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On this special edition of Marks on the Markets, Richard and Luke are joined by Patrick Farrell, the co-founder of Potomac Angel Capital. 

The group connects like-minded investors with mission-driven entrepreneurs for mutual financial benefit, lasting impact, and meaningful relationships. 

And in this episode, Patrick is going to dive into the unique opportunities and challenges that come with angel investing.

He and Luke will also highlight some of the specific market trends to be aware of for anyone thinking about early stage investing.

Find the Potomac Angel Capital video here: https://www.youtube.com/watch?v=bvRsD7xB9zM 

If you like the content, please follow, rate, and share the show.

Episode Transcript

Joseph Honescko: Have you ever been bit by the church parking lot deal? You know the situation. A well-meaning believer with access to capital wants to support another well-meaning believer with a business idea, since they worship alongside each other on Sundays. The investor feels that it would be right to help the prospective entrepreneur out. So they shake hands and agree to work together. And that’s about when the problems start to arise. Without proper expectations, setting agreement upon terms, due diligence, strategy, planning and execution, the business fails and the investor loses money. These situations are often far too familiar amongst faith driven investors, so much so that many have separated themselves from investing in these risky early stage ventures, which makes it difficult for these potentially impactful businesses to find the funding they need to survive. So what if innovative investors could redeem this type of investing? Today, on a special episode of marks on the markets, Richard and Luke are joined by Patrick Farrell, the co-founder of Potomac Angel capital. The group connects like minded investors with mission driven entrepreneurs for mutual financial benefit, lasting impact and meaningful relationships. In this episode, Patrick is going to dive into the unique opportunities and challenges that come with angel investing. He and Luke will also highlight some of the specific market trends to be aware of. For anyone thinking about early stage investing. You’re listening to the Faith Driven Investor podcast. Let’s get started.

Rusty Rueff: 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 of 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: Well, hello and welcome everyone to the Faith Driven Investor podcast. We are grateful you are tuning in from wherever you get your podcast from. If you were not with us in our most recent recording, I am Richard Cunningham, I’m on staff with FDI and I have the great privilege. I don’t know if it’s a good thing or a bad thing. Luke Roush of taking over the hosting roles in this next season of the FDI podcast, and the heart behind it, is we want to get you and John Coleman and Henry Kaestner out of the host seat and into that kind of expert analysis, color commentary seat. John Coleman last week said, hey, this is a coup. And he wasn’t very happy about it. I haven’t gotten the opportunity to publicly comment on this yet. So here’s your opportunity before we welcome our man, Patrick Farrell to the show.

Luke Roush: Hey, have you this is a major upgrade, major upgrade to have Richard Cunningham in that seat. Let’s go buddy.

Richard Cunningham: Man, I just I wholeheartedly disagree, but your words are kind. Today is going to be a lot of fun. We’ve got a very close friend, leader in the faith driven investing landscape, and our buddy Patrick Farrell, newest resident to my hometown of Austin, Texas, which I’m particularly excited about joining us today, talking about kind of in the series that we’re doing post FDI conference, where we zoom in on particular stories that we shared in the 2024 FDI conference back in January, Potomac Angel capital being one of those. And the work Patrick’s doing leading that charge. So we’re gonna get to hear from that. But then today’s also a unique marks in the market podcast. So we’ve got Luke and Patrick also providing some insights on, you know, what is relevant to this conversation being early stage investing, direct investing, Luke and their work out of the sovereign venture funds, Patrick and his work with Potomac Angel capital. So you’ll get a little bit of market commentary as well as we think about this conversation with Patrick Farrell. Welcome to the show, man. Grateful you are here. How’s it going.

Patrick Farrell: Man? It’s great to be here just about 75 yards from where you’re sitting, Richard says. Super fun to be live from Austin, Texas. And man, been a fan of the podcast for years, so it’s such a joy to be on it.

Richard Cunningham: May. We’re pumped to have you here. So let’s dive right in. Patrick Potomac, Angel capital. The story was told at the very end of the FDI conference, this incredible representation of what it looks like for faith driven investors to get in the game. For those who couldn’t join us for the FDI conference, maybe give us a little kind of response and commentary of what it was like to have that story told in the FDI conference, but also catch those up who maybe might not be familiar with the work of Potomac and what you guys are doing.

Patrick Farrell: Yeah. Well, I mean, it’s one thing to be sort of living that story day to day, but then to see it on video production and, you know, broadcast across hundreds of cities with such a blessing. But I found myself kind of sitting there at the watch party here in Austin going, man, guys are really up to something. And obviously I know that because I’m living it. But it really struck me just to see it up there and just to be humbled by how God has been building this thing and that I’m along for the ride. So that was so awesome to have it featured on the conference. Yeah. So a little bit of background, Potomac Angel capital. We’re an angel network based out of Washington, DC. We invest in mission driven founders from mostly in the United States, but also some internationally. And all of our investors are based in DC. They’re all faith driven investors, and we’re doing early stage angel investing. And so our our angel investors are part of a group that invest together in these early stage companies. And we’re investing really for three things. One is for meaningful impact. So these companies that we’re investing in, our mission oriented and really participating in God’s redemption of all things we’re looking for. Founders are open to relationship. We want to walk alongside founders for the tumultuous journey that is entrepreneurship. And then obviously, we want to look for we’re looking for financial upside. So we want to make sure that these ventures are providing profits and returns to their investors. And so we’ve been doing that for a couple of years now, and it’s been super fun to kind of engage in that space.

Luke Roush: One of the things that we talk a lot about, Patrick, is this idea that it’s not a bad thing to be wrong for like 95% of investors are entrepreneurs, as long as you’re the absolute right thing for the other 5%. And some of what came through, I think, in your video is, you know, a real filtration of, hey, we want to be known for being different and having a different approach in terms of how we engage on both sides of the ledger, maybe speak a little bit more of that just in terms of like a real niche that you have carved out, feel like God’s called you into.

Patrick Farrell: Yeah. Great point Luke. I mean, I think part of it is we’re going to be doing excellent deals. So that’s the foundation being excellent investors. Part of what we’re up to. We’re not making any concessions there. But ultimately what we’re saying is at the end of the day, what we want it to be is like a facilitator of relationships, relationships between the entrepreneurs and investors, relationships between entrepreneurs and entrepreneurs, investors and investors, and ultimately facilitating the relationships between all those stakeholders and God the Father, the son, and the Holy Spirit. And so there’s like this relational focus. And so we. Specifically and intentionally structured our processes, our conversations, the way in which we’re engaging with founders to say, hey, relationships are going to be at the center and at the core of this thing. And if you’re open to that and you want us around for the ride good, if you’re not, that’s okay. But we’re probably not a great fit for you. And so we’ll do things like be really transparent in some of our feedback, where we know a lot of our peers are a little bit more hesitant to do that for a number of good reasons. We’ll make sure that we’re trying to bless entrepreneurs in our feedback as well, where we’ll support them even if we don’t invest in them. Really just trying to create that sort of relational focus. And that’s really what’s built a community on top of the deal flow that’s been so powerful to see and how it’s blessed the DC area.

Richard Cunningham: I love it. Well, Patrick, one of the things we talked about and we talk about often here on the podcast, but both just broadly across kind of the faith driven ecosystem, is this concept of getting in the game. And for investors everywhere, kind of wherever the Lord is uniquely positioned them. Hey, what does it look like for you specifically to get in the game? I think we’ve got two great exemplars here, represented in both of you and what, you know, Luke, the work of Sovereigns Capital and what you guys are doing. And Patrick, what you guys are doing to Potomac Angel capital in the opportunity you’re offering for investors in DC and coming soon to Austin, I think, is what you’re going to get into a little bit later on the opportunity to get in the game, maybe kind of from a definitional standpoint here. I think people here, early stage investing, they hear angel investing, they hear venture investing. And a lot of these terms start to mean the same things to people. Would you both kind of maybe distinguish your approaches, what makes them unique, and maybe just educate a little bit about, hey, venture investing out of a fund what sovereigns is doing along with other venture capital funds, angel investing, and kind of this community oriented approach through Potomac and take us to school a little bit guys.

Patrick Farrell: Yeah, for sure. Well, I’ll start Luke. And then you could kind of add some color on the fun side. Typically when, you know, early stage companies are starting to raise capital, oftentimes they’re a little bit too early stage, a little bit too risky for institutional capital. And so what ends up happening is they have to go to family and friends or high net worth individuals, folks that they’re in relationships with or folks like us, angel networks to try to raise that sort of really early capital. So typically we’re working behind companies when they’re just getting to market, just building their team and really getting behind them and hoping to and not only see them take it all the way through exit or acquisition or IPO or through profitability, but also hoping to get in and kind of create that bridge between where they are right now and where an institutional investor can get behind them. And so typically we’re writing smaller checks in a fund would. Right. We’re taking a little bit more of a minority position. We’re investing on instruments that are facilitated to make the deals run faster. So there’s not a ton of legal. And we’re really jumping in early early stage with these entrepreneurs. And then hopefully if we’ve made a good bet the company grows and as well. And then a firm like sovereigns is able to kind of hop in and provide some more fuel to the fire. So that’s where I’d kind of create the bridge to you Luke.

Luke Roush: Yeah. You know, I think that the red thread that runs through everything that we do is really centered on leadership. And our view is that, you know, faith driven cultures are not just created, but also stewarded and perpetuated over time by the right leadership team that continues to make that a priority and really living out, you know, what does it look like to love your neighbor in and through a company? We have tremendous influence. And, you know, in a lot of ways, Patrick, you’ve got even more influence as an early, early stage investor. Maybe one of the first, you know, checks into the business, and that comes with an incredible amount of influence. And that influence can be shepherded, for better or worse. So capital equals influence and that influence. If you find not just alignment around the what we’re doing, but also why and how we’re doing it, there’s real power in that. And I think that that creates an environment where the entrepreneur feels more free to be able to share, not just on like, hey, this great thing happened or that great thing happened, but also, hey, here’s some challenges, here’s some real struggles that we’re having because it’s not just about the what, it’s also the why and, the how. And so for our work, you know, we’re looking for companies that have demonstrated product market fit. They have some number of customers that are already coming in the door. And we’re looking to, you know, find individuals, leaders that we believe in, the vision that they’re casting. They understand the problem they’re trying to solve. There’s enough of a market fit validation to feel like, all right, this isn’t just a total flier napkin. And then, you know, but both of us, you know, an area where I think both of us can find a lot of commonality is patience. It almost always takes longer and takes more money than you think it’s going to take. And also just that, you know, hey, great companies are usually built over, you know, a decade or more. And so this idea of kind of quick in and out or, you know, pulling up a plan every ten days to figure out whether the roots are growing is not a great way of keeping track of businesses. You got to be able to let that stuff, you know, ride a little bit and be patient. So I think that’s how we fit together.

Patrick Farrell: Yeah, as Luke said like this is a long game that we’re playing. We’re not investing in really liquid assets. These are companies that are growing and scaling and hoping that, you know, within 5 to 7, sometimes even ten years to provide an exit to investors. So we’re thinking about the long term redemptive impact and upside financially, which means that for our investors, they have to be willing to kind of weather that long period of time without having that sort of liquid option. And they also have to understand that at our stage, it’s a very risky game. We’re talking about a point in time where there’s no guarantees that companies are successful, but that’s also what makes it really, really fun and makes it really, really valuable to walk alongside entrepreneurs, because that process is such a roller coaster and can be so emotionally stressful and puts stress on their families. And so we want to walk alongside for that journey because they got to make it out of the early stages. They’re going to get to the later stage. And so yeah, just wanted to add some color on that Luke because I think, as you.

Luke Roush: Well know, it’s like, you know, a lot of times people will say, you know, it takes a village to raise children, but if you really want to build, you know, an angel portfolio of investments, it’s probably going to take more than just you. Right. And so I get pinged all the time by hey, would you look at this deal for me? Tell me if you think it might be a good angel. Deal. And my response is always, well, you know, how many angel deals have you done or do you expect to do? Because if you really want to build a portfolio of angel deals, because of the risk in the timeframe that you described, Patrick, you got to be prepared to write 15 or 20 or 30 checks, and the likelihood that you individually can diligence that many different types of companies that are likely to come across your plate, it’s very low. That’s going to be much better done in community with other people, where you can rely on one another and a close knit circle of trust and rely on the strengths of the group. And that’s that’s what you guys have really leveraged, I think.

Patrick Farrell: Yeah. Luke, we’re going to have to get you out there doing the sales pitch for me at some point, because that’s exactly right. It’s really about the community doing deals in community, reduces the risk for the investor, but also just having somebody else to get eyes on, having me and my team around to help diligence the opportunity to help filter those opportunities. Man, it just makes doing it so much easier. And so yeah, 100% with you on that one.

Luke Roush: Yeah. And it’s like after you write a check. Right. So like we always kind of laugh when firms will put out these press releases of like, hey, we wrote a check, right. That’s awesome. Like, it takes a lot of work to originate a deal, to diligence a deal, and then actually, like structure a transaction and wire the money over. But like a lot of the hard work, particularly in this early stage of venture investing, is still ahead of you. And so it’s not, you know, something to be celebrated with, like, hey, we raised all this capital or we invested all this capital. What’s really to be celebrated is how do you walk alongside, you know, the team, as you said, it’s a lonely journey and the work of actually monitoring performance and being able to help founding teams look around the corner and like what’s coming next. You know, you, Patrick and the folks that you have a chance to work with and invest with, you know, you guys have a lot of pattern recognition collectively amongst the group. So helping founders kind of look around that corner and figure out what’s coming. I mean, it’s extraordinary intelligence that founders are able to bring in through having the right investor pool.

Patrick Farrell: Yeah, yeah, 100%. And especially since, like a lot of the folks in our group are either entrepreneurs that are like in long term businesses that are just cash flowing in their investing out of that, or they’re former entrepreneurs who have had an exit or multiple exits like they’ve been there, done that. And that sort of experience is huge when you’re walking around, you know, trying to help a founder look behind the next curtain or the next stage of growth is just having somebody who’s been there. So that’s a huge value that we bring to the table as well.

Richard Cunningham: Love it man. You guys, I could just put a quarter in and watch you go. This is great. We need to realize that the NPS score of the FDI podcast will be a lot higher the less we hear the Richard Cunningham voice. So, hey, while we’re talking maybe methodology and kind of, you know, some of the uniqueness, nuances and similarities between angel investing, venture investing, maybe give us some color on just what you guys are seeing right now, some trends, commentary in the markets. I know, I mean, on a public markets front, we’re potentially about to close here recording this on Leap Day. Just so everyone’s oriented of where we are February 29th, 2024. We’re about to close with maybe S&P 500 and Dow Jones being up the highest they’ve been as a first two months start to the year since pre-COVID levels. So stock market kind of persists on that. We’ve been down a couple of days this week having a positive start to the year, but maybe bring us down to the earlier stages in the venture kind of sandbox fellows, and give us some kind of what you’re seeing.

Patrick Farrell: Yeah. Well, especially it was almost a year ago when SVB collapsed and that was I think, a marker in the market for us because 2022, I think if you look at the data, was a record high in terms of valuations, money pouring into the early stage, and all of a sudden SVB collapses, market starts to take a turn. And we saw a lot of companies that typically would have moved quickly to institutional capital end up going back to angels and kind of re raising and trying to kind of weather that storm. And so also and we had this kind of flood of deal flow, flood of quality entrepreneurs because all that institutional capital sort of dry up. And so we’ve seen in the last year or so just a ton of high quality, amazing deals. And our investors are starting to be like, man, we’ve got an opportunity cost. We cannot invest in everything. And so. Subsequently because so much of supply, maybe if you were to use it in a sort of economics term, has flooded into the angel stage. We’ve consequently seen valuations come down a little bit in a later end of last year, early end of this year. But now I think that the market is starting to open back up a little bit. Capital is flowing a little bit easier, and some of those entrepreneurs that are in that kind of middle ground are starting to be able to raise capital, which is awesome, because that’s what we want companies to be able to kind of increase and improve in stage and kind of grow and of course with their timelines. But it’s been a flood of interest and the angel stage that we didn’t quite anticipate, and that’s coincided with Potomac Angel capitals brand. And just the fact that we’re doing deals has also kind of gotten out there a little bit. So some of that might be intertwined. But yeah, we’ve seen a lot of folks coming out of the pandemic starting businesses hitting that Angel stage right around now. And so it’s been really fun to see what folks are innovating on out there. But Luke, just curious if you agree with that, what you’ve seen on your end.

Luke Roush: Yeah, no, I do. I think when you start a firm deal, flow is at first it’s harder than it should be just because people don’t know who you are and at times you don’t even know who you are. You’re kind of figuring out you’re building the plane or building the car while you’re running it. I think later it actually is almost easier than it should be because there’s a recognition of the brand and there’s a recognition of the relationship that you built with founders and with your investors. And so the more differentiated you are, the quicker you can build that differentiation and really attract deal flow. And so this is why, you know, a handful of firms in Silicon Valley that have really built expertise, whether it’s fintech or whether it’s AI or whether it’s software as a service. And then once you kind of have that reputation, then everybody’s kind of coming to you. And I think on an angel stage basis that’s done more locally, regionally than it is, like monolithically in a market, like a Silicon Valley or Boston or someplace like that. So I think that is actually encouraging. Should be encouraging to founders everywhere that you’ve got an opportunity to you don’t have to get on a plane and go out to Northern California to be able to attract early stage capital. There are groups that are more local, regional trust based, with real deep roots in a market. And that’s what you guys are doing. I think what we’ve seen in terms of deal flow is because some of the funds that were investing, you know, five, six, seven, eight, even ten years ago, the public markets effectively shut down. So some of the companies that grew up during that period and would be responsible kind of counted for to be able to return capital back to the original investors, which would create an kind of virtuous cycle of them. Redeploying all of that liquidity in the public markets has kind of gotten locked up or at least put on hold. And then, you know, when you think about M&A transaction volume, right, the two major ways for a company that is one of your investee or one of our investee to exit is either go public or get bought in. The M&A volume over the last 18 months has been really, really slow. We are seeing that start to change. But I think that over the last year or so, that has resulted in a lot of companies that are needing funding in some of the pockets that they might have gone to for that funding are still kind of waiting to get liquid on their stuff from 5 to 10 years ago. So it’s a long road and there are kind of like ebbs and flows and deal flow based on things that are entirely outside of a founder’s control. So I think I agree with what you shared.

Richard Cunningham: Good words. Thank you both. Yeah, I’m looking at an e y study right now. And it said in 2023, venture funding kind of accumulated at $140 billion, which was low and down from already declining levels in 2022. And there’s projections that 2024 might be a sub $100 billion in kind of total venture funding type year. So Luke, that sentiment you have about just what’s taking place in the public markets, though, we’re seeing that IPO market and kind of engine ramp back up. There’s still kind of interest in the hangover that trickles all the way back down all the way to the you know, even the pre-seed and seed levels that you two play at. All right I want to kind of make a transition here. You are an incredibly humble dude. I love your vulnerability and transparency. If anyone you haven’t heard the Patrick Farrell story, you need to watch the Potomac Angel capital video because you just you get to see his heart shine through. You also get to see his just wicked awesome parents, Paul and Leonard. Just special people that are in DC. Some of the founding investors alongside friends like Bill and Dana Wichterman at Potomac. But Patrick maybe in humility, there’s some cautions out there about angel investing. Like, you know, there’s the famous line of like, I’ve been burned by the church parking lot deal. But just because we share the same faith, people, you know, walked into a deal with, you know, poor expectations around terms and people get burned and lose a lot of money. It’s highly illiquid. So you have to view it. And, you know, you guys are hitting on this earlier just in terms of full blown asset allocation. And there is also this thought to is, you know, Proverbs 15:22, while there’s great wisdom in a multitude of counselors and angel investing situations, can get a play where there’s groupthink and more people around a deal actually isn’t helpful. It just slows down the process. People aren’t actually willing to talk honestly about maybe what’s going on there. So maybe in just humility, talk a little bit about this. Some of the things you’re seeing, some of the pitfalls for people to be aware of when it comes to. Angel investing. There may be honestly, some of the rebuttals or different ways you guys are trying to kind of counteract some of these thoughts as well.

