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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.

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Brightlight’s Chief Investment Officer, Tim Macready, joins John Coleman and Richard Cunningham for a discussion on the state of faith-driven investing, the opportunities ahead, and the impact of faith values on investment portfolios. 

The three delve into the theology and purpose behind faith-driven investing, as well as the role of corporate engagement in influencing companies for good. 

The conversation also explores the growth and performance of the faith-driven investing market as well as key market trends. 

Tim also discusses his groundbreaking research about the effectiveness of and the opportunity for Faith Driven Investing around the world, providing listeners with practical insights that will help them get in the game.

Episode Transcript

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

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: What’s going on everyone? Welcome to another episode of the Faith Driven Investor podcast. Grateful to have you tuned in from wherever you’re getting this podcast. This is dropping on Monday, June 3rd. So for those of you in the Northern hemisphere, happy Summer. It is upon us in Austin, Texas. It’s scorching hot already. And with that in mind, we’ve got John Coleman in the podcast studio, Tim MacReady. And this is going to be a really fun episode. It’s a marks on the markets episode. But before we go there, I want to quickly plug some things going on in the FDI ministry and ecosystem, and that is Foundation courses. Kick off July 8th and October 14th. Those are kind of the final two cohorts for this year, and we take great joy and pride in producing content like the FDI podcast within the faith driven investor ecosystem. But as with all things inside the body of Christ, it is better and community and alongside brothers and sisters. And so we’ll just heavily encourage you if you’re listening to the podcast and you have yet to go through an FDI Foundation course, this is the way to experience kind of the beginning of community within the FDI ecosystem. And once again, July 8th and October 14th, something really fun that we’re also doing, taking place on June 21st and 22nd, as well as September 13th and 14th, is kind of this weekend workshop for spouses and couples where you can experience the FDI Foundation course in a weekend. So maybe you as a spouse have gone through it and you’d love to take your husband or wife through the course. This could be a really neat opportunity to kind of experience faith driven investing community in a retreat style setting. And then all of this. If you have any questions faith driven investor.org, go hover over community or email Samantha Couch or Ben McLennan from our team. They are both Sam or Samantha at Faith driven investor.org and Ben at Faith Driven Investor.org. So I know that’s an abnormal kind of plug here before we start a podcast, but just know that we are deeply proud of these community opportunities and they are deeply meaningful experiences. Tim MacReady, John Coleman have both participated, helped lead, have been featured in all types of community opportunities that we’ve offered there with me in the podcast studio today. John Coleman, how is your Memorial Day?

John Coleman: Man, it was great. And just let me follow up with that plug. I have heard so much awesome feedback on the FDI groups on the community. So you guys are building the content is really good. I’ve obviously experienced it myself, but I keep hearing from people how impactful it’s been and so I hope everybody listening will really consider if they haven’t done an FDI group, if they’re considering a weekend community. I think this new couple’s content is really cool, actually. Jackie and I are thinking about going through it soon. I know Brooke and Luke, we’re a big part of that as well. So just great work to the faith driven investor team there because you guys are piecing together something incredibly meaningful.

Richard Cunningham: Thank you, John, for that. All right, John, I mean, he’s got to be one of my favorite people. If we were to like power rank folks involved in the FDI ecosystem, Tim is easily my top Australian voice, I’ll tell you that much. But led $1 billion Australian pension fund. So Tim, please correct me if I say anything wrong. Christian super. Recently in 2022 relocated his family to the States. He’s in Colorado. He’s running bright light, which is just an amazing research institution and just financial services organization that is going across kind of this broader FDI ecosystem and providing institutional level research, diligence, scoping out the kind of breadth and depth of the FDI ecosystem. And it’s just a really key and important leg of the stool as it relates to helping get people in the game of faith driven investing. In our January 2024 FDI conference, Tim was a featured speaker. He gave all types of data on just what is going on in the FDI ecosystem, the growth we’ve seen just in the last few years alone, such a key voice. You’ll always see him speaking at things like Kingdom Advisors. So Tim, what a joy to have you on the podcast. And let’s start with you kind of filling in any of the gaps of my kind of career progression for you there, because your story is just too interesting not to highlight.

Tim MacReady: Richard. John, really good to be with you and with our audience today. Yeah. So to kind of dial a little further back, even I grew up on the mission field. Parents were missionaries in Papua New Guinea. I returned to Australia for college at 17 and studied actuarial science with the goal of kind of getting into financial services and seeing what was what opened through God’s kind of moving there ends up working in corporate pensions consulting for nearly five years, kind of building skills. And then, as you mentioned, moved to Christian super, pension fund, superannuation is Australian for pension and spent 15 years there really exploring. What does it mean in the context of a pension fund where you’re stewarding assets on behalf of 30,000 Australians? What does it mean to be faithful? What does it mean to think about not just retirement from a biblical perspective, but also investing from a biblical perspective? And we really wrestle through what strategies can we use to develop this faith based investing capability? Can we screen out of the portfolio those companies that are misaligned to. Our values and to human flourishing. Can we invest more in those companies that are leading towards flourishing? Can we exercise our influence as shareholders? Can we even invest in faith driven entrepreneurs and faith driven leaders in the marketplace? And as I said, do that for 15 years. Out of that team of Christian Super, we formed Bright Light, which is where I work today. We’ve got people across Australia, New Zealand and myself here in the US, really at this intersection of how do we marry faith values and investment portfolios in a way that is excellent and has integrity to our investment objectives and our faith?

John Coleman: Well, if I could just pump up Tim a little bit more because you could miss it in that description, which was beautiful. He was really one of the first movers in the institutional marketplace, in faith driven investing, particularly from a positive screening perspective. Tim, I think what you all did at Christian Super more than a decade ago starting to get into this, I know, in full transparency for the audience. There were early investors with sovereigns, but from my point of view, kind of along with the McLellan Foundation, maybe a couple of others, Christian Super led the way for what the evolution of faith driven investing could look like, covering both negative and positive screening, getting beyond negative screening, trying to support managers who are doing that. And now I’m just so encouraged by what you all are doing in the context of bright light as well, carrying on and evolving that legacy further. And I think with your background also adding a lot of rigor to producing frameworks and data regarding faith driven investing that can help solidify in institutionalize the industry in really meaningful ways. So some of our audience might not be familiar with that background, but Tim has been a leader here for more than a decade, as he articulated. And I think his work at Christian Super and now Bright Light has been some of the most important in the industry.

Richard Cunningham: Tim we get to get on calls often. So I’m going a little off script here, but you’re kind of theology for the why behind faith driven investing I think is so captivating. And so as we get into bright light in the research, you’re doing, some of that conference talk that you gave, I think it would be helpful to, to start with some of the why? Because I think some people still are kind of like, what’s the big deal? Why faith driven investing? I don’t kind of find it compelling yet. And we want this to be something that’s never prescriptive or presumptuous. We want the Lord to lead here. But your kind of articulation of the theology and you’re kind of personal. What I thought has always been super meaningful.

Tim MacReady: Yeah. I mean, I love getting into this, Richard. I think when we look at the calling and vocation that God gives us as believers, there’s a general calling to faithfulness, to obedience, to living out our faith in every sphere of life. And so for those of us working in the investment field or in finance, I think it’s really important to understand and to think through, well, what is it? What is the redemptive purpose? What is the contribution to God’s redemptive plan for the world that investing or finance has? And for me, it boils down to this. Investing in general as an activity takes capital from places where it would be unproductive, to places where it can be used productively for profit and for human flourishing to produce goods and services that promote human flourishing. And I think that’s a vision of investing that we could get on board with, even without a deep understanding of the gospel, the idea that God has an overall redemptive plan for the world that is about flourishing in about relationships with him and with each other. And so then as a believer, how do we live that out? Well, we look for places where investing can be more redemptive, can lead to more of those goods and services that create flourishing, and can move away from some of those goods and services that don’t create flourishing. Companies do a lot of good. They create jobs. They create products, they create services. They create marketplaces where people can interact. These are all good things. As Christians, as believers, my theology of investing is how do we do more of that? How do we support companies that are doing more of that? And so that looks like how do we support faith driven entrepreneurs, faith driven investors specifically, but also how do we get alongside those broader parts of the market that are actually also about flourishing, even if not necessarily specifically faith oriented in their approach?

John Coleman: Well, in Tim, I think what you’ve articulated there, the flourishing thing can sound a little bit like motherhood and apple pie, to use a US expression, where everybody says, of course, of course, that’s what we want. But I think it’s, you know, one of my side gigs is I write a little bit primarily for Harvard Business Review, and the big topic I write about is purpose, meaning human flourishing. And the situation we face in the world right now is reasonably bleak, actually, even as the world is becoming more prosperous, safer people’s perception of their own flourishing of things like loneliness, of disengagement, of dissatisfaction, of purposelessness is growing right despite that prosperity. And so it’s not a given even within capitalism, which I think we think it’s the right system, right? It unleashes human potential. It’s innovative. But even within that system, it’s so possible for people to not flourish, to feel disengaged, to feel like their work doesn’t have meaning. And if you look at all the stats, I think globally only around 15% of people feel engaged at work right now, depending on the country. There’s no country I’ve seen where a majority of people feel like work is a meaningful source of purpose in their life. I think the highest I’ve seen is Italy in the 40 something percent, in South Korea at 6%. Right. And so there is so much work for people who believe in human flourishing, who want people to feel purpose, who want people to leave work better than they came, to create work environments like that, to create redemptive products and services. And so I think it’s easy to gloss over that idea of redemptive products and services, flourishing workplaces. But from my point of view, it’s never been more important than it is today. And the disconnect has never been greater. In meeting our task as investors and entrepreneurs is a real challenging and timely one.

Richard Cunningham: Yeah, it’s well said from both of you. All right, John, when we had Matt Monson on, you used the phrase towering intellect. And so I’m going to repeat that phrase here for Tim MacReady because buckle up folks, as you’re listening, we’re about to get into some just awesome data. So Tim, you do a lot of research, at bright light on a macro level of kind of the growth of the FDI ecosystem, but then also in just individual manager diligence and looking at product offerings and funds out there and understanding, hey, is this a good fit for particular advisors and their clientele or institutions? And you serve in a number of roles at Bright Light, but I just kind of want to hand the floor over you and say, hey, you’ve done so much study on the kind of the ecosystem and the faith driven investing movement. Where should we start this conversation? And then I know we’re going to get into some numbers. So it’s going to be fun to hear.

Tim MacReady: Yes thanks, Richard. So to kind of start with what’s our role in the ecosystem for groups like us that kind of support a lot of market participants? It can be kind of tough to pin where exactly we fall. So our job is to help the people who want to invest in line with their values, to find the right investments to make. If you imagine, and I know there’s many metaphors flying around, but if you imagine capital markets as systems of plumbing that funnel capital from one place to another, the way that pipes funnel water from one place to another in the faith driven ecosystem, many of those pipes are blocked or still being built. And our job with a plumber who comes along to build the pipes and to unblock the pipes. And so we support investment advisers, family offices, charitable foundations, donor advised funds and all kinds of other investors who want to align their values in their portfolio. And so, as you’ve said, that means we research the market broadly, but we also research individual strategies and products across both the public and private markets in the faith driven investment ecosystem. And then we use that research to help construct diversified portfolio, whether that’s tailored for individual clients or model portfolios that advisors can use across multiple clients that integrate these faith based strategies across both public and private markets. And this necessitates a lot of research. We research because we want to bring confidence, transparency and excellence to this space of faith driven investing. And we hope that our research does that in the macro sense. When we do research into the state of the faith based investing market. It shows the depth of the market. It shows that this is a real market with over $100 billion invested in it. It demonstrates the performance of the market. It shows that there are strategies that have track records of delivering good performance, and it just helps people to understand what it is that they’re investing in. So that’s the confidence side. It also brings transparency by publishing research. We’re able to show that there are differences between faith based strategies and their broader market counterparts. We can show that when faith based funds screen companies that are not aligned to Christian values or not supporting flourishing when portfolios are different, we can show that these organizations exercise their rights as shareholders differently. We can show that they are finding positive opportunities to invest in companies doing good, or to use their influence for good. Transparency helps us to understand why faith driven strategies are different in a way that we hope inspires and helps consumers to make informed decisions in line with their values. And then on the excellence side of things, we’re able to highlight trends. We’re able to find gaps in the market. As many products as there are, there are still some parts of the market where there’s only a few products on the shelves, or the shelves are looking a bit empty, and we’re able to push the ecosystem and specifically the managers within the ecosystem towards excellence. Five years ago, for example, best practice largely looked like just screening out sin stocks in certain industries. Now, screening can be much more nuanced. We’ve got corporate advocacy and engagement strategies being more widely adopted. We’re seeing the beginnings of integrating more positive impact criteria into portfolio design. All of those point towards excellence. And then we can also identify those products and strategies where we think improvement is needed in order to kind of lift to that excellence level. And then when we get to researching individual strategies, it’s the same thing. It’s the confidence, the transparency and excellence to help people to allocate. And we can go into some more detail in that as we continue our conversation.

