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In this joint release episode Richard Cunningham and Justin Foreman discuss the problem of joblessness as part of the initiative, Solving the World’s Greatest Problems. They are joined by Keren Pybus, CEO of Ethical Apparel Africa, and Ronald Ishak, CEO of Hacktiv8. They explore the impact of job creation and upskilling on individuals, families, and communities.

Episode Transcript

Richard Cunningham Welcome back, everybody, to another episode of the Faith Driven Investor podcast. And you’re about to hear this, right? The Faith Driven Entrepreneur podcast as well. Really exciting episode today as we were doing a joint release on both the FDI and FDE pods. As Justin Forman, executive director, co-founder, president of Faith Driven Movements, is in the podcast studio with me today. And Justin, we’re shaking things up a little bit, doing a joint release for the faith driven Investor and Faith and Entrepreneur podcast. As we were zooming in a little bit on a new initiative we have. Solving the world’s greatest problems, Solving the world’s greatest Problems has its own website, its own podcast. It is newly launched, newly released. And today we kind of want to go out to the FDA and FDA audiences respectively, and zoom in on one of those great problems, the problem of joblessness. And we’ll welcome our guests here shortly. But Justin, what are we up to today with this kind of special edition joint release podcast?

Justin Forman Man, good to be on the podcast with you again. You make it sound all fancy and technical like we had some deep, deep things to get to, but we were just looking for an excuse to get Richard Cunningham back on the podcast here for Faith Driven Entrepreneur. So we’re going to take what we can get. We’re competing with Baylor Baseball, Baylor Sports and all the different things that you’re commentating and jumping in on. I mean, yeah, it’s great to be back here together. It’s great to be talking about issues that matter and talking about things that matter. And so many of you guys, if you’re familiar with that, you’re an entrepreneur and faith driven investor. I’ve been following long of a new initiative called Solving the World’s Greatest Problems. And what we endeavored to do with that is to say, what can we do to create a trusted place that people can discover ways that they might be called to get involved? You know, I think when we think about this message, we think about this idea 20 years ago, information was scarce. I mean, I was looking the other day at some of these images when they were talking about Google when it first launched and some of the first images to it. And they had the search bar and right underneath it and it said like, you know, searching 250,000 pages or something like that and more coming soon or whatever it is. And it was like the point was, is when they first launched, they were trying to make the case for more information is coming. More information is coming. Hold on. Today, 20 years later, we’re at the exact opposite where we have to use machine learning. We have to use other things to try to take all of the complex and make it accessible. And so solving the world’s greatest problems is trying to be that bridge, trying to be a place that as God moves you as an entrepreneur or an investor to get involved, that you can find that first step. And so we do that through content. We do that through stories, we do that through podcasts. But that’s just the start. There’s going to be so much more coming from giving collaborations and groups to to give and to invest together with. And so there’s a lot of that that’s coming. But where we have started is we have started with some content, we started some podcast, and so you may have been able to check that out. There’s been a couple of episodes recently released where we talked about the idea, we talk about the campaign, and then we started to talk about some of these upstream issues, starting with gospel poverty. We had David Platt, we had Mart Green. Let’s talk about just some of the opportunities are in front of us and today we’re present into this idea of joblessness. And as you saw our creative team, if you check this out on the site, you’ll see this this image of these dominoes. And we really think that this is one of those issues represented by those dominoes. It’s upstream that if we can get some of this stuff right, not only can we find ways to better care for people and avoid some of the hurts and heartaches that come about when that’s not the case, but to we can just think about the opportunity that entrepreneurs, investors have, that we can be sources of either redemption or brokenness. That’s a very way that we go about it. We could be furthering some of the world’s problems if we’re not careful, or we can be a source on the other side. So yeah, super excited to talk about that. Today. We’re going to press on with some fun guests about this issue. But before we do that, we wanted to give you a little teaser. This is a little teaser, a couple of minutes of an episode for solving the World’s Greatest Problems podcast. It’s a fun style where it’s kind of like how I built this Guy Raz versus Radiolab just kind of mashed up together of all of these stories in a fun, engaging way. So let’s listen to that and then Richard will kick us off and some conversation.

Narrator What happens when a job is lost? Many of us understand the individual challenges one might face in unemployment. You know, things like increased stress, depression and insecurity. But that’s not even the worst part of it. The compounding effects of joblessness often lead to worse schooling outcomes for children, and those same children will have a much more difficult time in the labor market getting jobs once they become adults. Now, let’s let’s zoom out a little bit further and think about this on a macro level. Picture an entire community of people facing unemployment. Think about all the individuals who would struggle with their mental health. Think about the families this would affect. These are not imagined scenarios. You know, we can look at a city like Detroit in the United States and see the effects of joblessness on an entire community. In the mid 20th century, Detroit was a booming city with nearly 2 million people. It was among the country’s five most populous cities as people came in droves to work for the auto industry. Jobs were plentiful until suddenly. They weren’t between 1950 and 2010. The city saw more than a 60% decrease in its population. In 2013, the entire city filed for bankruptcy, and by 2022, the poverty rate was 33.8%, more than twice the average of the rest of the state of Michigan. Today, nearly half of all the children in Detroit grow up in poverty. While no one can limit the city’s downfall to one specific thing. There’s no doubt that the radical decrease in employment accelerated its downfall. The auto industry that once played the city’s hero quickly became the villain as thousands upon thousands of jobs were lost. And the lack of jobs affects more than the worker. You know, joblessness can shatter families, communities and entire cities. But that means the flipside is also true. Job creation can create positive and generational impact. It revitalizes, redeems and restores. My name is Afl-cio John. I’m the director of Global prosperity at the Cleveland Christian. And I’ll be a host of this episode of Solving the World’s Greatest. Today on the show, we’re going to talk about ways that Christian builders, investors and givers are helping the church win in this fight against darkness by creating jobs that bring positive and lasting change. Now let’s dive in. Act one Creating better systems. We’ll start the show off today addressing the urgency of the situation. Now, if you’d like to stress yourself out about the future, just take a look at recent studies on the global job market. A recent report by the World Economic Forum forecast that in the next five years, job growth will increase by 69 million. That sounds pretty good until you read on. There will also be a decline of 83 million jobs in that same time period. In essence, we are going to lose more jobs than we gain. And to be clear, this data represents a job market across the entire world. Sometimes people hear about the issue of joblessness and mentally relegated to certain countries or think that it only applies to developing regions. But wealthier economies are not immune to the changing winds. In fact, Jack Kelly, a senior contributor for Forbes, wrote an article in 2023 summarizing a study by Goldman Sachs that predicts that 300 million jobs will be lost because of artificial intelligence. Kelly puts the issue bluntly in the article, writing that if generative A.I. lives up to its hype, the workforce in the United States and Europe will be upended. This is a global issue, but it is not unsolvable. Many of our brothers and sisters around the world have been fighting this battle already, and they have been winning, especially in areas where joblessness is not a new problem.