Patrick Farrell: Yeah, 100%. I mean, where my mind goes to first is a lot of entrepreneurs experience angel networks as highly unprofessional, hard to get a hold of. Take a really long time to invest. And so the way we’ve really fought that is just by me and my co-founder, Mike. With the time that he has putting all of our weight behind the network. So that is my full time thing. And that allows me to do is just try to be excellent as to how we set up our processes or systems. A lot of my job is running around trying to get in touch with people, bringing people into the fold, kind of, to use a colloquial term, herding cats. And so if you’re willing to put that sort of work in, you can really make an angel network run efficiently and effectively and really be founder friendly in that process. So we do our best, but that also doesn’t always cover some of the downsides of an angel network. The angel investors are spending their own time, precious time from their family or from their day job to engage in investing. And when things get busy, it’s typically not going to be a priority. So sometimes things can slip in terms of timelines. Obviously, one of the things that can be pretty difficult to is just when founders are looking for checks that are going to want to come within, like a certain time frame, sometimes it’s hard to meet those timeframes. And so we’ve seen a multitude of things. And you mentioned groupthink. I think Potomac Angel capital, we do it better than most by trying to encourage lively debate, different opinions on certain things, and making sure that all of our investors kind of get heard when we’re having discussions about deals. But by and large, you know, sometimes there are folks in network, they’re just coming up to speed on angel investing and somebody with a lot of clout, a lot of experience at the table will say, hey, I don’t like this deal. I think I’m out. And they’ll feel maybe insecure about their interest in a deal or moving forward. And that can kind of circulate throughout a network. So, you know, we’re not immune to groupthink, even though we’re believers, even though we’re trying to do this in a really redemptive way. That is certainly a downside to the structure. And we know that. So really for us, it’s just about being as transparent and effective communicators with entrepreneurs as we can. So we blessing them throughout the process. So we’re not setting unrealistic expectations and just encouraging and educating our investors on some of the pitfalls of our structure and process so that they can be thinking through it and be acting in accordance with the Kingdom as we’re doing our work together as well.

Luke Roush: There are two things I mentioned real quick. One is just the importance, and Patrick nailed it on communication. You know, it’s okay if you gotta communicate bad news, but just make sure you communicate the bad news. Don’t just kind of sit on it. You know, we tell our team is that in the absence of communication, everybody assumes the worst. And so if it’s going to be another two weeks, call people and tell them, hey, it’s going to be another two weeks. And I know you wanted to happen yesterday, but we got two weeks, you know. And so that way at least they know where they stand. And and then the other thing I think is really, really important is, you know, a lot of the bad stories that go around about angel investors or venture capitalists or private equity folks is where people will substitute getting to the right price on a deal with terms. And so there’s a lot of structure on the deal. And certainly the saying in Silicon Valley is I’ll let you set the price. Just let me set the terms. And what that means is that, like, you know, you can overcome a lot of things. And but what happened, you know, just to make sure that entrepreneurs aren’t confused about this, newer investors, you know, what structure is doing is it’s creating situations where the interest of the investor and the entrepreneur are maybe not totally aligned. Sometimes structure can be used to create alignment, but sometimes it can be used to basically give a higher price, but then create situations where there’s potential for a win lose. And so I feel pretty strongly that the earlier you’re investing, the more clean you want term sheets to be, and not just trying to overcome poorly negotiated price points with structure that creates a lot of strife downstream.

Patrick Farrell: Yeah. And I would even say at our stage look like with our limited resources and time, sometimes if we get like an 80 page, you know, lunch purchase with all sorts of terms in it. Yeah. Here’s some of our investors off, even though we’re going to do the work to kind of run through that. And like our best, it can definitely scare folks off for sure.

Luke Roush: I agree.

Richard Cunningham: All right, gents, I want to close with this. And kind of our final topic that we’re going to wade into is Patrick, you’re clearly here in Austin, as we just talked about. Potomac, though, started in Washington, D.C. you’ve got this flourishing healthy network there, and you might be able to correct me on some of the particulars, but 14 deals done already with something like 20 members. So, you know, be sure to brag a little bit on all that’s taking place there and the Lord allowed you guys to accomplish and the early life of Potomac. But hey, what’s God doing in your story? What’s he teaching you in his word? You’re now here in Austin, Texas, so there’s clearly some kind of physical work taking place as he’s taking you to a new location. And then Luke would love for you to also chime in of just like, hey man, what’s the Lord teaching his word? What’s he showing you right now? And encourage those that are listening on the Faith Driven Investor podcast.

Patrick Farrell: Yeah, well, this is what’s really fun for me is just to kind of share stories about how God is moving in this space. So obviously we started Potomac Angel Capital in January 2022. In D.C., a really heightened focus on locality and investors faith driven investors in community Together in person, which created a really unique blend and allowed us, especially with me putting all of my time behind it, allowed us to kind of accelerate quickly and start doing deals fast. That alongside just a very willing group of investors who were partnering with God and listening to him and saying, yeah, we want to invest in these companies. So it was super fun to watch. It kind of really blow up in the first year. And then after that first year, we started talking to folks in our networks, folks that we knew, and they started to say like, hey, you guys have got something kind of unique in D.C. there’s some awesome angel networks out there, but you guys have kind of taken a different approach, a different model. We wonder if your model would work well in other cities. And so we started to explore that. And like any good entrepreneurs, me and my business partner, Mike Grubbs, came down to South by Southwest last year in Austin, just to do some market validation to figure out whether there was some demand down here for this, for the people wanted it, whether there was anything like what we had in D.C. here in Austin. And literally the first day in my quiet time here in Austin, I just felt like God was inviting me to move here, which for me was an incredibly impractical thing to think that you’re hearing from God. Mainly because I’ve been in DC for ten years. I’ve grown up in the area. I left for college and then came back. All of my investors were in DC. I had deep community church roots, all of it. And God’s like, let’s go to Austin where I don’t know very many people. And Richard, we were kind of acquaintances before then, but I didn’t have very many relationships in Austin. And so what that did is it kicked off sort of a discernment process with some of the people that were holding me accountable, walking with me in my life, and turned out that everyone was thumbs up, even my parents who were sad to see me go. We’re like, I think this is what God’s doing. And so I came down here in the fall to Austin, moved to Austin full time. I still go back to DC about a week, a month just to manage the relationships and all the good stuff that God is doing at Potomac Angel capital, and that’s still my day job. But I’m down here creating relationships, casting vision, hoping to plant a new network of investors down here with a similar ethos to Potomac in local community faith driven. What does it look like to do this thing together here for the good of the city of Austin? And then obviously all the companies that we’re founding and walking alongside. And so that’s kind of created this is sort of an adventure for me down here in Austin, just following Jesus on every next step, letting him lead the way. And man, it’s been really, really fun. And so, Richard, as you know, we’re co-hosting pitch event and panel next weekend at South by Southwest Sunday service, which is going to be unbelievable opportunity, such a huge conference, but also just to to put faith in the marketplace on display. And Richard’s going to be joining us on a panel for that particular event. So that’s super fun. But just see what is up to here in Austin. And I’m droning because it’s so exciting. But man, this city is really, really taking off. God is doing some awesome things, moving some great people here. And so it’s been really fun to just be on this adventure, with Jesus so far.

Luke Roush: That’s great. Yeah, I think for me, I’m just going to pump like one book that I got and I’ve been going through, same as ever that’s written by Morgan Housel. And it’s just, you know, the tagline is a guide to what never changes. And that takes me to Hebrews 13 eight. Jesus Christ is the same yesterday and today and forever. And so I think that there’s a whole bunch of things in business, in the marketplace that, you know, we somehow kind of like discover a new every 5 or 10 years or so. But the reality is that the fingerprints of kind of lessons learned that we should be applying to the work that we do every day are all over the last 100 or 200 years. But the only thing that really is consistent throughout all of human history and will always be true, is what is the character and nature of God, and who is the Son Jesus Christ? And what is the relationship that His Son wants to have with each of us, because he loves us all equally. And so anyways, I’m excited about that. Appreciate the opportunity, Patrick, to have you on, to hear your wisdom and just, the work that you guys are doing with Potomac Angel, it’s awesome. It’s inspiring. And, I think we need more organizations like it. And, super excited to see how God uses you, not just in the DC area, but also down in, the great state of Texas.

Patrick Farrell: Yeah, for sure. And this will be my plug to say thanks to you, Luke and you, Richard, for the work they are doing at sovereigns and FDI that are really paving the way for folks like me to step up and say, hey, I got this idea. I think that can fit in this in this faith driven ecosystem. And so it’s been inspiring to follow y’all’s lead. And I appreciate all the work you’re doing.

Richard Cunningham: Awesome. Well, Patrick Farrell Luke Roush, what a joy to get to do this. Friends. We will catch you next time.

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In Matthew 6, Jesus says to store our treasures in heaven, not earth, and in this episode of the Faith Driven Investor Podcast, Finny Kuruvilla joins John and Richard to talk about what that might mean for investors.

They’ll also discuss the importance of investing with a goal and supporting others, investing in the common good, and the role of wealth in the church. They also touch on market trends and Eventide’s perspective, as well as healthcare investing and innovations.

If you like what you heard, please share, review, and follow the show.

Episode Transcript

Joseph Honescko: In Matthew six, Jesus tells us to lay up our treasures in heaven, not earth. So how is that going to work for investors? In today’s episode of Finny Kuruvilla from Eventide joins Richard and John to unpack this teaching from the sermon on the Mount and to give investors some practical ways they can implement this in their own lives. He and John both will also hit on a few market trends that they’re seeing, and they’ll talk about the ways they are continually evaluating what it means to lead a faith driven culture. All that and more in this episode of the Faith Driven Investor podcast. Let’s get into it.

Rusty Rueff: 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 of 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: Well, hello everyone, and welcome to another episode of the Faith Driven Investor podcast. We are grateful to have you tuning in wherever this podcast might find you. My name is Richard Cunningham. I have the joy of serving on staff with faith driven investor. Joined today by one of our amazing mainstays in John Coleman and John Coleman. We are in for a treat today because it is not just you and I in the podcast studio.

John Coleman: Yeah, that’s right. We are very fortunate to have one of the brightest minds in the space and someone that I’ve come to admire a lot. Finny Kuruvilla from Eventide Asset Management, one of the founders, obviously lead portfolio manager over there. And, it’s always a thrill to have Finny on. Thanks for joining us, Finny.

Finny Kuruvilla: It’s great to be with you. Thanks, John. Thanks, Richard.

Richard Cunningham: Yeah. Finny I was looking back to your podcast archives, and this is your fifth official FDI podcast to be on. And, you know, if we were to go back and probably mined the data of all of the faith driven investor videos, conference, talks, podcast, I mean, you might be our most quoted individual. So it’s hard to think of many people who have done as much for the faith driven investing movement as you have. And I also just love, you know, John, I don’t know about you, but when they look at me, it’s Richard Cunningham, comma, you know, breathing adult. But for Finny Kuruvilla it is Finny Kuruvilla at medical doctor, PhD, co-chief investment officer, senior portfolio manager, managing director, founding member of Eventide. As you said, so just what a joy to have you on and thank you for all the contributions, Finny, that you make to the broader ecosystem.

Finny Kuruvilla: Well, hey, thanks, Richard. And one of the things that I want to say in response to that very, very flattering introduction is we have benefited so much from the collaborative spirit that especially a driven investor has brought to the field. I truly believe that that’s something that honors God in that we’re supposed to be supporting one another, encouraging one another. And I just want to thank all of you for setting a high bar and showing us leading the way and what that looks like. So kudos to you all.

Richard Cunningham: Appreciate that. Well, let’s have some fun today guys. Finny, you’re catching us in this kind of theme of we’re unpacking conference talks that we’re giving, you know, recording to say on March 20th. This podcast will drop on Monday, March 25th. But a couple months ago, at the end of January, you gave this remarkable talk titled Emptying the Storehouses at the Faith of an investor annual conference. And we get to bring you on to kind of pull out some of the threads of that talk. And so if maybe for those that weren’t with us at the conference or haven’t gotten to check out your video yet, which will be all over the internet soon, maybe kind of unpack it a little bit and we’ll camp out there for a while.

Finny Kuruvilla: Yeah, sure. So this is a talk that is very much deep in my heart. In the talk, I didn’t actually get to give some of the backstory to it, but maybe I’ll do some of that now before recapping some of the talk. I was born and raised in Southern California, and my dad worked for an organization called World Vision, which a lot of, you know, it’s a humanitarian, humanitarian relief and development organization. It actually was my first job that I had when I was 16 years old, answering the telephones there. And one of the things that I did while I was working there was, you get to have your eyes opened to the plight of the global poor, and you get to see through videos. In my case, I wasn’t there out on the field. But through videos you get to see how millions of people live in different places all over the developing world. And it was such an illuminating experience to be able to see that. And then you step out of your world from World Vision, and then you’re now in Southern California, in LA and Pasadena, and you see the disparity there. While I was in college, I was very involved in InterVarsity Christian Fellowship. I still am, but while I was there, we did a Bible study through a passage where people go to John the Baptist and they say, hey, John, what does it mean to repent? And he gives a few points of what repentance looks like. But one of the points that he mentions is you who have two tunics should give to the one who has none. And I remember when I read that and study that, it just cut me to the heart because I thought, wow, am I really living like that? And I remember going, thinking about that passage in the light of what I was doing about vision and thinking again about the disparity, opening my closet, seeing that I wasn’t living consistent with that teaching from John the Baptist, who’s talking about the beginning of repentance. This is an advanced Christianity. Advance on God is the beginning of repentance. And so that ended up setting me on a trajectory of asking questions. Why don’t we talk about this as much as I think we should in the church today? And are we potentially sweeping under the rug some of the harder teachings that in some ways are? Be the most pressing for us who are living in one of the most prosperous, if not the most prosperous, economies of all time. So that was some of the background that formed me when I was in college. Specifically, the talk that I gave at this Empty the Storehouses FDI conference was on the sermon on the Mount and basically advocating that the sermon on the Mount is the place where we see the most direct teaching on how we’re supposed to be looking at money and the concept of treasures on Earth. One of the things that Jesus tells us is he says very plainly, very clearly, do not lay up for yourselves treasures on earth. And he says, that’s where moth consumes or rust destroys, where thieves break in and steal. He says, instead we’re supposed to put our treasures in heaven. And then he explains the rationale by saying, where your treasure is, there your heart is also. He goes on to say, no one can serve two masters. Either hate the one and love the other, or be devoted to the other one and despise the other. Can’t serve God and mammon. So that was the main text that I focused on. And one of the things that we took away and unpacked out of that is we ought to be taking that as face value as we possibly can. So I mentioned a couple of direct applications. So number one is we want to be investing in a way that’s directed at a goal. So if we’re investing we shouldn’t be just accumulating these piles of money. I think that’s something that’s easy to fall into if one is a prosperous individual. And if one lives in a place like the United States, where people are just kind of hoarding money and it’s easy to stop it in this place, or that we are supposed to be goal directed with our investing. If somebody says, hey, I’m saving to buy a house or start a business, great, let’s have that mentality. Let’s not have the mentality of the person who’s building the second bar. The second application that I talked about was we don’t want to be investing and take advantage of other people. And it’s hopefully something that especially. With Faith Driven Investors. We’ve talked a lot about this theme over the years, and I know you all thought very deeply about this as well, which is that investing, it should be something where we’re blessing others through that, not merely extracting value from others. And one of the passages that I think is very illuminating here is from Deuteronomy, where God says, don’t bring the earnings of prostitution into the temple because it’s an abomination to him. So God wants money that comes in his treasury not from sinful activities, but from activities that are building up the community. And so putting into practice love your neighbor, even in our investing, is a first order activity. And then I also mentioned investing just isn’t about the negatives. It ought to be about the positives as well. And we can support with our investing both the redemptive good and the common good. The redemptive good is, of course, advancing the church, advancing the kingdom, furthering the gospel, evangelism, discipleship. Common good would be helping people to be clothed, to be fed, to be whole in terms of not suffering from disease. And so that at a high level was the goal of the talk and some of the key points there. And that’s something that I think we always need to be pressing into and always reminding ourselves of some of those basics.

John Coleman: Yeah. And that’s you know, what’s really interesting is this is a topic I’ve been thinking about a little bit lately as well, and I actually started thinking about it for a World Fishing conference. So we’ve gotten to know Edgar Sandoval a little bit and just love Edgar, love world fishing. I mean, the mission that they’re on is phenomenal. And their leadership right now, I think is extraordinary. And they asked me to come and give a talk on money, how believers should look at money. And I love that sermon on the Mount passage. You know, there are well over 2000 references to money in the Bible. Many of them are cautionary statements like the love of money is the root of all kinds of evil. And yet God also clearly gives certain people in the Bible money to steward for his purposes. And it’s actually one of the blessings or tools that he offers them in order to forward his purpose. Abraham would be one of the first big examples of that, for example, or David in the New Testament. The examples are a bit more scarce, but even someone like Nicodemus could use financial resources for God’s purposes. And so the question I think for believers is what are you doing with that? And are you paying as conscious a set of attention to money as one of the blessings that God can give you as your other talents? And I think one of the things that I find at least is consistently people neglect this investing area. You know, there are really only three things you can do with money. You can give it away, you can help others with it, you can spend it or you can invest it. There’s not I mean, savings is just investing without any return. So there’s not much else you can do with it. And Christians spend a ton of time thinking about how they give away their money, even if it’s not a lot of what they give away. We spend a decent amount of time thinking about how we spend it, but I think the average Christian doesn’t think as much about the way in which they invest it, even though for many people that’s actually a bigger pool of capital than they’re giving or spending, right, for a lot of people. And anyway, I just think it’s a fascinating distinction that many Christians have drawn where they just they seek return, maybe even just to build this pile without purpose, as you described it, with their investments. But at the same time, I think God has really called us to pay attention every dollar and to make it purposeful, both in terms of the use that you’d have for it. But also, if I’m deploying this capital, like there should be some intersection with the Great Commandments or the Great Commission in the way that I deploy that capital as you’re referencing, whether that’s just staying away from the bad things, prostitution, trafficking, gambling, you know, things that are addictive, but also leaning into creating a more flourishing world for others. And I think that’s where Eventide has been such a leader in that space. But I think it’s just fascinating that Christians have not reflected deeply on that historically, or maybe as deeply as we need to.

Finny Kuruvilla: Yeah. You know, it’s fascinating what you mentioned there about some of those examples of individuals who did have financial resources. You pointed to Abraham, and he certainly be a good example of that. There is actually, in the New Testament, a fascinating passage. It’s in First Timothy chapter six, where Paul specifically addresses the wealthy that are in the church, and he tells them what they’re supposed to do. He says, don’t be haughty. And he says, don’t put your hopes in your money, but instead do good. Be rich in good works. Be generous and ready to share. So, you know, he’s contemplating the fact that there are already, at that time, plenty of people who have wealth. Another example would be John Mark, and we know that it was his home that the believers gathered in while they were in Jerusalem. And these individuals who had these larger homes tended to be those who would be the hosts, the patrons of the church. There was a very, very important function that the church required and needed in those early years. There were no church buildings or things like that for centuries to come. And so I think it’s something that is very good for us to remember. Which is that we’re not saying wealth is evil or bad or anything like that. This is not a call to condemn people or anything like that, but it’s a call to ask and hopefully challenge one another to say, are we truly doing good? Are we truly rich in good works with our wealth, and our wealth is on us now, has tremendous capacity to be a force for good or force for evil. And so I think even in the New Tetament, we see some of those admonitions and encouragements.