John Coleman: Tim, would you say a little bit more about the corporate engagement side in particular? You know, we just had two wonderful Catholic investors on the podcast. We had Tony Minopoli from the Knights of Columbus and Andrew Abela from Catholic University, both of whom are helping the Catholic Church think through what this looks like. And I do think, as you’ve articulated in public markets, there’s this pushing a negative screening is kind of table stakes for most now. I think almost everyone believes that that has a role at some level. Some people screen out 20 stocks, some people screen out 800. You know, that’s a choice of preference. I think the next step, which is becoming easier and easier, especially through things like direct indexing, is corporate engagement and proxy voting. This idea that if you hold a stock, you should take back your voice and use your voice to potentially influence the companies. And then, of course, I think as you articulated, that third step, which is the hardest, but also perhaps the most worthwhile, is this positive screening or thematic engagement, like how do we invest specifically in things we’re supportive of, corporate engagement in particular such a hot topic right now? Would you say more about what that looks like from a Christian perspective? I know you’re doing some of that. Like how does that manifest and why is it important?

Tim MacReady: So we use corporate engagement to speak to a wide range of strategies, all designed around the central goal of influencing the companies that we’re invested in for good, in alignment with our values. We’re at the point now where I think table stakes for corporate engagement is proxy voting it its shareholders. When we own shares in companies, we have rights to vote those. Many times the company, at their annual general meeting will present all the standard things. Approve the auditor. Approve the remuneration report, elects new directors all of the nuts and bolts that make a company work at an operational level. But increasingly over the last five seven years, companies are either bringing themselves or having brought into the discussion at these annual general meetings resolutions on a whole range of other things. It might be resolutions to investigate supply chain transparency risks for a company that’s sourcing from offshore. It might be resolutions to explore what the implications of paying a living wage or a certain minimum wage would be to low income employees. And many of these resolutions actually speak in large part to the values of the company. Yes, they’re about the long term financial success of the company, but many times they’re speaking to the values that shareholders expect a company to live out in the way that it conducts its operations. And so those kinds of resolutions, we think it’s really important for faith based firms who are managing assets to understand and to vote on sometimes something that at first blush looks wonderful, like eliminate all child labor from a supply chain can actually be very complex for a company to do, and we might prefer to see more nuanced approaches that, say, understand the risks of child labor in a supply chain, and take steps to support communities who are kind of forced into that situation. But even just exercising votes, there is, we think, table stakes now for managers working in this space. And five years ago, that wasn’t true. Five years ago, most managers just outsourced their proxy voting to a central firm who would just vote them in whatever way they thought. But then we take a step further. So those conversations around supply chain, around child labor, around politicization, around what communities are served, around creating flourishing spaces for employees, invitations to a broader dialog with a company on those issues. And we think that the best strategies today, and we do this with some of the clients that we support on their behalf, actually involve sitting down with companies and saying, hey, we’re believers. We represent a broad pool of assets that comes from people who believe in the dignity of everyone made in God’s image, who want to see flourishing, who want to see your company profit and succeed. We’d like to have a conversation with you about these issues, about how trafficking risks might play into your operations, or how risks of certain localized environmental issues where they might be polluting local rivers and causing problems for water supplies. All of these things, we think, are invitations to speak to companies and to demonstrate that we think as Christians we care about their long term profitability, but we also care about how they do their business and the people that they serve.

John Coleman: Well, one thing that I think is unique about what you’re talking about, a lot of times corporate engagement has been portrayed in public and often as executed as negative, like we’re lobbying against something right now. There’s a big example where a couple of big pension funds are fighting Exxon on something and trying to get rid of the entire board, for example. What we found is sovereigns. And I think what you’re describing is often the leaders of these companies want to do the right thing. Often they actually want to do things that help people to flourish. Often they’re people of faith, right, who agree with some of those principles, but they need a voice to articulate those amongst their shareholders to try and prioritize them. And so this isn’t just negative. It’s not just beating companies up. Often. It’s working with management teams to help them more fully express the values they already hold. And in that way, I think corporate engagement can be more than just the kind of beating up a company, although that might be necessary sometimes. It can also be encouraging them to do the right thing, helping them to understand where something is happening that they might not have seen, or being a shareholder voice for something the leader would like to do, so that it’s easier to have that discussion with their board.

Tim MacReady: Absolutely, John. I think corporate engagement brings both the prophetic voice and the priestly voice, the prophetic voice that says, this is wrong. As believers, we believe in the dignity of all people. And this direction that you’re going company is wrong. But often it also needs to be the priestly voice that gets alongside internal resources of the company and gives them the support to advocate internally on these kinds of issues. And so I think both are important.

Richard Cunningham: Man, it’s good to hear you guys riff on Tim. You mentioned it in your earlier comments about kind of this idea of just unknowingly, almost kind of just lobbying away your corporate engagement. And a lot of times it’s been institutional shareholder […..] are the two main kind of proxy voting in corporate engagement. You know, almost service providers, if you will. And Jerry Boyer did some research recently just looking at the way those organizations are voting. And you kind of wonder, hey, how did so much money so rapidly plow into ESG and spaces like that? And it’s really it’s because these centralized locations. Tim, you were talking about that. Many large institutions just kind of wield their influence, if you will, just because it’s what everyone else is doing. They vote the rights, if you will. And so that’s kind of how we get into situations where there’s a lot of just homogenous, similar behavior among these kind of mega corporations, if you will. All right. Well, cool to hear you guys hit on that topic, Tim. Confidence, transparency, excellence. In terms of the reasoning and the rationale behind a lot of your research on the confidence piece, a lot of it is showing the depth and breadth of the market and the broader FDI space. And this gets back to that conference talk that you gave in January. Any comments there? And just kind of insight on where we are on a macro level within the faith driven investing landscape?

Tim MacReady: Yeah, we are gearing up to publish our second annual research report into the state of play in public markets for faith based investing and faith driven investing. This year, we’ve gone past $100 billion in faith based strategies across mutual funds and ETFs and [….] funds. Last year, I think we were at about $90 billion. So there’s been good growth in the market over the last 12 months. There are 164 mutual funds and ETFs, and that’s not even accounting for all the separately managed accounts, strategies and model strategies that people can have access to as well. With 25 managers working directly in the faith based investing space, including 20 managers working solely in faith based investing. So every product that they have is integrating faith alignment strategies in some way. And so there’s this depth of products available. But also like a $100 billion market is a big market. We might look at that relative to the size of the asset management market overall in the tens, if not hundreds of trillions of dollars and think it’s just a drop in the bucket. And it is. But $100 billion is a big number, and that’s a lot of assets that are being thoughtful about the way that they’re stewarded for values as well as for growth. So we look at the performance of the market as we drove deep this year. We wanted to look at whether performance that was coming out of faith driven strategies is consistent with what we would expect and with what we see in the broader market. And the answer is that it is we divided the universe up into passive funds and active funds, passive funds that just invest essentially in an index or a benchmark, and active products that are seeking to add value. And over the last 12 months, we found that 38% of the active funds outperformed their benchmark. That is better than the broader market, where 36% of funds outperformed their benchmark last year in the index or passive fund space. We found that performance is very closely aligned to the indexes that once you accounted for fees, essentially those funds perform pretty much exactly as you would expect them to. Now there’s a range of quality in that. There are strategies that seem to be consistently outperforming. There are strategies that seem to be consistently underperforming, and there are many products that seem to cluster around what we would expect their performance to be based on the benchmarks for the kinds of assets that they’re investing in. But overall, as I said, we just found that performance is consistent with what we’re seeing in the broader market. We also have done a deeper dive this year into fees and costs, where we have found that fees are expenses of the mutual funds and ETFs are slightly higher than what we see in comparable products in the broader market landscape. You can get index products. The average index fee at the moment in the broad market is five basis points, or 0.0 5%. The average fee in faith based index products is around about 0.25% up our products available from as little as nine basis points all the way through to about 44 basis points. And similarly for active products, we found about a 15 basis point fee increase for face products over their non faith products. But crucially, we also found that the average fees in faith based products are falling faster than fees in the rest of the industry. And so as more assets flow to faith based investing, we’re starting to see those fees expenses converge with the broader market. And it’s very common as new products and strategies are developed for fees to start higher and then drop down. So overall, the big message that we’re finding from our research is that this is a credible movement with a significant amount of capital invested and performance that aligns with the kinds of performance that we would expect in the kinds of performance we would get if we didn’t adopt faith based investing strategies.

Richard Cunningham: Yeah. That’s encouraging. And another one of the things you said, too, is that as the credibility grows, the assets grow. It seems like the fees are falling and the ability to access is getting easier, as that number has jumped to that 164. And that’s only mutual fund and ETFs. I think you mentioned 25 managers and 20 of which are working solely in the faith based space. Tim. So this is public market side. You do a lot also on the private market side, specifically on manager diligence and individual, you know, fund diligence, probably harder to capture all of the macro data like it’s, you know, available in the public markets. But what are you seeing there? As you look across kind of the private markets.

Tim MacReady: Yeah. And Richard, let me speak to why we think that the micro-level research is important as well. So it’s one thing for me to get up and say, hey, this is a big market. There’s lots of products available, but that doesn’t necessarily help people to know which products to buy. As with anything in investing, putting the wrong portfolio building block into the wrong part of the portfolio, even if it performs as it’s expected, can actually lead to investment outcomes that are not aligned with a client’s objectives or with an investor’s goals. And so one of the things that’s challenging about allocating to faith based strategies is clients may not know how to talk to advisors about all the different options they have. 164 product is an awful lot of products. And as you’ve said, it doesn’t even take into account all the separately managed account strategies or all the strategies in the private markets. Advisors might not be able to access all the products. And so it’s important not just to understand the broad landscape, but to understand the investment credentials and the faith integration credentials of a product, to know whether it’s right for you or for a client that you’re working with. Even with something as basic as screening, there are so many different approaches to what is screened and how screening is applied. Do we just take the traditional sin stocks, or do we also try and hit on some of these much more qualitative and subjective issues, like child labor or trafficking or harassment? And so we think it’s just as important when you’re building a faith based portfolio to understand the role of each building block in a portfolio. We would love to know. We would love to be able to confidently say which strategies will outperform next year, in which ones won’t, but because we don’t, each strategy has to play a role in a diversified portfolio. Some will perform better if markets do well, some will perform better if markets struggle. And then you need the expertise to package these different products together into a coherent strategy that performs the way that the client expects us to. And so that’s why across both public and private markets, we research and evaluate strategies across the areas that we think matter to faith based investors, both their investment merits but also their faith integration merits. That is particularly important in the private markets. It’s much harder to get data. We don’t have a concrete scale where we know exactly how many assets are invested. We know it’s into the billions of dollars. We just don’t know how many billions of dollars. We saw about 50 strategies launched last year, specifically in the faith driven space, whether that’s groups investing in faith driven entrepreneurs, whether it’s groups investing in multifamily housing and putting chaplains in to support community development and gospel witness opportunities, whether it’s in the private credit space where we see groups lending to faith driven and impact driven entrepreneurs, even in some of the more esoteric spaces cooperatives, employee ownership. We’ve just seen a lot of products launched in the last year. And so we know, as I said, roughly 50 products launched last year. The highest category was private equity and venture capital with probably 30 or so products, real assets. So multifamily housing, office, etc. was probably about ten strategies and about ten strategies in private credit and other types of approaches. We’re going deeper on trying to understand the scale of the market and map the performance. It’s going to take us a little longer than it did for the public markets, because the data is not so readily available and it’s often in inconsistent formats. But that’s part of our job, is to translate that complex data into something that consumers can understand. As we look at the private markets, here’s what we do see. We see increasing size. We’re seeing many managers starting to come back with fund three fund four at larger sizes than what they raised in earlier funds. We’re seeing scalable opportunities, particularly in the real estate space, and we’re seeing an increased what we would describe as institutional quality, what you might also call kind of professionalism and excellence across the board, just lifting levels as the movement grows and as the amount of capital invested increases.