Richard Cunningham Welcome back, everyone. All right. Let’s dive into today’s conversation. We have got a couple of just extraordinary seasoned builders. And while Justin Foreman and I are both in the state of Texas, I’m in Austin and Justin is up in the DFW area. We are traveling across the world for this one as we have Keren Pybus of Ethical Apparel Africa, located in West Africa. And Ronald Ishak of Hacktiv8 coming to us from Jakarta, Indonesia. So what a joy to have so many geographies and time zones covered. Friends. Ronald, we’ll start with you. Welcome to the podcast. Thanks for being with us.

Ronald Ishak Thanks for having me.

Richard Cunningham It’s fun. Yeah, absolutely. And Keren, you as well. Hey, let’s do this to kind of help set the stage. How about a 30 to 60 second kind of intro and background from each of you personally and professionally? And then we’ll get going.

Keren Pybus Okay. Hi, I’m Keren, and I’m the CEO of Ethical Apparel Africa and the co founder. We are seeking to create jobs in West Africa through ethical apparel manufacturing. We have a factory there and work with multiple other factories as well to create jobs through an ethical way of manufacturing clothing where we put all of our profits back into the workers and worker empowerment and creating the best place to work. We want to do it on a large scale, so we’re mainly exporting to the US and a bit to the UK and Europe. I’ve been in the textile and fashion industry for 30 years, so it’s my passion and my love all together.

Ronald Ishak Yeah. And I’m Ronald Ishak and I do have debate. I’ve been building this for the last eight years. I founded it and leading it as CEO. We’re basically a program that turns absolute beginners into job ready developers. And 12 to 16 weeks and then help them find jobs not just in Indonesia, but also around the world as well. And so, Dan, we’ve trained today up to 50,000 people through our multiple programs, from bootcamps to corporate training programs to video based courses and things like that. And it’s been a fun and exciting journey just to see people from a stage where they’re very insecure, where they are, to see them thrive and succeed using just the power of technology. So thanks for having me.

Richard Cunningham Yeah, it’s great to have both you guys on. It’s been fun to capture both of your stories in different ways. So for our listeners here, they’re dialing in. There’s two great video stories capturing both of the journeys here. And so be sure to check that out either on the Solving the World’s Greatest Problems website or faith driven investor websites. But Keren, I was hoping that maybe you could kind of kick us off here when we talk about solving some of the world’s greatest problems. Oftentimes we think about maybe aid and we think about charity. We think about the different ways that nonprofits step in to solve some of these problems. But I would love for you to just kind of cast the vision of like when people say a job is created. We hear that in our report here in the West. We might hear that in a jobs report varies around the world. But when a job is created, when that’s happened, can you just kind of give us kind of some of the perspective of what that does, either for a family or for a community and just the ways that that has such a ripple effect beyond just even that one individual job?

Keren Pybus Yeah, definitely. I think for us it was really about giving people sustainability and giving people security. And when you’re working in an environment where there’s a huge amount of informal employment and lots of opportunities for informal employment, it doesn’t give us stability. And that’s really what creating these jobs is doing, not just for the individual but also for their family. And quite often they can be the breadwinner or maybe 1 or 2 breadwinners in the family, which means that they can provide a really basic level. They’re providing food, they’re providing housing, they’re providing amenities, they’re providing a lifestyle. There’s even beyond just those basics for those people. But it means that they can rely on it. They can save for their futures. They can you know, in Africa, saving for your funeral fund is a really big, huge deal. And at the same time, they can have support and things that are going to enable them to live their lives in a secure way, too. So whether that’s the health insurance that comes with it or whether it’s other things like the free lunch that they get, which means that they don’t have to then feed themselves, you know, a big meal again later on because they’ve had a really big meal at lunchtime or something like that. So it’s more than just a job. It’s about creating a a way that people have security and sustainability for them and for their family.

Richard Cunningham Let’s talk about that a little bit more. When you talk about the family work, what does that look like? Because I love where you’re going with this, because, you know, when we talk about solving the world’s greatest problems, the website, we talk about 30 of the problems, we talk about some of the different ones, and we talk about fracturing families. We talk about health care, we talk about anxiety. We talk about hunger, we talk about homelessness. We talk about all these different things. And I think that you’re taking us some places, but specifically with the family. Can you talk about the confidence or the ways that the family is able to thrive when you have that consistency of employment?

Keren Pybus Yeah, in a lot of developing countries and culturally. So a family stays together, so you will have generations of family living together. It’s not always true. We’ve got people that are in our factories that are in their 20s living on their own. So it doesn’t necessarily mean that, but sometimes they’ll also travel in and they’ll have families living in villages elsewhere. And so you’re not just providing for your own disposable income, you’re providing for a network of people that are reliant on you. Now, we’re very fortunate in Ghana that education is free up to the age of 18, so that’s not necessarily a factor. But that’s not true in many, many countries where people are having to pay for education. So you’re paying for that next generation that you may be paying for a younger sibling to go through university, for example, to create opportunities for that person for the future. You may be supporting health care with one of your older relatives that maybe would have just necessarily died younger for no reason at all if they hadn’t been able to access that health care that you are able to do. You’re providing also in a lot of situations, people to be able to stand on their own if they’re in a really bad situation. Domestic abuse, adultery, anything like that, which means somebody needs to be able to go out on their own. They can do that. They can support themselves being able to they can remove themselves from a dangerous situation because they’ve got the security of that job and the security of not just the job. And I think what’s really important within this and. Maybe we’ll come onto this later. It is not about just a job. It’s about that job being worthwhile, sustainable, safe, and a place that they can have a family within that job environment as well as their family that’s outside of that. So it takes away a lot of that. What if what can I do? That kind of thing? And it creates people honestly. We’ve noticed a real shift into from short term thinking into long term thinking. They’re not just thinking about what’s going to happen the next day. What do I need to spend my money on for the next day? They’re thinking about what can I do for the future? How can I change my living accommodation? How can I provide for my sibling to do this or whatever? And because they’ve got the security of longevity.

Richard Cunningham Keren That’s incredible context and setting the stage, we’re going to come back to you in a number of points you just unpacked. But let’s go over to Ron real quickly and kind of hear some of the initial context as well. And your camp, Ron, because for lack of better terms, you’ve created a coding school that takes individuals and gives them the ability to access so many various different types of work across Asia. And so we’d love to hear kind of some of this from your perspective and activate.

Ronald Ishak So I think like what comes to mind to me is thinking about the minimum wage in Indonesia. You know, in US dollar terms, like a month salary here in Indonesia is equivalent to about $400, and that’s the formal one, right? And then so there’s a lot more informal people taking jobs like, you know, selling things on the street and things like that. It might be a lot, lot less motorcycle delivery drivers perhaps. And so when we think about what we can unlock by, you know, teaching people how to code, it’s really unlocking not just, you know, to go beyond the minimum wage of what’s possible, but also being able to cross political boundaries, people to be able to work somewhere, you know, Singapore to Australia, where the minimum wage is, you know, significantly higher, the pay is significantly better. And then on top of that, as a software developer, they can just do so much more to the point that, you know, when those opportunities are unlocked, you know, somebody can suddenly, you know, support their entire family and just do incredible, incredible things.