John Coleman: And I’ll let Richard push us forward. But I will say, you know, the one thing that occurs to me even in that passage that you’re referencing, or the two passages that you reference, is it’s not necessarily a bad thing or mindsets around wealth and the way in which we use it can be evil or can be a bad thing, but there’s never really a call to just store it up. And then at the end of your life, do something good with it. I think this is one of the traps we do fall into, like you said, is building this big pile saying, oh, what I’m good at is making it as big as possible. And then at the end of my life, I’m going to give it away over time. And I think rather everyone is called to start right this moment, thinking about the way wealth is used for the kingdom in the way it’s stewarded for God’s purposes, rather than just, you know, those of us who have proven some proficiency at kind of making wealth bigger, which is what investments is, you know, doing that for no purpose, right? Rather than deploying it according to those precepts right away.

Finny Kuruvilla: Yeah, that’s exactly right. I think it’s Ron Ballou who has this quote where he says, do your giving while you’re living, so you’re knowing where it’s going. And I like that concept because we know there are so many examples of individuals who have a lot of wealth, and instead of deploying it while they’re alive, they put it in some foundation. And this is something that I was actually just reading about. The foundations take a life of their own and often end up doing activities contrary to the wishes of the person who left the wealth to that foundation in the beginning. It’s actually the rule, not the exception. Or often things go haywire, and straying from the purposes that the individual who acquired the wealth really intended there. So I think it’s a great reminder for us, and I truly believe that that is the paradigm that Jesus is setting here is like, now give now while you’re alive. So in that treasure ahead of you, I don’t let it be corrupted here on this earth. Send it ahead and store it up for a bright future in the life to come.

Richard Cunningham: Yeah, finance that. You use the word at the end of your conference talk. It’s the arbitrage opportunity, right? Our stores of treasure here on Earth are in decay. So trade it now for something that lasts forever and just the ultimate arbitrage opportunity. I love the way you put it. All right, guys, well, that’s fun to hear you riff on just for the sake of time. Let’s keep on moving down the line. And so we’ll go back to some of those practical applications at the end, talking about those opportunities to promote good and flourishing, the common good, the redemptive good. Finny you were kind of alluding to. But for now, we want to hit on Finny. Your last FDI podcast appearance was roughly seven months ago, August of 2023. You and John had this wonderful conversation on all that was taking place in the world of health care investing and M&A markets being drier. But yet the S&P was, you know, just charging on with the likes of Meta and Amazon and Google, among others, the AI frenzy. But just love to kind of hear you guys. You know, this is not a marks in the market podcast. But Vinnie, we’d be remiss not to have you at least weigh in kind of with what, Eventide. Seeing what you’re seeing and kind of maybe since your last FDI podcast appearance as we closed out 2023, have kind of made it into the first quarter here of 24 of just what’s going on from the Eventide vantage point. What are you guys seeing? I know health care has always been a massive focus of you all. So maybe camp out there a little bit as well.

Finny Kuruvilla: Yeah, a high level. We’ve seen a lot even in the early months of 2024. Just a couple of themes and notable points here. You correctly noted that there was a lot of uncertainty in 2023, and the general consensus was that there would be a recession, but instead there was no recession and the S&P just motored higher. That was one of the stories of the year that it motored higher, despite the fact that there was high inflation in the fed kept raising interest rates. There’s still a lot of uncertainty with the economy and consensus right now is that there’ll be about a 40% chance of recession over the next 12 months. I put that with the giant asterisks because the economists were generally wrong last year. And there’s a reason why economics is called the dismal science. It’s often just very, very difficult to forecast the economy. And the joke is, of course, that economists have predicted nine of the last five recessions.

Richard Cunningham: That’s awesome, I love that.

Finny Kuruvilla: Yeah. And right now what we’re seeing is an interesting phenomenon where inflation is certainly come down compared to last year. But the S&P continues to track higher. It’s almost at 5200 as we speak right now really defying most expectations. There’s still a lot of debate about why that’s happening and why the economy is as resilient as it’s been. We’ve been in the camp that you shouldn’t buy the rhetoric of there’s going to be recession, partly because it’s such a novel, such. We’ve been in in the last couple of years, with the economy being released from all the Covid restrictions, and there’s just not good models that anybody can point to, in our view, that have the kind of confidence that should make us pound the table in either direction. So that, thankfully has worked pretty well. And overall we’ve seen that. Generally speaking, the economy, if there aren’t shocks, tends to do pretty well. And the innovation and the skills of the free market and what we know about businesses, they do pretty well about navigating through hard times. And when everybody’s talking about a recession, usually it’s not going to happen because there’s a lot of belt tightening that’s already gone on. One of the great I think, questions that we’re going to understand over the next year is what has been the role of this productivity number. So there’s this very mysterious number. It’s actually easy to understand conceptually, but it’s hard to measure empirically. So productivity is how much does a given worker how much does their output increase year over year. So I use the analogy of a person who works at a donut store and they’re making donuts. And if they can make 100 donuts a day in 2023 and in 2024, and they can make 103 donuts a day, their productivity has grown by 3% year over year, and it seems like one of the reasons that the economy has been able to do well, despite the inflation, is that we’ve been more productive than people have anticipated than economists anticipated. There’s a whole lot of reasons why that might be true, but I think one of them is not so much. AI is starting to play a role, but it’s probably a bit early to attribute the productivity improvements to AI. But it’s that there was so much belt tightening and so much concern about a recession, and companies were getting lean and mean through all of the doom and gloom rhetoric there. In that type of setting, you can actually and you typically would expect even that productivity would do well because everybody is ready and there’s not a lot of excess. And so that type of phenomenon is probably what’s been at play and why the economy has done so well, and in general, why the more people talk about recession and the more people that are fearful out there, you actually in the back of your head should be thinking, okay, good. I’m glad that there’s that fear that’s out there. And the other famous adage is that the market likes to climb the wall of worry, and it descends the slope of hope. And there’s definitely been a robust wall of worry that the market has been climbing over the last couple of years.

John Coleman: Between that and the blue quota, I’m getting a new appreciation for Finney’s ability to rhyme and create memorable markets.

Finny Kuruvilla: You know.

John Coleman: Finney, I would just say I don’t know how you think about it in general. I’m so skeptical of people trying to time markets without a specific reason, a time. Right, like, you know, right now, for example, we’re super cautious about office real estate, but there’s this specific set of context around that that makes you nervous about that sector, that particular asset class where you can identify, I think, generalized concerns about recession, market timing, cash on hand. It’s so difficult to predict in my mind. And if you look historically, by and large, just continuing to allocate in the way that you would with the tranches of, you know, you want to diversify your asset classes, you want to be thoughtful about the way in which you position a portfolio. But if you do that and you just stay in markets, typically that’s the best solution over the long run, rather than seeking to time more aggressively without a specific conclusion. And that’s been my push to folks right now. I mean, this is not financial advice on this podcast, obviously, but, you know, it’s very easy to get whipsawed by all these predictions. Market timing is notoriously difficult. And just as often as you get out and avoid a downswing, you miss a major upswing. And I’m with you. There are just so many long term reasons to be confident that, at least in the United States and in a fair number of other economies, the long term trends are oriented towards greater productivity, whether that’s AI, robotics, which is more of a real time thing. I think even in the industrial space, things like that, all these technological innovations are oriented towards improving productivity and output, and there’s really been no major setback on those. So I continue to feel the way that you feel, which is don’t overthink the timing of markets, or at least that’s the way that I would put it. Stick to what you feel confident in in your allocations, and make bets on those specific things where you feel you have a good understanding of where things are headed.

Finny Kuruvilla: Yeah, I couldn’t agree more. One of my mentors, who I’ve actually never met but I call my mentor because he made such a big impact on me through his books is Peter Lynch, and Peter Lynch has this great concept, which is that more money has been lost trying to time and dance around corrections than in the corrections themselves, that all of the artful positioning is not actually hostile and adverse to one’s net returns. I mean, there’s so many ways that one can show that we’ve got a lot of charts, and I have a whole lot, actually. We’ll talk about addresses this, but you’re absolutely right. And rather than timing the market, it’s time in the market that’s a better predictor of your long term returns. And you correctly noted that there are typically a handful of days. In a year that are going to be these massive upside drivers. But if you miss those days and I actually gave a talk on this, that this entire archive, if you miss those days, those handful of days in the year, I don’t have the exact number on top of my head, but your returns are a fraction of what it would be then if you are just simply staying in the market throughout it all. So yeah, it’s it’s a very important lesson to learn that most people haven’t learned really well. And I hope those timeless principles would be things that we would go back to again and again and remind ourselves that despite the fear, despite all of the rhetoric out there in general, it’s the more boring strategies that tend to outperform the more sophisticated ones.

Richard Cunningham: Yeah, I’ve heard it before. You got to be right a lot of times in terms of when to get out, when to get back in, the highs and lows and all of it. Might as well just be right once and stay in. What about on the health care side of things in terms of a very capital intensive, highly innovative field? You know, this is something you and John got into in your recent podcast. These fields tend to be hit pretty hard by the interest rate environment, as they need capital infusion as they’re oftentimes not profitable. Even tide has a big focus in that space on the health care side of things. What are you guys seeing there?

Finny Kuruvilla: Yeah, the space thankfully has come back a lot since we spoke last, and it’s been really good to see that we’re starting to come out of some of that very fearful capitulation that was happening, particularly in the October 2023 time period. So it’s been nice to see that. I still think we have a long way to go to come back to even be average. So we have this odd situation right now where the so-called Magnificent Seven, Meta, Amazon, Google, those types of companies are trading at very rich multiples and very lofty valuations. But we’re still in the situation that a lot of those smaller cap, more capital intensive industries like biotech are still considerably lower than they would normally be valued. And so that’s a first observation there. Second observation, I would say, is that on the innovation side, it continues to actually accelerate. And so even in the last couple of months, there have been a number of significant advances on the obesity front. So we’re closely watching this field. I think everybody knows now about [….] and all that. That’s just the very first gen medications. Those are injectable. We know that those medications have pretty serious liabilities, chief of which is that when you lose weight, you lose both fat and muscle. And it’s widely appreciated that you don’t want to be losing muscle mass in the same way as losing fat. But that’s what these medications do, is they’re dropping both together. There’s some very interesting innovations that are happening there where it’ll still take some time to work out a lot of the details, but. I’m confident that over time, we’re actually to get to medications that are going to be actually enhancing or at least stabilizing muscle mass, and it’ll be selective loss of fat. So that’s a pretty exciting development that is still in the clinical trial stage, but it’s something that we’re actively investing in. Another highlight here that I’d like to touch on just briefly, because I mentioned this last time, was we talked about this Car-T concept, which is to remind everyone that is. But Car-T is basically a way where you engineer your own immune cells to attack cancer cells. And I told the story of a little girl named Emily Whitehead, who was the first pediatric patient ever treated with one of these Car-T approaches where basically they do a blood draw, they take out your immune cells, they infect your immune cells with a virus in a dish, and that virus retrains your immune system to attack the cancer that’s inside of the body. You grow up those cells and then re infuse them back into the patient. And I told that story about her and she literally had her leukemia. She was going to die. She was on her way to go to hospice. And within 23 days her leukemia disappeared after receiving treatment. So that has now been extended. And this is like hot off the press just last month. So February of 2024, somebody said, hey, maybe we can use that technology to go and attack the cells that are creating autoimmune disease and in particular the disease called lupus. And they published in the New England Journal of Medicine, which is the top journal in the medical world that they were able to induce these patients into remission for one year. No disease, no steroids. It’s pretty amazing that now we can train the immune system to attack the bad cells of the immune system that are causing these autoimmune conditions. So it’s not FDA approved yet. It’s it’s still in clinical trials. And so we’ll hope that this crosses the finish line. But how exciting is that? I mean, just amazing. And then just last week. So again very hot off the press just down the street [….] At Mass General Hospital right here in downtown Boston. They use that same technology for brain cancer. So brain cancer is one of the more deadly forms of cancer that’s very difficult to treat. And what we know now is that this same type of therapy, works not just for liquid tumors like leukemia, which is what Emily had, but now we’re seeing it work for solid tumors as well. So again, it’s early stage, not FDA approved, but incredibly exciting here. And so we are in and I think what is easily characterized as the golden age of taking immunology and harnessing our immune system to address very serious diseases like cancer and autoimmunity. So I am just thrilled to see this innovation that’s happening at a very brisk pace. And my full hope and confidence is that as this accelerates, we’re going to get more and more of these therapies that cross the finish line to FDA approval, and our health care is going to continue to get better and better. So very exciting days for us here in the biotech and health care world.

John Coleman: Man, I always leave these conversations like very encouraged. Finny not all of our investment topics are quite this encouraging, both in terms of, you know, it’s such a natural intersection with this idea of human flourishing. Right? And even, you know, even when I like, think about the New Testament in such a simplistic and stupid way, a lot of what Jesus did when he was working miracles was helping people with their physical ailments, right? As almost an analogy to what could be done for the soul. Right? But also to just care for people physically here on earth. And you get to work in a space where that’s the goal every single day for everyone who’s working in this market is to try and make human life better. Maybe that’s a nice way to transition into the way that you guys think about faith and values in the context of the portfolios that you’re building. Again, there is this natural intersection with human flourishing, particularly in health care, which you’re so focused on. But how does Eventide think about the incorporation of values? Think about the promotion of human flourishing investing that makes the world rejoice in the context of your portfolios. And how are you all thinking about innovating on that every day?

Finny Kuruvilla: Yeah, it’s a great question, John, and it’s something that all of us who work in asset management, in any kind of faith driven way, ought to be constantly challenging us to. We would all concede that we’re in the early days of figuring all this out, and we’re trying to develop frameworks that are better and better and stronger and stronger, that respond to all of the dynamism of the markets. And we all know that markets are living, breathing animals, and we better be responding as well and sharpening our tools and our ethics. There’s a lot to be said here. There’s both issues, specific areas that we’re investing a lot of time in. And then there’s frameworks and heuristics that we’re trying to refine in terms of how we look at management. So. On the issues specific side of things. There’s a lot of talk right now about IVF and stem cells, all that which is in the news. And how do we bring pro-life values into these questions here. So we’ve been doing interviews with different ethicists. This week, in fact, I interviewed a well-known ethicists on the issue of life and how to think about that. I would say a lot of people who would say that life begins at conception. Haven’t thought very deeply about the implications of that. For example, stem cells and IVF, things like that. So we want to be really good and sharp in that. It’s an area where I think we’re probably just underdeveloped in general. We collectively the church are underdeveloped in general there. So there’s issue specific sets, and we would like to hopefully put out some whitepapers and videos as we learn more about how to hopefully elevate the whole field and community with us as we learn together. And then there’s the framework and heuristic side of things. How do we take our own learnings and bring that to bear and how we assess, for example, management teams or how different companies are interacting with? Save the environment or broader society, even the environment. We have a fantastic panelist here who covers energy. And how do we think about, as Christians all the questions around pollution and carbon and all of that. And it’s of course a huge field here, but we need to have views on that. And it’s easy to be reactive and to say, well, you know, this group over there, they’re hyper concerned about carbon credits or what have you. And they’re maybe not like minded to us in terms of some of their values. And so they must be wrong. So we’re going to go to some other side. How do we come up with good values here on some of these and good heuristics around what does it look like to be responsible with respect to some of these environmental questions? And I think that we’ve done some fantastic work even in the last six months, I would say especially probably be a topic of a whole podcast to get into some of the innards of that. But we’ve been investing quite a bit of time and energy, and to being able to assess our company well in terms of how they are interacting with the environment there. So those would be two of the areas that we’re refining and improving on.

John Coleman: Yeah. One of the topics you touched on, and I know there a lot of folks prefer this avoid embrace engage framework. There are a bunch of different frameworks. I think they’re helpful. But you know, there are different ones that work. We’ve been thinking a lot more about this engagement topic, which you’re highlighting, which is, you know, we have the ability, particularly in public markets, I think, to speak into societal wide questions, both generally, as you mentioned, through thought leadership, but specifically through the shareholding that we have in companies. Right, which has been a focus for us on the public equity side. The price for that is, I think you have to be really excellent at what you do to build a voice on the engagement topics from an investment point of view, which is why I think Eventide almost has the permission to speak into these. It’s what we’re seeking to cultivate as well. But I think my observation is that in cling more to the avoid side of the spectrum, historically, Christians have often missed an opportunity for what I’ll call constructive engagement. We’ve been willing to beat up on topics aggressively, but we haven’t been willing to engage in the really thoughtful debates about these topics to articulate a cogent perspective. And, you know, this idea of stem cells and IVF, for example, is one where there are obviously a huge number of well-meaning people on different sides of this debate who are going through extremely difficult life circumstances. Right. This is not a light topic and apart from it maybe the Catholic Church, which has actually articulated some principles around this in a reasonably thoughtful way. I think many of those of us in other branches, as a church, I’m a Protestant, have not been as thoughtful about our intellectual positions. And so I think one of the things I’m encouraged about that you’re talking about Finny, and even your own personal thought leadership that I hope others will take up, is how do we lean into these big issues of the day in the areas in which we’re investing, and be thoughtful about articulating a cogent set of principles for human flourishing around those, as we are our investment thesis. And I think if the great investors in the Christian worlds could do that, our ability to influence culture in a positive way would be enhanced greatly.

Finny Kuruvilla: Yeah. I will say a couple of things on this. And like you, I’m not a Catholic. I have a lot of respect for the Catholic Church, but I’m not personally one who would be considered as Roman Catholic. It’s something where one of the things that I have seen, that they have done well, and they could teach the rest of us some good lessons, and especially those of us who work on the investing side, is they have a way of thinking that I would call maybe more historically aware and more of a sense of building on that what’s come before us, you know, some of the times because of a false understanding of sola scriptura, it’s not actually legit it’s sola scripture to say the Bible is the only authority. True sola scripture says the Bible is the only infallible authority. But there are plenty of other authorities, hopefully the pastors and teachers in your home, your parents. We read books. We listen to people online. I mean, there’s varying levels of authority here. The correct understanding of soul scriptura, which I do subscribe to, is that the Bible is the only infallible authority. And I think sometimes because we’ve misunderstood sola scriptura, we believe that we kind of have to like, reinvent the wheel or just like read the Bible and come up with something, you know, spontaneously, as opposed to what’s actually a more faithful understanding of the Scripture, which the reformers and the radical reformers and everybody pointed to, which is that Scripture is the only infallible authority. But we are fools if we don’t try to learn from those who come before us. And I think that’s where the Catholic Church is, ahead of the Protestant community, in the sense that they’ve learned and they’ve built and they’ve developed frameworks and pressure tested them. And that’s something that I want to see more of in the Protestant world in general, is us give more thought to, hey, let’s learn from those who’ve gone before us and not be so chronologically arrogant that we believe that. We’ve got it all right. And everybody who’s gone before us hasn’t thought through those issues, because they have. There’s been very, very good work on these issues before us. And I think first, to make the investment of time to read and understand well what those who’ve gone before us have done and said is step number one, noting. Step number two is to somehow put together as best as we can and memorialize our understandings and whitepapers and podcasts and different discussions so that we can continue to move the ball forward in the process. And world is occasionally done that the Chicago statement would be an example of that. And biblical inerrancy is an example of where people will come together and put together these working group statements like, hey, this is what we think inerrancy means. And and even that will get revised and pressure tested. And that’s not violating sola Scriptura. That’s actually honoring the forefathers of the faith that have come before us. And so I think those will be some of the challenges that I would give to the investing community.

