard College.

Henry Kaestner: Because you haven’t graduated yet? Your résumé would lead me to believe that you have.

Mike Silvestri: They do say college is the best times, but no my wife and I actually live with our two young girls at Harvard. We’re a resident tutors. So we’re advisors for students. Of course, when they are on campus and just help kind of mentor them and be by their side as they go through their undergrad journey.

Henry Kaestner: When I was in college, we made a T-shirt that said The University of Delaware. I went to Delaware University, the best five or six years of my life. And in your case, just doing the math, harvard. The best 15 or 16 years of your life.

Mike Silvestri: I just can’t get enough of it. Right.

Henry Kaestner: That’s awesome. It’s also just making my brain swell a little bit because I remember my time in the dorms and thinking what it would have been like for a family to be down the hall. I definitely would have been better behaved. And maybe that’s why you’ve done that. I’m sure that you also have an incredible opportunity to speak in the lives of a bunch of young future leaders. So I I think actually that that’s super, super cool. Mike, tell us. We consider you an expert in some fields of financial innovation. How did you get here? What’s your backstory? What’s your background?

Mike Silvestri: Yeah, I mean, I think the story honestly starts decades ago. I mean, I think my faith, my view of my vocation, my world view honestly started in hidden corners of the world. I spent a number of summers growing up traveling with my family and with my church just to remote areas on medical missions, strips serving the poor, those that lacked access to health care. And at a young age, honestly, it was sort of confronted with the reality that the world is much bigger than my small world that I grew up in and that the deck is stacked against so many. And so I think for many years that’s sort of been wondering how can I do something about that? I would say my faith, my values, the gospel inform a lot of that, my desire to bring out justice and help make the world a better place for God’s glory. But I’ve been in particular trying to think through how can I do that in my career and ask myself, you know, where do my skills and the passions that God has put on my heart align with the needs that I see in this world? So that led me initially into consulting. I was a strategy consultant for well over half a decade, starting in private sector consulting, shifted for several years into social impact consulting before heading back to Harvard or a graduate school program at Harvard Business School and Harvard Kennedy School, where I became really interested in impact investing. Read a lot about it was very intrigued by different investing models. And a few of those models were those that are being pioneered by social finance, which is the firm that I now work at. So I’ve been there for several months now and helping spearhead our work around bringing paper success to the broader impact investing field.

Henry Kaestner: So bring us back to the time right before you went back to Harvard, where you started getting some exposure to impact investing. Tell us about some of those stories. What were some of those experiences? How did they fit in with some of those earlier ministry experiences you had overseas?

Mike Silvestri: Yeah, it’s a great question. So my initial exposure to impact investing was through a lot of the coursework that I was taking. And I’ve been reading a lot of models on negative screening. Right. Let’s come up with a package of investments that sort of. Take out the bad companies, whether that’s, you know, cigarettes, firearms, etc., and I felt like that was good, but I felt like the bar could potentially be higher, at least in terms of how do we truly steward our capital to make the greatest impact possible. And so I came across social finance and the Pay for success model, which ties financial returns directly to social outcomes being achieved. And I was intrigued by it and kept in touch with the firm and eventually found myself in a role there. But I felt that it directly addressed a lot of the longings that were put on my heart a long time ago. I mean, seeing needs in health care and workforce development and just, you know, family stability, these are issues that our society has been trying to address for generations. And we spend a lot of money. Our government spends a lot of money trying to solve these problems. But what if we could leverage the private capital markets through papers, excess investment structures to actually take proven interventions to scale and actually start to move the needle in measurable ways on these problem? So that’s what excited me and brought me to this firm could.

Henry Kaestner: Give us an overview of one to one, if you will, of the pay for success model career impact minus social impact upon what is it? What’s the concept? And then maybe just give just a couple of very quick examples.

Mike Silvestri: So pay for success in general is a set of financing strategies that ties financial returns directly to outcomes being achieved. So regardless of the investment structure to these different deals, share a set of core principles, right. You have to have clear identification of outcomes. You have data driven decision making of strong accountability for those outcomes being achieved. In many cases, you cross-sector partnerships because that’s what it takes to scale up these proven interventions and you’re leveraging private capital for impact. So in a social impact bonds, there’s the investor and they’re the ones that cover the upfront costs of scaling up some kind of social service. So imagine nurse home visitation for first time moms or permanent supportive housing for homeless individuals or employment services for men and women leaving prison. So the individuals who go through these programs and as predetermined outcomes are achieved. The government then pays for success. They only repay the investors when those programs deliver their intended outcomes. So in many cases, it’s a win win win. Right. So when things go well, the investor gets a return on their capital. The individuals get put on a path to health, safety, economic mobility, and the government only pays for outcomes that have been achieved. So in that sense, they’ve transferred all the risk to the investor. And if the program doesn’t work and does not achieve those outcomes, then it’s still a win in many cases because the public dollar has not been spent on programs that are less effective. So in that sense, either side of the coin is a win in a career impact bond at somewhat different. So in the same way, the impact investor provides upfront capital to cover the costs of the job training program. In this case, these programs are high quality programs that we’ve bedded and the ideas that we’re scaling them up to low income individuals that have historically been priced out of these programs as individuals go through those programs. And if they get placed in the job, then they’ll repay a portion of their earnings for a fixed period of time and up to a maximum payment cap. But the catch is that if they don’t get placed into a job that gets them above a certain salary threshold, then they’re not on the hook to repay. So, again, it’s a win win, right? There’s downside protection for the student. And if the student does get put into a job for which they are strange, then they get placed on the pathway to economic mobility and the investor is made whole on their investment. So we’re super excited about both these models. They’re different, but they’re both incredibly important, particularly in today’s day and age where you have rising income inequality, rising wealth inequality, and especially today with the COBA 19 pandemic and millions now seeking unemployment assistance. There couldn’t be a more pressing time for these types of investment structures to be scaled up to measurably improve the lives of those in need.

William Norvell: Hey, Mike, William here. You said an interesting word, scale. Could you give us a little insight? What is the scale of social finance at the scale of each of those bond types, both within your organization and maybe globally, just by whatever metric that is? Just where is the industry right now?

Mike Silvestri: Yeah, great question. So social finance in the US has about 60 folks in our firm, but we’re part of a global network of sister organizations with offices in the U.K., the Netherlands, Israel, India. We together as a network have really helped bring this Nates an idea of paper success into a vibrant international movement. There’s now over 180 social impact bonds around the world. Almost 30 in the US alone. And these touch all sorts of issue areas, right? Criminal justice. Workforce development, health. Environment. And from the capital side. Social Finance US has mobilized well over a hundred million dollars an hour, close to 10 years of existence. And, you know, the average deal size can serve upwards of thousands of individuals and, you know, mobilize double digit millions of dollars, which is just extraordinary when you think that every dollar that returns, the investor behind that has some improved life at the end of it, which is what I find so inspiring. I’ll give you a specific example in Massachusetts where I’m based. We have a deal that’s taking two thousand refugees and immigrants and providing English language skills development, job training and placement services and helping them get on the path to economic mobility. This deal is mobilized over twelve million dollars and it’s already starting to repay investors and most importantly, is helping people change their lives and improving outcomes for those that are in need. Which is good for them. It’s also good for the businesses in Massachusetts that are realizing that they increasingly need to rely on immigrants and refugees for their own business success.

Henry Kaestner: Can you give us a little bit more detail behind this deal, Massachusetts? Or if you can’t there, maybe you come up with a fictitious example someplace else. I’m trying to figure out who’s paying who so I understand he purpose of this is to be able to get refugees with good paying jobs. But social finance presumably goes to the state of Massachusetts and says, listen, we know you’ve got this initiative to train up workforce. We want to help you to do it the best way possible. We want to increase your chances that this is a successful program and a good use of taxpayer money. So you should do the following. What is that? Who’s paying who? Who are the different players in here?