Richard Cunningham So talk a little bit about that, Ron, because I think here’s one of the things that we think about. We think sometimes we create a job and it’s like a static thing and we’ve created it and like we’ve added to the count and. All right, good. Well, let’s go on to be creating the next one. But yet we live in this inflationary environment. We live in these places where the costs continue to go up, where we figure out some of these different things that are happening. And even in your business, when you talk about coding and teaching coding, that’s always changing. You’re always having to upgrade, you’re always having to change. I would imagine, you know, artificial intelligence, machine learning that’s changed and pushed you guys to figure out, okay, how does that change for us? So how has something like that forced you guys to continually be upskilling and innovating?

Ronald Ishak I think A.I. has really changed my business quite a lot. You know, it’s kind of like giving somebody a calculator, right? You know, it increases the productivity significantly. And then so we’ve had to upgrade our programs to help people sort of adapt to all these new tools for us to produce more output in just much shorter periods of time. But I think one of the challenges being a school is kind of like just like giving somebody a calculator. You want them to learn the math first before they just use, you know, just the buttons and press the equals and then have the results fit out. And so, you know, those might be some of the initial challenges. But I think like, you know, once it’s enabled people to just be significantly more productive, like ten x more productive, I think it’s just amazing what it unlocks.

Richard Cunningham And tosses out openly to both of you guys. We often talk about entrepreneurs that things have changed and for entrepreneurs that I guess we’d put it this way the hero of the problems of the world years ago often was like the celebrity cause it was the big concert, it was big business, it was aid, it was all of that. And now, as we’ve been talking about, like, it’s changed and people are noticing job creation, they’re noticing economics, they’re noticing the important sustainability. How have you guys seen that not just being noticed by the church, but just maybe other like local city governments, municipalities? How are you seeing opportunities to partner just with the broader ecosystem of investors, NGOs? How are you seeing some of this kind of come into play where people are saying, man, you’re solving a problem and that we have a shared vision of making sure that there’s growth in that? I mean, because here in Texas, I mean, people are recruiting businesses left and right. We are trying to just harness economic development left and right. How are you guys seeing that in your context? How are you seeing other people value the job creation potential of entrepreneurs?

Keren Pybus I think the biggest change for me is actually being with the big donor agencies. So where a lot of US aid or the Foreign Commonwealth Development Office or Jay-Z or Solidaridad, those people’s money went into pure aid. And there’s still some very, very important elements of that part of it. They have shifted huge budgets into trade facilitation, which in turn creates jobs. Because you’re creating manufacturing in different places. And it’s not just about creating market linkages. It’s about funding to create capacity building, create technical skills, create career path, create opportunities for locals. So for us, you know, we’re trying to create a textile industry in Ghana that, you know, really has a huge, deep roots in a lot of very traditional manufacturing but doesn’t have the experience of doing it to international standards or international compliance standards. We have to bring in a lot of expats to do a lot of those things, to be in with a lot of skills training to be able to pass on that knowledge. One of the big things with the donor agencies is how do we pass that skills to the locals so that it doesn’t become reliant on an expat type of business. But actually you’re upskilling the locals. So I’d say the donor agencies have really changed their mindset around that, which means that there’s a lot more money available to get grants and things to be able to kick start some of these programs or to be able to work with programs and work with investors as well. So a lot of it’s also then linked to how are investors going to work with it. So there’s a lot of match funding available to. So if you got an investor that’s going to work alongside you, then the donor agency will match that funding, which makes it really attractive for an investor as well because they’re getting a great deal for that money. So I think the donor agencies definitely wrong.

Richard Cunningham What would you say to that?

Ronald Ishak You know, I think for me, like looking back in the last few years, you know, I think one of the big things to sort of happened was the pandemic. But one of the things that come out of that for us is actually building this thing called the Association of Digital Talents Training of Indonesia. And so this is a collaboration effort between me and my competitors, but then sort of working for the greater good, working closer to the government. We now have a channel to work with together with them, sort of see why we need more talent in the marketplace that knows how to use technology. And also thinking that, you know, ever since the pandemic, sort of the acceleration of a lot of these traditional companies suddenly coming to become digital, you know, the need of talent for digital in Indonesia has spiked quite a lot. And then so now, you know, the government is more receptive to sort of like, okay, you know, let’s start to build standards so that we can scale this faster. Let’s create some protections here and there. So I think that has sort of been this shift that I see in the last few years for us.

Richard Cunningham Ron, I wanted to push into something you said there. When you’re talking about change, you’re making change. You just said that you weren’t going about it on your own, but you were linking arms with even some of your competitors. How would that change the dynamic? How has the conversation changed within that? There’s something unique there that oftentimes competition is a funny word, especially in the church. What are you learning through that process?

Ronald Ishak You know, one of the most unique parts about this association is sort of how it sort of came together as well. You know, I remember in the middle of the pandemic, you know, everybody was stressed out. My competitors were stressed out. And we actually got in a Zoom call together and we ended up praying together, funny enough, and sort of that relationship of just, you know, instead of seeing each other as competitors, sort of as like, hey, we got to survive this together so that we can come out of this, you know, we’ll be stronger together. It really started out of that. And then so that relationship was built out, you know, over the next 2 to 3 years. We only set up the association this year, sort of putting all of the competitors together, working for a greater good. I think that’s the beauty of working in education. It’s not trying to kill each other. It’s not trying to like, you know, winner takes all type of game. But then with education, you know, it’s kind of like we can help enlarge the pie. We can create more opportunities. So it’s been cool to sort of see that roll out, especially because I’ve been in the field of like, you know, building startups, trying to kill each other and things like that. But then in education, it’s just like, Hey, we’re here, you know, for the greater good type thing. And so it’s a cool collaboration. I think it’s something cool to observe.

Keren Pybus I would add to that too, because I think you’re absolutely right. We work with multiple different factories across Ghana and trying to bring all of their different skills, and they are technically all competitors. But for a buyer coming into the country, they don’t want to come into the country and buy from one factory. They want to be able to come in and make the trip worthwhile. They want to be able to buy from multiple factories. So if those factories can work together in terms of finding their own unique selling points, what is the thing that makes them specific? It might be a type of machinery they’ve got. It might be a type of product they’re making. It might be a particular type of market that they’re serving. They can all then layer together and work together with things. Then you create something that is more attractive from a trade perspective as well, and you’re not working against each other. You’re putting your energies into working together. So I think there’s huge value in as Christians leading that and being people that don’t put the competition factor first is something that sometimes does make us different within a marketplace as well.