Richard Cunningham: Man, this is awesome. Do you guys riff on it? Kind of reminds me in ways where, hey, I’m the individual investor right now listening to you guys riff on this and it’s like, I wish I had access to John Coleman or Finny Kuruvilla on my shoulders. I’m thinking about the investment decisions I’m making, and I think eventide put out this post about engaging with Pinkston to interview Christians out there. And it’s just I think the push to everyone is, hey, you can engage with your advisor on these topics, and I think your survey results said 63% of Christians have never discussed values based investing with their financial advisor, even though 88% want to align their investments with their values. And so I think, you know, before we close here and FInny talk about what you’re kind of learning in Scripture, I think it’s just a great push to the every day and faith driven investor or the advisor out there to say, hey, these aren’t conversations that you have to reserve. Just to John and Finny on the Faith Driven Investor podcast, these are things you can lean into and your next kind of financial advisor update meeting.

Finny Kuruvilla: Yeah. The other part of that survey was that 62% of Christians are willing to make a switch to another adviser who offer investments that resonate with their values. And so it’s hopefully a wake up call that this is a time where people want their investments to be in line with their values. And you might even lose business as they go to another firm or individual who can speak to their heart values. Their most investors are more interested in those higher level conversations than they are hearing about beta and alpha and sharp values and things like that. Like that’s not necessarily where people’s hearts out. Of course, everybody wants competency. People want to know that their finances are being deployed and invested in a responsible way. But I think where the faith driven community, including the financial advisory community, ought to step up is to say, like, let’s differentiate ourselves from the robo advisors and everybody else by being able to engage at a heart level with some of these issues that are very, very important to clients.

Richard Cunningham: Yeah, that’s so good. Good words. Well, Finny, take us home. What’s the Lord been teaching you in Scripture lately? Maybe for you. All of team Kuruvilla and your wonderful family would love to hear that.

Finny Kuruvilla: I love this question, and I really appreciate that you all end the podcast with this question. Yeah, I’ll give you a short distillation of one of the themes of the last as a year of my life, but I went to a seminar. It was an all day seminar a few months ago that was put on by a group that specializes in going into hard situations where there’s been some kind of a breakdown, a church split, or a business that’s falling apart as a Christian group. And they go in and they do about 30 of these engagements a year, and they go in and try to mediate reconciliation, healing and unity to where there’s brokenness. And I’m in my late 40s right now, and I have sadly been watching a lot of my college friends go through divorces and a lot of hard experiences there. It’s sad to watch, and these are people who are in the church and know well the teachings of Scripture here. One of the things that I’ve learned is that. True conflict resolution and true unification of the church and families is a skill. It’s not something that comes naturally to any of us. It’s something that we need to be trained and prepared. And again, I wish I could talk about this for a lot longer here, but just very, very briefly. We are supposed to be the ministers of reconciliation. That’s our job description, if you will, that Paul uses in second Corinthians is that Jesus even says, blessed are the peacemakers, for they will be called children of God. How do you know that we’re children of God? The children look like the father, right? They look like the parents. They had the same skin color, hair, all that. Our resemblance to the father is that we’re supposed to be agents of peace. Because the father brings peace to the world. That’s supposed to be one known for. Unfortunately, it’s not usually the case. That’s what people think of reflexively. When they think of the Christians. They often think of divisions and splits and fightings and all that. And I am more and more convinced that because it’s a when not an if we’re all going to be having conflict in our organizations or families, etc., this ought to be a skill that is part of Christianity one on one, and we ought to be pressing so far into this that you can’t be a person who’s been sitting in a church for more than a year or two without having gone through some kind of formal, rigorous training on this. I know that sounds like a bold claim, but I really believe it. And that as I’ve gone through this training and read a book on it and really had my eyes open to the fact that here I am, in my late 40s, being raised in the church, that I hadn’t gone through this. And as I’ve gone through this, I thought, wow, I could have had a more successful 20s, 30s and early 40s had I had these skills in my tool bag. And there are very much learnable skills that require growth and challenge. But I think this is one of the great needs of our world today, is to have the Christian community rise up to the challenge of being peacemakers and ministers of reconciliation, and treating it like a discipline, just like we would treat any other discipline. You don’t learn naturally medicine, you get mentored and trained, and that you have to go through classes and exams and all that. It’s the same thing with this. Maybe not as daunting as having to go through medical school, but it’s a skill that we need to embrace there. So I’ve been thinking a lot about that and how we and the church ought to be much, much stronger on that and encourage that early on.

John Coleman: And I love that concept, and I know you’re talking about that at the individual level, but I even think at the social level, if you think about the instances over the last, you know, 30, 40 years where Christians were deeply respected for the work that they did, it was often in reconciliation, whether that’s Bishop to in South Africa, whether it’s the US civil rights movement where Reverend King and Andrew Young and others leaned into their faith and as a tool for reconciliation across differences. And it can be, you know, just such an inspiring thing for Christians to navigate.

Finny Kuruvilla: It really can. John. And let me just say one final comment on this. Jesus right after that says, you’re going to be the city on the hill, salt of the earth. They will see your good works and glorify the father in heaven. It’s through that kind of activity that the world is mesmerized with the power of Jesus, right? We live in a very broken, divided, hostile world. There’s poor dialog. It’s just it’s a mess. This is winsome. This is attractive. This is something that we can actually gain a social capital that we currently don’t have. So yeah. Amen to what you just said.

John Coleman: Finny Kuruvilla Eventide Asset Management. Awesome work you guys continue to do. Finny you’ve just been such a almost a founder in this space beyond even tide in such a pioneer here. I’m always humbled by your ability to reference scripture, usually in the original languages, which I know I definitely can’t do, I’m sure Richard can do, and it’s just such a blessing to our audience to have you on. Thank you so much for being here. And thank you, Richard, for hosting.

Finny Kuruvilla: Thank you John.

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In this episode, John Coleman is joined by Tony Minopoli and Andrew Abela to explore faith driven investing in the Catholic world and in the Catholic Church. 

Tony is the President and Chief Investment Officer of the Knights of Columbus Asset Advisors. In that capacity, Tony oversees all elements of the investment strategy and operations for the Knights, predicated on nearly two decades with that institution and a prior career in investment consulting with the Valuation Associates. Through his role with the Knights, he’s also helping the Catholic Church more broadly continue to advance its thinking on faith based investing. 

Andrew is a professor of marketing and the founding dean of the Bush School of Business at Catholic University. In addition to a storied academic career, which we may delve into, Andrew has worked with institutions like McKinsey and Company and Procter and Gamble, published broadly, and as a leading thinker on faith based, faith based and principled entrepreneurship and investing alike.

The two join John to share about what it looks like for Catholics to engage in Faith Driven Investing both in the modern day and throughout history.

Knights of Columbus Asset Advisors: https://www.kofcassetadvisors.org/

Busch School of Business: https://business.catholic.edu/

Episode Transcript

Richard Cunningham: You’re listening to Fate 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.

Rusty Rueff: 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 of 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.

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman hosting solo today without my co-host Richard Cunningham, but with a very, very special episode. Today we are going to explore faith driven investing in the Catholic world and in the Catholic Church. And we have two extraordinary people to help us do that today. The first guest is Tony MInopolI, who’s the president and chief investment officer of the Knights of Columbus Asset Advisors. In that capacity, Tony oversees all elements of the investment strategy and operations for the Knights, predicated on nearly two decades with that institution and a prior career in investment consulting with the Valuation Associates. Through his role with the Knights, he’s also helping the Catholic Church more broadly continue to advance its thinking on faith based investing. Secondly, we have Andrew Abela with us today. He’s a professor of marketing at the founding dean of the Bush School of Business at Catholic University. In addition to a storied academic career, which we may delve into, Andrew has worked with institutions like McKinsey and Company and Procter and Gamble publish broadly, and is a leading thinker on faith based and principled entrepreneurship and investing alike. Andrew and Tony, we are really grateful to have you on today. Welcome to the show.

Tony Minopoli: Thank you. What glad to be here.

Andrew Abela: Thank you

John Coleman: Awesome. Well, to kick off, I was hoping that we could just level set a bit on what this looks like in the Catholic Church today. You’re each working on that in your own ways, in your different spheres. But maybe you could start off by just setting the table for what is the Catholic Church’s current approach to faith aligned or faith driven investing? And maybe, Tony, we could start with you and then you Andrew.

Tony Minopoli: I was going to defer to the professor among us first, but I’m happy to take a shot at it. You know, for us John, the key is, is that the Knights of Columbus is an entity. We don’t create Catholic doctrine. We never have. We followed Catholic doctrine very closely. And as a result, particularly for our investment strategy, we’re not going to talk about our funds individually. But in the sphere of managing a family of Catholic compliant mutual funds, we had an anchor to something, because among Christianity, there’s a wide different range of beliefs and acceptances among the different groups of Christians. But the Catholic Church, still 51 million people in the US claim connection to the Catholic faith. It’s in varying degrees, but within that church. And Andrew knows this better than I. There’s even a wide array of attitudes and beliefs, even among those that are supposedly in the more narrow defined Catholic faith. So as a result, we had an anchor to something, because the last thing I could do was try to explain, you know, well, we’ll do this for this here. What we believe this here that’s different. So we essentially work and we’ve worked very closely with Catholic view to take the teachings of the bishops and define them into investment rules, into a usable, screenable methodology to which to invest. But in a nutshell, and and Andrew certainly could speak more to this in broad terms, things to do with abortion, contraceptives, embryonic stem cell research, human cloning, weapons of mass destruction, things of like cluster bombs and landmines, things of that nature. Pornography doesn’t really come in. There’s not many opportunities to invest in pornography in the publicly traded market. So that really doesn’t weigh in. And then for profit health care that really pays for any of the others, I would say from a practical matter. And I’ll end on this hand it to Andrew, is a practical matter. The things that we run into most often, whether we’re managing the Knights of Columbus assets or the mutual fund assets, are things to do with abortive action and contraceptives and an embryonic stem as it relates to biotechnology. Those are the real sort of places we can delve into this more as we chat today. But I would say those are the areas where you run into the most things that you have to review. So, Andrew, I’d turn it over to you for your view on that.

Andrew Abela: Thank you Tony. Yes, everything Tony said. And in terms of what’s driving our interest now, about 20 some years ago, the Conference of Bishops, which is the group that brings all of the Catholic bishops in the United States together, published their kind of guidelines on faith based investing, and then they updated those in 2021. The first set of guidelines was mainly about excluding the kinds of stocks that Tony was just talking about this time around this in 21, they also asked the faithful to not just exclude stocks that would be compromising, but also to exercise your votes and to engage with management to try to kind of move people in the right direction. And so there’s a big conversation now about how to do that. So Tony and I have been working together with a few other asset managers to figure out the best way to do that, the most practical way to do that, and that is the state of the art. I would say at this point in the Catholic investing world.

Tony Minopoli: Andrew would it be worth, maybe if both of us took a second? And the most recent white paper, the main summum bonum white paper that came out for the […] So John, one of the […] within the Vatican, wrote a paper, and I had forgotten all the Latin I learned when I was in Jesuit prep school. But then summum bonum, which translates to the good measure, was a paper that came from the […] of Science within the Vatican, and really took this notion of investing in a way that is not detrimental to the environment, investing in a way that is helpful to the less fortunate. Also engaging it’s not just about negative screening, and that is a lot of the work that Andrew is mentioned, that we’re teaming up together with some other really fine professionals is how best you engage, you know, the proxy voting, which any shareholder can think about. But do you do a, you know, a shotgun approach of just carpet bombing letters to all these CEOs, or do you really try to get engaged in meaningful engagement with individual companies? I think most of the people involved at that conference and involved in this thought process are not so naive is to think that they’re going to move publicly traded companies into the realm of acting like good Christians, but if we could just get them to be neutral. Right. Sell your product, sell your service. But don’t be antithetical to Christianity. From my corner, I think that would be a win. And there’s a lot of companies that go a lot further and are espousing things that are sort of antithetical to Christianity. So this was interesting because to my knowledge and Andrew, please correct me. This was the first time the Vatican was as sort of forceful on this topic by issuing the main summum bonum and white paper. So just another thought to add into the conversation, John.

John Coleman: Yeah. And, you know, there’s a parallel conversation happening in the faith driven investor movement that we’re most familiar with that’s exemplified by this podcast. And people frame it a couple of different ways. And then, Andrew, maybe you could react to some of this one. It’s a very simple framework that a lot of folks use, which is avoid, embrace, engage, avoid being more negative screening, embrace means positive screening or leaning into certain thematic things, which Tony might even be environmental concerns like you just highlighted. And engage means even where something’s not explicitly faith forward or positively screened. Since you have a voice as a shareholder in that company, how do you encourage positive movements in that company? Something we’ve seen lobby for quite a lot lately, for example, or adoption benefits in the midst of the noise around abortion as a topic, you know, how do we encourage companies to include adopt adoption benefits in their health care? Another framework we’ve leaned into a bit, trying to span both public and private markets is exactly what you highlighted. You’ve got negative screening. You’ve got positive screening, again, where you do thematic engagement according to something you think is redemptive, right? A redemptive purpose either in public or private markets. The third we talk about often is cultural formation. So as private equity investors or venture investors, we often have an opportunity, not just invest thematically, but to lean into the actual culture and operations of business, to shape it in a way that’s more faith aligned, which could include the supply chain, making sure that that’s properly accounted for and handled appropriately, including chaplaincy in the company or organization, employee resource groups that are religious family friendly policies like maternity and paternity leave, adoption benefits. But you get to shape a culture in a way that encourages human flourishing. And then we’ll often talk about all of those can be done with a high return. But there is this concessionary impact space right where you may choose to engage in things like Microlending or, we’ve seen charter school financing, for example, in the US, where you may trade off some return in order to engage in something you find particularly redemptive. So it sounds like the Catholic Church is having a debate right now about the various ways you can positively lean into faith and investing. That’s very similar to the one that we’re seeing carried out more broadly in Christianity. But, Andrew, I don’t know if you’re seeing some of the same things that we’re talking about now in the research that you’re doing.

Andrew Abela: Yeah, there’s a lot of parallels. And in fact, the parallels are such that I’m so glad we’re having this conversation, right. Because we just need to work together more. What we have heard from, CEOs and executives is it’s helpful to them to receive the countervailing pressure from our side. So, as Tony said, even if we just get folks to being neutral on the cultural issues, that’s a big win, because too many corporations have been advocates for a very sort of secularists kind of anti-life perspective. And so kind of pushing back against that. And the more we can be kind of working together, I think that really helps. The, employee resource group movement has become really strong. We’re happy to host every summer since its initial launch about five years ago, the Religious Freedom and Business Conference, which is the annual gathering of all the leaders of the ERGs that are focused on religious liberty. And so it’s like a very ecumenical gathering, not just all flavors of Christians, but also Muslims and Hindus and so on, just arguing that corporations need to make space for people of faith in a corporation. Which I think is a very positive move. I know that, John, you and I have had this conversation already about the role of virtue in the workplace, a very Christian idea that is nevertheless rooted in Aristotelian philosophy and so accessible to pretty much any thinking person, you know. So this is another area that we want to encourage and help, because I think it’s not just our society, but our corporations are realizing the consequences of living in a post-Christian world where things we used to be able to take for granted, like basic human decency, honesty, and so on just seem to be eroding and need to be those back. So I think this is an opportunity for people of faith to say, hey, we have some good ideas here to share.

John Coleman: So would you say a bit more, Andrew? And then I’m going to come back to you, Tony, about this concept of virtues, because we also have the faith driven entrepreneur organization that we work with. And it’s we talked about we have a very strong belief that for the performance of a company, culture is the greatest competitive advantage in business, that top performing cultures will regularly outcompete others in the marketplace, something that’s been affirmed by research from McKinsey and company, from the London Business School and others. And we think that this idea of virtues and values in a business are essential to that culture. Say more about what you mean by virtues and why that’s different than values in a business.

Andrew Abela: Yeah. So we make a big distinction between values and virtues. So many businesses talk about their corporate values, but values are just talking the talk. Whereas virtues are walking the walk. The virtue is the action or particularly the habits specifically. So you could value honesty, for example. But to have honesty as a virtue means you’re in the habit of always acting with honesty, always speaking the truth. To have self discipline as a value is one thing, but to actually be in the habit of acting with self-discipline is another thing entirely. I remember so I was last at McKinsey 25 years ago, so it’s been a while. But even back then we were talking about the power of corporate culture as a competitive advantage. You could imagine a corporation’s, we often referred to it when we were talking to our students, the set of human virtues as the human operating system. Right? Particularly the four big ones, the cardinal virtues. So practical wisdom or prudence, justice, fortitude or courage and temperance or self-discipline, those four together make up, if you will, a sort of a human operating system. And just like the operating system on your iPhone, if you don’t updated regularly, things start to slow down or not work or crash, you know, same with human beings, same with a corporate culture. If a corporate culture has a particular vice or defect, and I say a lack of honesty or a lack of justice, then that’s going to undermine pretty much everything that the corporation tries to do. And the execution of your strategy could be terrific, but the execution is not going to be as effective because you’re missing an essential part of human flourishing.

John Coleman: I love the way y’all are approaching that in the intellectual history. For nerd like me, dating back to Aristotle and the discussion of habits and virtues, and obviously to the Israelites before that, I think it’s so incredibly rich. Tony, I want to dig into the Knights a little bit more, if you don’t mind. One, I would love for you to just tell people who are the Knights of Columbus for those who aren’t Catholic and what’s the history? And then maybe secondly, dovetail into what does this look like in a portfolio as large as yours? How do you just think about tactically bringing this in to the work you’re doing in asset management?

Tony Minopoli: Sure. So without reading all the pages of history, the Knights of Columbus was founded right here in New Haven, Connecticut, in 1882 by, Blessed Michael McGivney. In our world, in the Catholic world, blessed means he’s one miracle on his way to his second miracle of being canonized a saint. And on another podcast, we’ll talk about those. But father McGivney started this because at the time, there were a lot of Catholic men in the area that were building a lot of the infrastructure and a lot of blue collar folks that were dying and leaving widows and orphans. And as a man of action, as a young man in his 30s, he thought he would create this organization that started off literally as a mutual benefit society. And we became what you would call an actuarially based life insurance company, probably around 1900 and 1901. So we now boast over 2 million members worldwide. We’re the largest Catholic lay organization in the world. We have about 1.4 million members in the US. It’s our biggest jurisdiction and we’re basically men of service. So the thought processes is that we work in our local communities to provide charity. In a typical year from the parent, we will donate about $40 million to a variety of charities, our subsidiary councils. We have 10,000 councils here in the United States, but our subsidiary councils collectively donate about 140 million. So across the order, it’s about $180 million of actual dollars pre-COVID. And now we’re working back up to it John. We were donating as a fraternity north of 70,000,000 hours of community service. So we’re now knights of action, I would say as well. So I’m very proud to have been a knight since 1994. I joined the company in 05, so I didn’t become a knight for the expediency of a job, but I was very swayed by the work that we do. The general account for the Knights of Columbus on a market value basis, about a $27 billion portfolio. Right outside of my office is our bond trading floor. We manage about $25 billion of fixed income. We have our equity team up in Boston managing north of a billion in equities. And we have followed the USCCB teachings for longer than I’ve been here. One of the things I brought to the Knights when I was an advisor, I served when I was in evaluation Associates. The Knights were a client, which is how I ended up getting here. But one of the things I brought was to bring a bit more rigor to how we screen company. So we brought in a third party to help us decipher the USCCB teachings and to develop screen lists. We now work with a professor, Professor John Grabowski from Catholic You, who’s on retainer to the Knights. Where else can you have a moral theologian and your team when you’re investing? But at the Knights of Columbus. So we really do incorporate what John helps us to do. Again, he’s not writing Catholic Doctrine, but our screening advisor is a consult, and they’re not Catholic, but they’re they have a very good screening program. So John sometimes serves as an umpire calling balls and strikes. If we determine that, hey, this company actually shouldn’t be screened out, John will help evaluate it. Between us, the screening agent and John will determine what the right move is. As I said earlier, you know, John, the challenge, if it is one, it’s really in biotech and health care that we find the most in. Typically, it’s a big pharma company that may have had an abortive fashion or contraceptive. Then they divested the drug. Many big pharmaceutical companies find the most efficient way to develop a pipeline is to go acquire a smaller company. So then they acquire a smaller company in their drug pipeline. And when you go down the list, you may find a they have a drug that’s now out of bounds. So out they go. And we go through the screening rigorously every 90 days. So as I tell our board, whether it’s for the general account of the insurance company or our shareholders of our mutual funds, you’re never more than 90 days for scrubbing the portfolio. And in equities it’s easy, you know, if it’s a big cap company, you can move out of it quickly. You know, if it’s a middle sized bond, you know, post a financial crisis. Wall Street doesn’t have proprietary trading desks anymore. It can take you a little bit longer to divest. We try to keep a foot in both camps being critically adherent to the faith. But also, you know, I guess in a doctor’s sense, trying to do no harm to our shareholders. So we’ll develop a plan to move that security out. It’s never taken more than a few weeks, but, you know, you develop a divestiture plan. I have to say, in 18 years of being here 18.5 years now, it’s never caused a problem to where we could not evaluate another name or a different way of investing or a different company to purchased. And one of the things I’m very happy about is that we’ve been able to compete in the return space, but while also adhering to the Catholic teaching. Today, as I say to our board, all the way we are walking the walk, but we’re living proof that you can do well and you can do good all at the same time. So maybe it takes a little bit longer, but you eventually get there. We’re very, very proud of that.