Mike Silvestri: Yeah. So in a social impact bond, there’s three main players. There’s the investor, there’s the service provider. And then there’s the outcomes payer. So the investors providing the upfront costs for the service to be delivered. And obviously, the service deliver it in many cases is a nonprofit with some sort of proven intervention and take that capital to scale up the service to those in need. And then at the end of the day, the outcomes payer, which had a social impact bond, is the government, in some cases multiple government agencies, is going to repay based on outcomes. Because what we’ve done as part of the deal structure is come up with the cost benefit analysis for those outcomes. Right. When you have individuals that are on the public safety net that are now getting meaningful employment, that are contributing to the local economy, that’s good for government. It’s good for the public wallet. So at the end of the day, you have the government making payments, but those payments are based out of this mindset that we’ve actually invested in prevention as opposed to remediation. Right. You’re investing in job training and placement and preventive services so that we don’t have to spend more money downstream.

Henry Kaestner: OK, we’ve got two thousand refugees. They need to get job training. I’m an investor so I’m now going to pay, say, jobs for life. Two thousand dollars to provide training for these workers. And then the outcomes payer is saying, OK, if you get our two thousand of them jobs, I’m going to pay back one point four million dollars to the original investor. But if the service provider doesn’t deliver, then I might have to pay something less than one million dollars, in which case the investor loses. You’d mentioned that in this case, the government of Massachusetts is the outcomes payer. Who is the investor and who is the service provider?

Mike Silvestri: Yeah, great question. So in this deal, this is the Massachusetts Pathways for Economic Advancement. Deal. And in this case, we actually have a number of investors who are deals bring in philanthropic capital, but also institutional investment. We have individuals that are investing through their donor advised funds accounts. So it’s really kind of braided funding across a number of different sources. And then, you know, to your point, you’re correct that the government of Massachusetts is the outcomes payer. And the way that we typically structure these deals is there’s multiple different outcomes to provide some staging. Right. You have interim outcomes. You have longer term outcomes. And so the idea is that at each point, as the project is being delivered, there’s a service is being delivered. You’re making those repayments gradually and the investor is gradually being made whole.

William Norvell: And what’s the optimal return? Are there different returns for each one or are you trying to is getting your money back the goal? Is getting a six percent return? Or does it change depending how what the different return profiles for the different types of bonds?

Mike Silvestri: Yeah, I mean, so social finance is a nonprofit. I mean, we’re mission driven and we bring on investors that share our mission. And that’s why we’ve involved over 100 investors at this point. But they also share our passion to mobilize capital to drive social progress. And nobody’s getting rich off of these deals. That said, we do target mid single digit returns. And, you know, when all goes well, senior and junior lenders are able to get not just their principal back, but a healthy return enough that these deals, we believe, are scalable. And, you know, this is a structure that has potential to be scaled across the country and even the world because of the way that it recycles the capital and aligns incentives.

Henry Kaestner: Okay. I’m still working on understanding how this would apply to me as an investor. So you come to me and say, look, I know that the state of Massachusetts is willing to pay fourteen hundred dollars for every refugee that ends up getting job and keeping it for six months. We’ve had experience with the service provider in the past that leads us to believe that we can provide you a mid single digit return if you front the money so that these refugees can actually get the program. And what is going to happen is six months afterwards, when they’re still employed, going to pay back money. And we’ve had, again, enough experience that we think that 10 percent of people going to fall out. But even with that, we’re going to go ahead and get this accomplished. Is that kind of the pitch to the investor? Exactly, yeah. Okay. And then a firm such as Social Finance will presumably charge a management fee. Is that management fee just on the project? Does it also have a success fee to it as well? Can we do it? I’m thinking about, you know, traditional private equity is so many of our listeners right now are going to try to put this in something they know. So they know two and 20 and they know, OK. So that’s right. Mike is taking my money, wants to get this outcome. And in order to do that, he’s getting paid to Antwine, probably works a little differently. But how does the social finance get paid?

Mike Silvestri: It’s definitely a little bit different from private equity. We typically bake in the management costs into the overall project cost. So it’s part of that capital creation. And typically, we segmented into the projects, design and structuring phase. And then the active performance management and active performance management is just our language for portfolio ops. Right. In the same way that a private equity investor is actively trying to work with management to make sure that the business is running smoothly or growing. We also actively work with the service provider to make sure that as we’re collecting data, that we’re course correcting and making sure that those outcomes are being achieved and we’re mitigating risks where possible.

William Norvell: OK. So question here, Mike, I’m interested. You used Win Win and I think win and maybe a fourth win for everyone. And so as a semi-trained investor that then raises some question. So I want to ask a little bit about the negatives. Know what would doesn’t work here, because right here there’s I’m really excited. Never heard of this concept to be really clear. And I’m just thinking to myself, this is amazing. This makes a lot of sense. I totally understand that. And if I could get a six percent return for something like this, that’s that’s really exciting to me personally. And so I’m interested. And if I was going to dig in and do some more diligence, what are the potential pitfalls or downfalls both of the investment? Maybe we could stick with this one in Massachusetts as we were getting to know it a little bit and also just the model. What are some of the biggest critiques people may have out there that are, say, not allowing you to get from one hundred million under billion? Right. Just loved to learn more.

Mike Silvestri: Yeah, all fair questions. And I think that as with any investment, there’s risks involved. Right. I mean, there’s performance risk is the biggest one that the service that’s being delivered and the outcomes that you hope it will achieve, it doesn’t materialize. Obviously, there’s all sorts of other risks in terms of investors pulling out, in terms of the government outcomes, payer shifting their priorities. These are also long term deals. So we’re talking about services being delivered over the course of years. And then even after the service is done, in many cases you need to track individuals over time. So there’s risks involved in that time cycle. And yeah, there’s risks across the investment structure. But at the same time, you know, the way we often think about risks and finances, know what’s the risk that I invest and things go poorly. But I think there’s also a risk that particularly for Christians. Right. What is the risk of not investing in something that has the potential to do dramatic good and measurably change a system that is stacked against individuals who are disadvantaged and in many cases, whether they can’t achieve health outcomes or they can’t get out of the criminal justice system or they can’t get a job. And what if we can use our capital to play a role in re wiring that system for good? That’s exactly what we’re trying to do with these bonds.

Henry Kaestner: OK, so like William fascinated by this feeling like I probably need to take some sort of action on this. So help me understand, as a faith driven investor, whether this faith driven investor is an individual like myself or a church. How do we get involved? And I’m going to ask you a question. It might make you feel a little bit uncomfortable, because to be very clear, I think it’s incredibly important and the Bible tells us this, that we can’t just proclaim the good news if somebody is starving or doesn’t have clothes or doesn’t have a roof over their heads. And you’re talking about things like clothing and shelter and food and what God made us for, which is really work. So some really basic necessities. Is your way to. And that may be enough. I think maybe a cross volunteer to go ahead. And just with that. Is there a way to bring the gospel, though, into this as well? Or is it not happen? Are you able to bring in service providers that might be able to administer these services in the name of Jesus? Or is that just pushing the envelope too much because is the ultimate payer is a municipality that would frown on things like that?

Mike Silvestri: I think it’s an amazing question, Henry, and I think that we should all think through these questions, because I think that my opinion is that it’s not outside the realm of possibility, but because you do have government payers involved and a social impact bond. My sense is there may be challenges with illicitly weaving in the gospel. But that said, we work with service providers, that we’re founded on faith based principles. I can also imagine a future state where churches and other religious organizations play an important role in providing these services. And frankly, a lot of our investors are motivated by faith or have their capital parked at religious organizations and donor advised fund sponsoring organizations. So I think the short answer is faith plays an important role to play and pay for success. And I would love to see it play a more prominent role. The only other thing I’d say is you think about the issues that we’re addressing. Right. And these issues are not Christian issues, you know, helping people gain economic mobility. Reducing prison recidivism, stewarding the environment. These are human issues. But at the same time, we as Christians do have certain beliefs that I would argue motivate us to care about these issues as much as anybody else. If not more, the belief that every human being is made in the image of God, even if they don’t look like us. The belief that we are stewards of God’s resources, that this money doesn’t belong to us, that ultimately we are entrusted with it. These are transformative beliefs. If we let them seep into our heart and seep into our investment strategies. So I would love to see faith and the gospel completely permeate every angle by which we think about stewarding our capital to make a difference on these problems.