Richard Cunningham A tide that raises all boats, if you will need to hear you both riff on that. All right. Well, hey, I want to get you almost personal in this aspect of it. Keren, maybe you at the job creation, Ron, you with almost the job upskilling. Can you think about a specific story or stories of some lives that you’ve seen, people that you’ve been fortunate enough to employ or maybe Ron, you’ve seen come through your program and just kind of the effects and this the transformation that you’ve witnessed take place in a particular live or lives. Keren, I’ll start with you.

Keren Pybus Yeah, sure. If you watch the video of Africa about Africa, you’ll see a girl who Florence, who’s profiled on there and Florence came to us as an operator not hugely long out of school, and we saw a skill set in her in terms of her ability to think outside the box, her ability to embrace technology. And we put a lot of effort and work into creating different skill sets with her. So first, full motor skills on different machinery, teaching her all the basics of sewing and moving her through the kind of ranks, putting us into some external training around pattern creation. And she is now the assistant person manager in the factory, and she’s gone from, in her family kind of being somebody that is part of that family environment to being one of the major breadwinners in that family, ensuring that her grandmother could get the health care that she needed. And so seeing individuals like that moving through is just really exciting. A warehouse manager came same, similar saying Raphael came through the ranks, really try some different things and we’re just able to hone those skills and and I think they then act as role models to others in the factory because yeah we need to bring in a lot of expert expertise and everything else. But sometimes we as expats can be almost out of reach for the locals. They can’t identify with how they can get there, how they can develop that skill set. And especially when you’re trying to teach not just a technical thing, you’re trying to teach people to think outside the box. You’re trying to get them to think horizontally and vertically and problem solving. You’re trying to, you know, look at different attitudes to work towards work and those kind of things. You’re trying to teach all of those things, not just the if you sit at this machine and press this button, it’s going to do this type thing. And so by seeing other Ghanaians that have moved through the factory and move through the industry into other things and to other roles and progress and seen how their lifestyle changes as an impact or how they then steward the resources that God has given them. It inspires other people and inspires others to look at it and to take that job and think, this isn’t just about coming in and working your 8 to 5 shift. This is actually about something that could be more than this and creating something for themselves as well as their family.

Richard Cunningham What would you like to happen on that?

Ronald Ishak I think, you know, when I think about the stories that we there’s so many I think the one that I always come back to is this guy. You know, whether you’re one of our alumni who has sort of joined our program during the pandemic, in the video there, a whole section of it in there where they get to interview him. But it’s just a cool story to sort of see somebody from a motorcycle delivery driver that had dropped out of school, couldn’t afford to pay for his university degrees, sort of join Activate, took up our income share agreement program where he didn’t have to pay anything now, but then he would pay later after he would get a job from the Activate program. Sort of just see that transformation and that just sort of even wanting to see it all the way till the day where he sort of jump from one job to another job and just seeing his career progress, it’s always like exciting, you know, to sort of just give somebody the tools to build and then sort of see what they can build from that. And I think what’s really cool as well is also seeing him, you know, volunteering to be able to teach some of the Activate classes as well, you know, sometimes as a guest lecturer and things like that. I think it’s just heartwarming to sort of see once you sort of help somebody overcome that deep insecurity or that one thing and then the amount of gratitude that they have afterwards, I think it’s just amazing.

Richard Cunningham Great thoughts. Very grateful for the work that both of you guys are doing. We often say that business has the opportunity to create redemption or to create brokenness. We can run businesses in ways that can further some of the very problems that we’re trying to prevent. Or we can step into those dark spots and be light and that can be that redemptive tool. So one of the things that we do with solving the world’s greatest problems is try to make the complex accessible to try to help people take that first step. And so I would love for you guys as we close here to give just kind of a word of advice. If you’ve got an investor or an entrepreneur that’s listening to this for the first time listening to this and they’re hearing for the first time in some ways that jobs can be some of the upstream solutions to some of the world’s greatest problems. Maybe in the past, everything that they thought about, they’ve been thinking about the giving pocket and the giving side of things. And they’re starting to see that really all comes from one pocket, whether it’s giving or it’s investing, it’s all the resources that we’ve been entrusted. So they’re coming to that place and they’re throwing their hands up saying, I want to know more. I want you guys to speak. Maybe there’s an article, maybe there’s a. Maybe there’s a moment, maybe there’s scripture, something on each of your journeys that really kind of is the moment where the lightbulb turned on for you and you realized, wow, this has an opportunity for this is is just as much ministry and impact as some of the traditional things in the traditional viewpoints. So for listeners out there, where should they start? What’s a good place for them? What’s a good article or something to go through? Keren. I’ll turn to you first. What would you encourage people to do to take their step to explore further?

Keren Pybus Well, that’s quite a big question. I think for me, right at the beginning, I think where your passion and your skills meet is often where your calling is. And I think just because you’re really passionate about something doesn’t mean you have to necessarily give up on it. So if there’s an industry that you’re passionate about, you’ve got skills in that industry. Embracing and seeing what you can do in that industry is really important. My kind of big changing moment, I guess, was reading the John Ortberg book, If you want to walk on the water, you’ve got to get out of the boat. And just knowing that actually you’re never going to solve it or you’re going to get out of that boat and there’s going to be moments where you’re sinking and moments when you don’t know what you’re doing, but fixing your eyes on Jesus and just keeping that kind of like one thing has been really good. I think a learning for us, particularly when you’re thinking about job creation, is making sure that within there your recruitment policies and the process for bringing people on board is really thorough and robust. You don’t have to kind of shy away from that just because you’re trying to give all these jobs to people. You know, we’ve got people queuing up outside the factory every day looking for work. I can’t give a job to everybody and solve all of the world’s joblessness. And so it’s about getting the right people, praying through that, but also creating what are the right tests. Interview stage. How do you test for attitude, for behavior as much as technical skills? How do you give people that proper training that gives them the chance to swim at the beginning and not just sink because you bring somebody in the new pulse so much things on and that they can’t actually cope with it. How do you hold people’s hands through that? How do you give them the life skills training that goes along the side, the jobs training as well, so that, you know, most of the people that we’ve employed have never had a formal job in their life before. So even just the concept of turning up to work on time every day at the same time every day is a completely alien concept. And so explaining the why for a lot of these things, as well as the what becomes really important and for investors. You know, we had a moment, I guess we went on the marketplace very early on in our kind of FDI journey. And we have an incredible investor, Jeff, who you will see on our video. I’ll name him because he’s on the video. So you’ll see him anyway, who saw at the beginning of vision for this and saw also that you’ve got to go through a training cycle when you’re creating jobs and you’re not creating income while you’re training. And so having money to pay those salaries and be able to support those people and create that whilst maybe they’re not creating value for your organization because you’re in a training environment, but you need to do that is where investment becomes really important because having that cash in to be able to do that and then to be able to support those people through that training environment as you then are able to then turn that their work and their things into output for the business later on becomes this really important marriage between what the investors can do and what the entrepreneurs can do. So I’d say go for it. Find your passion for your skills, putting together, pray about it and jump out of the boat.