John Coleman: Well, I think one of the things you highlighted that’s really important from our perspective is thinking about both the spiritual integration or impact, as well as the financial acumen or the investment quality. I think one of the things that’s plagued the industry a bit in the past is the gray lines in faith driven investing between concessionary investing and market return investing, and sometimes people had an impact thesis. They would kind of pitch it as market return, but it was really concessionary in some respect. And I think the future is look, there is a role for concessionary investing. Not everything has to be at market. I think that spectrum between philanthropy and market returns is broad, and there’s actually room along every part of that spectrum, including pure philanthropy, but getting much clearer about which strategies are concessionary for their asset classes, which are market return is incredibly important. And, you know, one of the things that we’ve embraced is in a variety of ways. There are theses in faith driven investing and spiritually integrated investing that can lead to market outperformance. The thesis we embrace as a firm is that faith aligned cultures can outperform the cultures that promote human flourishing, and a love of God and love of neighbor can beat their competition in the marketplace. And hopefully that leads to investment performance. But I think the data in the institutionalization of the industry to be clearer about those distinctions, about which strategies fall, where will only help the industry move forward, because then people will have clarity what they’re measuring from an investment performance sense against mainstream offerings versus what they’re doing with some sort of concessionary impact thesis, right? Whether that be through philanthropic dollars or whether that be, you know, through their private investing dollars, but acknowledging, you know, that they’re intentionally seeing something below market for the risk that they’re taking something. We see a lot. For example, Tim, on the credit side, when you talk about things like Micro-lending super valid strategy but often has concessionary elements to it, right. And I think people having a good understanding of that framework in which products fall and what parts of that spectrum is only good for the industry as it moves forward.

Tim MacReady: Absolutely, John, it speaks to this transparency piece of being able to say, what do we expect a particular strategy or products to deliver? And then we can measure whether the excellence flowed out of that is we set realistic objectives and setting realistic objectives, not just in the return side, but also in the impact side. One of the things that we have seen starting to happen in the industry, in faith based investing, is people with a lot of good intentions, but not necessarily a clear plan on how they’re going to demonstrate that they achieved the impact that they set out to achieve, whether it’s spiritual impact, social impact, creation care impact. And so one of the big areas of focus for us as we research products and strategies at the moment is, yes, continuing to push them on investment excellence, but really pushing deep on, okay, you’re making these claims about if we invest in faith driven entrepreneurs, this will happen. Or if we put chaplains in multifamily apartment buildings, this will happen. Where’s your evidence? What are you going to measure? What are you going to report back? How are we going to be able to demonstrate that this faith driven capital is delivering the kind of outcomes that are expected and with financial performance? I don’t want to say that’s easy, but it’s relatively straightforward. We know what return we got at the end of the day with the impact performance. We want to see products being able to trace a line that says, here’s how we think we’re going to have a positive impact, support human flourishing. Here’s what we did, here’s what we measured to see whether that’s happening or not.

Richard Cunningham: Tim, one of the lines I’ve heard you give is that the credible objections or hesitations for advisors and institutions to keep saying no to this space are starting to disappear. So maybe unpack that a bit more, and then I want to go rapid fire with you both on a little bit of just kind of tying comments on the marks on the market style of this podcast and just overview a little bit of what we’re seeing as we turn the calendar from May into June.

Tim MacReady: So Richard the common objections we hear. The market’s not big enough. It doesn’t have enough depth. There’s no evidence that the performance is going to be similar. What if I’m giving up performance and leaving something on the table? And that’s a legitimate question, right? Like we want to be faithful stewards to invest as the master would have us invest. We get objections around kind of my advisor doesn’t understand this or all of these kinds of things. And what we’re seeking to do is systematically explore each of these objections and understand how valid they are. I think with $100 billion in 164 mutual funds and ETFs, the kind of depth of the market argument is dead in the water. There are some niche areas where faith based products don’t exist. There are, for example, that we’ve found zero index bond funds. And so if you really want an index bond fund in the faith based market, you’re going to struggle to find that. But there are a lot of low fee bond products that seem to perform very closely to the index. If you like growth stocks, there’s growth products. If you like value, there’s value. If you like small cap, the small cap. All of these different styles are available in various products. And so I think argument number one, the depth of the market isn’t there. I think we’ve comprehensively demonstrated that by and large it is. If you want to get into some very niche strategies, it may be harder, but the depth of the market is there for the vast majority of what clients and advisors are looking for. The second question is this performance question that we believe we’ve tackled this year. And I mean, as researchers, we want to have integrity as we approach our research. As we went deep on performance, we didn’t know for sure philosophically, theologically, as John has articulated, we think that there’s a lot of merit to faith based investing strategies in terms of the way God has set the world up to work. But what would the evidence show? Well, the evidence is showing that the performance is there in line with the broader market. And so we think we’re on the edge of kind of comprehensively busting that myth as well. Or that objection in terms of my advisor doesn’t understand this or can’t access the strategies. This is where we want to really challenge people. Push your advisor, make your advisor work with whoever is controlling their list of products to get these strategies on, and kind of tell your advisor, well, if you can’t get me access to these kinds of strategies, then maybe you need to think about who you’re working with, because there are [….] firms out there that will give advisors access to these strategies. And sometimes people need to be willing to push their advisor or encourage their advisor to move. There are some areas where I think there’s legitimate concerns. The work that we’ve done on […..] this year does show that faith based investing is marginally more expensive than its secular counterparts. We would encourage people to kind of wrestle through is that small additional cost worth it for the extra value that these organizations are bringing? All of the things that make faith based, investing genuinely faith based take time and they take effort. And so it makes sense to us that those products would be marginally more expensive than the non faith based counterparts. And so while that might be a legitimate objection, we’d encourage people to kind of wrestle with that question of what would the master have us do with what he’s entrusted to us? And is 15 basis points really that much of a barrier when you look at the value that a lot of these faith driven managers are actually generating in terms of their not just its screening, but the impact on the companies through their engagement work. So we think that most of those barriers are either kind of demonstrated to be easily overcomeable or on their way to kind of having solutions.

Richard Cunningham: And that’s good. Tim. And it’s really good to hear you articulate. It paints the necessity and the importance of a firm like yours in the work you’re up to. All right, both of you, rapid fire. We’ve done a marks on the markets and really on here on like the state of faith driven investing. But I want to do that even further and just kind of say what key happenings in the markets. You got rapid fire here. And I know that’s not much time to unpack what’s going on in the economy and public markets, but we’d love to hear from both of you what you’re seeing lately and you’re working in your research.

John Coleman: You know, I think since the last month, one of the key themes in the market, I’ll highlight two themes that I think are really prominent right now. One is the disconnect in the way that people feel, at least in the United States, versus the statistics on the market generally. There have been a number of surveys recently, particularly with the presidential election coming, showing that a majority of Americans feel that we’re in recession, even though the data would not confirm that. Quite the opposite, a number of Americans are feeling inflation more acutely than the data would say is happening. And so there’s actually a really active debate right now about the distribution of economic activity in the United States, even though we’re not technically in recession, even though inflation seems to be slowing, at least the growth of inflation seems to be slowing. It’s normalizing a bit. Even though the markets are up, many people are still feeling the impacts of inflation and what they perceive as an economic slowdown more acutely. And indeed, there were some statistics recently that showed at. Least in real terms rather than nominal terms, that the majority of Americans are worse off than they were a few years ago. From an economic perspective, because inflation has outpaced their personal well-being, and there are even a lot of serious people now discussing whether CPI and inflation measures capture what’s important. One of the easiest to understand examples was, recently there was a report that put out the increases in fast food prices at places like McDonald’s, and you could see that a lot of menu items had either doubled or more than doubled over the course of the last few years, which, of course is greater than what I think it’s been about 18% inflation over that period of time. And so there’s a feeling that maybe CPI isn’t accurately reflecting the types of things that are hitting most Americans, particularly things like housing, things like food, etc., that are quite important to them. And then the second topic that I see that we’re tracking is this continued disconnect between what I’ll call the Mega stops, the Mega cap stocks in small and mid-cap stocks. Large cap stocks have been on a roughly decade long run. Now, it’s not even just large caps. It’s the Magnificent Seven, or potentially a slightly larger group of securities in that, led by companies like Nvidia and Nvidia was worth $100 billion a few years ago. Now it’s worth $2.5 trillion, I think. And they just released earnings that outpaced even what the analysts expected. And I think there’s a question mark about how much longer that can last. Like, will we see a reversion to the mean between mid-cap and small cap stocks and large cap stocks? Or is there something sustainable, particularly in this mega cap run, particularly related to innovations like artificial intelligence that make it more sustainable? So I think all of us would have thought maybe a couple of years ago, like Nvidia has to slow down at some point. And yet it could be that AI is just becoming such a critically important part of the economy that we’re seeing a fundamental economic transformation. And so I think there’s a lot of discussion right now around what people’s public markets exposure should look like. Given that historically mid-caps and small caps are now undervalued relative to large caps, and yet we continue to see this persistence in return. So those are two topics, at least over the last couple of weeks that I’ve been tracking.

Tim MacReady: Yeah, I’d agree with John there. And I’ll pick up that point and kind of run with it. I think this dislocation that’s happened between the large cap growth stocks, particularly those Magnificent Seven and the rest of the market, is really interesting. It does seem to be largely driven by these kind of expectations of productivity enhancement through artificial intelligence. And I think those stocks are positioned well to benefit from that. But people have seen that when we look at parts of the market that might be undervalued. One of the questions that I would ask is, well, who are the other beneficiaries? All of this artificial intelligence is going somewhere. Nvidia produces and is deeply involved with kind of many of the systems that will enable artificial intelligence, but where are the companies who are going to be the beneficiaries of this, whether it’s pharmaceutical companies that might be able to significantly increase the pace of their research or the effectiveness of their research, whether it’s professional services firms where they might be able to significantly increase productivity by using artificial intelligence tools to automate many of the responsibilities of those firms. We just haven’t seen the same run up in the companies that are going to be the beneficiaries. And the uses of artificial intelligence that we’ve seen in the companies that are going to be the protagonists and the drivers of the creation of the tools of artificial intelligence. The second thing that I kind of draw attention to is around this kind of economic outlook, interest rate […..] that we’re at at the moment. For most of the last couple of years, the consensus was that all of the money that we had pumped into our economies in Covid, all of the kind of reduced interest rates that then kind of saw interest rates sharply increasing, that there was going to be a day of reckoning for that. And that day of reckoning probably looked like a fairly typical recession. Well, that’s not how it’s played out in the US. Companies and corporate profits have been really strongly resilient over 2023 and 2024. Europe struggled a little more, but even in the last quarter, we’ve started to see good economic activity indicators coming out of Europe there surprising to the upside. And inflation is tracking back towards the kind of 2 to 3% target across developed markets, albeit with all the caveats that John has mentioned there around, whether it’s actually still as useful a metric as it was. And so investors are now expecting not to fall into a recession. We think that’s probably a reasonable expectation. There’s an optimistic outlook among investors that doesn’t match the more pessimistic outlook among consumers. And we think a lot of the gap between those two things is going to be borne out in the pace of interest rates cuts, if and when they do come, people are expecting rate. Cuts to come in the latter part of 2024 into early 2025. If those are delayed, we may well start to see that business confidence and business indicators dropping back to where consumers are. If the rate cuts come through and we start to see a lot of people, particularly in the US, refinancing mortgages and feeling more comfortable with spending, then perhaps the consumer outlook increases to match the current business outlook. But I think if I were watching one thing over the next six months, it would be what are the expectations of rates in terms of what the market’s thinking and how that matches up to what various central banks around the world are saying that their intentions are?

Richard Cunningham: Right on. Impressive, gentlemen. That’s the markets in, like, 5 to 6 minutes with Tim MacReady and John Coleman. Very impressive. All right. Tim will take us home with this. This is our favorite question to ask on the FDI podcast. What’s the Lord been teaching you and in through his word lately. And we’ll close with that.