William Norvell: I want to take Henry’s question. To be fair to say, when I heard you say at some level, which I think is really inspiring, is the number one role would probably be to become a service provider where you could be a link in the chain where I think about the Salvation Army Prison Fellowship, I know has job training where you could be a certified service provider and then have more people called to go love, especially now we’re approaching 20 percent employment. Feel that God is calling them to renew the dignity and work in their life through offering job training. Then you could set up a bond such as this to fund them. That sounds like a really great place for people listening to God, maybe stirring in their heart to be a part of something like this. Is that fair?

I think you build on that. I think of organizations like World Relief that are currently hired by the government to provide refugee services. And they do that very much as a part of mystery. So there is some precedent, of course, of people working towards outcomes. But I don’t think that investors are investing in these types of impact bonds. I’ve never done it. I’m really, really, really interested now. I’ve never had a guest on. Well, that’s not true. We’ve had guests on before where I like my guests. I want to invest in with a person. But I don’t know that I’ve ever felt as compelled in, like challenged as I do now. I mean, so just give me the wire instructions and let’s get this baby going. Let’s make it happen. OK, so let’s look at this a little bit more rather than just asking a question in our own personal circumstance. As you reflect on this is a Christ follower. What do you see as the opportunity as a church when you come back and haven’t seen a successful job? I think that you’ll have done 130 of these now around the world. Is that right?

Mike Silvestri: So there are 180 around the world, social finances. You know, one of the few pioneers in this space in the US alone is close to 30 deals.

Henry Kaestner: OK, so 30 deals as you come back and you look at the successful implementation. What are your hopes? How would you like to see a church get involved? Do you have faith based institutions that are part of your investor base right now?

Mike Silvestri: We do. I mean, the capital stack and some of our deals has benefited from capital, from faith based donor advised sponsors or even just individuals that may or may not be motivated by faith, among other things. I think there’s a huge role for the church to step up and to play a leading role in this space. I think, you know, I grew up in a church where we talked a lot about financial stewardship. And I often think about stewardship and kind of a binary way. Right. There’s good stewardship in philanthropic terms. Right. Am I being generous in my tithing and am I giving. And then there’s good stewardship in investing terms, like, am I maximizing my returns? But while I think that’s binary view, it’s simple and it’s easy to understand, it doesn’t easily accommodate opportunities in the impact investing space. Right. Opportunities where you can truly make a measurable impact on the lives of those in need, that the lives of people, the likes of which Christ spent so much of its time while you is here. The hit and the hurting that helped us and do that all the while getting a return on your capital so that the impact is actually multiplied. Right. It’s not just one time where you can really invest and reinvest and reinvest.

Henry Kaestner: So Mark Andriessen once said, just to help put some color around this Mark Andriessen once famously said, actually, I guess Mark Andriessen said it and then Warren Buffett famously said it. I will buy a house or I will buy a boat, a house being an investment or boat being giving. But I will never buy a houseboat because he had been asked, what do you think about impact investing? And it sounds like to me that you’re suggesting that Christ followes need to wade into the houseboat market. Need to endeavored to understand How do you balance the two? And maybe life doesn’t need to be so binary. Is that what you’re suggesting?

Mike Silvestri: I think that’s right. I think it comes down to what are your goals and what are your priorities? And I think that when we think about investing, we often assume that, well, you know, our our fiduciary duty is to maximize returns. Well, first of all, there’s no fiduciary duty to maximize profits. We do have a fiduciary duty to our stakeholders. We also have a biblical duty to all stakeholders and a biblical responsibility to care. Our society about widows, the orphans, the unemployed, the immigrants, the refugees. And so I find myself challenged when I reflect on how am I stewarding, truly stewarding the money that has been entrusted to me? Am I doing it in a way that is, at the end of the day, seeking to preserve capital, you know, preserve my own wealth, increase my comfort? Or am I being creative, imaginative and where necessary, sacrificial with it? And I think that doesn’t necessarily mean philanthropy. I think that we can be imaginative and creative and at times concessionary with our returns. If it means that we’re stewarding our capital to achieve maximum social outcomes. Right. To uplift those who are most marginalized, some of us. That, I think, is a arguably more balanced view of what our duty is as investors.

William Norvell: It’s a great place. That’s a great place to finish. You know, it’s a great challenge for for all of us and all the future investors. That’s why we do this podcast, is to get people thinking. And then there’s there’s a lot of gray and there’s a lot of different conversations to be. And I’m just really grateful for you to come on in and start a new conversation that I know I have not really been a part of.

Henry Kaestner: Yeah, I am, too. And this makes me think that this is a great opportunity to hear from our listener base to lots of different opportunities here. I think that most of our listener base knows of service providers that are working towards social outcomes, many of whom have very much a crisis center message to them. I’d love to hear back from the ideas that they have, maybe service providers they know they can really deliver. And then I’d love to go back to Mike and just say, okay, so we’ve found a universe of service providers that are doing these things. How do we construct a vehicle? How do you construct a vehicle and then have more folks know about it? Now, you would, of course, suggest, Mike, that that might be interesting, but there actually are 180 different vehicles that already exist where the church can participate right now. I do wonder, though, if there’s more of a pure play on working with some of these ministries. But let’s hear from the audience. And, you know, great time for you all to get onto the site. Faith driven investor, dawg. Leave some comments and leave some comments in the notes that this podcast. But I’ve been challenged in a way that I’m not frequently by guests. And so, Mike, I really appreciate that.

Mike Silvestri: Thanks for having me.

William Norvell: Yeah. You’re not off the hook yet. Oh, he’s not. Our last question, Mike. We’d love to ask as we love to connect our listeners with our guests through God’s word. We think it’s just amazing to see how God continues to show his words, living and breathing. And so if you wouldn’t mind if we take a second and think through. But a place in God’s scripture where he may have something coming alive to you in a new way could be this morning. Something you read could be the season, something you’ve been meditating on, that he’s just point your new direction. If you wouldn’t mind that be awesome. If you could share with our audience where he has you today.

Mike Silvestri: Thanks for the question, William. You know, I think on the answer to your question, that verse, Mivah 6:8 comes to mind, which I think I’m always challenged by. And I was challenged to memorize it as a young kid, but I’m challenged because it’s so simple. And for people like me and maybe folks listening to this, I imagine that it’s easy to overanalyze and overcomplicate things sometimes. Even some of these deals that we’ve talked about are very complicated. But, you know, God tells us in Micah 6:8 that what’s required of us is to act justly, to love mercy and to walk humbly. And that’s a pretty simple command, but it’s also an incredibly difficult one to obey. And so I offer that simply as a verse that challenges me and hopefully challenges those who are listening as how we can go about our daily lives, go about our work and go about our investing.

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Veteran market strategist Bob Doll unpacks the fifth fastest market correction since WWII and what’s driving today’s economic uncertainty. Gain insights on tariff strategy, recession probability, and how to position your portfolio during these turbulent times. Faith Driven Investors will appreciate Bob’s wisdom on markets alongside his reflections on patience and humility.

Please note that the views expressed by the hosts and guests are their own and do not necessarily represent the opinions of Faith Driven Investor.

Episode Transcript

Intro [00:00:00] You’re listening to Faith Driven Investor, a podcast that highlights voices from a growing movement of Christ-following investors who believe that God owns it all and cares deeply about the heart posture behind our stewardship. Thanks for listening. 

Intro [00:00:17] Hey, everyone, all opinions expressed on this podcast, including the team and guests, are solely their opinions. Host and guests may maintain positions in the companies and securities discussed. And this podcast is for informational purposes only, and should not be relied upon as specific investment advice for any individual or organization. Thanks for listening. 