Richard Cunningham Richard We should have just started in in the podcast right there. We should just hand the mic to Keren. Gotten out of the way. I mean, that’s. Aaron. That’s going to be tough to top, man, but that was really good.

Ronald Ishak That was really good. I think, you know, for me, thinking back, like the last, gosh, eight years, I think that the journey of Building Activate came with a lot of insecurities. You know, it came with a lot of doubt for me. But I remember somebody telling me, you know, God doesn’t call the qualified, but he qualifies the call. And I think like that really put it into perspective for me to remember what I need to lean on. But this time, where when there’s things that I can’t do, I need to pray about it. And sort of just seeking God in every moment of building something and sort of just, you know, looking back now, it’s just being a maze of what, you know, putting and leading on God was able to do. And so I think, you know, there’s listeners out there sort of thinking about, you know, I want to build something, know I want to create more jobs in the marketplace. And I believe that if God has planted that in your heart and that’s something that you step out in faith to do, that I really do believe that God can use that for his kingdom and for his glory.

Richard Cunningham Man Great words from both you guys. So grateful for the wisdom. I love what you’re talking about. Keren, is this as you talk about this idea that you can’t give a job to everyone, and in those moments you have your heart tugging your head, kind of wrestling through that. There’s still sequence, there’s a process. There’s still best practice. This is to learn from love the perspective. What you’re talking about, Ron, is we’re always learning. We’re always learning to upskill. We’re always learning to that. And even as much like what you hit on there at the end as independent and as driven as we are, that we really at our core are designed to be dependent. And that is a weird, weird thing for an entrepreneur to face and wrestle with daily. So grateful for Wisdom listeners that you are dialing into this. Here’s my encouragement. You might be feeling this thought of man. I want to explore this more, but I don’t know where to go. I don’t know where to start. There’s some great resources. John Edwards book. I love the thought of just kind of getting out of the boat, a way to get out of the boat. And way to step into this is to have a conversation with other like minded entrepreneurs or other like minded investors. And so Richard, myself and others on the team of all been a part of leading different faith driven entrepreneur and faith through an investor groups they meet either in person or online. But if you’re an investor and you really wrestling with this idea and thinking, man, God, give me some capital or family, some capital to entrust to invest in the businesses that are upstream of this or to give to some of those organizations that are helping facilitate some of the job creation, whatever that might look like. My encouragement would be is to check out the Solving the World’s Greatest Problems website, but then check out one of these faith driven investor groups. There are some just robust conversations that are taking place there. And as Richard can attest to, there’s a lot of like minded investors that are meeting each other for the first time, realizing that that passion that God has placed in you, there are others that share that passion. And when you connect with them, man, it changes everything. Richard, any closing thoughts for us as we come to a wrap? And I think the thing I would say is Ron, Keren, just knowing some of your stories and your journeys, you’re both backed by faith driven investors. And I can just imagine maybe just a quick word on that. As a faith driven entrepreneur building something, stepping out of the boat, what an encouragement is to have like minded values on the cap table, am I right?

Keren Pybus 100%. It’s been an absolute privilege and just a faith building thing when when people just cool you up off the back of a podcast or a back of a video and go, I love what you’re doing and I feel that goes calling me to work with you and you just like, Wow, this is just incredible for people like on the opposite side of the world that maybe I’ve never even visited the country you’re working in to want to go on that journey. And so I’m really grateful for anyone that’s invested in ethical apparel, Africa or anybody that wants to in the future as well. And it has been incredible witness to, you know, we don’t employ all Christians. And so for the team to see the amount of Christian investors that we have on as well has been also a really amazing witness as well. And for those that have managed to come and visit and see what you do. So yeah, get on the train. It’s a great one to be on.

Ronald Ishak Absolutely. I think like I remember the times, you know, when things are difficult and when you get your investors to pray together with you, I think it’s just so empowering. So, yeah, I’m just so grateful for that.

Richard Cunningham Some Brownie Shack activate out of Jakarta, Indonesia. Keren Pybus of Ethical Apparel, Africa and Ghana. What a fun episode. What a joy to have you both on for a special faith. You’re an entrepreneur and faith driven investor kind of release episode looking at solving the world’s greatest problems. For Justin Foreman, I’m Richard Cunningham. Thank you so much for joining us. Friends. We will catch you next time.

Narrator We are grateful for the opportunity to serve this community and see your listeners come in for more than 100 countries Faith driven investing can be a lonely journey, but it doesn’t have to be. The best way to stay connected is to join a group study with other investors looking to get the same answers, the questions you have and find great community as they do so there’s no cost, no catch. In person or online, you can meet an hour a week with other peers from your backyard or the other side of the world. You can also stay connected by signing up for our monthly newsletter and faith driven investing Dawg. This podcast wouldn’t be possible without the help of many of our friends. Executive Producer Justin Foreman. Intro mixed and arranged by Summer Drags Audio and Editing by Richard Barley. Our theme song is Sweet Ever After by Ellie Holcomb.

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Ever wondered where the next great investment opportunities lie beyond the familiar US markets? In this episode, the Pragma Advisors team reveals groundbreaking research showing less than 3% of faith-driven funds are deployed outside the US, highlighting a massive opportunity in frontier markets. Through stories of transformation and practical insights, they explore how investors can make an eternal impact while seeking returns in underserved regions. This episode challenges listeners to think differently about risk, return, and the role of faith-driven capital in building sustainable businesses in the world’s most overlooked markets.

Join Richard Cunningham and John Coleman as they examine frontier markets and the 2024 Pramga Investment Market Study alongside Patrick Lowndes, Andrew Winker, and Tamanno Hodjihanova

View the full report here: https://www.pragmaadvisors.com/investment-study

Episode Transcript

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. Hey everyone. All opinions expressed on this podcast, including the team and guests, are solely their opinions. Hosted 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 Welcome back, everyone, to another episode of the Faith Driven Investor podcast. A joy to have you with us whenever and wherever you are catching this episode. It’s the end of October 2020 for its marks on the Markets Pod. The guy we featured on our last Mark’s In the Markets podcast is in the studio with me, our co-host John Kuhlman. And John was talking domestic markets, kind of US public markets, broader economic thoughts in the midst of an election year, federal, you know, rate cuts, things of that nature. And John, we’re doing something different today, which I’m really excited about because I know we’re going to talk about a subject that is particularly top of mind and top of heart for many inside the Faith Driven Investor community. And we’re going to zoom in on different markets, and that’s frontier in emerging markets. So, John, how are you, man? Good to have you in the podcast studio. And we’ll get to introduce our guests here shortly.

John Coleman Yeah, Richard, I’m doing really well. Obviously, this is a topic near and dear to each of our hearts, the heart of our friend Henry Kaestner, who’s spending a ton of his time thinking about developing markets and frontier markets now. And I’m really excited to look into this. It also gets us out of the echo chamber of the US election and interest rate movements for the time being, so we can think a little more broadly. So it should be a lot of fun.