John Coleman: Yeah, I love to hear that, Tony. And we tend to have a firm belief in that. And I want to let you in on this as well, that when you’re behaving in a way that we believed in the truth of our faith, and we believe that it’s in touch with something really important about human nature and what creates human flourishing. And then if you’re leading companies in alignment with that, that those companies can actually perform, that they can succeed because they’re in touch with something deeply true about people, about the people that work within a company, about those who purchase their products and services that allow them to perform even greater than those who are anchored in some sort of truth or who are detached from that. But, Andrew, I think I cut you off. You were going to jump in.

Andrew Abela: Not at all. So you’ve heard the old joke about the professors who argue. Yes, that may work in practice, but it doesn’t work in theory. You know, that used to be the argument about faith based investing, right? That portfolio theory says if you’re going to exclude a bunch of stocks, then your returns are necessarily going to have to be lower. You’re both experience [….] that’s that’s not true. And I’m a little hesitant because we’re not done with the research yet. But we’ve been working through a study looking at portfolio returns of faith based portfolio versus non and over extended period of time. And I’m finding that in theory, yes, it does work that you can be selective and screen out certain stocks and still not cost anything in terms of returns. Which sort of makes sense. There’s a there’s a beautiful line in the letter of Pope Leo the 13th from 1887. We remember him fondly because he was the founder of Catholic University. So. He wrote when Christian virtue is observed. That leads to a measure of prosperity, in a sense, because we’re behaving in the way God intended. So of course things should work out right. So it’s not a terrible shock, but it’s good to say to the average Christian investor, you don’t have to take a big hit, or you don’t have to take any hit on your returns. To be a faith based investor. Now, you might want to, as you pointed out, because there are certain sectors that you might. But now that becomes part of your charitable giving in a sense, right. By taking out a reduced return. But that’s a that’s a particular deliberate choice.

John Coleman: Yeah. We always think of the uses of capital, not literally black and white, but on a spectrum between pure philanthropy and high return investing. And as long as you’re conscious of where you’re playing there, it’s a conscious decision and you’re behaving in a way that’s aligned with the wishes of those whose capital you’re stewarding. It’s open, that spectrum is open, and you can really just Tony, as you would play in a risk return spectrum in fixed income to equities, to private equity. You can kind of choose at what point on that spectrum between philanthropy and return to play. One topic that we haven’t explicitly addressed, I’d be so curious to get your feedback on is ESG, and a question that we get frequently, if you’re willing to address it, is, is ESG aligned with faith driven investing or where are they align and where are they different? And so I’d be curious, as you all have reflected on specifically Catholic, faith based or faith driven investing and the points of similarity or difference with ESG? Just how do you view those intersections right now and whether that’s an active discussion or not for y’all, or you just have your own approach that’s completely different from that, and it’s not really a topic of discussion.

Tony Minopoli: I’ll kick off just how we thought about it particularly, you know, the environmental concerns I think are aligned, particularly with the current pope. Pope Francis is very concerned about the environment and has spoken extensively about it. Not to say that past popes weren’t concerned about the environment, but Pope Francis has written and spoken about it extensively. Some of the things that fall under the s are not necessarily aligned with the Catholic faith, so it’s a little difficult to align purely with them. And on the governance side, in many cases, a lot of the things that come up under governance, you know, single type of shared class, making sure things are disclosed properly. Those, I think are just common sense investment themes. But broadly, the way that we think about ESG, our first priority is Catholic social teaching. We need to be compliant there. ESG in the capital market sense. You need to understand how a company is perceived. So all of our securities, right, whether it’s debt or equity, we do think about the ESG factors. And greatest example as an energy company, just because an energy company is an energy company, it doesn’t mean it’s necessarily you can’t touch it. Because if you think about a company that manages their industrial or environmental impact well and follows all the governance rules, they may score poorly, but they may actually be a solid investment. So in broad terms, we will not invest in something because it scores high in ESG. We will not avoid something purely because it ranks low on ESG factors. But as a prudent investment manager, it’s incumbent upon me and my team that we understand the context of how a company is perceived with the real I, John. Is that company going to have an ability, for example, to tap the capital markets? Will they can they raise capital or have they violated environmental regulations in so many states that now their management is going to be tied up in lawsuits. And, and I always it’s a tired and old example, but I use it all the time and not to pick on GE. But when GE got in trouble all those many years ago for the PCBs in the Hudson River in New York, it took them forever between law, the lawyers and regulators and fines and then shareholder lawsuits. So management was management able to truly execute on their management strategy? No, they were distracted. So that’s we want to understand the context of ESG in a company. Because again, somebody that follows the right way, they’re going to be able to execute their management strategy. And we think that will lead to a better investment outcome. But for us, Catholic social teaching outtrump ESG. Andrew.

Andrew Abela: Yeah, couldn’t agree more. We have vigorous debates both within our school and with colleagues outside Catholic and other Christian, about the purpose of a business. The classic debate between sort of stockholder stakeholder. This gets a little more abstract. You know, professors like to talk about these. Abstract. Okay. So it’s what we do, you know, we bring it back to practice. And my perception is that we went from one extreme to another, where in the 80s and the 90s, we were all talking about profit maximization as the o, the sole goal. You know, it’s kind of like a, you know, an extreme form of Milton Friedman, kind of that the purpose of this is to maximize. Profits and nothing else. You know, he did go on to say, but to stay within the norms and, you know, and rules and so on. People forget that part. And ESG in some sense has gone to the other extreme where, you know, set aside the fact that, you know, one reading group can agree with another about what exactly ESG is, you know, said so totally agree with Tony, is you don’t abandon a stock just because it’s rated low, or you don’t buy it because it’s rated high, because those ratings can often be close to meaningless. But with the reason we think Catholic social teaching is so helpful is you’re looking at the good of a business. And is that not limited solely to profitability? But it doesn’t exclude profitability in the way some kind of ESG kind of perspectives take. So if you asked us kind of [….] what is the purpose of a business, we would say the purpose of a business is to do some good for some group of people and to do it profitably because you’re not doing it profitably. You’re just not a business. You’re yet another organization that has to be funded philanthropically or through taxation. Right? So business is the only self-sustaining, self-funding enterprise. And so to do that, you have to basically have a clear vision of the good that you’re doing, and then you have to do that with virtue to do that virtuously. And if you follow through on that, all the evidence is that you would be very profitable, successful. And so you would satisfy both the shareholder and the stakeholders is that’s kind of that’s the win win aspiration. I think that we should all have, instead of pitting kind of social justice versus profitability, you know, makes one good and one bad. No, those things don’t have to be in opposition.

John Coleman: Yeah, I think I love what you’re saying there, Andrew, because I do think there’s a way in which the free enterprise system, upon which capital markets rests or upon which investment rests, actually does contain kernels that can promote human flourishing. Obviously, it can be used for bad, it can be used for good. But actually embracing the right principles combined with that system can help to unleash human flourishing, which is one of the reasons we’ve seen this explosion in, people escaping poverty, for example, around the we’ve seen an explosion in the ability of people to escape their circumstances if they’re born into poor circumstances, economic mobility, the ability to pursue their own talents and merits. And so we think that certainly the system can and often is used to promote human flourishing, but it also has to exist within a set of values or virtues, as you would say, that allow it to function properly. And with regards to investments around here at FDI, we often say all investing is impact investing. Every dollar you put to work has an impact on the world for positive or negative. The only question is what kind of impact will it have? And I think the pushback against ESG has been a good thing, and that there are many valid criticisms from both the right and the left. And we don’t have to get into those. But it’s also forced, I think, Christians to say, what is our distinctive set of values that we want to pursue? What is it unique about the Christian faith that we want to see expressed in investment capital? And how can we now define something that’s distinctively Christian faith aligned, rather than simply falling in line with framework? That to your point, Tony has some similarities, but some differences, I think, from what dominant Christian doctrine, would be. I have a question. It may be on our listeners minds because, I’m a Protestant. We are notoriously hard to organize, I would say, as it’s a set of church denominations, you both had mentioned that you’re working with various denominations or orders within the Catholic Church to forward thinking about what this looks like. Could you explain to us what is collaboration look like within the church, across the various pools of assets that you all have? And how does that work? I mean, you’re both in the center of it. What does that look like for y’all?

Tony Minopoli: Andrew, please kick this off. But, John, I’ll just say, if you can visualize herding cats and wild cats, that’s sort of the start of it.

Andrew Abela: Tony is exactly right. Because here’s this is just a descriptive statement. Yeah. So the Conference of Bishops guidelines, which I mentioned before for faith based investing, faith driven investing, apply to the funds of the conference itself. Now. The conference is made up of the 200 and some bishops of the United States. Each has his own diocese. Many of them have their own foundations which invest their own association. The conference’s rules don’t apply to the to the bishops own, foundations. They are purely voluntary. So some bishops well, as a matter of course they will follow those others would say we have a better way to do it. We’ll do it differently. So even among the brother bishops themselves, there are some differences. But I say that purely descriptively, to say that there is coordination, but it’s not monolithic, you know, and in some sense, I think I would rather have it that way than have a top down. Usually I’ll do it this way, because when it’s that dictatorial, you can make some really, really big mistakes, right? Whereas when it’s more distributed in this way, if you make mistakes, they tend to be a bit more localized, you know? So I think there’s room for more collaboration, not just among Catholics but among all Christians, you know, because goodness knows the forces of secularism tend to sometimes seem to be really coordinated. And so if we’re going to provide any kind of countervailing power, but I think the best way to do that is through communication, kind of sharing of ideas, kinds of meetings. John, that you’ve organized, that we’ve organized, that the Knights that Tony, you participated in, in several of ours. Right. The more kind of discussion we have, the more aligned we can become around the same vision. It’s kind of how I would put it.

Tony Minopoli: The few things that I mean, one of the joys working with these disparities is it brought me into Andrew’s orbit, and the Knights have had a close relationship with Catholic University forever, but it’s allowed me to collaborate with Andrew. Andrew has become a friend. We chat about these kinds of things all the time. We’ve done. We’ve done a lot of work together, and there’s a lot more work that we’re planning on doing together. But Andrew makes a very key point that even across the various Christian denominations, the commonality of whether it’s an Episcopalian Catholicism or the various different parts of Christianity, of the Protestants, there’s a lot more similarity than there is difference. And if we leave the differences to the side, the core things matter, right? The things on life, the things on family. So I always joke, I have a young man, he’s not so young anymore because I’m not so young anymore. But he used to work for me. And when I was organizing the Knights of Columbus mutual funds, he and I were chatting, and he’s an Orthodox Jew. And he said to me, you were talking about the diocesan structure. And he said, if we ever had that structure in the Jewish faith, we would have raised $10 billion before you even open the door. And it struck me, because certainly as Catholics and I’m going to take the rest of my Christian brothers with me in the canoe, we never act in concert and imagine the change that we could forge if we actually did. Because again, though, there are differences in the faith denominations. Man, the similarity is a heck of a lot stronger than the differences. And I’m hopeful. And Andrew is right. I think the fact that there’s room for interpretation may bring more people into thinking about faith based investing, because it isn’t this dogmatic thou shalt do this and thou shalt not do that. But it allowed for us to say, you know what? We’re going to anchor to the central tenants of the bishops. We’re going to work with those clients. We have clients with separate accounts that’ll be a bit nuanced. And as my former pastor said, Tony, it’s a very large church with many different people in it. And I think when you move beyond Catholicism into Christianity as a whole, man, it’s an even bigger tent with a lot of very disparate, disparate opinions. But we can do better together.

John Coleman: Amen. I couldn’t agree more. And we’ve often had this discussion that man, the people who believe deeply in the Christian faith, we share so many of the same commitments. Right? I mean, we really believe in the dignity of all human being. We believe that every person on earth is created in the image of a loving God, and that everything that we build should be oriented towards helping those folks connect with their creator, live out their human dignity, really pursue something that can bring them well, having purpose and flourishing. And there’s really a crisis for that in the world today, right? If you look around the world, people are struggling, they’re unhappy, that are lonely, that they’re disconnected from that sense of purpose. And we have an opportunity as investors and business leaders every day to either help bring them closer to their creator and to understanding their own dignity and purpose or further away from it. And if we could just work together in concert more, to try and forward that shared vision, I think it could be really powerful as we wrap today, because that was such an inspiring call from both of you. I would love to just maybe ask a personal question, which is obviously, both of you are men of deep faith. You’ve been motivated by your faith, even in your careers, what you’ve pursued. Maybe just each of you individually. Tell me, what is it in your personal faith life that keeps you motivated about this, that keeps calling you into your profession, that you’d want to share with others.

Tony Minopoli: Quickly for me, John, my my younger brother has special needs, and he is in. I have to stop at my parents. We still have my mom and dad. They’re 85 and 83, and I have to stop at my dad’s house to sign a piece of paper for an investment that he’s making, and I’ll go in there this evening to go see my parents and have my dad sign this paper. And my little brother is literally the living, breathing, walking embodiment of Christ’s unconditional love. He’ll want to know, how did my day go? He wants to know that you’re okay. If he met you, John, chances are you probably give you a hug. And secondly, he’d want to know how your day went. Is everything okay? And watching the Knights of Columbus, its Special Olympics with him when he was a little boy is what motivated me to say. There’s something to this faith piece that needs to be part of my life. And when I got to work at the Knights of Columbus at the time, I had two competing offers one from a mega, mega large hedge fund that will go unnamed, and the Knights of Columbus. From an economic standpoint, I made probably the least wise decision of of a guy pursuing a financial career, but knowing that the money that I helped generate allows Patrick Kelly, our Supreme Knight, for wheelchairs, for coats, for kids, for food, for families, for disaster relief, and a very good friend of mine that works at a big Wall Street firm, said, it must be nice going to work someplace every day where the purpose for why you make money is just not to make someone that’s wealthy, wealthier, and people that know me well know how important my Catholic faith is and what a part of my identity is. And frankly, to come to a place where we have a chapel on the fourth floor and I can go to mass when you know it’s available, I can go down there and spend a few minutes in quiet, contemplate a prayer. It means an immense amount. And, and to be able to live my faith in my profession and, and know the good that comes from the work that the Knights do, it pretty much makes it makes it a life worth living. And I got to grow with it for, for many years. And my first job was working for the Knights of Columbus and Council 16 at their duckpin bowling alley when I was a ten year old as a pin setter, and hopefully my last job as CIO of the Knights of Columbus. The second job paid better than the first. But, I’ve had an involvement with the Knights of Columbus for for a long, long time Andrew.

Andrew Abela: That it’s hard to top. But whoever says that Catholics can’t share about their spiritual life, you just proved them wrong, Tony, so I do. So mine comes to a different place. I as a teenager, I fell away from the church, was a practical kind of atheist and went through some kind of dark and meaningless times. You know, it just kind of reached a point where I was very successful. I as you mentioned, I started my career at Procter and Gamble. I was at the time the youngest brand manager worldwide at Procter and Gamble. I thought I had the world ahead of me. I was a McKinsey, traveling around the world, working for them in Russia, just after Russia opened up, when when we all thought that it was going to become a great democracy and so on. And then a certain point, I just realized the emptiness of it all and was called back and kind of gave my life to Christ, came back into the church. And that was almost 30 years ago. And life just keeps getting better each year as I get closer to him, you know, everything makes more sense, everything works out better, and you just start to realize that this is the way we’re supposed to live, you know? So 11 years ago, I had a dream come true, and the university asked me to start a business school. And I’d had a vision of what? What would it be like to have a business school that was from the very ground up, focused on teaching and doing research about what does it mean to be a Christian in business? And that’s what we’ve been doing for now, 11 years. We’re 700 students and growing. We’ve been actually double digit growth the last four years, which is not rare in higher education, you know, nowadays. And that’s just been a real treat. And so just being able to work with folks like Tony and others and then to kind of bring them to the younger people and say here, this is what you’re striving for, is you want to go out and serve Christ in the world of business. You know, it’s been a real gift to me, I have to say. Yeah.

John Coleman: Well, gentlemen, that was an inspiring way to end Andrew Abela of Catholic University. Tony Minopoli of the Knights of Columbus Asset Advisors. We’re really grateful for you guys for being on the podcast, for the work that you’re doing every day on behalf of our shared faith. And, just really encouraged by this conversation and hopeful to see what’s next. Thank you so much for joining the Faith Driven Investor podcast today.

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In this episode of Marks on the Markets, Richard Cunningham and John Coleman interview Matt Monson, a public equities investor from Sovereign Capital. 

The three of them discuss various topics related to the markets, including the performance of large cap stocks compared to small cap stocks, the rise of artificial intelligence (AI) and its impact on businesses, the current state of interest rates, and the implications of international conflicts on the markets. 

They also touch on the importance of corporate engagement and proxy voting for faith-driven investors. The conversation concludes with personal reflections on the significance of Passover and the lessons learned from Scripture.

Episode Transcript

Rusty Rueff: 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: Well welcome everybody and hello. And it’s episode 171 of the Faith Driven Investor podcast. We are grateful you’re here. My name is Richard Cunningham. You find this recording this at the end of April 2024. John Coleman, as always, one of our mainstays is here in the studio with us from Atlanta, Georgia. And John, we’ve got a great one today is it’s a marks on the markets episode. And one of our guests is someone we admire greatly. A Denver, Colorado native, Matt Monson. Someone you get to work pretty closely with. Matt, we are so overjoyed to have you in the podcast studio.

Matt Monson: Yeah, thanks for having me.

John Coleman: Oh, man, it’s so great. We haven’t had Matt on since 2022, I think was what we said. And look, I just have a ton of respect for this guy. I’ve gotten to work for him, with him for the last three years and just towering intellect in the public equity markets in particular, Matt, and always well prepared. So I can’t wait to hear your thoughts on what’s happening right now.