Richard Cunningham [00:00:44] Welcome back, everyone, to another episode of the Faith Driven Investor Podcast. Awesome to have you with us. It is the beginning of April. It has been a wild start to the year in the markets, to say the least. Just a little bit of volatility and uncertainty. We’ll use the T word today, which is tariffs, I’m sure, many times. And we’ll get into that. It’s been long overdue for us to do just a proper kind of macro look at the markets and the economy. And because of that, we have brought in the big guns of market commentary to join us. So we are joined by the one and only Bob Doll from CrossMark. John Coleman, it’s great to have you back in the co-host seat, as I know it’s been a couple of weeks since we’ve had you in the FDI podcast co- host seat. And so gentlemen, welcome onto the pod. Great to have your guys with us. John, we’ll start with you as a quick hello and then we’ll go over to Bob. 

John Coleman [00:01:28] Yeah, Richard, so great to see you. It is such an interesting and fun time in markets. And I’ll tell you, it’s always fun when I get to appear alongside Bob Dahl. Bob is obviously a hero of mine in the industry. I think he’s a hero, a lot of other people, someone I admire so deeply, one of the smartest guys in investments today, always a great communicator. So I just feel privileged to be here. You said the big guns, and I’m viewing that as like, there’s one really small gun, and then Bob has enough big guns for all of us. So. I’m super excited to hear what he has to say today. 

Bob Doll [00:01:59] Well, my privilege to be part of this as well, gents. It’s a crazy world we live in. Thankfully, we have a God on the throne who knows all the answers. And we take a stab at it, and sometimes we get it right, and oftentimes we get wrong, but we have fun in the process. 

Richard Cunningham [00:02:16] Amen to that. Well, Bob, it’s great to have you. Hey, the last time we had you was almost this time last year on the Faiths of an Investor podcast and you graciously unpacked your kind of 2024 expectations and predictions as at that time we were one quarter into the year. Here we are one quarter into 2025. It’s maybe that’s a great place to start is if you go back in the time machine a little bit and just kind of reflect on 24. I mean, you had another solid year of kind of predictions as that dovetails in and sets the stage for what we have seen kind of. here in Q1 of 2025. They’re recording this for everyone’s context on April 1st. I know April 2nd is quite a big day, quote unquote liberation day, as we kind of find out what Trump’s tariff policy will be. So we’re missing that by roughly 24 hours. But Bob, let’s go back and look at 24 as we kinda set the stage for what’s happened here in q1 of 25. 

Bob Doll [00:03:05] Sure. It seems like forever ago that we came out with our 24 predictions. I guess I’d sum up. First of all, our outside grader gave us a seven out of 10. So not a bad year. Nice. Having said that to be a bit and appropriately self-critical, we were too cautious as many people were both about the economy and risk asset stocks in particular, the economy chugged along. I think the underestimation on many of our parts. was how much power there was in the money. That is to say, post COVID, the excess savings that high end consumers had accumulated because they didn’t spend money during COVID and lower end consumers receiving multiple checks from the government and spending that over time. The tail on that lasted through much of 2024, gave us a good economy and a second year row of stocks going up 25%, Pretty amazing. 

John Coleman [00:04:04] Yeah, and I would just add, like Bob, I probably approached 2024 too conservatively and across asset classes, some in fact behaved a little more conservatively than others, certainly public markets did not behave very conservatively in 2024. And particularly the Magnificent 7 had a run that would have been difficult to predict, I think at the beginning of the year, just a historic run, so to speak. And as we head into 2025, Bob and I were chuckling about this before we started. You know, one of the themes I’m paying attention to, and perhaps he is, is just volatility and uncertainty. And it’s a constellation of things for me that are coming together. And I know this isn’t an exhaustive list, but right now we’re sitting on the precipice of some world-changing technologies. And so we’ve got this unpredictable, rapidly evolving technological landscape that includes artificial intelligence, but isn’t restricted to that. And those technologies are gonna be quite disruptive. We’re sitting, and I know we’ll dig into this, at a uniquely disruptive political moment. I think the Trump administration was intended to be disruptive as a political movement. The speed at which they’ve operated and the number of things they’ve taken on is probably faster than almost any of us predicted, and so more disrupted, for better or worse, than we might have predicted. And then there’s all this movement in the underlying economy and financial assets, right? where we did have a pretty heated market in 2024. Valuations are reasonably aggressive, at least in parts of the market right now. Housing prices actually kind of stayed up despite the fact that interest rates were going up and there was a slowdown in the market. And so there’s this continued threat of inflation in the background that I think people are still continue to worry about, but also this interesting situation where, depending on what part of markets you’re looking at, there is still pretty rich valuations in parts to those markets and how those will react. to the underlying economy, to technological disruption, to all this political disruption. You know, you add those things together on top of other things that may occur, and I think it’s gonna be quite an interesting year. 

Bob Doll [00:06:05] Yeah, I add to that or amplify some of it, John, one of our predictions this year is increased volatility. You know, we had no idea coming into the year it would be this volatile, the VIX comfortably averaging over 20, which most people know that’s a pretty high number for a full three month period. We’ll see if it lasts. And the cause is uncertainty. Risk assets, stocks, hate uncertainty. And we’ve served up, the administration has served up a bunch of it. I would argue it’s not just we don’t know what the tariffs are going to look like. It’s the volatility of the commentary. I’m going to do a tariff today, I might not do it tomorrow. It’s 5% on Tuesday, it’s 10% on Thursday, and this constant churn creates uncertainty. And when people have uncertainty, they pull their horns in. If you’re a business, you think about not hiring a person or two, you might be thinking of hiring. that new project, you say, let’s just pause on that. And if you’re an individual, you say, you know, maybe we should not plan that big vacation we were dreaming about for this summer. Maybe we need to just cut back a bit till we know the lay of the land. And you’re right, John, it’s mainly about tariffs. But it’s also about inflation, the tax cut, are we going to get it, a whole raft of things. Geopolitics, we haven’t even talked about that yet. So this uncertainty… is creating economic weakness. And if we don’t curtail the uncertainty, we’ll end up in a recession. And look, I say, observing them over many years, businesses can deal with bad news. What they can’t deal with is uncertainty. They just don’t know how to plan. So we’re stuck in that. One more comment on the good things you said of the Magnificent Seven and AI. You know, we’ve, in my view, hit a watershed moment. AI stocks, the Magnificent 7, just cleaning up on everything until a few months ago. And what’s changed? The answer is their earnings growth is slowing to still good levels, but more importantly, their cash flow is definitively decelerating. As they spend, I mean, the top three companies in AI declared in January, they’re going spend an incremental $200 billion on AI. and that just takes money out of their cash flow, and cash flow moves stocks even more than earnings do. So I think the broader theme here is equal weighted portfolios be cap weighted portfolials, mega cap stocks lag. I mean, I saw a stat, it’s an estimate so far that about 80% of managers beat their benchmark in the first quarter. When the mega cap stock are running the table, it’s really hard to beat the benchmark. When they’re lagging, you have a much better chance as most asset managers are more equally weighted in a probe. So a couple of PS’s to your becoming. 

Richard Cunningham [00:09:04] Yeah, so let’s maybe let’s go markets, Bob, and kind of start there and double click on all that we’ve been seeing. So I mean, you highlighted in this great paper that your team put out, crossroads or crosshairs, just kind of addressing head-on the uncertainty, the tariffs, everything that’s been going down right now that this has been the fifth fastest correction since World War II that we’re seeing in Q1. So maybe kind of double click into the magnitude of the correction we’ve seen. I mean S&P 500 kind of to date where we’re recording this is down, you know, just over 4% year to date. The Russell 2000, so kind of your small cap index is down almost 10% year to date. Kind of global, like macro look at the markets, Russell 3000 down 5% as well. Where are we kind of from a market footing standpoint as we deal with all the uncertainty and just the correction that’s taken place? Are we at the bottom? I know we’re not here to predict markets entirely, but what’s kind of your general sentiment right now? 