Richard Cunningham Isn’t that the truth? And so we’ve got the Pragma advisors team here with us. It’s a full house. Patrick Tamano Andrew Just some leaders in the FDA space. Friends. I want you all to introduce yourselves and you’re going to start with you. And then also, Patrick, when we come back to you, maybe some of the origin stories as to how this crew came together to put together this particular pragma investment market study for 2020 for Patrick to make sure is.

Patrick Lowndes Man Well, thank you so much for having me and my team here, Richard and John. This is really exciting to get to feature some of this research and some of what we’ve been up to for, gosh, almost six years now. And from the Seattle area, it was five lovely kids, happily married and coming out of the software industry, but really becoming a generalist across a lot of different kinds of companies. And so a lot of my work and just following the work of really what God is up to in some of the hardest parts of the world to do business now is just drawn, my team and I here to research and canvas the market and so I can share a little bit more about the origin story in a sack. But yeah, we’re we’re pumped to be here.

Andrew Winker Great. Well, I can jump in. Yeah, it’s great to be on the podcast. I’m calling in from Houston today. My wife and I are Houston, been here for for several years. My passion for this space first started right when I was getting ready to enter the workforce. So like most millennials, I had some kind of vague idea of impact in my head, but didn’t really know where to direct that. So right before I entered the workforce, I took a class called Perspectives through my local church and really just opened my eyes to the global nature of God’s kingdom, you know, the intersection of the unity of the body of Christ, the diversity of the body of Christ, and mutually how we partner together. And I realized that I really want to dedicate my life to building that kingdom, not my own. So that, somewhat unnaturally maybe led me into consulting. But one of the things that led me to jump into that field, I started my career at a Bain and company out of school, and I really loved solving problems alongside tight knit teams of people. Some of the things that gave me the most joy. So the natural evolution of that for me is I’ve gone throughout the first kind of seven, eight years of my careers thinking about what problems exist in the world today, that I want to really put my shoulder behind solving, and then to who do I want to do that alongside? So right now I’ve that that’s led me a couple of different places. Right now I’m in a fun place where I’m getting to pursue work kind of through a portfolio career, doing a couple of different things, looking at work at the intersection of one redemptive business to radical generosity of capital and then three frontier markets. And I’m like the ones we’re looking at. So Paragon was a great fit for that and excited to kind of be a part of the team with Patrick and tomorrow.

Tamanno Hodjihanova Yeah, I love it. Well, my friends, I’m Tamanno. I was originally born in Uzbekistan, so a big part of my passion for Frontier and emerging markets is because I’m a part of the people that will never get to hear right unless we have development and capital and things that are working in those areas and markets for the gospel and and the end for flourishing and what that looks like. I’m calling in from Dallas, Texas. I went to a small little school here and have stayed in the area close to my local church and do a couple of different things. Part of my work is with the Lion’s Den and help with a big part of that event, and it’s happening in April every year. And then also recently jumped on with a financial advisor, Rachel McDonough, and work alongside her at Wall Square to really connect the head and the heart of investing. Right. How do we take the values that we know that we are called to as believers? And what does it look like in the ways that we do capital?

Richard Cunningham Fantastic. So as you can hear, we’ve got some experts in the crowd. Get tech entrepreneur, tech investor, Bain consultant with that kind of structured consulting background and then to mano with her roots with Lion’s Den, Rachel McDonough, who’s been such a key leader in this space in terms of helping advisors and Faith Driven Investor get in the game. And so I’m going to set up a little bit of context on this study. And one of the key things I want to note is this. Study we’re talking about from pragma, there are 2024 kind of frontier in emerging markets investment study. It will be available in the show notes for you to download. And then today’s kind of topic is going to really be unpacking it. But the reason this is so important is when you look at US public markets, thanks to folks like Tim McCready and the work of Bright Light and his team, among many others, it’s pretty easy to go get your arms around the size and kind of the scope and breadth of the Faith Driven Investor movement ecosystem because of reporting standards. Now it gets far more difficult even in established domestic markets here in the US and the private space to understand how large is the faith driven investing ecosystem as we think about venture capital or private equity or private credit, among other asset classes. And you’ll get where I’m going with this, because if it’s difficult in the US, imagine how tough it is to kind of grasp and get a sense of when you go into not only international markets but frontier in emerging developing markets internationally. And that’s the noble and honorable work of our friends here at Pragma who said, Hey, we want to go find who are the fund managers, who are the kind of people captivated by the love of Jesus who understand that redemptive and good business can be a force for good in places where that otherwise might not exist. And so that’s what our friends are going to be unpacking here today. And Patrick, with that in mind, would love some more of the origin story, how this crew here came together, what the Lord originally put on your heart and why Pragma came into existence and kind of some of the your origin story. And then we’re going to get into the research.

Patrick Lowndes And that’s excellent. So a little bit of background. It was, again, like I said about six years ago when pragma started, but even before that, probably for now 15 years I’ve been that the Lord’s called me to be really generous towards NGOs bringing transformation of all different kinds in these tough parts of the world. So my eyes been here when I realized that God’s heart includes all people all over the world, and especially the ones that are overlooked. We like to send, you know, a lot of our work to where there’s already a foundation. There’s already, you know, a strong presence of believers and Christians. And so I’ve been very much motivated to say, well, hey, where where haven’t we gone yet? And so six years ago, we started getting together. Probably about 15 people started circling together at a conference and we said, How do we get together and encourage each other more often? Maybe do some small investments together? How do we help outside of like these conference highs that we typically get? I think we’ve all been to one of those conferences where we’re like, Well, now what? Right? So we started getting together and shortly after we started getting together, I had a pretty big exit event and sold my first software company to ServiceNow. And all of a sudden, you know, at the ripe age of 30, I had this pile of cash that I was like, Wow, what am I supposed to do with this now, Lord? And so I began kind of canvasing the market, figuring out who is putting capital in these parts of the world that I care about. And to be honest, the list was not very long. I mean, John, fortunately, sovereigns is one of the short listed names there that we had, but it wasn’t I think it was 17 funds and sources of capital that first year in 2019 when we did the research. And then over the years it’s blossomed and grown. And that word, yeah, I think I’ll just say that word pragma advisors. It comes from this, you know, the parable and in Luke 19 where Jesus is saying this master said to his servants, Go put this money to work. So we’re very interested in like, how can we put our money, our talent, our skills to work? And you know, what that’s blossomed into is this focus on the frontier in emerging markets. Starting from only 17 funds. A few years ago, we analyzed more than 100 funds. So praise God for just the movement and the momentum behind the growth in this space. You know, Richard, we can get into some of the details on like how we selected, you know, what we looked at. But I just want to tell that little bit of backstory so people know kind of the origin of where we all started from.