Richard Cunningham: Oh man, I’m equally excited. Let’s see that intellect on full display today here on this marks on the markets episode. And so without further ado gents, let’s dive in. Equity markets have just made a monumental run. We saw last week a pretty tough week in terms of drawbacks for the equity markets, specifically The Magnificent Seven. But Matt, maybe how did we end up here? How has there been such a soft landing? Is there still upside in these markets. And just kind of orient our listeners as to where we are currently?

Matt Monson: Yeah, that’s a good question. You know, I would say the greatest opportunity for sure is in small and mid-caps and then some select large caps. So remember that seven stocks are driving a lot of the move in the stock market today. So the other 793 stocks in the S&P 500 are not actually all that expensive. So many people know that when they buy the S&P 500, that 34% of their dollars are actually just going into ten companies. Many of those companies were up 50 to 200% last year in 2023. And they’re up significantly again in 2024. So this type of concentration is in these top ten companies is actually the same across many different large cap indexes. So one of my thoughts is just that, you know the labor market here has been surprisingly strong, especially after these monumental rate hikes have taken place. I mean, this was the third largest set of rate hikes in the last ten tightening cycles ever since the 50s. And it could have broken the economy, but it didn’t. And one of my thoughts just share on why that might be is you see it in the surveys. The Small Business Survey for NFIB shows that 40% of small businesses weren’t able to fill the seats that they had open. So even if that tightening reduced demand and someone lost a job along the way, there were so many unfilled jobs just waiting for them that we didn’t end up seeing it result in unemployment rates ticking up.

John Coleman: Hey Matt, I want to dig into this soft landing topic. But before we do, can we pause on this magnificent seven kind of top ten topic for a moment? Because I’ve been trying to think this through, because it’s been a historic run for the last couple of years with those seven stocks in particular, particularly things like Nvidia, Apple, Amazon, Tesla, it’s obviously pulled back quite a lot of those Magnificent seven. And I’ve been trying to understand, you know, how much of this is momentum, how much of this is a flight to quality in those stocks. Because whatever we’d say about them, you know, they are seven of the most successful companies in the world in terms of growth, in terms of profitability. So it doesn’t look like the.com era where there’s this completely inexplicable rise in certain stocks. I mean, these I get why people want to invest in Alphabet or Meta or Amazon or Apple, because the structural growth in those companies and financial stability, those companies actually has been very positive over the last several years. So help me think through just how to read those Magnificent Seven, because I keep thinking there will be a reversion to the mean, and that small caps will catch up to those large caps. Or frankly, 99% of the market will catch up to that 1% of the market. And yet that 1% continues to kind of outpace. So how do you think about the success of those seven stocks, and how much of that is legitimate and sustainable versus how much of that is kind of momentum driven?

Matt Monson: Yeah, I think if you unpack the business models for the seven, they all end up with one common theme in place. They have a technology based monopoly, and we can walk through each one one by one. But for the most part, the business models are really good and they don’t have a lot of competition. And so when we look at companies that have done. Really well over time. Limited competition was always a key factor. And so I don’t think when we looked at them last in, you know, call it months ago, I don’t think the valuations look incredibly stretched even across the Magnificent Seven. And so you’re seeing a lot of the stock price performance being driven by earnings growth and a combination of earnings growth and valuation expansion. But you know that multiple expansion isn’t the standalone reason for stock price performance on those seven.

John Coleman: Yeah that’s my read is they’re actually fundamentally healthy stocks. They may be overvalued relative to some of the competition. But what I wouldn’t expect from them, given what we’re discussing is a dramatic pullback or it doesn’t feel like the same type of bubble atmosphere that you would have gotten during the.com era, right? So you may see a drawback, but my impression is that’s on the order of kind of a ten, 20, 30% reversion to small caps in mid-caps or other large caps rather than, you know, some sort of dramatic, collapse in those securities.

Matt Monson: Yeah, that’s why I see it. And, you know, there’s another theme there, too, is that AI is driving a lot of the growth that we’re seeing in The Magnificent Seven. And, you know, we all maybe have a different view on what I could be, but if it’s going to be the next penicillin and an airplane and the internet, then you’ve got something much bigger on your hands. It’s, you know, at best in the beginning of the first inning here for AI. And so if that’s the case, it’s going to be market size expansion. I mean, it’s really an arms race, right? Because you have so many different CEOs right now that will get fired if they don’t invest in and explore AI. And I’m not talking about the people who are selling it to the rest of us. I’m talking every business is looking into it, and we don’t even know what the financial ROI is going to be from that yet. But no one’s going to be penalized for overspending. People are only going to be penalized for not diving in headfirst at this point.

John Coleman: You know, in the last craze in technology like this that I remember was blockchain, obviously, because cryptocurrencies were linked to that. And there was this distributed ledger technology that was for use in other things. And there was a period of time, maybe 5 or 6 years ago, where everybody was like putting blockchain in their latest earnings release, and they were getting huge bumps for that. If they talked about it. To me, the AI thing seems a lot more legitimate. You know, we had a pullback in that blockchain craze a few years ago. The difference here is that blockchain really required fundamental shifts in the infrastructure of business. And it was almost like the fax machine. A lot of use cases for it required every single counterparty to get on the same blockchain so that they could operate together. AI is interesting because the computing power is obviously much greater than with something like blockchain, which is one of the bottlenecks right now. But it doesn’t require all the counterparties to operate. And we’re seeing tons of interesting use cases come up for that, whether that’s diagnosis in health care, whether it’s cybersecurity applications where you’ve got artificial intelligence, you know, enabling those, you know, just this host of use cases that are springing out of these large language models. And my biggest question is whether those, you know, can continue on pace and whether we can move past the large language models, indeed, to something more like artificial general intelligence, which is, you know, and people stand in different areas. Obviously, Sam Altman is very optimistic about the continued progress of those. I recently saw a podcast, I think it was with Mark Zuckerberg, who was much more skeptical about the near-term movement into AGI. So I’m with you. I think the AI thing is quite interesting, and figuring out how it fits into the way that companies do business is a big part of how they’re likely to succeed financially moving forward.

Richard Cunningham: Well, you guys can already tell we’re off to a fast start. Matt Monson is on full display, and what a joy it is to kind of listen to you guys riff on this. You know, Matt, let’s back up for a second just to kind of remind everyone. So you are a public equities investor. You run a couple of really neat funds at Sovereign Capital, the Omega Fund and an ETF that maybe you can tell us more about later on. And you’re kind of distinct approach. But as we look at this disconnect between the run up of large cap stocks compared to small cap stocks, you guys have gotten into the AI conversation already. You know, how are you maybe responding to this as you kind of evaluate markets in your role specifically?

Matt Monson: Yeah, that’s a great question. So we actually just ran a bunch of data last week. So I’ve got a fresh off the top of my mind. You know, we’re all cap investors, which means that we are one third large cap, one third mid one third small caps. And so we don’t have a bias towards talking up anything specifically. And we can kind of move between them. But what I’ll bring to the conversation is that large caps right now are trading at a 33% premium to their 18 year pre-COVID forward earnings multiple. And so right now they’re trading at 20.7 times forward earnings. Small caps, however, are trading at a 20% discount to their historical multiple. And they’re only trading at 15 times forward earnings, say small caps, for reference, have typically traded at a small premium to where the large caps have traded. But right now, at a 25% discount, it’s a historically wide discount. And so let me remind folks of a few different things from 2000 to 2016. Small caps were up 410%. Mid-caps were up 370%, both of which significantly outperform large caps, which only rose 112% during that time period from 2000 to 2016. And then the tables turned so 2017 through present. Large caps are up 152% versus small up only 67 and mid up 92. So the recency bias inherent in all of us over the last seven years has shown that large caps have won. So I run into clients all the time who only want to own large caps, and they’re forgetting about that 16 year stretch before that, that small caps and mid-caps absolutely dramatically outperformed large caps. So I just find that to be interesting. And so we love being in the all cap space because we’re able to access all of them, not knowing when and to what degree one cap will turn and will be the leader for the next 16 years.

Richard Cunningham: Wow, that’s some good data. I worked for a premium investor that sought out specifically small cap and value premiums for a number of years prior to move it over to faith driven investor. And it was in the midst of that, you know, kind of unprecedented large cap outperformance and growth, outperformance of small in value. And so it was a tough couple of years for the firm, to say the least. But there is so much reference back to the historical basis for small cap and everything like that. So gentlemen, any closing comments. Kind of as we look at the public equities market and everything, as before, we get into kind of the interest rate conversation and go that way.

John Coleman: Well, I would say my overall comment and perhaps Matt hasn’t been surprised, but he just listed those numbers. You know, 2001 I think was through 2016 and then 2016 to present. And what continues to surprise me is just the incredible momentum and resiliency of US equity markets. I would have expected a dramatic slowdown in the current environment. I would have expected much more fear in the equity markets because of all the instability, inflation, etc. and yet US equities have just proven remarkably resilient in this environment. You know, that’s one of the things I continue to be curious about, because it several times over the last 3 or 4 years, I would have guessed that we were in for a prolonged pull down in markets because of Covid, which came back very quickly because of the fear of recession, because of rising interest rates and inflation. And yet US equities have continued to plow forward. And so I’m cautiously optimistic that they’ll continue to improve because of the fundamentals in the economy. And I know we’re going to get to some of those here in a moment. Matt mentioned those, but it’s been such a curiosity to me that they have been so resilient and we’ve had such a soft landing, despite all the moves of the last couple of years.

Richard Cunningham: Good comments, John. So maybe let’s do this before interest rates. I think this is key to go into as well. Matt, any thoughts on maybe how what you’re seeing play out in the public equities markets, how it’s affecting things in the venture and PE space, and then also kind of that big question of, you know, what is it going to take to open IPO markets back up now that equities kind of have improved stabilized. Yes there’s been the pullbacks. But let’s go venture in PE markets maybe IPO markets. Prior to us commenting on just the interest rate environment and things like inflation.

Matt Monson: Yeah that’s a wonderful question. I would say it depends. You know for some private equity and venture capital shops they own large cap names. And if you own large cap names that are now looking at comps in the marketplace that are trading north of 20 times earnings, you know, now you’re going to see elevated mark to markets in your funds. Fund performance is going to go up. Your opportunity to exit into the public markets, whether to a strategic or in an IPO will be a lot better. Now the other side of that coin is if you are a venture fund or a private equity fund that owns a smaller mid-cap, you’re not seeing those elevated valuation multiples. As I mentioned before, you know, you’ve got small cap forward earnings multiples at 15 times, which isn’t going to create the kind of juicy backdrop that you’re going to see in the large cap markets right now with regards to IPOs. You know, I think there’s a lot of talk right now that, hey, you know, the IPO market slow. What’s going on. You know I was looking at the historical data on it. And actually 200 IPOs a year is a fairly average number. And right now we’re running just below that. So back to the recency bias in 2020. You saw a record number of IPOs in the US for 80. And then in 2021 a record above and beyond that at 1035. There are no other years like that. In the last 20 years the average is really around 200. And so I think we’ve got a pretty healthy IPO market right now.

John Coleman: That is fascinating, Matt. I would not have guessed that that is recency bias. And I guess we all forget. We been in the markets for like 20 years. But it’s so easy to forget the. Prior eras. And Richard, what I would say I’m seeing in the private markets is fundraising is still a little bit slow in private markets, because people are still not getting distributions from their old private equity and venture holdings. I think selling positions has slowed a little bit. I do think the IPO markets, even if they’re more back in an historical average that represents such a slowdown from the prior era, from the prior several years, that you haven’t seen the liquidity mechanisms for some of these venture backed and private equity backed companies at the pace you would have seen them before, which slows down distributions. My perception is that the venture markets have bounced back in terms of valuations quite rapidly. You know, there was a dramatic pullback in venture valuations, which seems to be heating back up again, not at the 2021 levels, but we’re seeing pretty aggressive valuations in the early stage. Venture markets and growth equity markets again whereas private equity has stayed somewhat deliberate. And I think part of that is because of the high interest rates, which we’ll get into, you know, the private equity model, the LBO model is predicated on debt financing for many firms. And I think the inability to access cheap debt has kept valuations in those markets a bit more tame and has made them a little bit slower to inflate. That’s my perception right now. And so the private equity valuation market has come back but a bit more slowly. And I think that will only continue to increase as some of these IPOs do you pick up I mean Matt said we’re slightly below the historical average. You know, you’d like to see some liquidations, either sales in the private markets or IPOs of these private equity backed companies, or if interest rates start to come down, which I think would ignite, you know, the debt markets for IPOs in a pretty significant way.

Richard Cunningham: Right on. Well let’s get right into that. So interest rates what do we think in gentlemen 2024 2025. There’s been you know, maybe some tempering of expectations on what was supposed to be a rate cut heavy year by the fed. Matt, any thoughts on your end?

Matt Monson: Yeah. I mean, if we zoom out for just one moment, inflation has been a little stickier than people expected it to be. You know, running just a little north of 3%, depending on what data you want to look at. And because of that, the expectations for rate cuts have come down. You know, maybe it was going to be a handful earlier and now it’s going to be still there’s expectations for a little bit that may happen in the second half of the year. And as those expectations change it causes interest rate volatility. As there’s interest rate volatility it impacts cyclicals. It impacts financials. It impacts small caps. And so it really ripples through. You know I think a lot of this is just on the heels of the labor market strength that we were talking about earlier. You have so many small businesses that have open racks that they can’t fill and order magnitude. And that’s around 40% right now. And so even with rising rates that have crushed some of the consumer demand, you still aren’t seeing those job losses and an increase in in the unemployment rate the way that you maybe would have expected. And so just a remarkably strong labor market, I think, is really underpinning what we’re seeing in terms of the overall economic strength, which has led to, you know, that persistent inflation around, a little north of 3%.

John Coleman: You know, and to Matt’s point, I think inflation is almost always stickier than people think it will be. Right? I feel like historically, almost every time you think you’ve beaten inflation, it lingers a little bit longer than you think. And I do think there are still inflationary pressures on the economy, particularly the fiscal side of spending. You know, the United States government continues to pump liquidity into the economy, whether that’s student loan debt relief, etc.. The second observation I would make, though, because Matt has mentioned several times the historical ratios and how recency bias is throwing us off. I would say we’re suffering from a lot of recency bias around interest rates and inflation and employment as well. I had the privilege to one of my friends is now the president of the Ronald Reagan Foundation out on the West Coast, and I was touring the Reagan Library with him recently, and I saw some stats where they were trumpeting Ronald Reagan’s presidency, 1981 to 1989. And I’m not getting into the politics of this, but just listen to these stats. They were saying how impressive it was that during Reagan’s eight years, inflation fell from 12.4% to 4.6%, right, which is a little north of where we are today. I think unemployment fell from 7.4% to 5.2%, which is north of where we are today. And Matt, I remember when 5% was basically considered structural unemployment, right? The federal income tax rate, the top taxpayer rate was cut from 50% to 28%. So taxes were much higher. And the mortgage interest rate in the 80s dropped from 15.4% to 10.3%. And so if you actually look at the economic numbers today. The real aberration was the great financial crisis. Until two years ago, it was historic, global, low and negative interest rates, which drove just insane numbers around the economies of the world. And now we’re at a point that’s more like the historical averages with inflation. Unemployment’s sold that low. I think with interest rates, mortgage rates, etc.. And so I wonder if part of this soft landing is just that. Despite our recency bias, the actual real impacts of the economy, of the interest rates that we’re experiencing now are more in line with historical impacts than something really injurious, like the interest rates that were present in 1981, for example.

Richard Cunningham: Man, I don’t know that about Reagan’s presidency. I mean, kind of a fertile soil, if you will, to come down and and a lot of those numbers and metrics John. That’s interesting.

John Coleman: Yeah. I mean, it was wild to me to to see the numbers and see that, you know, even in 89, which I don’t even remember that. Well, mortgage rates being a 10.5%. You know, you think about what would happen today if we announced that mortgage rates were going to go up to ten and a half. I think we’re sitting at about eight right now, and it’s totally frozen. The mortgage markets, because of all these people locked in to kind of two and a half to 3.5% rates, but we’re actually living in a relatively normal interest rate environment right now. And it’s a little inflationary, but it’s not actually as inflationary as a lot of prior periods.

Richard Cunningham: Good historical precedent. Well, something else, gentlemen, that I think we need to just have a really sober awareness of and have our eyes on and, and I’d be curious to hear you guys thoughts on implications as it relates back to the markets as just time of conflict. We’ve seen what’s going on in Ukraine and Russia now for an extended period of time. There’s even, you know, recent updates to the conflict in the Middle East with Iran and Israel. You know, as you guys think about these international conflicts, what type of implications have there been on markets? Do you expect there to be on markets? Is that stuff priced in? Where are we at currently and what what kind of comments do you guys have there?

Matt Monson: That’s a good question. I think, you know, from my perspective right now, the direct implications are limited to the energy markets in terms of our funds. However, if this spirals into a broader conflict in the Middle East, you know, then we’re going to start to see a change in demand. And so one comment that one of my colleagues always uses is that threats to freedom are threats to growth. And we’re not seeing threats to freedom yet on our side, but we’re actively monitoring that.

John Coleman: Yeah. You know, apart from the obvious human cost. And I think we’ve all seen that and been praying for that over the last couple of years, whether that be Ukraine or, in Israel and Gaza. What’s been surprising to me is how markets are basically assuming these will stay contained, regional conflicts. I think we’ve seen brief periods where they assumed there was a possibility of a broader outbreak right at the beginning of the Ukraine invasion by Russia. I think we saw more market movements like this could break out. Right when Iran was sending missiles into Israel, there was a pullback, I think, because there was a fear of a broader war with Iran. But right now, my impression is the markets are assuming that these will stay regional conflicts. And especially with regards to the most recent activity in Israel, I think a part of that has been the surprising partnerships that have arisen during that. You know, I think if Iran had attacked Israel and there had been no regional support, I think the chances of all out war would have been higher. To see the Jordanians giving the Israelis airspace and the Saudis offering Israeli support was pretty surprising in the area. You know, traditionally, Iran has been an enemy of many of the Arab states in the region, and they’ve often viewed Iran as a much greater threat than Israel because it’s larger, it’s been more historically powerful. It’s obviously a different branch of Islam than the dominant Arab powers in the Middle East. But the fact that those Arab powers came to Israel’s support in the midst of the Iran bombardment, apart from the obvious conflict in Gaza, was a surprise. And, you know, I’m an amateur at this, but one of my observations is that might have muted some of the reaction, because even the Iranians probably weren’t expecting that kind of response from their Arab neighbors. And that probably caused them to be a little bit more cautious in the way they continue to react to the conflict. But right now, it seems like markets are just assuming these will stay regional. And like Matt said, unless there’s some indication that this breaks out more broadly or it turns into China invading Taiwan, or something of that nature, which could have real implications on broader U.S. markets. I don’t see this having a great impact if it doesn’t escape regional conflict.

Richard Cunningham: Well, gents, thank you. I know we’ve hit you covered a lot of ground, and we’re going to go in a fun direction here next because I want to kind of get into the Matt, you are such an admired leader and look to leader in the future of an investing space. And. So we’re going to get here into a second. We hear a lot in the news about corporate engagement, proxy voting and things like that. And so I want to go there as you kind of think about that. But before we do that, I want to provide you both just maybe a opportunity to tie a bow on summarize kind of as you look at the economy, markets, all of it, just maybe the Matt Monson John Coleman kind of state of the Union 30 seconds type. Just tie a bow on all of your thoughts as it relates to interest rates conflicts going on. AI disconnect between large caps and small caps, all of it for our listeners.