Bob Doll [00:09:54] So the rude awakening is, as you probably know, six weeks ago, the US stock market was at an all-time high. It is hard to believe. Wasn’t long ago. No, it wasn’t. I mean, enthusiasm and hope that came in when President Trump started pulling ahead in the polls in October, that started risk assets, equities in particular, moving higher, and that continued at various paces until February 17th, from which we had the pullback that you just cited. You gave them the year-to-date numbers. more stark to talk about what happened from that high to the recent lows. S&P down a little more than 10%. NASDAQ down well over 15%. The Magnificent 7 down 20%. Tesla down 40%. NVIDIA down 25%. These are big hits. Yes, the stocks were a bit overvalued, but it’s more about that slowdown and cash flow. And look, my view, John hinted at this earlier about valuations, the stock market was selling at its high at 22.5 PE. And you know, we don’t see that very often. When it’s selling like that, it’s assuming the world’s going to be nearly perfect, which it rarely is. So we get this pullback, and now we’re at 20.5PE, which is still not cheap. And I don’t believe the E. I think the earnings estimates are too high, and we’ll to come down as the economy slows. So, to your question, where do we go from here? So we had the pullback from 62, 6,300 to 55, 55, 50. Then we had a 5% run up. That was the oversold rally. Didn’t last very long and it wasn’t big, from which we are now testing. So back to those 55,50 lows, I think we’ve got a probe lower, 54, 53, 52. And if we don’t have recession, that could mark the low for the year. Doesn’t mean we’re growing straight up. I think we’re going to have a choppy year, but if we are going to have a recession and we have more visibility that we might have one, I think the S and P 500 will sport a handle of four, which won’t be very pretty and it’ll still not be cheap. I don’t want to sound like a bear, but there’s a risk out there. 

John Coleman [00:12:10] Yeah, and I would say I’m not that active on X, but I keep posting a chart every now and then as people freak out just of the five-year returns of the S&P. And it’s a little unfair now because we’re deep into COVID during 2020. Right now, set a trough. But the S & P is up 126.35% today from five years ago. It’s up 172.5% from this day 10 years ago It’s up 37% from this day two years ago. And so if you think the long-term returns in markets are linked to GDP and that it’s typically around 7% or 8%, we have been blowing through that number. I mean, high double-digit returns now for a long period of time. I mean this has been an incredible bull run since effectively the 2008 period, since the recovery from the great financial crisis with a blip during COVID. And I actually think some form of correction in the price of stocks in the valuation of these assets is healthy given the run-up that we’ve seen. I do think inflation and the amount of money in circulation in the economy obviously leads asset prices higher, but I also encourage a lot of folks that I’m talking to to just keep calm and carry on, right? If you look beyond the last quarter, we are living through one of the most remarkable public market cycles in history really in a lot of ways. And like Bob, I actually think there’s room for another, and I’m not predicting anything, but I would not be surprised to see 15 or 20% come out if we had a recession. I don’t actually think we’d be that far from appropriate valuations if that happened, just given how hot the markets have been. And while I think that would obviously be a dramatic move, it would impact people, it wouldn’t be unhealthy in terms of the long-term returns or even the midterm returns that people are getting. And so, In my mind, this year being a bit volatile, maybe a bit flat or even a bit down, wouldn’t be terribly unhealthy given the run up that we’ve had in some of these stocks and the valuations particularly amongst the large caps right now. I think small caps and mid caps tend to be valued a little bit better right now, but particularly towards the upper end of the market with the Magnificent 7, with even large cap stocks generally, the price to earnings multiples are at historic highs in a lot of ways. And so I would not be surprised that those retract a little bit, especially if there’s negative economic news. And I don’t think that’s actually a harbinger of long-term problems given the highs from which we’re retracting. If you just look at a one-year or two-year, I think even over the one year we’re up 9% right now, right, which would be a little above your long- term averages. And so investors should just be prepared that this could be a part of a normal cycle where financial assets return. to some level of normalcy after an incredible bull run, at least in my experience. 

Bob Doll [00:15:01] At the risk of piling on, John, there are only two ways to get the stock market or an individual stock to go up, you know. First is earnings better than expected. They come in as expected, the stock tends to go nowhere. So better than expect in earnings or to higher valuations. So let’s take them one at a time. Earnings are near an all time high. Profit margins, more importantly, are at all time highs. I can’t look at you guys and say, and the profit margin is going to go higher from here. I think it probably contracts some, which means earnings growth is less than normal. And we already talked about P’s being extended. So you put those two things together, the risk reward at the moment is not great. Let me add to that by saying if you look historically, when the P-E ratio of the five and ten year returns of averaged 4 or 5% including dividends. So when somebody says, you know, Bob, what do you think is going to happen to the stock market in the next 5 to 10 years? I say it’s going to be volatile. It’s going go up, but the total returns probably going to about 5% per annum. They look at me like, why are you so bearish? I’m not. I’m with you, John. You know, it’s still a good place to be. If you’re a good stock picker, you can do better than 5, but if 5 is what the S&P 500 gives you, value stocks will do better. maybe international stocks are better. maybe down cap will do better. We’ve just had such a wonderful, wonderful multi-year period. 

Richard Cunningham [00:16:30] So let’s get in some of the why. Bob, I hear you kind of getting into the fundamentals and the earnings and everything like that with the valuation, but there’s also this other why, which is kind of the broader economic side of things, the administration change and the regime change and kind of, the volatility that’s come out of Washington. Curious how to phrase this question. When you guys see what the Trump administration is looking to accomplish, they want to balance the budget. We’re bringing in 4 trillion, spending 6 trillion. So we’ve got a $2 trillion budget deficit. Elon has been tasked with. cutting out a trillion of that. Lutnik has been tasked with bringing in an additional trillion in revenue. So the theory of the plan makes a lot of sense in what they’re going after. It’s, hey, we wanna balance this budget. Is a lot the why for what we’re experiencing in the markets also a part of what the regime is looking to do and are they just willing to kind of deal with some of this blowback they’re gonna feel in the economy and the markets? What would you guys say to that? 

Bob Doll [00:17:24] There’s that question. Let’s look at the correction we’ve had over the last six, seven weeks. What’s caused it? Well, we’ve both used the word uncertainty. That’s, in my view, number one. Number two, and related, is tariffs. And number three is valuation. But valuation is a poor short-term indicator for future returns. It’s a great long-term indicated, but poor short term. You need a catalyst to unlock under or overvaluation. And the catalysts we got are uncertainty and tariffs. So that’s one way to answer your good question. I think another way is to say, unlike Trump 1.0, here at 2.0 I think they’re taking the pain, the tough news up front, and hopefully will live long enough to see the gain on the other side, which will come from tax cuts and deregulation and implied in that of course is some smaller budget deficits. But we got to get from here to there. And it’s not that simple as the stock market is showing us today. So I think that’s their plan. I hope that’s there plan because the alternative is not a whole lot of fun. So I that’s the why. And I come back to please, Mr. Trump, reduce the amount of uncertainty out there, you know, give us the bad news and let us live with it. Let us figure it out. Don’t give us good news on Monday and bad news on Tuesday and vice versa. 