Richard Cunningham And then you guys have an interesting definition for Frontier in emerging markets, I think is also helpful to kind of level set before we get going into the research is just like as your team thinks about defining frontier in emerging markets, oftentimes that can be just an economic calculation as to like a country’s GDP or whatnot. And what they’re doing kind of from an economic marketplace or mindset. How is the team thought about that as before we kind of get into the research for kind of the geographic landmass for what we’re talking about.

Patrick Lowndes Yeah, excellent question. Yeah, we hear this a lot and I think there’s a few angles where we can commonly look at this and I’m going to break it into three parts to make it simple. So the first one is economically frontier, right? So they’re not a Tier one market still very much developing are on the world scene. It’s frontier and it’s growing. There’s a lot of potential and there’s usually a reason why it’s not a Tier one market. And that gets to the second issue in frontier and emerging markets, which there tends to be some social, you know, political instability, you know, I’ll say destabilizing factors that make these markets more difficult to do business, more difficult to flourish. That’s why they’re not Tier one markets. And so I think a lot of people have said, hey, I want to go where it’s economically. They’re not doing well and I want to solve social issues. And we totally agree. Like, let’s do that. I mean, I love where the movement’s gone and. Sub-Saharan Africa. Also out in Southeast Asia. That third piece that matters to us in our research and as we are kind of evaluating which funds to include, because is this question of where do people only have a very small fraction of a percent of Christians that are living and doing work? Because as Christians were called to be a blessing to our own community? Right. That’s part of what God has asked us to do. But if there’s like less than 2%, 1%, a fraction, then it’s really hard for people to get a taste in a relational way of who Jesus is or what is his kingdom like. And so we’re really interested in places basically where there’s very few Christians because we feel like that’s truly the frontier from a spiritual perspective. In addition to the economic and the social frontiers that we’re also tackling. So is that helpful?

John Coleman Yeah. And I want to follow up there, Patrick, because I think what you all have articulated so far is the impact thesis for Frontier in emerging markets meaning and especially the distinctively faith driven impact you’re articulating how do we help a portion of the world develop or stabilize that’s unstable or developing? How do we, in the process of that, share the gospel, be a good neighbor, demonstrate the love of Jesus? The third question I always have, though, is kind of is there an economic or commercial case for this? And I know there are risks inherent in frontier in emerging markets, obviously, but do you believe there’s kind of a commercial or an economic case for investors to feel rosy, not just the impact that they can have, but potentially about the return profile?

Patrick Lowndes Yeah, absolutely, John. And I don’t want to steal too much thunder from my team as we’re going to get into some of that in the report and kind of what the different categories of financial and commercial return. So that’s certainly something we’re going to hit on. The little bit that I’ll say is, you know, some people look at a new market and they get excited about opportunity. Right? But I’d say most people that haven’t done an investment overseas or in a fund overseas, they are usually waiting for a later stage company. They’re waiting for a lower risk because I don’t want to lose it. In other words, I’ve got my grip pretty tight on fear of loss. Right? And that’s the reason why we don’t see people put in half their portfolio necessarily in these markets. Right. We’re talking about a smaller chunk, but there is an increasing amount of opportunity. There’s another type of investor that looks at these markets and says, wow, I can go after non consumption like the prosperity paradox talks about. I can go after non consumption in a market with kind of a venture capital sized return, but with a much more stable and profitable business because they’re just like no competition is for some of these things. So in a stable market, it’s really hard to get big returns unless you are like innovating and the only one doing it. Whereas in these other markets there’s a lot of whitespace. And so some investors and this is where we’re looking for more fund managers to come out, but some are really focused on where’s the whitespace and the big opportunity to scale. And that’s where there can be massive economic opportunity. And we’re starting to see more and more people analyzing their market like that, which is quite financially attractive.

Andrew Winker I think one thing I would add there, Patrick, it’s a great point. Really, I would take like a macro lens and a micro lens. I mean, if you look at kind of canvas the markets, we’re looking at like at the macro lens, you’re looking at two thirds of the world’s population, one third of the world’s GDP and only 10% of the world’s private capital. So just by that alone, a lot of these markets are just undercapitalized. You know, there’s a lot of kind of opportunity at that. But I think the caveat there is if you try and kind of cram that opportunity set into the just kind of pure worldly return maximization kind of mindset, it breaks a little bit because I don’t think what you can expect is to solve kind of all of those challenges on the typical ten year fund lifecycle to 20 mile, you know, So it kind of takes a different model. And I think there’s a real opportunity for the Body of Christ to lean in to some of that risk and think about redefining what does it really look like to see the Kingdom of God transcend in this kind of market with all the flourishing and blessing that that would entail? But I think that we kind of have to shed a lot of our traditional kind of risk paradigms in doing that while still maintaining a level of excellence.

Richard Cunningham I think we’re hitting on something important here. And I want to go to Tim on a real quick because she is our person who is has the frontier in emerging markets routes being from Uzbekistan originally. So how would you comment on this? And I know we’re kind of pushing off getting into the study. We’re going to get their promise. We’re kind of teasing it out further. But Tamara, I think it’s important to kind of get your commentary and then we’ll dive in.

Tamanno Hodjihanova Yeah, that’s great. I mean, maybe let’s go back. I didn’t hear the name Jesus until I came to the States. So I am one of the people who grew up in a region in a place of the world where the name of Jesus is rarely heard and continues to be the case for a big part of the world. And that is a big part of the reason that I think both my heart and. It’s hard as and learning to recognize that we as a body of Christ have a commission and a challenge to walk into the hard of places like this and redefine risk and look into a different way of investing to recognize that maybe yes, John, we’re maybe not in a place where we can have the same amount of return as you would hear in these markets or even in the public markets here. But there is a place in a space for us to lead out, to recognize that there is an opportunity here that we can both have spiritual, economic and social and environmental impact all at the same time. And we have gotten to see a big part of the organizations and the times that we’ve gotten to highlight, just even as Patrick mentioned, having 17 come to over 35 this year and see the movement of local leaders and international leaders working in these places and seeking to look at transformation differently, seeking to look at risk differently. I think there’s a lot to be said for how this space is changing and how it will continue to over the next couple of years as we get to see more capital and hope and pray that more capital would get deployed in these areas.

Richard Cunningham That leads to a lot of questions. So let’s dive in and let’s kind of go bottom line up front friends and maybe kind of when you look at this study from a 30,000 foot view, maybe major takeaways and also kind of some of the methodology of the study as well, because we’ve talked about the number of funds there are out there, the number of capital allocators and the people we can kind of go evaluate and get their sense of how they’re thinking about impact plus return is is it more concessionary? Is it fully market rate, whatever that might be? What was kind of the overall approach to the study? And then maybe kind of some of those larger takeaways and then we’ll dive into those as we go?

Patrick Lowndes Yeah. Andrew, would you like to maybe talk about we looked at more than 100 funds. What were some of the screening factors that we had? Because I think that while some people might look at the study and say, Hey, wait, you’re missing so-and-so. And I think it’s just good, maybe the level set with that. And then, yeah, we’ll jump into some of the high level themes, but would you mind hitting that for us?