Tim MacReady: So I have spent a lot of time in years past thinking about contentment as the foundation for all Christian financial activity. It’s contentment that enables us to be joyfully generous. A discontent person can be generous. They can kind of, through gritted teeth, pull their wallet out and put money in the plate every Sunday. But the biblical command or invitation is not to generosity. It’s to joyful generosity. And only a content person can genuinely be joyfully generous. What I’ve been reflecting on in the last 18 months or so is how much trust leads to contentment. As someone who’s kind of studied a lot, both theologically and in investment markets, working in finance. I’ve thought a lot about trust and contentment. And I thought when we were living in Australia, I’m doing a pretty good job of trusting God to be my provider of not relying on external things. But I can tell you, when you pick up your family and move 8500 miles across the world to another country, it really challenges and things that you thought, yeah, I’m trusting God for that. You realize that? No, it was just that I had a sense of stability and security and having lived in the same house for ten years, and kids have been going to the same school for six years, like, it’s actually not that I was necessarily trusting God, but that that sense of stability was there. And so I didn’t need to trust. And so we’ve faced a whole range of situations, from simple things like going to the DMV and getting a driver’s license to working out how to buy a car when you don’t have a credit history, and all of these kinds of things that have really challenged my sense of stability and contentment and finding in myself that I think that always points back to a trust issue in God, do I trust that he is my Heavenly Father who loves to give good things? Who wants the best for me, and who will give me everything that he has promised? Not everything that I want, but everything that he has promised that he will give. And so I’ve been doing a lot of thinking and reflecting on that, and just the way that instability shows us where those places where we might have thought we were doing pretty well, but actually our trust might be a bit shallow than we expected.

Richard Cunningham: Wow, Tim. That’s good. That’s a really good word to close on. Well, friends, this has been Tim MacReady on a faith driven investor. Mark’s on the Markets podcast episode. What a joy to have you on. Thank you for the work you’re doing through Bright Light to you and your team. This has been exceptional for John Coleman. What a blast, gents. Have a wonderful day and we’ll catch you all next time.

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John and Luke are joined by David Erickson, the Chief Investment Officer of Ascension Investment Management for this month’s edition of Marks on the Markets.

Ascension Investment Management helps their clients reach socially responsible investment goals without sacrificing returns. They do this by delivering high-quality comprehensive investment solutions that enable clients to better carry out their mission by allowing them to focus on the big picture

In this episode, David unpacks their approach in more detail, gives an overview of what he’s seeing in the market, and helps us understand the value of thematic investing. 

If you like this episode, be sure to follow, review, and share the show.

Relevant Links:

https://ascensioninvestmentmanagement.com/

Episode Transcript

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman, your host, and I am joined today by co-host Luke Roush. Luke, how are you doing this morning?

Luke Roush: It’s a great day to be live, John. Good to be with Dave here.

John Coleman: That’s an endorsement. That’s an endorsement. Well, today we have a very special episode of Mark’s on the Market. We have Dave Erickson with us. Dave is the CIO of Ascension Investment Management, which manages more than $40 billion in assets dominantly for Catholic clients and institutions. And so they’ve been doing great work for a long period of time. Dave’s held that role since 2009. I believe he had more than 30 year career in investment management, including the University of Wisconsin, Strong Capital, PNC Bank, Chemical Bank and other institutions. And we are very fortunate to have Dave today talking to us about themes he’s seeing in the market and the way in which Ascension conducts thematic investing. So Dave, thank you for being here with us today.

Dave Erickson: Thank you for having me.

John Coleman: Well, listen, the first thing we like to do here, given that this is a mark’s on the market, where we’re just hearing perspectives on the current market environment is to get your kind of broad overview of where you think things stand today. It’s been choppy for the last 18 months Here. We’re recording in September of 2023. What’s your outlook for the remainder of the year for these choppy markets?

Dave Erickson: Well, again, thanks for having me. That’s the question of the hour is which landing do we have? Is it a soft landing? Is it a hard landing? Is it a no landing? And what’s been interesting over the last few months, it feels like there have been months. They’ve had each theme and it’s switched to another. It seems like, well, we’re definitely no landing. Its place is coming down. We seem to be going a soft landing. So that’s what we’re debating right now. I was recently at a conference where there is a panel of economists and they all were relatively in the same ballpark of kind of feeling pretty good about a soft landing. And it makes me nervous whenever I hear a consensus and people are agreeing, I feel like, well, there must be something we’re missing and something is wrong. You know, if I think of the history of how we’ve gone through Fed cycles and economic cycles, you know, normally if we hit a inflationary period, the Fed raises rates. It usually there’s a lag before those rates take effect. And if rates go too far, sort of slows the economy, too much unemployment rises. And some of that had it made a good point to me once that said, you know, unemployment has never gone up 1% or at least rarely have gone up 1% and stopped, which is what the Fed is trying to engineer right now. They want inflation to come down and inflation goes up a little bit. You know, we can handle that, but maybe we go from three and a half to four and a half, or if it stays there, there is your soft landing. I’m just skeptical that we can reach that so perfectly. You know, I think the lag of what the Fed increases and interest rates has had in the economy is not fully been felt. And I feel like we’re feeling it now. We’re seeing credit card delinquencies increase. We’re seeing layoffs, you know, gradually, you know, all of the growth metrics and consumer outlooks, you know, all those are just kind of getting a little bit worse. And that’s what it would look like if it became a hard landing, is you would see inflation drop, which is great. But then you’d also see growth in economic numbers also decline. You know, will it sort of glide into a really nice ending so that we hit a soft landing? And I think that question is still open for debate. You know, they’ve raised it very, very quickly. The economy, our economy, the global economy has been built on 0% interest rates for a very, very long time. And what happens when you refinance, you know, at five, six, seven or higher? I think those things are all in front of us. I have lots of thoughts about that. And can in all of that is that we’re trying to figure this out on the backs of a pandemic that we’ve never experienced before. So when someone says you should never say it’s different this time, I think, well, maybe it is different this time, because I don’t know if we’ve ever had a pandemic in an economy like this. So maybe we were fine. The pandemic came. There’s a lot of moving back and forth to get to equilibrium, but we will get there because we’re just trying to get through something we’ve never experienced before. So I guess I think forward I’m hopeful for a soft landing that at least if it’s a recession, it’s mild. But I think there’s a real risk that we sort of dip into more recessionary period then sort of hit it just right.

Luke Roush: To do a follow up on that is, you know, when you think about kind of a return to normal and what that looks like, do you think of it as kind of a return to historical norms, then we probably keep rates where they are? Or do you see us actually going back to where we were in 2017, 1819?

Dave Erickson: Yeah, I think it’s hard to imagine we go back to zero or, you know, one or 2% in short term rates. So, you know, but, you know, it has been in my career that I’ve seen, you know, short term rates at five, 6%. So, you know, we’ve been here before and I don’t remember us feeling that, you know, the world was falling apart or rates were too high. But we feel that now because we’re so used to zero, you know, our long term being two or 3% now our mortgage being sub 3%, you know that it’s seven. You know, our hair is on fire. There was a time when that was true. So what is normal? You know, those are just such good questions are the answer to, you know, I would be able to trade the next five, ten years and just do it. Great. You know, I think there were deflationary forces that we’ve been building upon for years with China exporting deflation for a long time. I think that is generally over or, you know, we have to have severe change to see that come back into play so that maybe, you know, what was normally, 2, as a short term rate, you know, maybe that adds another percent or two on top of that deep globalization. At the same time, the rate of technology change is so incredibly fast, it’s something that we’re super interested in. So, you know, normal to me feels like, you know, short rates on two or three long rates, you know, five ish or something, you know, could that be lower than we are now? But not back to the crisis days of 0%? You know, I think that would feel real good to me. A positive yield curve rates. People can earn money on their cash to some degree, but maybe not as high as we are now.

John Coleman: Well, Dave, one of the things I want to dig into with you deeply is this idea of thematic investing. So I had a chance to attend your investment conference just a couple of months ago. And what I found fascinating about Ascension Investment management’s approach to this and your approach to this was how thoughtful you were about formulating themes around which you are investing. And so what I wanted to do now was maybe get an overview just of how you guys think about thematic investing and what your themes are for the year, and then maybe start to spend some time walking through those as well. And so if you don’t mind, just for our listeners, lay out what is thematic investing look like at Ascension Investment Management and what are your themes for 2023?

Dave Erickson: Great question. So buckle up for this one because this is something I am very interested in talking about. But for context, as you mentioned, I have been in investing for a long time and you know, back in, you know, the nineties and the 2000, 2010, it seemed that if you were an institutional investor, a CIO, one of the themes that you really focused on was diversification, almost to the point that diversification was the goal. You know, you almost like if you had a new manager with return stream that was uncorrelated at it because you know, you can either lever that up or you know, you can add that to the portfolio and get a higher risk adjusted returns. So if you found another risk adjusted return manager, add that one. So diversification became the goal. Hedge funds really met this test because they were doing lots of different and interesting things. And so I really built portfolios and a lot of my career on that training is that it was diversification, diversification by asset class, by geography, by, you know, types of investment equity to debt. And as time went on, I thought, you know, we’re going through such technological change and disruption across all different areas health care, entertainment, just the technology just goes on and on that it seemed like we were spending a lot of time in diversifying asset classes that were capturing some of these themes, but also were capturing old themes because we just this is how we did it. And one thing that was a challenge for a CIO, I think for any investor that has to work with clients and explain their process is that if you ever want to make a change, it’s hard to change a process that you’ve defended in the past that you’ve done because it feels like you’re saying, You know what? I used to say it like this. Now I want to do it like this. And no one really likes, you know, changing processes at all. Feels like maybe something’s wrong. But one thing that was a blessing in disguise, I shouldn’t say because I know the pandemic was so terrible for people, but in a way, there was a consequence for us is that it almost drew a line in the sand for us to say, Hey, wait, we should be doing things different. The world has changed at the pandemic and maybe we should approach investing differently. And we saw that one of our health care clients you mentioned, we’re Ascension Investment management. We’re a subsidiary of Ascension, the health care system. And so we got to see a lot of disruption happen in the pandemic through the health care system. And one of it was telehealth that we were interested in having telehealth be released to our patients. And almost overnight, you know, March to April, the numbers went through the roof and we saw quickly that the disruption pace that we might have been before, whatever that arc was, is now been accelerated to a significant degree. And I felt that was true across the board and I felt this might be now a good time for us to change our approach and think about investing portfolios differently. And if someone says, Why are you changing? I had something. Well, the pandemic has changed things. So what we did at that point was we changed our team to be from asset class specialists who used to have an equity director, hedge fund person, real assets, you know, private equity. And what I found over time, what had happened the past, that if you were, say, a hedge fund manager, you were looking for the best hedge funds. If you were a real asset person, you were looking for real estate and you’d pound the table for a real estate almost all the time. And I wanted someone to think more. What are the themes that are important? And we can figure out the structure, the type of fund, the type of manager, but let’s find a theme. Let’s get that went behind our back first, because I feel like this change is coming. So we changed our folks to be generalists as opposed to specialists in asset class. And we’ve set up our process to say, go out and talk to as many people as you can and look for disruptive themes that we want to capture and at the flipside, you know, find disrupted areas that we want to avoid. And that caused us to, as I said, changed our staffing, it changed our asset allocation. We just basically said we’re no longer interested in certain asset classes like it [….] went down, certainly. But what we focused on is disruptive themes and themes that we want to capture. And if we get that right and are truly long term investors, I feel like we’re going to capture this correctly.

John Coleman: And before you get into the theme, because I actually think that’s one of the most interesting parts of this is what you’ve selected. And I’ve seen a preview of that at your conference. Just quickly comment. So how much does that actually shape the portfolio? And this is a question I had. So if you have these kind of $40 billion in assets, 40 billion plus, I would assume you still have some exposures that you’re seeking by asset class. You want some fixed income exposure, some public equities exposure, and then these themes are driving kind of a layering of that. But just talk, if you would, about how much of the portfolio is actually shaped by the themes versus more conventional exposures that you have, because I think this will be a new concept for a lot of people.

Dave Erickson: Yeah, I mean, we still have asset classes, We have to build a portfolio, we have to have benchmarks, you know, so we can at the end of the day, compare it to something. So if I were to think of in broad asset classes, we have public equities, we have private equities and private asset classes, we have cash and fixed income, and then we have some inflation assets that are more like insurance policies. We only use commodities and tips as an assurance policy for inflation, But don’t get into much more specifics than that. So the themes that we captured the best is in public and private equity. I mean, that’s really where we can look for long term thematic approaches and all the areas that I mentioned that we want to be owners of these companies and these ideas. You know, certainly you can pick it up in venture capital, for example, but it doesn’t necessarily have to be. But also in lending, you know, when we look at lending as a good example, you could have lots of diversified lending approaches, but we want to even be thematic there like, do we want to lend to, you know, energy or. Fossil fuel versus maybe data centers or cell phone towers. You know, we would be much more, you know, into the data side. We think that’s got the wind to our back as opposed to maybe a very well defined strategy. But it’s in an industry that we think is being disrupted. So, you know, we only have limited capital. We don’t have to do everything. We’re just going to choose the areas that we think have those themes.