John Coleman [00:18:51] Yeah, and maybe I’ll tee up a couple of topics I’d love to hear Bob weigh in on as well, just on the policy front. So let’s come back to technology and things like that later and fundamental productivity growth, et cetera. I think on the public policy front, my read is that the Trump administration is very much trying to be very aggressive in the first six to 12 months of their term. I think they understand that that’s their best opportunity to take dramatic action. I think they’ve learned from the example in Argentina, where Javier Mele took dramatic action up front. Now, Argentina was in a much more precarious financial situation than the United States, but Mele came in and he took dramatic action that many people criticize right away, but they’re already experiencing a dramatic recovery as a result of that dramatic action. And so if I just chunk the things that the Trump administration is trying to take on right now. You know, one certainly is to reduce the deficits and long-term debt of the United States, and they do want to eliminate this $2 trillion annual deficit that we’re running where costs are exceeding revenues dramatically now. And we’re piling up an unsustainable long- term debt in my view. They do want achieve that through a mixture of cuts coming from Doge. I think they legitimately believe they can get close to a trillion dollars by reducing waste, fraud, and abuse. Staffing levels and some of the government agencies that they view as unproductive, those will have negative implications in the short term because they will cause some unemployment. They will certainly reduce some government money in circulation. And there’s this whole discussion about whether government spending or parts of government spending should even be accounted for in GDP because they’re not productive spending, which we could get into. But that Doge effort is certainly targeted towards trying to reduce federal spending without fundamentally changing federal programs like Social Security, education, expending, etc. So attacking waste, fraud and abuse. The second is obviously that they’re trying to come up with new revenue sources that would support us expanding tax cuts for individuals. And their primary focus seems to be tariffs. If people want to get what I think has been the best explanation for What is likely the true posture of the Trump administration. The All In podcast had a good two hour interview with Letnik last week. I think it was where Letnik laid out systematically their position on tariffs, which is the U S for too long has allowed tariffs from other countries on us goods without any sort of parallel tariffs on our side. They fundamentally believe that that’s unfair, that it was an explicit policy choice to the United States following World War II to build up foreign countries so that they could regain footing. and they believe the time for that is over and that the United States should be operating more as a peer given that we’re the greatest consumer in the world and that U.S. taxpayers should not be supporting other countries with one-sided tariffs. And so when you see this tariff regime, many of those are retaliatory rather than aggressive, meaning they’re considering tariffs that would be on par with those already levied against the United States from places like India, from places, like China, even from places like Canada, which has been missed, Canada imposes. tariffs and restrictions on U.S. operating businesses right now that the Trump administration is mirroring, which is kind of part of his playbook. They also believe that that can be a significant revenue source. They look back to the pre-1910s, when the vast majority of U. S. tax revenues came from tariffs. And so they think they can raise a trillion dollars in revenue from tariffs in a way that not only puts us more in peripasoo with other countries, but re-onshores critical American jobs. You’ve got to remember now. There has been a remarkable electoral realignment in the U.S. where the Trump Republican Party in particular is now the party of the working class. If you look at polling data, et cetera, even unions supporting President Trump, they are dedicated to trying to bring working class jobs back to America through manufacturing, et cetera, not only because of a fundamental belief, but because of political motivation. as well. And so I think the terrorists are intended to punish certain behaviors, like they definitely want to use them on Mexico to reduce border crossings, fentanyl imports, etc. But they have a real economic belief that they can raise revenue with these and that they can restore fairness and that can re-onshore critical industries, right? And so, I think the terrorists, are likely actually not to be a short-term political negotiating lever, but actually a long-term policy of the United States. And that’s just starting to sink in. I think with people and then the final components of that, that Bob started to touch on, that could be helpful to the economy if we get through this pain. And I also think their political motivation is to get the worst stuff done this year so we can grow headed into the midterms, which is a political reality for them. They want to extend tax cuts. They’re very serious about trying to cut income tax on anyone under $150,000 a year in income. They want extend those, no tax on tips, et cetera, so they have to have revenue from somewhere else. They want to deregulate aggressively as a second round of Doge, which could be good for economic growth in the United States. And so I do think the tariffs and the cost cutting are kind of the bad news that the economy absorbing right now. And if they can get through those, their hope is that domestic job growth. tax cuts and deregulation can provide an economic jolt on the back end of that, that overwhelms any negative impact of those tariffs and of the cost cutting that they’re doing. And so I think their hope is they can thread the needle like Millet did, where they take the pain up front. But then by the time we head into the midterms next year, there’s a lot of good news for individuals and fundamental economic growth apart from government spending is restored in a positive way. 

Bob Doll [00:24:24] I agree with everything you said. I would emphasize the timeframe perspective. While Donald Trump did win the seven swing states, he did win the popular vote, which not too many Republicans do. He only beat Harris by one and a half points. It was not a landslide. A lot of people are talking that way, acting that way. And the way you see that is the margin of Republicans over Democrats in the House and the Senate. It’s like very narrow. And so getting things done is not gonna be simple. And you’re right, a year from now, the focus is gonna be on the midterm elections. And it’s very rare that the president in power doesn’t lose seats. So chances are high one or both chambers will revert to Democrats. So for Trump to get stuff done, he’s gotta do it now. And I hope you’re that we’re fine tuning, threading the needle. You know, two years is a short amount of time to get a lot done. So, uh, we just have to watch this real carefully guys. 

Richard Cunningham [00:25:29] And so I want to double click into tariffs, because I think that’s a key one that kind of is a microcosm into what’s going on here and what the Trump administration is trying to do. Bob, you put out a great stat in that paper that we mentioned earlier that Trump’s tariff plan, John, you mentioned a trillion dollars of revenue possibly, but like, you know, let’s go real conservative here. Let’s say it’s $250 billion in revenue to the U.S. That would, in other words, offset moving the corporate tax rate back from 35% to 21% from a revenue standpoint. So. This exercise of tariffs, I mean, there is negative near-term implications that we’ve spoken to in an already inflationary environment. Tariffs layer on another addition of kind of cost increase. Bob, you’ve mentioned the word recession a couple times now. What has to happen from a threading of the needle standpoint for this to work well and for this actually play out well? Because at what point does the Trump administration just say, hey, we need to take the exit ramp because midterms are coming and this is actually not playing out as we expected. Costs got out of control. we’re leaning in the recession. 

Bob Doll [00:26:29] Yeah, right set of questions, both politically and economically. So first of all, recession. If you know nothing, which most days I feel I know nothing. The probability of recession is 15%. Why? Because that’s about how much time we spend in recession. So if you know, nothing, somebody asked you 15%. Our view was at the start of the year, the probability was higher than that. Call it 25. And now it’s moved up to at least 35, probably 40%. So still less than half. But each passing day, and this starts to answer your good question, Richard. Each passing day economic weakness becomes more obvious. Uncertainty doesn’t go away. And that probability of recession just keeps going up. So we’ve got to reduce the uncertainty very fast. Tariffs. So John’s already talked about this to some degree, but let me amplify. The way I would like to look at tariffs. which I think could actually be positive, even though tariffs slow growth and create inflation. So the general are not good. If all we do is reciprocal tariffs, you know, the outcome can be not so bad. So let’s suppose John is putting a 3% tariff on my stuff. And I say, John, if you insist on that, we’re gonna do reciprocal, we’re going to do 3% on you. And John says, oh, hang on a minute. If I drop that and go to zero, will you stay at zero with me? And yeah, we come to an agreement and guess what? Tariffs just went down. Now that’s a little idealistic on my point to make that comment, but I’m hoping there’s going to be some of that and that would increase the competitive position of the United States significantly increase our growth rate and you know, bring more and more tax revenue in reduce the deficit, et cetera, et Cetera. So that’s another way out of this mess that we find ourselves in. But I come back to as you were connecting pieces of your question, we gotta get on with it. We can’t go another two months with all this uncertainty. We’ll be in a recession. 

John Coleman [00:28:39] And I think they’re trying to achieve what Bob is talking about. We’ll see how it plays out. But my read so far as they are hoping to get other countries to back down their tariffs, to increase the amount that we can export to other countries. And they’d be quite happy with that outcome. The one exception I might highlight is I do think there are punitive tariffs that might occur for non-economic reasons on certain countries, whether that be Mexico. If for example, they’re not happy with management of the cartels. I think China… I think there are a lot of non-economic considerations that will go into the tariffs on China, which make them a bit more difficult to predict. I think that’s to some extent warranted. And then there are certain product categories where I do think their focus is on re-onsuring, even if they’re short-term economic pain, and they’re trying to come up with other ways to offset those. I think COVID made everyone aware that our medical devices and pharmaceuticals, we were too at risk of foreign production of those and too at-risk of those things. defense technology, chips, which is a huge focus now, and what, again, they’re threading the needle. What they’re trying to do is get companies to announce huge investments in the U.S. to re-onshore chips. I think Nvidia just announced $100 billion to reonshoring. There have been some similar investments that have been announced. So if they can thread the needle where they have sustainable tariffs that try and re-inshore production of what they view as critical industries for U. S. national security and competitiveness. they can do so simultaneous with huge foreign investment in the United States to accomplish that, whether that be through SoftBank, through Saudi Arabia, through companies like Nvidia. I think their hope is that if they can get those things to hang together, they could actually achieve this goal of a painful process of re-onshoring but with enough foreign investment and capital inflows to actually support U.S. production in a more rapid way. The question is whether, on that last part, that will actually materialize in the way that they and over what time frame. Right? Because even when you say, I’m going to put $100 billion into re-onsuring chip manufacturing, you don’t turn on that 100 billion right away, right? That takes some time to filter in. And so I do think most of this is an economic tit for tat where they’re trying to raise revenue but also restore equilibrium on tariffs with various areas like the EU or countries like India. There are some punitive ones, and then there are industries that they’re really focused on trying to rebuild in the United States that they feel are a competitiveness and national security threat. 