Matt Monson: Thanks, Richard. You know, one thing we didn’t touch on earlier that we’re watching closely and we think is really interesting, is that on our team, there’s been a lot of work that’s been done to look at the impact of shrinking M2 and the impact that we think that’s going to have on CPI. And so we think a lot of the M2 that’s come out of the system right now, you haven’t seen the full effect of that yet on CPI. And so we think that there’s actually going to be a reduction in inflation going forward based on actions that have already happened, because there’s typically been an 18 month lag. And so we think inflation is still heading in the right direction. You know, given some of my comments earlier around what we see on valuations, we don’t feel that the companies we own are stretched at all on valuation. And that’s just, you know, you’re going to hear that from other active managers as well, because we’re not passively deploying dollars into an index and you get what you get. And then we pick each one of our exposures, and we think there’s plenty of companies that have really good demand drivers for growth, fair or super attractive valuation. And so we’re really constructive on the public equity markets. And then just the greater backdrop of the US economy, we don’t see any big risks right now that we’re scared about, and certainly not the way that we’ve had things to talk about over the last 5 or 10 years.

John Coleman: Matt, how do you think about the upcoming election? That’s one of my instincts, is that markets will be a little bit muted as the US election plays out because of all these other risks in the economy, so it’s hard to see people getting too bullish or bearish absent some sort of shock globally, like we said, a big conflict or something like that. How do you think about the election in 2024 and its impact on markets right now?

Matt Monson: Yeah, when it comes to elections, usually there’s an unknown party, and a known party, and in some cases after a president’s been there for two terms, it’s two unknown parties. We have an interesting dynamic right now. We have two known parties. We had a former president, a sitting president, and we’re going to end up with one of them. And so I think that there’s less risk and less uncertainty heading into this election than there have been. And, you know, many, if not all previous elections.

Richard Cunningham: Interesting. Well, thank you both, gentlemen. So, Matt, let’s talk about kind of John, I’ve been in this season on the FDI podcast of talking about how to how can investors truly get in the game? How can we take more proactive steps forward and be faithful with what the Lord has called us to steward? And I think it should be helpful for listeners at home to hear a little bit about kind of what is your approach been, as you guys think about public equities, investors, corporate engagement, proxy voting, maybe provide a little bit of education there for what this can practically look like for your faith driven investor audience.

Matt Monson: Yeah, I love that question. You know, historically, public equity investors have just bought shares and been along for the ride. Worse yet, many investors don’t vote their own shares. They allow someone else to vote their shares for them. And you can guess what happens. That third party has their own set of values that they exercise when they vote your shares. So for faith driven investors, this is particularly problematic because if you own any ETF from a non faith driven ETF fund manager, you can almost be sure that your vote is being cast in conflict with biblical values. So in the world, we focus on how we give away our wealth and we focus on how we spend it. But most people don’t think about investing their wealth in line with their values. The faith driven investing industry is taking big leaps forward right now with corporate engagement, which means reaching out to companies and letting them know there’s another voice out there. Companies are responding with more neutral agendas as a result than some of the socially aggressive agendas that you maybe are hearing about in the headlines. And so there are multiple different paths to corporate engagement. And so I can outline them. I’m really I’m thrilled with what we’re seeing right now. So there’s a number of different firms out there that are reaching out to companies and moving their agenda in a really positive way. We have a little bit different approach at Sovereign Capital, so we’re engaging with the CEOs of publicly traded companies to bring them together around roundtables and to meet one another to learn best practices from one another. But we want to see them do is hear from their peers about what’s working well to enable human flourishing and what works really well to build better cultures, because we want to see those companies installing chaplaincy, installing employee benevolence funds, and really changing the face of what public companies look like.

Richard Cunningham: Man, that’s really encouraging. So for those at home listening, wondering, man, I just I feel so disconnected from my investments. There are practical steps you can take as a shareholder and how encouraging also that there are, you know, shareholders that are running ETFs and these other kind of fund structures who are engaging large company CEOs. And you heard Matt talking about it, bring them together to kind of be inspired and encouraged together. And Matt, you know, maybe help, you know, kind of orient people around the sovereigns public equities approach. You guys specifically invest in Christ following leaders of publicly traded companies, correct?

Matt Monson: Yeah, we do. If I sum it all up in just a few quick seconds, we believe that culture is the greatest competitive advantage in business and that if you invest in a company with a faith driven leader who’s building an exceptional culture to love and care for their people, that you’ll end up attracting and retaining some of the best talent in the marketplace, and that if you have a company with phenomenal talent, it looks like a sports team with all the best players, you should be able to outperform the competition. And so that’s the thesis behind what we do. We believe that there’s no trade off between culture and performance. And in fact, the greater the culture, the greater the performance.

Richard Cunningham: That’s awesome. Well, gentlemen, before we go to Matt and kind of have Matt share a little bit of a personal encouragement, I just what the Lord’s been teaching him in Scripture. Any closing thoughts, any any kind of saved rounds before we exit today’s episode.

John Coleman: I’m reminded, you know, we’re recording this the week of Passover, and it started yesterday, which is April 22nd as we’re recording this. And I am in a unique seat in that I have a number of family members who are Jewish and a lot of friends who are Jewish. And in the news right now in the United States, we’re seeing actually a rise in antisemitism across the country. And I think that’s caused me just to reflect on the importance of Judaism in Christianity and the important ties between those two groups, and just the important humanity of refusing to kind of discriminate against people on the basis of their race or religion or other things. And just a real heart for this. What should be an incredibly special time for Jewish people right now? But I know in the US at least, it’s been marked by a lot of fear. If you look at university campuses, etc. and so without weighing in on the conflict in the Middle East too much, it’s just been on my heart how tied Judaism and Christianity are, how important it is that the Jews in our country feel welcome and safe, and that during this Passover season that they feel celebrated and welcomed by those of us who are their brothers and sisters. So I know that’s not exactly a reflection from Scripture, Richard, but it’s been on my heart a little bit this week of Passover with some of the images that I’ve been seeing in the news, just, on university campuses and elsewhere.

Richard Cunningham: Thanks for sharing. John, appreciate that. Matt, what is Lord been kind of teaching you in Scripture lately.

Matt Monson: Yeah. There’s this verse. It’s so countercultural that I just want to bring to the forefront for everyone. It’s first Thessalonians 5:16 to 18. It’s what I call direction for living. It says, rejoice always, pray continually, give thanks in all circumstances, for this is God’s will for you in Christ Jesus. What would it be like if we all did that every day, every time something bad comes your way? If that was our response.

Richard Cunningham: Man, that’s so good, so good. Well folks, this has been a marks on the markets episode with Matt Monson of Sovereign Capital. Matt, what a joy to have you on. Thank you for sharing. You just kind of profound wisdom and insight on the capital markets. John, as always, what a joy to get to do this alongside you and folks. We will catch you next time.

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Chuck Welden, co-founder of Weldenfield, joins the Faith Driven Investor Podcast to discuss faith-driven investing and the impact of real estate on communities. 

Weldenfield is a real estate investment company that focuses on multifamily properties and deploys volunteers to live on-site and build relationships with residents. The goal is to create a social fabric and provide opportunities for gospel presentations. 

Chuck, Richard, and Luke dive into the importance of measuring key performance indicators (KPIs) to track the impact of work and ministry, as well as the importance of taking risks and managing expectations in early-stage investing.

Chuck also gives some guidance for believers looking to get in the game and steward their capital for the good of others and the glory of God. 

If you like this episode, please rate, follow, and share the show with others.

Conference Video Mentioned (Produced in partnership with Faith and Co.)

Episode Transcript

Richard Cunningham: What’s going on, everybody? Welcome to another episode of the Faith Driven Investor podcast. We are grateful to have you joining us as we record this. It is Monday, May 13th, 2024. This episode will actually drop on Monday the 20th, but whenever or wherever this faith driven investor podcast finds you. Thrilled to have you listening. My name is Richard Cunningham, joined by one of our faithful mainstays in Luke Roush, co-founder and managing partner of Sovereigns Capital. And Luke. We are in for a treat today, my friend, aren’t we?

Luke Roush: We are indeed. We’ve got one of our great friends who’s on today and someone who I’ve got a personal relationship with […] together with him, we’ve served on boards together. We participate in things like Christian Economic Forum together. And I really appreciate his generosity. And actually jumping on the podcast today, I was worried he might still be in mourning since Saban’s retirement from Alabama, but he’s come out of, mourning to, spend an hour with us, and we’re grateful for it.

Richard Cunningham: Yeah. Chuck Welden out of Birmingham, Alabama. Weldenfield the lion’s den. You know, Chuck, I had the privilege of joining the faith driven investor movement in May of 2021. So three years ago. And I’d be willing to bet that there hasn’t been a week that’s gone by since I’ve been involved with Faith Driven Investor, where the name Chuck Welden wasn’t mentioned. And I think it’s just because you’ve been blazing a trail, leading so much of this kind of conversation around what is faith driven investing, living it out yourself. And so we are overjoyed and thrilled to have you on the podcast, and you find us in this season, Chuck, where we are going back to folks who were featured on the 2024 Faith Driven Investor conference that aired in January. Whether they were a speaker, there was a video story on them, and Faith encoded this just masterful job telling the story of Welden Field, the real estate investment company that you helped run there in Birmingham. And so catches up, Chuck, who are you? What is Welden Field all about? For those that maybe didn’t get to see the conference feature, and we’re just so thrilled to have you on the pod today.

Chuck Welden: Well thank you. Chuck Welden from Birmingham, As you have already said, one wife four kids and ten grandkids. So that’s that’s the way you want to do that as far as ratios. Thanks for having me on the show. It’s pretty risky, you know, handing me a microphone. I assume you have some ability to turn me off or edit at the right time. And by the way, if you want to hear any Luke stories like, when he shipped his new […] to my office by accident, if that would be helpful, you know, to help set the stage. I’ll be glad to tell you the rest of the story sometime. You know, in Birmingham, we’re big fans of FDI. Eversource has a watch party every year, and we all go to it and love it. So thank you all for really investing in the whole country in the movement. I really appreciate what y’all do. I would like to start with 2 or 3 quick comments though. I like to say when I get a situation like this, one is, you know, if we’ve accomplished anything, it’s only because God’s been about it. We just basically, where’s God involved? And let’s go jump on his bandwagon. Number two, if you think you’ve been accomplished just because of all the folks that have invested in us. I mean, Birmingham is a backwater town, and yet we’ve had so many great people come here, invest in us, befriend us, teach us, mentor us. And it’s really advanced our thinking. We could not have done it without that. And third thing is, I know I’ll butcher whatever you say today, so I really prefer […] to watch the SPU video or the little five minute animated video that we made. They both do a great job explaining the fund and why we’re doing it and what we hope to accomplish. So if they sent Richard, we can refer people back to that. That’s probably the best thing we can do at the end of the day.

Richard Cunningham: Yeah, we absolutely can. And when people hear SPU, it’s Seattle Pacific University. They’re the crew behind Faith and Code that did this remarkable feature of Welden Field. But yeah Chuck hand it over back to you.

Chuck Welden: So maybe I’ll just give a little context for who. Weldenfield is basically my father, my uncle and another gentleman, Mr. Field, hence Weldenfield. They created the company back in 1977. And we’re active in property management in both multifamily. And then also we do development and redevelopment of hotels, multifamily, single family land and do good bit of private equity investing, including sovereigns, which has been a blessing for us as far as kind of a scale of our operations. I have about 850 employees, 14 states. We manage about 200 properties, about 20,000 units, and we’ve developed well over 12,000 units of multifamily, 3000 units of single family, you know, several hotels. So that doesn’t mean that we are smarter. That doesn’t mean that we make less mistakes. In fact, it probably tells you that we’ve made more mistakes because we’ve done all that. But we like to fail forward and try not to repeat the same mistake again, but we always assume it is. So that’s kind of a background of, you know, Weldenfield in a nutshell.

Luke Roush: The idea of actually failing forward and, learning from past mistakes. In the early days of sovereigns, we had something called RMD, which we, aggressively tried to avoid. And RMD stands for repetitive Mistake disorder. And, we suffered from RMD in the early days. But to your point, there’s opportunities to just process together as you bring new team members on. Sometimes they experience the same mistakes that you made before, and that really means that you are, in this case, me. I failed to appropriately train them on some of the mistakes that we had made. And so this idea of continuous learning and improvement, not just for existing staff, but new staff, you know, you’ve forgotten more than a lot of people will ever know about real estate Chuck. So maybe speak a little bit about that. Some of the things that you guys learned in the early days, that they really want to make sure that you’re avoiding in the current moment.

Chuck Welden: Yeah, we have lots of theories going into this, and it’s like, where’s the Tysons? That everybody’s got a plan until they get in the mouth. And so it’s true in real estate too, you know, we to about five properties of the fund in a variety of locations but for different demographics, all things that would help expand our knowledge base so that we could do a better job going forward. And we’ve learned some things. I mean, learned lots of things. For instance, we basically have 3 to 6 people volunteering ten hours a week that live on site. They get a rent stipend, and basically we provide a fishing pond. That’s kind of what we do. We give them a fishing pond. They want to love their neighbor, serve them, be involved in activities and social events that have a chance to lead to a gospel presentation. We call it connect, share, gather, train. That’s what we provide. We were we’re a fishing pond. And here’s some of the things that we learned quickly in the fishing pond. One is when you buy a property, you think you own it, but people who have lived there already, they own it. You’re visiting their house for the first year. After a year or two, it becomes your house. And so we have to be less aggressive the first year or two than we thought we could be. We thought we could be more aggressive, and really, we have to be more cautious and really go deep in those relationships. Number two, we started off thinking we’d only have 2 or 3 people per site. We realized quickly if somebody leaves or if two people leave, all of a sudden, all those relationships you’ve created, all those time spent, you have to start over again. If you have 3 to 6 people there, then or two people leaving doesn’t put you back to ground zero again. The third that we found out is ministry is messy. You got to be ready for anything to happen.

Richard Cunningham: That’s awesome. Chuck, maybe back up for a second and talk to us about how you kind of got to this investment thesis or methodology. So we’re really talking multifamily real estate investing here, buying apartment buildings. And then you’re talking about thoughtfully deploying people into these apartments. And you mentioned volunteers. So I’ll be curious about how that works as well from an economic standpoint with the fund and returns and what all that looks like. So thoughtfully deploying people into these communities to go spread the gospel and be on mission.

Chuck Welden: Let me tell about how we get here first, and I’ll come back to more details about what the program looks like.

Richard Cunningham: Yeah, give us some of the breakdown.

Chuck Welden: So basically, if you go back 20 years, I’ve been on about 20 missions trips, 12 countries, multiple times in my whole family or different members of my family. You know, one of those missions trips one day in Honduras of building another school building and, you know, wondering how many mistakes did I make today and what’s going to happen next Monday when we leave? Who’s in to come fix all the mistakes we made. And by the way, the four guys sitting on the hill watching me, I wonder how many of them would be working on this project if I wasn’t here volunteering today. So all of a sudden, Austin Hug here induced me to the concept of job maker versus job taker. So I set on a path, a journey to find out is there a way for me to use my business skills, my legal skills, my financial skills, real estate investment banking, those kind of things in a way to advance the gospel by being a blessing in the country instead of taking jobs or volunteering. By the way, vision trips are great. Volunteering is great. I don’t want anybody misinterpret me how important that is for family and for us as Christians, but in my case, I feel convicted. I need to do something a little bit different. And so we just covered business missions. So we then invest in 40 companies in about five continents, in about 15 countries and largely businesses. We knew nothing about honey bees, cattle, it, bookstores, dairy farms, insurance, whatever it was. And then one day, several of our investors, including Luke’s partner Henry and the McLeland Group and, Tom Phillips, 3 or 4 guys came to me and said, hey, why are you doing this? You’re on these boards of these companies around the world, your gallivanting around, why don’t you do your own real estate business? And by the way, [….] Ramones said, Chuck, I know how to make money. I don’t know how to give money away, but can I make money and be a blessing at the same time? And so I got challenged to see if we could figure out how to take real estate. And figure out a way to have impact investing within the real estate compounds. And so that’s really what the challenge was. So we started the fund raise about $20 million, about five properties. And that’s what we’ve been doing for four years now. It’s still only about 5 or 10% of our total business, but it’s a growing piece of our business. And think about all the different people out there that are actually activating this space in the ecosystem, including sovereigns and FDI, you’re a large part of this. But as a result of that, we’re getting more and more investors asking is, can we have a positive impact instead of a crazy impact?

Luke Roush: Maybe speak a little bit about. So one of the things we’ve talked about, Chuck, is kind of being known for what we’re for rather than what we’re against. And when you talk about resident impact on the folks that you have a chance to minister to maybe talk a little bit about what that looks like, you know, and how you’re for people who live in the apartment complexes that you guys have.

Chuck Welden: Yeah. If you think about it, in multifamily, the average person only knows three people in the whole community. I mean, it’s lonely and Covid only added to this, but it’s already there before Covid. Yeah. How about your own neighborhood? How many people in your own neighborhood do you really know that you’ve had supper with or similar sandwich? It’s just not true the way it was in the 60s and 70s. So what we realized is, if we can bring these 3 to 6 people to come live on the site, not parachute in, they live there. They’re part of the community. They create relationships. They earn their right to be heard because they’re working out at the gym. They offer to babysit for the mother who’s sick. They offer to bring food for the husband who’s out of it doesn’t have a job. We act as a social and service community, and then we do events and parties, and we create a social fabric. And that leads for an opportunity for these folks who agree to give us ten hours a week for the fact that we give them a rental reduction. They volunteer and use those ten hours, and we create a program of activities. They turn in. We’re very big into measuring things Luke. And, you know, KPIs are huge to you and to me. We measure 12 inputs all the way from prayer walks. How quick do they meet the resident when they move in? When do they have their first spiritual conversation? When do people come to events? How many people came to the events? How many events do we hold? We measure 12 to 15 things and we measure three outputs as well. We measure outputs of people returning to returning to faith, those coming to faith, and those attending Bible study or churches. And we trust God for the outputs. And, you know, we think we’re in control of the inputs. We’re really not even in control of the inputs, but we constantly evolve and change our inputs. If we don’t see outputs that match the effort we’re putting in. So it’s all about KPIs for us. We have a business plan and we have a spiritual plan, and they both have to be prioritized for what we’re doing.

Luke Roush: It’s good.

Richard Cunningham: Man I love that. Now you had a line that was you don’t treasure what you don’t measure. And then I believe you guys have hired for a position called a chief spiritual officer. Is that correct?

Chuck Welden: Yes. What do you think? That if you don’t have somebody responsible and that lives it every day, then it won’t get done? As one of the team members said, years ago, the spiritual was number five on my list. I had to set about fixing the roof leaked. We had to get the survey finished. I had to interview a manager, and so was number five. Back in the day was number one, but the next day started back at number five again. Because tyranny of the urgent always allow spiritual and important things or priorities, or spend time your kids or your wife to always be […]. It can be done them all. And these urgent things had to be done today that aren’t always the priority. So we said if we didn’t dedicate somebody, no one would really focus on it. In the end, we hired two guys, both 50% of their time. Calling priority is the chief spiritual architect. He’s designing the system or, designing the training, the recruiting methods, the discipleship modules, the evangelism training everybody. And Randy Wilson is the chief spiritual officer. He’s implementing those things they both can do either job or both are better at their respective jobs.

Richard Cunningham: That’s awesome. Yeah. And and Randy has a line in that video in the conference that I thought was so good where he said, if there is profit and no spiritual impact, we failed. If there is spiritual impact and no profit, we’ve also failed. It is finding kind of the tension and the lever to balance. And so talk about that a little bit as you approach investors. And I love how black and white you got in the video where you said, hey, in a traditional multifamily investment strategy, here’s kind of an expectation around the return profile. If you want to kind of ratchet up the spiritual integration and deploy these people into these communities, here’s where the returns might change and what that looks like. And so talk about that side of things and kind of how you guys have all process through that.