John Coleman: Well, and if you would, now maybe you lay out at a high level what your themes are currently. And then Luke and I might just try and dig into those a bit more as you do that, just to understand where those came from and what you’re expecting in those different areas.

Dave Erickson: Yeah, so my team is the experts on these themes. I seemed to learn from them. We have these Monday get togethers called Lunch and Learns. That was another process that we had because we said, Hey, as generalists, you’re going to be out learning all these things and bring it back as a presentation to the group. And so I’m constantly learning about solar, you know, coming from space or deep sea mining for resources, like we have all these different things. But I had said one time, I don’t think I can do this and get away with this, but if I could build a portfolio from scratch, put it into a safe and not open it up for ten years, you know, I think there are three themes I’m really excited about. And what I would do is build a portfolio of these three themes from an equity perspective, say, private public, and then have some cash because I need to have cash and spending, maybe some fixed income for downside protection, like that’s my portfolio. If I could do that, those growth themes come down to three that I’m really excited is technology generally. But artificial intelligence. I would say specifically it is the kind of revolution that we’re seeing in health care and the transition to clean energy. I think those are three amazing themes that is coming now. Picking the winners and losers. Exactly is the trick. You know, it’s not every company that does is in these areas are going to be the next Amazon or what have you. But I think those are themes that if you just even were really good at those, you’re going to do really, really well. I’m sure there are many others. We feel like, you know, robotics, entertainment and VR space, there’s all kinds of things I think, that are just super interesting. But those three that I mentioned are the three key themes that we’re thinking about a lot.

Luke Roush: One of the things that stuck out to me, Dave, when you’re just providing the background, is this idea that you’re focused on kind of a ten year period, not a one year period or a three year period or a five year period. So kind of anchoring into those more time, less things rather than timely things. I think it’s important for your team. I’m curious kind of within AI health care and just kind of the revolution and change that’s occurring there as well as the clean energy industry, Are you actually taking kind of long positions on the disruptors and short positions on those that will be disrupted? Or are you more just trying to pick winners in that disruptor category?

Dave Erickson: Yeah, I think we are more picking winners and using that in our private equity space. Private credit, private real asset, you know, those that are structured to be long term, it’s not trading on a daily basis, you know, can take long term approaches to it, don’t have shareholders to answer to. So a lot of those themes can be, I think, best captured in the private equity space. But, you know, at the same time, many of these things are going to be picked up in public companies. You know, they have the money, the research, the, you know, Google and Apple. And so, you know, just owning those, I think, will pick up as well. But we don’t necessarily short the ideas as much as just avoiding the asset classes. So just for example, and, you know, if there are listeners out there there in these asset classes, you know, forgive me, I’m sure it’s and in the near term it could be very profitable. But, you know, like in high yield bonds, for example, that was a separate asset class for us with its own benchmark. And my thought process there, you know, these are generally companies that are over leverage but have high leverage, you know, have a lot of exposure and energy in different places. And so they’re rather than, say, short, you know, different industries, we just step aside, you know, and stay away from areas that are kind of not in these themes. And so if we can pick that right, I think shorting is just too difficult. And in the near term, we do have to live in the near term. So none of my clients that I work with is willing to sell you on a ten year basis. You know, I have to meet with them quarterly. And so if I, for example, think fossil fuels is a disrupted industry and then the Ukraine war happens, they lead, you know, the sectors in the S&P, you know, my performance can be really, really difficult. So we’re not so much shorting. It’s just we are under weighting those asset classes and trying to capture the long term in the privates.

John Coleman: Given the nature of Ascension investment management, you’d mentioned this going in. I’m actually fascinated by this disruption health care topic, Dave, because you guys are so close to this and I know we’ve seen this for a while heading into the pandemic. For example, one of the funds that I was leading had fortunately selected a couple of telehealth and e-health services. So like what was called Roman health at the time, now called ROE, there is a series of kind of mail order health. et cetera. And even at sovereigns, we’ve taken some bets on that space. But given that you have such an interesting perspective on this, both in the markets as well as part of this big health care company. When you say disruptions in health care, what does that look like right now? What themes do you think are playing out within that space?

Dave Erickson: Well, you know, certainly the health care industry is being disrupted by, you know, as much of the telehealth, but even, you know, urgent care centers that you see, you know, as opposed to going to hospitals necessarily. You know, how we staff logistics. I see that there are some robots being used in different places. So, you know, within that, like the ascension of related, I just think that the interaction with data and I don’t really know how artificial intelligence is going to be used necessarily within, say, health care system. But the things that I’m interested in more is more the longer term themes that I think will eventually affect all health care systems, you know, personalized medicines. It is using artificial intelligence to scan lab reports or data. It could be, you know, could we assist our nursing through some more efficiencies? I don’t know if robot nurses are a thing. I know that they exist and can do some functions. Certainly don’t know if they can replace, you know, the personalized care that you have. But, you know, there as I go through conferences, the challenge we have in health care is that, you know, we have some really interesting solutions. It’s very expensive. We’ve got to bring those costs down. So that’s affordable for everyone. It is just, I think, just an area that’s just ripe for ideas. And, you know, the specifics, it’s hard to get into to all of them. But, you know, those are just, I think, areas that are really interesting. And yeah, I think those are there’s I think that we’ll be pursuing.

John Coleman: And we recently had a guy named Finny Kuruvilla from Eventide on one of these marks in the markets episode, and he is a biotech and health care investor generally. And what I’m constantly reminded of myself Dave, because I agree with all the themes you outlined, he was great about pointing out just the increasing advances in biotechnology and understanding the human body, which is actually a hopeful theme right now. You know, a lot of what we see in the world is maybe heading the wrong direction, but some of the breakthroughs that we’re seeing in things like understanding neurological systems, understanding the way in which biotechnology can treat common causes of death like heart attacks or cancer, etc.. I just think it’s an incredibly interesting space, particularly on the venture and growth equity side, where you’re able to take advantage of some of the innovations that are happening in that industry as scientific progress continues to march forward.

Dave Erickson: Right, yeah. And you know, you see what was done with the pandemic, how we were able to come up with the vaccine that the new technology so quickly. I think I was really struck. I attended the Milken Institute conference, California, and that’s a very thematic conference. They’re going through all kinds of things like education, health care, and just sort of panel after panel on the health care side. It just was so interesting of just the research that they’re doing, the solutions that they’re tackling. It’s amazing. I think right now we’re trying to tackle it more from going to a very specific type of solution because we don’t really know where it’s all going. I’m sure it is a long road, but I think it’s an area that’s that’s going to have some amazing solutions. And so we’ll continue to pursue that space.

Luke Roush: Yeah, Dave that resonates with me. Just in terms of specificity on the problem that you’re trying to solve as you think about disruptive change in health care, I personally, you know, totally agree with the idea that specificity matters in terms of what you’re trying to get after. I want to switch over from health care to artificial intelligence, just because that seems like it’s kind of the phrase of the year for 2023. Love to get kind of your views on how you’re leaning into that as a trend. And maybe in a similar vein, is health care. Are there specific niches where you really feel like there’s promise to be an early mover as an investor?

Dave Erickson: Yeah, I suppose there’s two types of people. When Chat GPT drop, I think there are some that just dove in and couldn’t stop talking about it. That’s me. And then there are others who roll their eyes about it, and that’s my my kids at least are my or my wife and they’re tired of hearing about it. I just think that the artificial intelligence in ChatGPT, for example, is so interesting because it just almost was a fully formed technology that had been worked on for years, but sort of fell into my lap almost overnight. And I’ve seen people compare the technology of AI to the Internet, you know, is, you know, you got to make sure you’re not investing in Netscape, you know, so you got to make sure you do Amazon. So take it slow, take it slow, take it slow. And I think that’s true. I don’t know if the winners today will be the ones that we’re talking about five years from now. But when I think about the Internet, for me it was a slow process that I learned, you know, I had to get the technology to get installed. When it worked on my computer, it was very slow. So maybe I could do an email or upload something, but it would take forever. ChatGPT almost worked instantly for me and changed the world almost overnight. And it was free and it was easily accessible. Very quickly was an app on my phone. And so I feel like it’s almost like a different kind of technology. I think it’s more like maybe electricity in a way, is that, you know, before it was dark and now it’s like it wasn’t a gradual thing. And and the infrastructure is pretty easy if you have the Internet, you had chat the next day. So I think we’re still grappling with exactly all of the uses for it. I’m not one of those that feel it’s going to destroy us all or, you know, we’re all going to lose our jobs. But it’s an amazing tool that you can use right now. You know, I think for us and we’re as a team doing a team project where we’re talking to all of our partners and using it ourselves and then coming back to say, what are some applications today that we can use to make ourselves more efficient? And what, where do we think it’s going? And just the things that I just quickly say, you know, things today is that it helps me summarize and it helps me produce, helps me write like a lot of ways if I need to respond to someone and it takes me a half hour or so to put something out, I can probably get some a few thoughts down, have Chat write something for me, I can edit it. And that process now is 10 minutes as opposed to 30 minutes. So in terms of making me more efficient today, it’s fantastic. We don’t use it for helping us answer investment questions yet. You know, for us too, I don’t know if I trust the data at least. And actually I used it to come up with a trivia night for my family reunion. And one of the questions said that the sinking of the Titanic was in 1963, which I was like, Yeah, that’s not right. I have to be careful with the hallucinations for it. But I think the future, it just, it, it should just continually get better. And one of the things that I’m interested in, I would love to be able to take all of our data and put it into an AI sort of learning language model that can just be self-contained with our data, all of our notes, all of our research, all of our manager letters so that we can have a conversation with that data that I could say, you know, what’s our exposure in China, for example? And it can tell me, I don’t want to going out to the university, I’d like to build a self contained that I certainly am looking forward to. You know, Microsoft and Google applications that will be built in that I maybe I can speak a presentation into existence. You know, those are all things I think we are just about there and similar to our phones and maybe the iPhone is a good example. When we got the iPhone, it sort of changed things, but it eventually got better and better with apps is that we will continue to find, Hey, I use it for this way and someone else will say, That’s a great idea, I’ll use it, and it’ll just sort of multiply on itself. So I think we are just at the beginning stages of how we are going to be working differently with artificial intelligence. I think it’s more of a it’s a tool at this point than a replacement. I think it probably will replace in some ways, just like all technology does. But, you know, this is something that we have a high interest in. We want to understand it. It was spending just a lot of time in it. One thing and the last thing I would just add that I think is interesting is that most of the AI applications I think we’ll find in existing things we already have. So like Microsoft Office, there’s going to be an AI component to that. So is there a new company to invest in or does that just make Microsoft better? You know, so is I just going to be because you need the data, you need the computing power? You know, will there be a slew of new companies? Will Netscape and AOL be replaced by Google and Amazon, or is that just going to make the existing even better? Because it’s hard to have all the tools you need to make the effect of We’ll see about that. We’re trying to play either side of that and hoping finding more winners and losers on this.

Luke Roush: And that’s one of the things I think you’re going to have a real interesting front row seat to, given your themes you described, is the intersection of AI and health care and the use case that you describe in your own firm is also what a lot of health care foundations are looking for, which is kind of privatized data lakes or ponds where you can control what’s in there. You can control confidentiality of patient data, but still use that technology to be able to draw conclusions on treatment regimens, etc.. So have you seen any of that kind of intersectionality between those two themes today?

Dave Erickson: I’m sure that’s happening. If I had others on my team that are hitting the road and doing that, I would see that more. You know, I know there is a big we want to be very careful, you know, that data has to be ringfenced, you know, so that is not public domain or I don’t know of any example where that’s being used within health care necessarily. But, you know, I hear of the situations of, you know, a doctor analyzing x rays versus the AI and that effectiveness and where does that go. So I’m probably not the best person to answer all of those specifics within health care, but it just has to believe that it’s coming that why wouldn’t you use this technology to help you make. Better decisions alongside your own, I think is going to make things a lot more effective.