Richard Cunningham [00:31:06] Good comments, guys. Thank you all. John, you said a couple of things that spurred two thoughts and we’re going to go to both of them. First, maybe while we’re talking tariffs and international relations, what about just what would you guys double click on as you look at the geopolitical landscape? Because I know that’s another factor and lever here that could just always throw a bomb in all of these plans of something kind of ignited in the wrong way. But as we think about Russia, Ukraine, what’s going on with Iran and the Middle East. Is there anything you have a particular eye on, Bob? 

Bob Doll [00:31:31] Yeah, so Donald Trump is desperate for a Nobel Peace Prize. And so don’t lose sight of that in what might happen. I know he said in the campaign trail, he can solve Russia, Ukraine in a day. Well, it’s taken a little longer than a day, but I do believe we will get some positive news there and we’ll stop shooting each other. You know, how much is that gonna cost? What happens to Zelensky in the process? How does Trump get there? But I think there’s gonna be calm there before too much longer. Same for the Middle East. I think… The U.S. has said to Israel, here’s a blank check. Go eliminate all the nasty boys. And when you’re getting close to finish, let’s talk about dismantling the nuclear power of Iran. I think there could be regime change forced by the West in Iran. And you know, do you do those couple of things and boy, things calm down. Doesn’t solve all the problems, but for a period of time. So I’m more than optimistic. I’m hopeful on both of those sets of conflicts. China’s a much more difficult one. I think personally that China has real economic problems. Too many 100-story buildings with nobody living in them, all financed on debt. Consumption, it’s getting a little better, but struggling. I don’t think President Xi is gonna last all that long. They have a massive demographic problem because the one birth policy, which is no longer policy became a way of life. And if you study the Chinese population, you know, fewer get married when they do it’s later in life. And if they have any kids, it’s one, if you have two, you have a big family. Their population demographers say will be half of what it is today by the end of this century. That’s a big problem. You cannot grow your economy if your population shrinking that fast. So. I don’t know what happens there. So you still have, you know, Russia, North Korea, China, and Iran. How do you solve that one? But on the first two, they’re a lot smaller and a lot simpler. Neither is simple. You get it. 

John Coleman [00:33:46] Yeah, Bob, those comments are awesome. And I think you’ve touched on all the right things. I actually am modestly confident that the Ukraine, Russia, we’ve seen the worst of it now and that it will calm down. I think there will be a negotiated settlement there. I think Russia’s tired of the war. I think Ukraine as a whole is tired of war and Europe is tired the war The key that Europe will focus on is not giving Putin a win in this to set a long-term precedent that’s bad. I think everyone agrees Crimea is probably a part of Russia or a disputed territory indefinitely moving out here. We’re not going to get that back for Ukraine, but then the negotiation turns into how long do they agree not to join NATO, what other territories remain with Russia, et cetera. But that’s kind of a prolonged diplomatic negotiation that I think is unlikely to flare up because I don’t think it’s in anyone’s interest right now for that to flare up further. Putin is facing his own pressures. I think China is much frailer than we think they are. I think they’re spying in the U S is actually a huge problem. That’s a political problem, but their population’s declining. Their financial system is in trouble. Their fundamental economy is in. Terrorists will hurt them worse than us, right? Because they don’t have a sustainable in economy. Long term, that makes me bullish on the fact that the United States can outcompete China and that China will have to face some sort of reforms at some point or decline. Short term, there’s always a big risk when a powerful country is at a frail point in its history that things could go wrong quickly and the best way to unify people when there are domestic problems is to create a foreign adversary. And so I think we have to be. appropriately cautious in the short term about what type of an instability there could be in China. And then the Iran question to me is a big one. I do think that Iran is at the heart of everything that’s happening in the Middle East right now. I think they’re probably weaker now than almost any time since the 70s. I personally believe that the U.S. is waiting for a good moment to let Israel strike Iran’s nuclear reactors and potentially do even more. I think Iran is much more of a loose cannon than China or Russia at this point. And if that spirals out of control, that could cause significant disruptions, particularly in certain markets, oil and natural gas, et cetera, but also even in shipping and things like that. So if I were to focus on one foreign conflict that I thought had the opportunity to spin out of the control in the near term, it would likely be the Middle Eastern conflict, just depending on if Israel gets the green light and if they hit Iran in their country. and then what Iran’s response to that is. And that’s quite difficult to predict. I think that’s an unsolvable area of uncertainty right now. But I do think China and Russia are not in as strong a position as sometimes they are painted to be. 

Bob Doll [00:36:28] You’re largely on the same page, and don’t forget that Nobel Peace Prize. 

John Coleman [00:36:32] and the Nobel Prize. I don’t know that they’re gonna give it to him, Bobby, even if he brings it out of peace. Thanks. 

Richard Cunningham [00:36:40] especially in light of all those tariffs. But hey, John, the second point you brought up when it was the geopolitical side of things and also from unpacking tariffs and whatnot and on-shoring, one of the potential long-term benefits is the on-shoring that could come to the US, also under this thought of less regulation and just the guardrails of business maybe being freed up a little bit. And on the backs of less regulations, possibly more M&A activity. And so that’s where I wanted to go next with you guys was, hey, we saw Core Weave IPO last week. We saw Google Alphabet have an enormous acquisition, $32 billion of whiz. Even though it’s been a really tough kind of stock market in Q1 since 2022, one of the lowest ever, you’re starting to see some rumblings of, hey, Q1 2025 was an incredible time for deal activity on the private markets in smaller time, kind of one of bigger upticks since 2021. So what are you guys watching as it relates to M&A and maybe IPO markets starting to heat up a little bit? 

Bob Doll [00:37:33] Surprised or I would have expected a whole lot more than we’re seeing you are right to point out some of the things you’re talking About but I think it’s I’ve used the word so many times It’s uncertainty that’s causing guys and gals that might otherwise do a deal to just step back But if we can get past this back to we take our pain and then we go to the game I think we could see a raft of deals that the administration will allow to happen and maybe even encourage to happen but we gotta get past the uncertainty first. 

John Coleman [00:38:03] And this is where I’m probably most bullish on long-term economic prospects or even midterm economic prospects for the United States. We have an almost insurmountable lead at the moment that is unlikely to go away in the next four years in technological innovation and business innovation. Europe has basically regulated itself into stagnation. Japan is in no position at the moment to innovate in the way that they did in the 80s. Korea has the most heavy collapsing demographic crisis in the world right now. South Korea does, at least in the major developed countries. And there are areas where there’s growth in innovation, Africa, parts of Latin America, et cetera, but nowhere that has the business base that the United States does. And we are right at the pointy end of the sphere on all the most important technological innovations right now, the best AI companies, we hear about threats from China, but they are in the United states. the best automation companies are in the United States. Many of the best robotics companies are in United States, and particularly if we have an era of deregulation that allows them to continue to innovate and build businesses. If it’s true that the immigration policy is gonna turn to recruitment on a meritocratic basis, which is part of this Trump gold card that they’re launching, they think they’re gonna get a million people to pay $5 million to get a green card for the US. Many entrepreneurs wanting to start businesses, for example. I think we could create an economic environment where we stay at the forefront of these massive long-term technological trends, and that would make me extremely bullish on the fundamental growth of the U.S. economy because the companies are able to start here that I think could be great for the U S. I’m with Bob. I thought we’d see a little more activity early on because the FTC certainly has a I think that’s still going to kick in, because I think there’s a lot of pent-up demand for that. It may just take some time. And so I’m a little bit bullish on the fundamental economy, particularly in the technology sector and in the innovation sector, so the hard technology and software, where we have a huge lead right now, and there’s really no global competitor other than China. And there are many reasons great entrepreneurs aren’t moving to China, right, and that they’re likely to come here rather than stay in Europe or stay in other parts of Have a great day. And if that’s the case, and if we can recruit them here, and if can maintain our lead in those various innovation areas, there’s some short-term labor problems that may happen to AI. I think that’s going to be transformational. But at the very least, our companies will continue to be successful, and our startup ecosystem will continue be successful. 