Chuck Welden: Sure.  And of course, anything I say today is subject to the fact that we’re in a transition point right now on returns in almost every industry, particularly real estate, have cap race, interest rates and insurance number. Traditionally, I would have told you that in our value add program, 15 to 18% internal rate return over a 3 to 5 year period, we decide in the fund. First of all, we would go longer. Instead of three five years, we would go 7 to 8 years because our investors wanted us to go deeper with our roots, so that when we leave one day, there’s a chance somebody’s still living there, somebody still living on the property. That still carries on the mission for some time period afterwards. So that’s one thing. Secondly, we sort to charge 200 basis points, which is basically 2% of the equity on an annual basis. So we told everybody your return would be approximately 2% less than what we’d get in a normal deal. So instead of 15 to 18, maybe 13 to 16. Now the numbers are being redefined right now because of there’s nothing trading right now. So we’re just use relative numbers for this conversation. And all these investors said, great, if we can get that return and have this kind of impact. We’ve had about 60 people either come to Christ or recommit their lives, most of them after 10 to 20 years. I mean, they have a church in ten years, maybe 20 years in some cases. So that’s what we did. And, they accepted those returns and we’ve accomplished those returns. So everybody seems to be happy so far.

Luke Roush: You know, here’s the way I kind of think about it, Chuck. And you and I have talked about this extensively before, but I kind of think of this journey that you’re on with the Weldenfield fund. It’s kind of being a first mover risk, right? Like you’re trying some new things. You’re going to make some errors of commission, in terms of what you try from a spiritual integration and both evangelism as well as discipleship perspective. But ultimately, you know, to the point that you were alluding to a moment ago, if you’ve got 5 to 7 years to demonstrate the results of this risk that you’re taking in terms of community member retention, right. The churn that you see or maybe see less of in your communities. I like to think that actually, buyers will appreciate some of the things that stem out of that. You’re not doing it for that reason, except, you know, that output is a byproduct of really caring for and loving people well, where they are. And so, you know, is there any idea that, hey, actually, at the end of the day, maybe the property is worth more than it would be if we hadn’t done this? And so what you give up along the way, you kind of get on the back end again, not the animating reason to do it, but it is kind of it’s interesting, you know, it seems concessionary in the early days and yet maybe not over time. Any thoughts or perspectives here? A few years in.

Chuck Welden: Yes, we have a lot of debates internally and with other investors like you and Tom Lowe particularly the challenge me the most in this area. You know, big picture wise, you know, apartment life, which is somebody we used on over a dozen properties over the years. They’ve done several studies to say it’s actually accretive, that the money you spend actually pays you back like 3 to 4 ratio. We decide just to be conservative in our underwriting. My father is a pretty hard man. And so I’ve been taught to under-promise and overdeliver. And so I really instinctively really in the end, the 2% that we’re spending in, by the way, it’s a maximum of 2%. Sometimes we spend less. And I’ll come back to that. We spend sometimes less than 2%. But I believe that in many cases. It’s costing us nothing because people are staying longer. We’re getting great reviews. We’re having people tell us that they moved in specifically because of friends of theirs that enjoyed that. We’re there are. So do you think you’re happier residents that stay longer? The turnover expense is less. They leave the apartment in better shape when they do leave, and they give you better ratings on their net. That’s really kind of like the perfect thing is, I guess there’s this guy 12 years ago. Let’s talk about being a good neighbor. So maybe it actually works. And so I do believe in the end that we’re not spending that whole 2%, maybe half and maybe none. I don’t know if it really will ever give you your performance. Certainly gives you a better in a Y a better T 90 trailing 90 for, you know, for purposes of selling on the back end. So certainly on the back end you may get a benefit also because you had lower expenses. But as you said, that’s not the reason we’re doing it. But I think at the end this is not costing anybody very much at all.

Luke Roush: That’s good, that’s good. And, you know, I think that there is this, this idea of trying new things. Right? Anytime we invest in an early stage company, they’re taking risk. Right. And there’s inherent risk in the process. But, you know, there’s an opportunity for believers who want to be more impactful in how they shepherd capital to take some of that risk. Right. And as you demonstrated and more people jump in, it’s just like the standard adoption curve. And I think your point about, you know, managing expectations, we always say expectations minus results equal satisfaction. And so the message is, you know, manage expectations. So I think it’s good.

Chuck Welden: But you maybe think it’s only I probably would like to touch on, you know, just like we one day had that aha moment that the […] kids had no shoes. As I was telling you, we invest in all these […] businesses that weren’t doing it with our own 850 employees and our own 20,000 units, we had that aha moment that our kids have no shoes. So I like to point out that we think we have 4 or 5 customers or clients or whatever you want to call it. We drew a, archery bulls out in the bulls, our residents. That’s our most important clientele that we believe we are called to minister to. But the next circle for us is our employees own site. Just because we’re Christian owned doesn’t mean that everybody that works for us is a believer. So we’ve had them also come talk to us about things because of what they saw, how we treat people. The other group is the construction crews are largely Hispanic Latino construction crews, and they come for 30 days to six months and often don’t go home very often. They once a month. So we’re now hiring Spanish speaking pastors to come in on a weekly basis and minister to those gentlemen. Soccer match, or come to the restaurant and have some beers and hang out and eat. So we realize that’s an opportunity we didn’t think about in the first three properties. So look at this example of mistakes we made or being an early adopter. We didn’t have a playbook to go back. But yet we’re realizing that. But the two people that we’re most excited about, maybe that is really interesting looking. Probably the same thing is the operator and the investors. We want all our investors to be so excited about when they get our spiritual report. They say, I can elevate, I can do this at my manufacturing plant, I can do this at my car dealership, I can do this at my bank, because at some point, demonstrating something is better than arguing. I mean, I don’t matter, arguing I love arguing, I’m a lawyer, but I don’t win any people with a lot of arguments. But I do want people to try new ideas when they see it and they experience and they taste it. So we think our investors and and secondly, other operators. We’ve had 15 other operators from around the country come to Birmingham. We did a person with eight of them about a month ago. We have two guys, including Nick Bonner, Luke, who, you know, he’s bringing a guy from California that he thinks he’s got lined up to think through how to do some of this. And they’re coming to Birmingham for two days just for us to invest in, them, we learn from them as well. I don’t I mean, we always learn from everybody comes, but he’s really coming to see what we’ve learned. So operators and investors are two other great people to have an influence on.

Richard Cunningham: Man, that’s good fun to hear about the multiplication. And it’s also gets back to Chuck that laser sharp focus you guys have on the KPIs. And you know, you treasure what you measure to use the word you use and focusing on those engagements. And it’s not just to feel good, hey, let’s write a check to the good guy so that it feels like we’re winning in our investment portfolio. But you’re actually coming back and saying, here’s how we are focusing on gospel progression and gospel impact inside of our community. So that’s deeply inspiring.

Chuck Welden: Enriching. Every company has a certain missional potential. And we think that if you don’t sit down your eyes, look at your balance sheet, your eyes look at your checkbook, your eyes, somebody evaluate your handicap on your game. You’re looking to see how many pounds I lifted this week. What’s my personal best this week? I’m talking to Luke, not me right now, but so everything else we keep score in life. But the one thing we don’t keep score on is this we say God’s and everything we do, we pray before meetings and those are all wonderful things. But for me, those are cop outs. I want to get my hands dirty and figure out every intersection point that exist, and try to capture every intersection point that we financially can capture. So that’s how we look at it.

Richard Cunningham: I love it, it’s motivating. Hey, there’s another thing I want to get into here, Chuck, that you’re also pretty passionate about. And that is this tension of raising rents and affordable housing and just the situation we’re in right now. It just, you know, cost of living in America is just growing, whether it be inflation, interest rates, you name it. But specifically on the rent side of things, how do you guys wade into those waters as a real estate owner and operator?

Chuck Welden: You know, I think the last time I cried was when I watched [….], so I don’t cry. I mean like once every 20 years, but I almost cried. And here’s the story. The first property was under contract. John Ray told me to go look at it in Pensacola. I walked in. There’s older gentleman. He’s paying rent with cash and managing 20,000 units. I knew what that meant is he can’t afford to pay his rent by the 10th. So as he gets checks from Social Security or wherever else, pensions, whatever, he’s getting his money, he’s paying weekly. And I said to myself, this is going to be an unintended consequence because we rehabbed the property and renovate it, raise the rents in order to give your investors the returns that they would like to have. You’re gonna raise rents 100 and $400 per unit per month, and some people will not be able to afford that change. And that was on Saturday. I came back on Monday, our weekly meeting. I said, guys. The homie, today’s about one topic. What are we going to do here? Because this man Joe won’t be there a year from now. And his story got worse. He got dementia, his wife get dementia. And our residents found his sister, who he had talked to in 20 years and moved him to Atlanta, where he finished his days. But I was so humbled by that situation. So we now try to look at the rent row and go talk to people and let them know what’s going up. In some ways, we should do this. We should not want people to leave. We should want everybody to stay as long as possible, and then they just get kicked out when they can’t pay the rent. We said, no, no, we’re going to talk to people and we’re gonna go help them. If they’re lower income, we’re going to help them get on the waiting list at the local housing authority, or we’re going to help identify some of the properties in town. But they’re so full right now and so that did not solve all the problems. So we took some of the money and used a little bit of a benevolence fund to help transition people a little bit. Basically, we took the investors moneys, and that was part of the reason we have that money is to serve our residents. And thirdly, Wilson has let them stay a month or two longer at the lower rent. But I would be lying. If I said we solved all the problems and then we did have people get hurt through this process. But there’s no somebody else gonna buy that property. And we came to the conclusion that we would just do the best we could and try to do more than anybody else would have done. But, Richard, there are consequences. There’s always unintended consequences.

Luke Roush: Have you thought Chuck where you own properties. And it may be just it’s a different market segment and it’s not what you guys do, but have you thought about going down market in a similar zip code so that you’ve got a place to transition people into? Or is that just kind of out of scope for what you told your investors you do with the fund?

Chuck Welden: Yeah. We purposely designed this first fund to be a medium fastball down the middle of the strike zone, where we knew that we had a chance to hit a double or triple and not strike out, because we know that if we fail, we don’t know anyone out there. There’s other people doing great stuff. Launch. Careful. There’s there’s 3 or 4 of the great funds out there. Sovereign’s has its own real estate foundation. Great guys out there, but largely is. We’ve met with everybody that we can find. We haven’t found many people doing very much like what we’re doing or like Launch or Sovereigns is doing. So we purposely decided to not take hardly any risks. Looked like that. But you have to hear the roots of it. Weldenfield is for the first 15 years was affordable housing. Section eight tax credits 202 for former home. So we have a heart for that. And our team has a heart for that. And so that is something we hope. But here’s what happens. Every time somebody brings us up to me I’ll say, okay, let’s talk about let me tell you what your returns are going to be. And they say, well, that’s not really the return I want. I wanted X. And I said, well, then you don’t want to do affordable because affordable does not make as much money. It’s a tougher market. You’re not going to make as much. But we’re still praying and hoping that some investors migrate into the affordable world so that we can do some things like that Luke. But these funds are just, you know, you see us being a mass properties. Really.

Richard Cunningham: Chuck, you said a line earlier that when you guys leave, you know what happened. There’s another tension to manage there in terms of Weldenfield comes in, buys the property, holds five, seven, ten years, whatever it might be. Cash flows in the interim and then ultimately sells to the next owner. What does that look like? Talk to us about the kind of the tension to manage as you leave a property.

Chuck Welden: Great question. And you’ve really hit on the two biggest tensions that we’ve discovered so far. I mean, there’s other business challenges, but those are two structural tensions in our mind as far as leaving. We know we’re leaving. Even Nasser, who built that big statue, it fell down eventually. Nothing lasts forever. And so what we’ve done is we’ve tried to bring in local churches and local ministries where we can. I mean, use example Bellevue Baptist have of Memphis, Tennessee is right down the street from one of our properties, and they never have 2 or 3 people from the church living on the property. And we’re encouraging that. We’re thinking that we have local in Huntsville. We had a guy that came up to us when he saw his prayer walking or saw Randy prayer walk and said, who are you? Why are you here? Explain what we’re doing. This guy goes out of the neighborhood and I walk my neighborhood in this apartment community, I think every week for like 15 years, hoping something would change, hoping that. And so we’re trying to find those persons of peace, those people who care about their neighborhood, churches that care about their neighborhood ministries, like No Place Left or the big life that care about their neighborhoods and their towns and get them to move in. With the idea that even when we leave, maybe they’ll stay 2 or 3 years and Weldenfield even talked about and like, we have a property we may be selling right now, and we’re talking about taking some of our part of the profits and trying to seed the property for another year or two. Because once somebody moves in there, they can keep doing all the activities. It’s not like the new company is going to kick them out. Now, they may not be as cooperative, and they may not let them hang the sand inside the elevator and people, things like that. But overall, once you’re a resident, you know people, you still get a chance to talk to them.

Luke Roush: So this whole idea of community, I think is really, really interesting, Chuck, because one of the things that I’ve never appreciated before, getting to know you and understanding the work that you do and others do is, you know, Class-A apartments. There is no community. People want to be able to go home, retreat into their apartment, and they’re kind of not looking to know anybody on the hall or anybody down the way. You know, class B, class C apartments are very different. A lot of folks that are hanging out and spending time in community with others, and they really are hungry for friendship. And so I think that’s something that you guys have really cute in on that, I think, is it’s indicative of a broader need that our society has to know and be known. And I love what you guys are doing there.

Chuck Welden: Yeah, I think you’re right. And I mean, there’s another verse on that one as well. harder for rich man to go through that eye of a needle than a camel. So the whole idea is that if you’re wealthy you don’t think you need anything. So we our residents have real problems. They have depression, they have drugs, they have broken marriages. And these are all opportunities for us. We had a lady whose husband was so mad at her. He wouldn’t go to her birth of a second child. He didn’t show up to the birth of his second child. So two of our team members, two girls from our team, went and stayed with her for 48 hours for a C-section delivery. She becomes a Christian. Her 12 year old becomes a Christian. I don’t know how I, you know, if I care about the guy, I don’t know where he is, but, I mean, these broken relationships. These are opportunities. And there’s same things exist in the eight properties. But we had it so much better. We can had things so much better.

Luke Roush: You talked about it, man. Being a good neighbor. Some guy 2000 years ago to use your line talked about that. Hey, Chuck, this is not a marks in the markets episode. Will be really brief here, but would be remiss while we have you and your just deep tenure in the real estate investing field not to get such some quick comments on. State of real estate market. I know we’re talking multifamily primarily today, but and I saw something in the news about a Fort Worth office building that sold for a 140,000,000 3 years ago, sold in an auction the other day just for 12 million, and say that it feels like there’s a little bit of doom and gloom, whether it be this interest rate environment, you name it. But any comments from you on kind of just the state of real estate investing and where things are?

Luke Roush: I’m not a math major, Richard, but that property in Fort Worth carry the one. Okay. Yeah. That’s a bad investment.

Richard Cunningham: That’s that’s not going to feed the kids.

Chuck Welden: When you take zeros off, it’s bad. We put zeros on. Yeah. Office has got a very tough road. I mean, office isn’t going away, but it’s going to totally be be a new bottom for it. We don’t know where that bottom is right now. Retail has come back a little bit. But the neighborhood, you know, not the big box but the neighborhood where you can eat and get services that’s becoming stabilized and actually growing right now, a little bit industrial, has been the darling along with multifamily for the last ten years. Industrial starting to slow down just a little bit. I was with some industrial guys all last two weeks and they talked about how things are slowing down the pre leasing. It’s really slow right now in particularly in even Dallas and Austin in Houston, multifamily reason we like multifamily is that people have to live somewhere. I mean, all these other things you still do in your house, are you at your house right now when we do this? Richard, are you at your house?

Richard Cunningham: I sure am.

Chuck Welden: Okay, so two out of three of us are at our houses, not me. So multifamily is here to stay? There’s a shortage of housing. 3 to 5 million. There’s a projected 45 million people living in apartments. That’s the size of Canada. So that’s not going to change anytime soon. I think there’s record delivery coming on, and 24 in the first half of 25. We’re looking at some new development opportunities, trying to deliver them in 2026 because that’s when there’ll be no deliveries coming right now. So multifamily is, I think it’s a good place to be right now. There is a correction being made. Properties are probably go down 10 to 30% of what they were worth at the peak. And some of those recover that very quickly over the next 2 or 3 years. Some won’t I would just say that whoever talks to you may find somebody that has some scars, make sure they have some scars, because so many of the guys who are going broke right now. I mean since 08. And they’ve never had a bad day in their life. They’ve never seen a day in which they didn’t make money and things went up in value. Yeah. That’s, that’s that’s is somebody who’s been around a while and have good track records. But I think multifamily will settle back in and probably be in the 13 to 17% returns over the short time period. Which is, you know, compared to 15 to 18 traditionally. There was a few years where was in the 30s, but that was just a that was a freak accident where everything happened just right. That was never sustainable. So that’s my projection of multifamily right now.

Luke Roush: That’s good, that’s good. And it’s relevant. And I think a lot of people are trying to figure out what to believe, both in terms of the underlying asset class itself and then also in terms of the rate environment, which is. Yeah. Any thoughts on that?

Chuck Welden: Yeah, interest rates are very tough and cab rates course are directly related to that. Ten year Treasury and B bonds really drive up cap rates because that’s kind of the alternatives. If you wanna look at a risk adjusted valuation that’s kind of how people compare. You know the ten year get down to 380 jump back to before 50 maybe. I think it’s in the four 40s. Now, the question is what would be long term? I think it would be in the 350 to 400. I don’t think it’ll stay above 400 forever, but I don’t see it going below 350 anytime soon. I mean, is I think that, and the idea of inflation, trying to get that down to 2%, I think is impossible. They should just say 3% or 4% and just go with it. There’s too much consequences to what they’re doing right now. You know that thinks cap rates. I think it’s a good time to be buying because I do think there’s a possibly some rate cap reduction. I think there’s a possibly some interest rate reduction. And insurance has already dropped $5, went from 800 dollars to 2000 is probably back down to 16 1700 now. Probably will continue to come down. And it’s just a great fear pendulum. All these guys left because they get burned. And then people made so much money that the guys who lost money were coming back because they realized, oh, these other guys are making the money that they lost. And so we call the greed fear pendulum. You can’t ever stay on one side, the other. You always run back and forth.

Luke Roush: Yeah, maybe just wrap us up, Chuck. We always like to finish with one question, which is, what is God been teaching you in and through his word? Recently. So, over to you on that.

Chuck Welden: Well, I’m in the Psalms right now, and I guess maybe the theme I see over and over again is faithfulness and obedience. There’s so many songs by David and the other writers that talk about somebody attacking them, or somebody persecuting them, or sickness or whatever these things are that they’re experiencing. But it seems like those who are obedient and faithful. As they said, I think it’s Psalm 73. And then I walked into the temple and it changed everything. I mean, walking to the temple and seeing God’s goodness and grace reminded them that they could be obedient despite the situation. And so it’s so hard sometimes to even I mean, our business is tough right now. It’s been tough for a year and a half to two years. But, I think every time we’ve had a downturn in the economy, I’ve been through four of them. The only thing that made me feel comfortable was just being obedient and faithful and treating the investors money, just like you would treat yours doesn’t mean you always win. You’re still gonna lose. But that’s how we sleep at night.

Richard Cunningham: Amen. Well, Chuck Weldon, just from the bottom of our hearts. Man, thank you so much. What a joy to have your tenure and your expertise involved in the faith driven investor ecosystem to have you today, specifically on the podcast. And so, friends, this has been the Faith Driven Investor podcast episode with Chuck Welden of Welden Field at a Birmingham, Alabama, key leader in the Birmingham Lion’s Den movement and just a longtime friend of the ecosystem. And so thank you all so much for listening. We will catch you next time.