John Coleman: I want to back up a little bit and add one more layer to this, because you obviously, given the nature of this podcast in your work, have one more layer to your investments, which is the values of the people that you represent. Ascension Health is a Catholic institution. You represent a number of Catholic institutions with various values. I know the Catholic Church has been quite thoughtful about owning some of those, and then some of the groups you work with will have an even different set of priorities, I think, or a way in which they approach those priorities. As you approach your investment on behalf of those individuals, how do you think about incorporating Catholic values into your investing and what can that look like along the spectrum?

Dave Erickson: Okay. Yeah, it’s interesting. Ascension Investment Management, our parent Ascension, you know, is a very Catholic institution. I mean, it is we think of what we do as a ministry. You know, number one, we talk about our hospital systems as health ministries. We pray before most of our meetings. So we get together and think about it in terms of forwarding Jesus healing ministry. So I was so fortunate. It wasn’t necessarily my plan to have work so incorporate with my faith. But I’ve been blessed to work for Ascension and just some amazing people here, the way they approach their faith with this, which it was very evident to me early on, is that they did not want to invest in anything that violated their values. And so it was immediately very clear that we have a very sophisticated social responsible investment guidelines. I would say in terms of the Catholic space, I would put up our guidelines in terms of its sophistication and how we really try to refine it to work with managers and line up with anyone else’s. So that’s number one, is just making sure that whatever we do is that we are not violating our values. We’re trying to for the Catholic Church values and yet invest in the exact opposite. That would just be working against ourselves. But the second has been is how do we then be proactive in, you know, having our values be known and accomplished through the world. And we have different ways of doing that. Certainly within our companies, we are providing health care at discounted rates or for free. I mean, that’s what our non-for-profit health care system does. But we also have spent many, many dollars on impact investing, which I’m sure you’ve covered and lots of other podcasts. We’ve been doing impact investing since 2014. In 2014, we raised about $50 million in a fund of funds, all private funds either in environmental stewardship or in solutions that help the poor and vulnerable. And that could be in education, housing, food, financial inclusion. We’ve done lots of things. I know you’ve talked to Patrick Fisher. We’ve been a good partner with Patrick at Creation for a long time, so I’ve been so blessed with is that when we’ve asked to do new things and new ideas that would be proactively forwarding the values of the Catholic Church, they have been very willing to support us. And so it really feels that my faith has been intertwined with my work, and I feel very blessed about that.

John Coleman: Yeah, And just one quick follow up question on that. I will say, having been at your conference, I was privileged to meet some of the folks who invest with you all, and it’s often priests or nuns or others who have dedicated their life in service in such a deep and authentic way. Right? I mean, they really everything to their faith. One of the interesting components of your work, I think, is that and I think you don’t mind me saying this, you’re a Protestant Christian work [……] institution. And so maybe just comment. You know, often we see those worlds a bit divided, honestly in the impact space or in the investing space. Talk about how that works for you all and just the way in which you see your personal faith, if you don’t mind intersecting with that work and with these Catholic institutions.

Dave Erickson: Yeah, it’s really interesting. You know, I went to Wheaton College and so, yeah, I went I grew up in an evangelical church and and actually with my background, I had not spent much time with nuns or priests or really in Catholic faith. I had friends, but I had never really had attended services or may have been to a wedding or two. So there’s a lot of education for me to sort of understand. But it was very clear to me when I saw, like in the […..] guidelines of the things they wanted to restrict. I thought that just completely aligns with the values that I grew up with, whether it’s Protestant, Wheaton College or not. So what I’ve really been challenged by is I feel like in my church upbringing, it feels like the emphasis has been on grace. You know, it’s, you know, we’re forgiven. There’s no works I can do to receive the grace I received from Jesus. And so I think sometimes that can focus me more on sort of de-emphasizing works. I always like its grace alone. And so with Ascension, so the emphasis like, no, you know, we also want to do works, you know, and to see the sisters that I work with have dedicated their lives to, you know, works for the church, for the poor and suffering that has really challenged me. That just they shouldn’t be just sitting here and having devotions, you know, I should be out in the world and doing things as well. So they have really challenged me, you know, to get off my seat, to do more. And in terms of, you know, conflicts, I don’t feel like there is anything other than that challenge that, you know, we need to be caring for the poor, the widows, the orphans. And I think that’s affected my faith in going forward in my other church life.

Luke Roush: Yeah, that’s great. Great insight and great commentary. Switching gears just slightly into the work Dave that you guys do, allocating to other fund managers, what do you look for in those partners? How do you think about the relationship over time? Love to hear your comments on that.

Dave Erickson: Yeah, that’s a really interesting question. It varies by type. You know, I like to say we pick managers that share our values, you know, through and through. And it’s hard to always know picking through investment partners, they are experts at telling their story to us. And so I think one of the things I’ve learned more and more is that. One of the worst things I can do is to ask about, say, should I invest in China or not, is to talk to a China long only manager. Because you know what? They’re experts in having me invest in their fund. They’re going to tell me it is a great time. Invest in China or real estate or wherever that might be. So I think we do want to have very good relationships with managers. We do want to feel that they are partners with us. We need them to understand how we invest with our values. So if they are pushing against us, that’s not going to work. And so we quickly move away from that. I think that we where all this on our sleeve aggressively. So I think if Ascension coming in, they know this is what’s coming. We’re going to be coming with an SRI guidelines and lots of values on our sleeve. You know, we just we need them to show a definable edge that they can provide, that they are invested in areas that are in those thematic things. And if it’s something we just want beta, we just want exposure, then, you know, a lot of times we have lean toward more, say, quantitative managers that we can get lower expense basis, that we can really define exactly what we’re getting. But it all depends, you know, tenure relationships with private managers. You know, there is character building there that we need to find. It’s just very difficult to do even if you can visit them every day for, you know, every month for a year. And you are you really getting to know them? You do the best that you can. You want to pick ethical partners. You do a lot of reference calls, you do everything you can. But that is challenging. You know, these are people at the end of the day and trying to judge them is a challenging job. I think we’ve done a pretty good job. If I look through our managers now, I think we have people that have proven to be good partners. And when we go back to them, you know, with other products that they might be using because we’ve built trust over time.

John Coleman: Yeah. And I think people lose that sometimes who aren’t deep, especially in the private markets, is it’s as much about the people that you’re investing with and their alignment and their process and those sorts of things as anything, you know, given this is the Faith Driven Investor podcast, we do like to end every interview with a relatively unique question for an investing podcast, which is just is there anything you’re learning in Scripture right now that you wanted to share with others? I know you’ve got a deep faith. Life, as you’ve already articulated, would love to hear anything on your mind right now that’s prominent in your study of Scripture that you think others might like to hear about?

Dave Erickson: Yeah, I think the one thing I was driving at, I listen to a podcast, you know, often if I have time, I listen to Tim Keller’s sermons, which I just I know a lot of people do, and I’m sure there are others that are up and comers. But man, I just love coming back to Tim Keller and I listen to one on sort of Jacob wrestling with God and well, the one the point that he made about that was that as Jacob was struggling with his birthright and with his family and he was ready to sort of have this wrestling match with his family as he was going through that, then all of a sudden God showed up and wrestled with him instead. And I thought the point of it, without going into all kinds of detail, is that a lot of times when we’re struggling with something, we think we’re wrestling with work, we’re wrestling with the person at work. It could be a spouse, it could be. And, you know, we’re preparing ourselves to wrestle with these people. And a lot of times it’s not that who are wrestling with. We’re wrestling with God. We’re wrestling. There’s something in our lives that we’re struggling with. That’s where we’re really trying to work out. And if we sort of think about that and work that out with him directly, then that will take care of other things. And so I have been spending some time, you know, as work is challenging, my kids are grown and they still provide challenges and things like that. But I find a lot of times, you know, the wrestling that I’m doing that I think, oh, why is life unfair? It’s something within me that I’m wrestling with God. And if I get that right, some of these other things hopefully correct itself. So those are conversations I’ve been having with friends and pastors recently. When I know you asked this question, that was the immediate thing that came to my mind.

John Coleman: Well, Dave, we are very grateful for this conversation. And, you know, at Sovereigns, we often say capital has influence. Right. And that bears a responsibility for us because those of us who steward capital are responsible for making sure that’s a positive influence on the world. And I think it’s an encouragement to us and to all of our listeners that someone of your deep conviction, your deep values, is working on behalf of these really authentic Catholic organizations to try and steward their capital well and to create a better world as a result of that capital. So we’re really grateful for you for the work that you do, and we’re also grateful to you for joining the podcast today. Thanks so much. Dave Erickson from Ascension Investment Management.

Dave Erickson: Thank you so much for having me.

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What does Faith Driven Investing look like for a global firm dedicated to bringing prosperity across the world?

Today’s guest, Mark Stoleson, has wrestled with this question before as the CEO and Partner of Legatum, a global firm that wants to improve people’s lives by increasing prosperity across the world. 

He joins us to talk about their approach, the power of building frameworks, and what it’s like to think globally about Faith Driven Investing.

Episode Transcript

Luke Roush: So good morning. My name is Luke Roush and welcome to the Faith of an Investor podcast. I’m joined here by my co-host John Coleman. John Good morning.

John Coleman: Luke Good morning. We’re recording this at 6 a.m. Nashville time. I know, so it is an early morning, but you seem delightfully energized this morning. Despite that.

Luke Roush: I am. I am. And we have a wonderful guest this morning. Our guest is Mr. Mark Stoleson, who is the chief executive officer and a partner at Legatum. We’re going to hear more about the firm this morning, but he’s been with the firm since 2006, served in a variety of capacities, including head of group investments. He’s worked with his partners there to incubate a number of the firm’s key philanthropic endeavors, including the End Fund, the Freedom Fund, the Luminous Fund, the Legatum Center for Development and Entrepreneurship at MIT, as well as of the Legatum Institute Foundation in London. So prior to Legatum, Mark was an attorney so he’s reformed out of that practice which is wonderful and he also hails a law degree from my alma mater, Duke University, which we have not connected on previously. So that’s really fun. Mark, welcome to the show.

Mark Stoleson: Luke. Thanks so much, John. Great to be with you both.

Luke Roush: Yeah, it’s really, really good to have you on. I’m a long time admirer of Legatum Mark, as I shared in our lead up to this, But I want our listeners to be able to benefit from some of the things that I really admired as we talked through your background. But just give us oriented in terms of where you all are at Legatum. And so your website has this wonderful tagline of having an ambition to improve people’s lives by increasing prosperity across the world. What does that look like for you guys? And maybe just take us down the walk and journey you all have been on?

Mark Stoleson: Yeah, absolutely. So maybe we could just start at the very beginning. So Legatum actually evolved out of another investment firm and it was a family run, sort of a family office investment firm that was 20 years old. And I work there as a young professional as you said, I’m a recovering lawyer, but a lot of those skills actually were really useful. So one of my jobs was working within our public equities portfolio, working on corporate governance issues, just trying to improve the governance and sort of what we would call ethical business leadership across our portfolio. So that was my start. What I found, and this is a really key part of the story, is that one of the principals in that firm and two of my colleagues all had a faith, and we discovered that early and oriented our friendships and the vocabulary that we use, that our outlook on things. And we wound up working very, very closely, very intensively for a couple of years. And then a shocking thing happened that we had the opportunity to stand out and create our own firm. And the genesis of Legatum happened around the table with all four of us basically saying, what do we want to do? Not just with our business, but with our lives? How can we use this business and this organization as a vehicle for purpose and for meaning, and to kind of focus on what David Brooks would call the eulogy virtues rather than the resume virtues in life. You know, when you cross over, you want to hear well done, good and faithful servant. What does that look like for your life? And that was an active part of the conversation. So we thought, well, number one, we want to keep doing what we’re doing. We want to build and run a world class investment organization. We want to multiply our capital, not necessarily play it safe and conserve capital. That multiply capital. We believe God is a God of multiplication and everything is possible. So with that kind of piece in place and that is part of our aspiration, then it was, okay, now if we multiply our capital, how are we going to use those resources in a way that we think are meaningful and positive and helpful? And that’s where Legatum, mission statement was born. A lot of companies have mission statements. We kind of feel like we carved ours out of stones right at the outset and it has never changed. So we’re 20 years into this and Legatum mission has remained the same, and that is to generate and allocate the capital and ideas that can help others prosper and that word prosper and prosperity for us, just given our beliefs, has a holistic nature to it. Prosperity is like the biblical principle of shalom, prosper, your soul, prospers, prosper to all the ways that are meaningful and in a life well live in your relationships, in the opportunities pursued, in the responsibilities that you have within your family, within your community, within your nation. So that was it. And, you know, that was the beginning of the story. But everything that happened afterwards was an expression of that authentic mission statement that I can go through and tell you about. I’m sure during podcast will kind of unpack what we have done. But the thing that follows now, you know the why and. Kind of what we set out to do and everything that follows. It’s been a journey of just trying things, failing, adapting, learning, trying to do better. A lot of things haven’t worked, but a few have and have really scaled the things that have really come to exemplify that original mission.