Bob Doll [00:40:33] John, you just outlined the reasons why the United States stock market has a premium valuation over every other in the world. Yeah, we’re having some difficulties at the moment. International is outperforming. But we’re not going to go to parity on a PE basis anyway, shape or form for the very reasons you said. 

Richard Cunningham [00:40:52] Well, hey, let’s pivot now to, I know a topic the three of us are all very passionate about. You two both lead faith-based or faith-driven investment firms. Love to hear about maybe that kind of one problem, one thing top of mind for you, Bob and your work at Crossmark and John and your lead in Sovereign Capital that you’re just really ruminating on as it relates to the faith- driven and kind of faith- based investing ecosystem. 

Bob Doll [00:41:13] You know, I would say, and I’m sure John’s going to agree with us and have more things to say, I’m now four years at Crossmark, the amount of time I have spent educating people, close my mind. So what I’m trying to say is, come on, let’s get on with it. A lot of people have not heard about what we all do for a living every day. Oh, I didn’t know that exists. Tell me more. And that’s whether it’s a financial advisor, a faith based institution. a faith-based individual investor and we’re all working overtime to get the word out and educate and uh you know i get frustrated richard the people that don’t see in the light bulb doesn’t come on and they don’t just 

John Coleman [00:41:56] Yeah, I couldn’t agree more with Bob, so I’ll take it a different direction, which is one of the things that motivates me as a faith-driven investor is I think people like Bob, people like the folks that work with us, we have a real optimism about the future because of our faith. We know where this all ends up, short-term or long-term, you know? But we also have a commitment to love of neighbor and to seeing people flourish. And one of worrying trends of the last… 20 years, 30 years, has been this consistent decline in flourishing despite increased prosperity, right? People are lonelier, they’re less happy. There’s a lot of fragmentation. There’s lot of social problems that have built up even though we’re richer than we used to be, you know, with some exceptions. And I think what I would love to see as faith-based investors continue to take the lead on how can we as investors, as partners to those who are building companies. try and solve not only the economic problems, we have to perform with excellence. That’s what we’re called to do. But in some small measure, contribute to trying to solve this giant macro problem, particularly in the developed world of this crisis of purpose and meaning of the loneliness and isolation that people feel of the way in which people are not engaged at work. How can we be contributors to creating workplaces that make people’s lives better, not worse, and reverse some of these trends that we’ve seen? I think there are some small green shoots on that front. I mean, Bible sales are up 25%. The Hallow app has exploded and there are tens of millions of people doing daily devotionals. We’ve even seen a ton of articles recently about Christianity suddenly making an appearance in Silicon Valley. I remember the HBO show, Silicon Valley, where people came out as Christian. It was like, you know, the worst thing that they can do. And now, you now, there are leaders in that space. And that’s important because the faith we share, but also because I think. That series of positions and beliefs and the tenets of that faith unlock something that can make people’s lives better and more fulfilling and happier, make families stronger. And my hope is that if we can get people off the sidelines, Bob, and if we get them to start thinking of their values as a part of their capital allocation, and if can use that capital to really transform the way that companies and real estate developments work. in a way that’s aligned with creating love of neighbor and human flourishing in the various things in which we’re investing, that we can unlock not only economic prosperity, but a deeper prosperity of the soul that I feel is lacking right now in so many parts of our world. 

Bob Doll [00:44:26] Amen. You’ve just described reforming capitalism. That’s what we need to do. There’s so many good aspects of it. And yet, for capitalism to work, it needs Judeo-Christian principles. And we can’t separate the two. We need to encourage a flourishing world underneath the rubric of, you know, we will love the Lord our God and all he stands for. 

Richard Cunningham [00:44:50] Well guys, this has been an awesome episode and Bob, we’re gonna do this. I mean, what a privilege to have you on the podcast. Take us home with some wisdom. What’s the Lord been teaching you lately in and through his word? 

Bob Doll [00:44:59] Yeah, I almost use the word answer to one of the last questions. Patience. I’m an impatient guy. I want to get it done yesterday when I quote know what the right answer is. So whether that’s personally or professionally, uh, professionally, it’s, you know, we already articulated it. How many years are we going to have to educate before people do it? You know, and look, people have to be convinced in one over in time to think I respect all that. And personally, it is the same thing. You know. When I do things at Crossmark, I think, how come we don’t have the answer now? How come we’re not moving the ball faster? So patience. God has a long-term time horizon and I gotta fit into it by relaxing and letting God be God and not forcing myself to try to be God. 

John Coleman [00:45:45] And this will be moderately self-serving. Patience is not a virtue that I’m blessed with, Bob. So I’m 100% with you on that. When you figure it out, give me a call. It’s not what I’m naturally blessed with. I’ll tell you, this is one promotional thing I’ll say is I’ve been watching House of David every week when it comes out. I think everybody should be watching House Of David. I think the change in culture is huge and it’s just so cool to see biblical stories come to life at a Hollywood level of quality. But it’s also made me reflect much more deeply on Samuel and Kings and on the story of David. And one of these themes is just how cautious we need to be to maintain humility and faithfulness, particularly as we’re successful. What brought down King Saul was, there’s a great line in the first episode where Samuel says, when you were small in your own eyes, God made you great. And now that you’re great in your eyes, you’ve fallen away from God. and the story of David and even Jonathan is really about keeping their heads on straight that they are servants of the living God. And that gives them both a confidence, but also a humility, a confidence that if they’re living into that mission, they can do anything and a humility that it’s not by their own strength, but God’s strength, right? Which can be hard sometimes. I mean, anytime someone’s successful, they start to get in their own head about being responsible for that success. And that’s always the seed of downfall, as it even was for David and Solomon, you know, later in those stories. And just watching House of David, that brings it to life so much for me, like, Bob, I’m so encouraged that someone like you is in the faith-driven investing ecosystem because you’re the best at what you do. You are a remarkable person in markets. You’re incredibly intelligent. You bring a professionalism to this industry that is desperately needed. But I also know you’re humble. And so… My hope is, for myself, that even as we begin to make strides, even as we’re able to accomplish great things, that we appropriately attribute that success to the one who gave it to us, and that we really just faithfully try and dedicate ourselves to his service and to the mission that he would lay before us, rather than kind of getting high on our own supply and starting to believe our own story or narrative and put ourselves at the center. So true. 

Bob Doll [00:47:52] I sometimes talk about when it’s money, well, it’s not our money, it God’s money. And one guy said to me recently, a believer, but I worked hard for that. And who gave you the brain power to be able to do the work hard? It’s all his. And the sooner we figure that out, the sooner can move the humility and away from the pride. 

Richard Cunningham [00:48:11] What is it? James 117. Every good and perfect gift comes from above. It starts there. Amen. Man, Bob Doll, John Coleman. What a great episode. We covered a lot of ground. I know it’s been a full and volatile Q1, but what a privilege to bring you guys in for some timely remarks and then some timeless wisdom as our friend Luke Rausch likes to say it there at the end. So friends for John Coleman, Bob doll, this is Richard Cunningham. Thanks for joining us for another episode of the FDI Podcast and we will catch you next time. 

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