Luke Roush: One of the things that I’ve really admired is that you all were contrarian before. It was popular to be contrarian, and there are some bets and some investments that you guys have made in specific areas of the world. You’re a global firm. You said, I think in Dubai, split time between there in London, but you’re active globally. Maybe just take our listeners down a bit of the walk that you all have been on. I think it’s appropriate to start with the why and maybe kind of translate into the what you all have been working on over the last 20 years.

Mark Stoleson: Yeah, absolutely. So because we started and are investors, we can’t help it. We’ve got an investors lens that we use for everything that we do. So we think about capital allocation, we think about return on investment. And so within our investment business, you know, it’s proprietary capital that makes us a little bit unique. Obviously, our mission and our relationships, this partnership with four individuals has lasted for two decades. That’s unique. The mission is unique. The fact that we have proprietary capital is unique. It’s a huge blessing. What it enables us to do is invest with a long term perspective and actually follow that through. And so a lot of people talk about that. We know that, you know, just the power of compounding over time being patience and investments is really valuable, but not everyone can do that. So if you’ve got a fund life, you have to return capital to investors or you have redemptions. You know, you face forced selling at just the most inopportune times. We’re super blessed and fortunate that we don’t have to do that. And so throughout not just Legatum’s history, but our prior firm, we would find that we could make some of our best investment decisions when everyone else is panicking, when everyone else is fearful, when markets are roiling. And you see this major disconnect between the actual value and the price of something. And it requires a lot of discipline. Even when you have proprietary capital, it requires discipline and sort of intestinal fortitude to deploy capital when markets are really shaking. But we’ve been able to do that well. So one example, just one small example was in Covid, where we watched the situation unfolding. We watched not just markets, but nations just panicking. We did our research and when we do it, investors do. We started to read. We started to research and started the thing. And our contention was, I mean, we’re not scientists, we’re not PhDs, but just using common sense, using our own experience, using our faith. We looked at and thought this could be bad, but it’s probably not going to be as bad as is sort of current market prices are reflecting. And so, you know, we always carry some dry powder and some cash and we were down. I mean, our fund must have been down 25%, you know, in March, maybe February, March, April ish. And we had one position that was down over 50%. So we were definitely seeing the mark to market repercussions of all of this emotion and sentiment. But we did something that when Legatum does well, this is how we do it. We went 100% invested and for one of I think, twice in the last 20 years we borrowed money to invest, but we took a little bit of margin and just plowed it all in our existing portfolio. We know those businesses very well. We know everything about them. We know where their value lies. Got high conviction in their ability to create value in the long term. And we just went all in and that was one of our best performing years in the last 15 years was 2020. And so that’s zigging when everyone else is zagging. But that’s a great example of us doing what we’re configured to do. We made the opposite mistake and lost patience, and we’ve lost patience. When things go down too much, too fast and we’ve lost patience when they go up too fast, all of our models get stretched in banks, which we don’t. We like financial services and the price to book ratio goes like eight. In a country like India, even if the bank is growing at 100% for a year, we just, you know, we get rattled by that and sell out to it. And so we’ve made those mistakes over time. But one thing that really has taken root within the firm is the virtue of patience. And patience is the choice. And patience is a discipline. But when you actually use it in investment, it’s like a superpower. And so when we’re doing well, we have high conviction. We have a highly concentrated portfolio, and you’ve got a multi-billion dollar portfolio that’s usually invested across less than ten. Names will go narrow and deep, high conviction and intend always to hold for the long term. So it’s a bit like a private equity portfolio, but 50% of it is in the public markets.

John Coleman: Mark, I love that example, especially during COVID when you guys zagged as everyone else was zigging I guess, or zig when people zagged. What are the examples of that right now in your mind? Either countries where you feel like investors have panicked or have exited sectors? It’s still a pretty choppy economy right now, I think globally with inflation, with rising interest rates, with softness in real estate markets, etc.. And so we’re seeing a lot of places that investors are shying away from. Are there any high conviction spaces where you think people have overreacted now that you’re focused on?

Mark Stoleson: It’s a great question. I mean, just for a second, dialing back the talk a little bit, the whole heritage of this firm is in going places that other people don’t want to go. So, you know, in going places, that would be fashionable tomorrow, but that are out of fashion today, whether that’s a company or a country. And so a lot of the history is investing in Brazil. In the 1990s, no one wanted to go there investing in the former Soviet Union. So from the Czech Republic through to Russia during those years over throughout our history, we’ve invested in most countries. So we’ve invested in China and India and in Europe and in North America, South America. So I think if you look around the world today and ask where is the most out-of-favor country for investors, you know, at least somewhere near the top of the list right at this moment would probably be China. And so you have to look at it, study and think really hard. You’re looking at a situation that is driven by politics and geopolitics in addition to just economic fundamentals. That would be the type of place that Legatum would be monitoring, I would say, in looking for opportunities. China is a huge country, huge population. You know, it’s still growing and has, you know, hopefully its best years in front of it and it creates some amazing companies. So it’s a place that we would probably look. But right now when you start to see fear begin to reach sort of a peak stage, you can take your pick. You can find amazing companies in America that are out of favor in certain sectors, whether that’s within the energy sector and other places. So basically anywhere that’s out of favor is a place that we would be keeping a close eye on.

John Coleman: But one of the things I love about you all is the global footprint of the firm. In fact, here in Dubai, I think is your primary home office. I guess, Mark, I had the privilege of living and working in Saudi Arabia for a while and Afghanistan spent a lot of time in Dubai. Obviously, such a fascinating region. At the micro level. How did you decide upon Dubai and what is working as a faith driven investor look like in Dubai? And as you zoom out, how does that influence and shape you as a firm, that global footprint?

Mark Stoleson: Yeah, great question. So the choice of Dubai for Legatum, it was just really pragmatic. Frankly, we don’t have any investments that we own our own building. So we rented out we have tenants […..] and whatnot. But that is really our only investment in the entire region. So Dubai is a bit of a bedroom community for Legatum, but it served us very, very well over time and what we were looking for and we asked ourselves the question every five years or so like, should we still be in Dubai? Because we could be anywhere. But the key drivers of that decision were, you know, number one, we wanted a place where we could recruit and retain world class talent. So where can you find good schools, a good standard of living? It’s a safe place to raise a family. Then we wanted a place that logistically would serve our global footprint. So from Dubai, Dubai now has the world’s busiest airport. You can fly to Hong Kong in 7 hours, London 7 hours, Cape Town in 10 hours. The US is a little bit further, but you can kind of get a lot of places that we want to be and we love to be boots on the ground. Go visit countries, visit companies and really get a close perspective on our portfolio and on opportunities. So that’s a key part of our strategy. So logistically, Dubai is fantastic. And then third is just a really business friendly place. It’s easy to set up a business, it’s easy to run a business. It’s the legal framework. The infrastructure is fantastic. So, you know, we’ve looked around for other places to be, and some have one or two of those attributes, but very few have three. And so we’ve stayed in Dubai. What is it like to be a faith driven investor in Dubai? It’s awesome. Dubai itself is part of a republic. It’s part of a group of smaller sort of emirates. Or little countries within a country, the UAE, the United Arab Emirates. Dubai only has probably 2 million people in it, but it has 200 nationalities that live within Dubai’s. It’s a very cosmopolitan place, very international place, and it’s a very tolerant place. So you can practice your Christian faith. You know, I live on the Palm Jumeirah and I had people that were renting the home across from us or Orthodox Jewish people or who walk around with the yarmulke, you know, kind of traditional Jewish wardrobe. So Dubai is just a very tolerant, very open, very cosmopolitan place. I belong to an amazing church in Dubai. And we found that that type of openness and tolerance made it easier and made it possible for us to retain and recruit amazing professionals as well.

Luke Roush: One of the things that I think also has just attracted so many people to Legatum over the years and has really built, you know, your brand in a way that I think also reflects the faith of the founders is this idea of prosperity and what that looks like in and through your firm and the investments that you make and then how you select investments. So you talk a little bit on your website around the prosperity model and your prosperity ladder framework. Would to have you just unpacked that model, the framework? I think most firms don’t have a theory of change, how their work translates to change that we want to see in the world. But maybe could you take a couple of minutes and just unpack that for us, Mark?

Mark Stoleson: Sure. Absolutely. So if a God whose mission is to help promote prosperity is to help people prosper again, as investors, we want to do our homework and study like, oh, what? How do you make that happen? What are the component parts of prosperity? And we didn’t know literally when we started, we pulled out. I had a yellow legal pad and we were sitting in a room. We were like, I don’t even know what prosperity means. It sounds like money, but what does it mean? So we I went to the Webster’s dictionary and looked it up, and it turned out that prosperity is really multifaceted. It’s got a lot of things going on. And we realized probably we’re going to need some help. So we visited some professors at Oxford University here in the UK. So I’m talking to you from London today. And we got seven professors together who all had like an angle on what’s prosperity. And we asked them to deconstruct prosperity into its component parts and tell us, how do you do it, what’s it made of? And it’s made of the things that we’ve already talked about. But of course it takes wealth, but also what we call wellbeing, which is all this stuff that makes life worthwhile. It’s the quality of your relationships, it’s the amount of opportunity hope, you know. How do you measure hope and how does that get factored into it? Safety, security, health. All of these things. And after we had these genius professors kind of deconstructed it for us, we thought, okay, well, let’s put it all back together and do an assessment like how prosperous is the UK? How prosperous is the US? And once we started to pull on that thread, we thought, Wow, you can actually compare countries against each other. And gosh, if you can do that, that sort of feels like an index. You could have a league table or an index of prosperity of prosperous countries. And so our Legatum Prosperity Index was born on 2007. And looking back on that document today, which Legatum Partners co-wrote together. It looks really amateurish, really, you know, very basic. And over time, we hired an amazing group of folks to do things called regression analyzes and a whole bunch of other super high tech stuff, too. And I think they’ve got 88 different components to our prosperity index. And it’s a very sophisticated look at what drives prosperity on a national level and what restrains prosperity on a national level. And the idea was if we can create that kind of framework. For national leaders and decision makers. That’s a public service. If you’re a national leader who wants to see your country prosper, this can give you a good idea as to how to think about that and maybe where to allocate your time and allocate your resources. So that’s the prosperity index, the prosperity ladder. One of my partners, Alan McCormick, literally just wrote it on a napkin one day because he realized everything we do and the way that we think is about capital allocation and we understand how to allocate capital in the public equity markets. But then there’s sort of private equity and then there’s venture capital and then there’s sort of angel. We’re all familiar with those sort of different strategies of capital allocation. But we realized we’re doing a ton of work just in philanthropic efforts and charitable work, and that has all of the same attributes of capital allocation. You want to do your assessment, you want to allocate capital wisely, you want to look for a return on investment. You need to monitor that. What does an exit look like in philanthropy? And so we wound up just creating that prosperity ladder that we got some amazing feedback from it because it really does just sort of provide this taxonomy of capital flows and capital allocation in these different to meet different needs, basically.

John Coleman: One of the things I love about what you all do is the diversity of investment strategies you’re involved in. And as you mentioned, that even extends into philanthropy. Luke went through some of those at the beginning of the call, just in the different focuses that you all have as legatum. Could you unpack that a little bit and tell us what are those different strategies and why have you all chosen to get into each of those in a way that influences prosperity as you just described?

Mark Stoleson: Yeah, absolutely. So maybe I’ll start just for 2 seconds on the financial investment business. So the way that it’s configured today, it looks a lot like Warren Buffett. It’s got a little bit over 50% of the public equity markets, and that’s on an unlevered basis. We don’t borrow any money, we’re not shorting anything. It’s long on the highly concentrated portfolio and then we probably have about 40% in private equity. And private equity is probably a better fit for Legatum because we don’t feel like we’re traders or even investors. We want to be business builders, business owners, and that’s our mindset in investment. And then probably about ten or 15% of the portfolio is in venture capital. But venture capital is not our wheelhouse. We wouldn’t be good as a venture capital firm, but we do strategically want to be exposed to certain geographies or certain sectors and need a way to do that. And so we have about seven different venture capital fund partners that we’ve allocated capital to because they’re just way better at it. But we want the exposure. So one of the ways that Legatum thinks about investment is what we call as SBI is simple, big ideas. So if you think India is growing at seven or 8% and it’s got a population of over a billion people, there is an SBI, which is the rise of the Indian consumer, how do we express that simple big idea? And then we’ll express it through kind of the sectors that we like that we understand consumer discretionary tech, maybe financial services and banking. So that’s kind of how we think about our core financial investment business. We don’t think a whole lot differently about philanthropy. We want to look for value. We want to look for an outsized return on investment. And to do that kind of guy, go looking in the same types of places, places that are overlooked. So let me give you an example. Luke mentioned the end fund. The end fund stands for Ending Neglected Diseases. And what the end fund is all about is deworming people. So that story started with one of my business partners reading the Financial Times. He discovered that 1.5 billion people around on planet Earth have one or more forms of worms, intestinal worms. They can kill you, they can make you blind, they can make you lame, they can keep kids out of school, keep people away from work. So it has a major harmful effect on the health of a community family nation. You will only find these diseases in the poorest countries on the planet. So you won’t find them in America, you won’t find them in UK, Japan. Why? Because, I mean, all these diseases are global diseases. The worms are everywhere. It’s because in America we deworm people with a pill and we deworm animals as well. And there are a lot of countries that just don’t have access to those pharmaceuticals. So as we did our research, we discovered that pharmaceutical companies were actually, to a large extent, give you the medicine for free. The patents have run out. They don’t make any money out of it, but give it to you if you have a credible plan for kind of supply chain management distribution. Legatum chose two countries, Burundi and Rwanda, and said something that’s never really been done before is what’s called a Mass Drug Administration program on a nationwide level. We thought if working closely with the ministries of health. Those two countries, we just wanted to figure out if you could do a national process over 7 to 10 years, so long term time horizon to control and then eliminate these diseases. And what we found was the results were just off the charts, exceeded all expectations. We found that in some pockets of those countries, you have like 70 or 80% of a local population infected with these diseases. And with two treatments a year, you could get the disease prevalence down into the single digits, even down to zero in some places. So incredible results having proven the model, having de-risked it, which is just again, the investors lens, we thought, well, we don’t have the capital to roll this out to the whole planet, so we’re going to need to collaborate. And the end fund was born out of that spirit we took the Legatum name off of. It wasn’t the Legatum of Deworming initiative anymore. It became the end fund and we invited other donors and investors to join us. And today the End Fund is the world’s largest privately funded deworming campaign. It did over 200 million treatments last year alone. So it’s just it’s operates in over 30 countries. And to me, that kind of the punchline of that story is somebody has to have the risk capital. Somebody has to go out there and risk failing and prove the model. And once you’ve done that, the other part of the story is taking your name off the door, in some ways, opening it up to everyone else and making it something that people can collaborate on and feel a sense of ownership on.

Luke Roush: So, Mark, that’s remarkable story. I mean, 200 million treatments in the last year alone. Just unbelievable. There’s aspects, you know, when I hear you talk and we had a chance to talk a little bit before this as well, when I hear you talk, I mean, we’re talking with you on the Faith Driven Investor podcast, but there’s also a faith driven entrepreneur podcast, and there are elements of you and your partners and how you think about translating simple big ideas that SBI into reality. That really is akin to what we see in venture capital founders. Maybe speak a little bit about just the transformational potential with entrepreneurship and how you and your partners are wading into that idea.

Mark Stoleson: Yeah.

Luke Roush: Different parts of the world on both a for profit and maybe concessionary capital perspective?

Mark Stoleson: I mean, I think we as investors, we just instinctively love entrepreneurs, love the creators and the risk takers. But as we studied, prosperity didn’t take long to realize there is no prosperity in a nation without entrepreneurs. And these are the people that create the opportunities. They create the jobs. They are the engine that drives the ecosystem of finance and that really they are major servants for our national economy and prosperity. And so. But for us, entrepreneurship is even more. And the reason why we set up this Legatum center at MIT and the way that that works is we realize there are brilliant young folks from really, you know, disadvantaged backgrounds or countries that are very poor, just kids that could get into MIT but can’t afford it and have a bench or a calling to entrepreneurship. And we thought, gosh, if we can kind of come alongside them and just with a little bit of funding, give them access to that level of education and that level of network. And if they go back to their country, they’ll start a business, they’ll run a huge business. They may want to be running the whole country. And if during their time at M.I.T. as a Legatum fellow, if we could also give them a vision for the power and the virtue of entrepreneurship. So if they wind up in a position of political power and authority, maybe they can play a part in sort of removing obstacles and sort of paving the way so the more entrepreneurs will serve that society and drive more prosperity for everyone. That was the thesis behind setting that up. And the reason for that is when we look at entrepreneurs, we feel like and again, you know, entrepreneurs are people and people are are flawed. But big picture to us, entrepreneurship represents a basket of values, right? I mean, these are people who want to be creative and people who will put themselves out there and fail and then adapt and try again. So you’ve got perseverance, you’ve got patience, you’ve got audacity and boldness. There are so many. Character attributes that are so good about entrepreneurs that you just want to see, you know, spread out. You want to see sort of leavening a whole society, a culture of a society. So we love entrepreneurs because they do great stuff and create opportunities and jobs. But we love the idea of entrepreneurship too, because of what it represents in terms of values.

John Coleman: Going back to the global nature of your firm, Mark, in the way that you work with such a variety of people. I mean, you even just described it in things like the end project that you’re working on, where you’re working across countries. This is the Faith Driven Investor podcast from a Christian perspective. But we’ve also highlighted Jewish investors here. We’ve got a muslim investor coming up. You’re working alongside people of all belief systems in the work that you do. Any advice for folks on just navigating that as a person of Christian faith, working well with those who are sincerely motivated by other value systems or in a diverse environment where those value systems are represented?

Mark Stoleson: Absolutely. So Legatum has sort of three basic core principles that everyone signs up to and animates everything that we do. And the first one is excellence and elegance. And the second one is culture of honor. And the third one is flawless compliance. So because we operate in lots of different countries and lots of different cultures and lots of different sectors as well, whether you’re deworming kids in Africa or you’re deploying capital in the Japanese banks, you know, for us flawless compliance means you say, well within the safe zone, the right side of the line at all times, no exceptions. And we’ve got a team that’s, like you said, in London and in Dubai and also, you know, in the US and other places. So that’s really important. But the key, the twin kind of heartbeats of Legatum are really excellence and elegance and a culture of honor. And with excellence and elegance. It’s not just being, you know, masters of our craft, like really always looking to improve, always looking to do better in terms of how we invest and just how we conduct ourselves. The elegance part is we want it to be beautiful, but we want the relationships to be beautiful. We want our work product to be beautiful. We want them got a brand and what it represents to be not just excellent, but also beautiful. And the culture of honor is probably the most important part of what makes Legatum and I think really special and what makes it so effective in different cultures and with different faith traditions, because we don’t feel like it’s our role to tell anyone how to think or what to do. We come to serve it in the posture of a servant of wanting to come alongside people and help and contribute and honor other people. And that starts I mean, it starts at home for us. That means that starts within the Legatum team and within the Legatum family. And so something that we pay a lot of attention to is how are we treating each other? How do we make decisions? And culture always comes from the top. And within Legatum the top is the partnership of these four individuals, and we take a very intentional and disciplined approach to maintaining right relationships with each other. A couple of principles that really stood the test of time for us. One is what we call the power of agreement. And what that means to us is that we want to move in unity at all times. So especially with anything material for the firm, it doesn’t mean that we have to agree on everything. But if we wind up in a situation or a decision that we’re discussing that we need to take and we’re not in agreement, we make the highest priority to be in unity regardless of whatever we decide. And the second is what we call keeping short of counts. And so when you walk a journey with anyone, whether it’s in a marriage or a business relationship for two decades, you’re going to have good days and bad days. You’re going to misunderstand each other, you’re going to offend each other. It’s human experience. But the one thing we can do is keep short of counts and to raise issues quickly, not let things fester, not let any sort of bitterness take root, forgive each other and move on and just be very, very intentional about that. So when you see those principles, really something that we make a big priority with in the partnership, you can see it fed through the entire organization and the culture of honor that we strive to live by.

Luke Roush: I think those are great tips, Mark, and great stories of how you and your partners over 20 plus years have been able to stay together, stay unified, you know, engage in the merits when hard decisions need to be made, but ultimately come out and move in unity. I like that a lot. One of the things that we like to do at the end of each podcast is just take time to hear what the Lord is saying to you in and through Scripture. Sure. And how that maybe impacts your work and leadership of Legatum. So maybe just take a few minutes and share what the Lord is teaching you right now in this season.

Mark Stoleson: Well, I mean, two things that come to mind that are really sort of top of mind right now. And I’m sort of pondering why the Lord is raising these things now. But one is, you know, in Isaiah when it talks about the prophesying, the coming of the Christ is prophesying the coming of Jesus, and it says the government will be on his shoulders and it talks about these attributes. And one of them is that he’s the Prince of peace. And we normally hear those words around Christmas time. But for whatever reason, I feel like God really put that on my heart recently. And I think what he’s saying and I’m still really sort of noodling on this, is something about the importance of just good governance, good governance, good governments, good leadership, and whether that’s in your family or whether that’s in your organization, whether that’s in a nation, there’s this connection between good government, Christlike government and peace. Like if you’re not seeing peace, there’s probably a link to the quality of the government. And that’s really struck me because as a leader and as a leader of leaders within our organization, leaders have different personalities. And some people are more by confrontation, easier calling people out, calling people higher. Other people really are just more wired for harmony and they don’t want to confront things. And it’s something that I’m working on with some of our young leaders is just the necessity as a leader to bring peace. But sometimes you have to bring peace by raising the tough issues, by calling things out, by holding people accountable, by making it clear what you will tolerate and what you will not tolerate as a leader. And that’s hard. That can be awkward, that can be uncomfortable, that can make you unpopular, that can make you lonely. And yet it’s totally fundamental and necessary as a leader. So this link between good government, like Christlike government, I just for some reason I was really struck by that. The government’s on his shoulders and, you know, there will come a time when every new about every tongue will confess that Jesus Christ is Lord. When that happens, we will experience what that level of peace looks like because we’ll be living under his government alone. And it’s awesome. But I feel like it’s part of our role, not just as believers, as Christians, but as leaders to do our part to try to bring heaven to earth, to try to bring some of that within the authority that we have been entrusted with. So that’s one. And if we’ve got time, I’ll give you the second one. Second one, it does go to the power of unity again. And, you know, I’ve been really reflecting just on when Jesus talks about how his disciples will be known, it’s that you will be known not by what you achieve, but you will be known by your love for one another. Yeah, that’s how people are going to know that they’re Christians. That’s how the people are going to see a reflection of Christ those other people are going to encounter. The Divine is through our love for one another. And so even within the bottom context, even though the God him is not an evangelical Christian organization, we have people of all faiths and no faith that work within Legatum, and are very successful within Legatum. But that’s the perfume that I want to see coming out of the God is a love for each other and a love for humanity and a love for our neighbor. And that through that, I feel confident that God will make itself known, that his presence will be revealed if we love one another. But as a corollary to that, I just have noticed over two decades of doing this with my partners that when we are in unity, I feel like something spiritually powerful is unlocked and we can see it in fruit and in the oil of God’s favor in the activities. It’s almost like you get the relationships and it’s almost like it’s not always the case, but it feels like good things happen. And when you’re in disunity and disharmony, it feels like it just at least for us, it feels like it has a a restricting effect or almost feels like a kind of cauterize is God’s favor. And so it’s something that it’s just hugely important to get over yourself, make things right and run. Don’t walk back to a place of unity.

John Coleman: Mark That’s an encouraging word. We’re really encouraged by the work that you’re doing at Legatum and around the world. I’m really hoping to get to visit some time on a trip to Dubai. Luke It seems like we’re probably overdue for a trip out there, but just really thankful that you would come on today and share your insights and the insights of your firm with the Faith Driven Investor podcast and with the audience that we’re reaching. So thank you so much for being here today and for the work that you’re doing.

Mark Stoleson: John Luke Guys, thank you. Not just for this time, but thank you for what you’re doing with the faith driven investor, faith driven entrepreneur, the whole movement that you guys are stewarding. It’s super important. I hope that this is useful for someone out there as they hear it. And you’re both more than welcome in Dubai. We look forward to your visit.