Andrew Winker Yeah, no, I think that one of the things I had found into my brain for my consulting lifestyle was kind of what it means to take a hypothesis or a thesis driven approach, you know? So with that in mind, kind of our overall way we looked at this was just start off with a couple of relatively simple critical questions that we wanted to answer. So things like we already talked about a little bit, what do we mean by frontier markets? You know, who’s even participating in this space, who’s been doing work here? How much capital is being deployed? Where is it being deployed? What’s the target financial return of those investors. So we kind of set out with a couple of questions we wanted to answer. And then from there, it was a lot of kind of honestly, a lot of picking up, don’t you know, we did over 30, 40 kind of interviews to really get a kind of a bottoms up perspective of what’s going on in these markets. We supplemented that with a lot of secondary research. I mean, huge things. It was incredible to kind of go through the database that FDI has of these kinds of different funds in different places and get to supplement that with some primary research. So kind of a combo of both of those things. And we do want to celebrate. There’s a wide variety of approaches people have to this. Our particular criteria for when we were looking at funds was first and foremost sources of capital that are kind of led by Christians or followers of Jesus, focused on companies with Christian or Kingdom kind of led founders and leaders that are pursuing multiple bottom lines of impact and what they’re doing, and they’re deploying capital directly into companies. So those are the four kind of criteria we looked like. And that kind of frames up the who in the landscape that we’re looking at in the study.

Richard Cunningham Helpful. So we got Faith Driven Investor is deploying into Faith driven entrepreneurs direct investments. So the investor is kind of exercising their influence as being a shareholder on the company’s cap table. Good. Patrick, what else would you add?

Patrick Lowndes The thing that I was going to highlight were and you ask are like, what are the big takeaways? And this might be obvious, but just to state it and you’ll see it graphically in the study, just there’s a big uneven distribution of capital. We’re talking about less than 3% of funds in the space deployed outside of the US. And if you’re looking in, our target area tends to be North Africa and the Middle East and the better part of Asia. We’re talking about point 1% of funds that are intentionally deployed towards these kinds of markets. So I mean, we got a lot of headroom to grow in this space. But the second big takeaway that we had is just we talked with lots of fund managers. We talked with individual investors who are prolific in this part of the world. And another theme came up, John, it kind of begs it goes back to your question about what are your expectations? And so, you know, having the right expectations matters a lot. So this is the third time we’ve done this study. Some of our favorite reports that we do and the analysis is are two by two. And I’ll just take a second, Richard. I’ll just unpack that. So what we’ve got is this two by two looking at on the y axis going up the left side, we’ve got kind of geography. Where are you focused? Right. So again, the parts where capital is prolific and saturated, abundant, it’s on the bottom. And where it’s not abundant tends to be. On the top in our target area of focus. And then on the bottom is the target investor financial return. There’s about 44 funds that we analyze in this space. And you can see a nice gap of how much capital that’s being deployed. And what you’ll see when you look at that is just it’s pretty stark how tiny the dots are and the bubbles are that are deployed in these parts of the world. And then just as you kind of get to the more established parts of world, naturally that’s where more capital will be. So we think that’s a helpful way for people to understand who’s focusing on some of these harder to reach areas in the frontiers and how can I orient part of my own risk profile to try to maybe step into that, maybe to try to you know, this is called Faith Driven Investor. Like, where’s my faith? Am I going to invest only by risk adjusted returns, or am I actually going to invest in faith that maybe in sometimes makes me look like a fool, right? Am I willing to actually risk some of my own perception, you know, in the market to friends or my financial advisor? If I make some bets, that might look really risky. But to the kingdom of God, if you’re able to move the needle beyond just the financial, do you remember to move the needle on other areas? I mean, I had a CFO one time show me the IRR, you know, with looking at all the factors, all the bottom lines. And if you look at for all eternity, out to the right. The IRR numbers are ridiculous. If you truly do value those other kinds of impact as being real impact. So it’s just a very different way to look at investing in these parts of the world. So that two by two, I just give a shout out there, Richard. That’s usually our favorite. People say, I never knew where the money is going in the world.

John Coleman So let me dig into the topic with you also, as I mentioned to you guys, since we were chatting beforehand. I’ve spent a little bit of time in developing markets, worked in Afghanistan and Saudi Arabia, had teams in the Middle East and Africa and Asia for a while. And, you know, there are a lot of legitimate challenges, I would say, that make excellence operating in emerging markets even more important than operating in U.S. markets. You know, on Faith Driven Investor, we often talk about trying to institutionalize the space such that people are investing because we’re really excellent at what we do, not just because we’re Christians. And I think the demand for that in emerging markets or frontier markets, and this is my personal opinion, can even be greater because I’ve also seen how destructive certain types of philanthropy and investment can be in emerging markets. There are legitimate concerns that entail real risk. People care about the security and safety of the people for which they have responsibility. Obviously, even regulations, anti-terrorism measures like we had to blacklist certain countries in the frontier markets, even at relatively extensive investment firms. I was out because we couldn’t be implicated in not understanding where the financial management of those funds was going to. And even when I was on the ground in Afghanistan, we were still having to pay for things with briefcases full of cash and the controls over that was challenging. It was really challenging to think about operating in that environment. So apart from just kind of the risk tolerance people might have for losing their capital, how do you think about the demand for excellence in emerging and frontier markets, both for the protection of investors, but also to assure that that capital is serving a constructive rather than a destructive purpose with the people it’s encountering?

Andrew Winker I mean, John, I think it’s an excellent question. I mean, I think that we’ve all seen a lot of the harm that aid can do when you might be trying to solve the wrong problem with aid. You know, and I think one of the really cool things that we see in this space is a lot of the things that we highlight is there’s really kind of a community element to it. You know, so if you think about how are we not just deploying capital into these regions, how are we really also putting our shoulder behind trying to really think about solving some of those problems alongside others? So several of these groups I mean, I work at the fund that has kind of every single investment is paired kind of within this mentor network. You know, so if a company that’s doing a food distribution business in Central Asia is looking at, hey, how do we solve some of these problems, well, let’s find someone in our network that was a VP at Cisco Foods for for 25 years. And how do we actually connect them to where we’re not reinventing the wheel, solving some of these problems? It’s just a more effective distribution, you know, of really kind of matching those problems. But I think that that will take patience. You know, I mean, you’re dealing across some more like that example I gave was someone that probably is more Western on the Cisco side dealing with someone in a frontier market, with a different culture, with a different kind of land. And so it really does, I think, take this mutuality of relationships going in to do that. But I think there’s an incredible opportunity for it. I think it just takes kind of reengaged with a little bit more than capital, which is one of the reasons we had a lot of there’s a lot of incredible capacity builders doing work in this space, too. You know, so we really long to see there be collaboration across, I guess we could call the whole value chain of capital into these markets, you know, and really see some collaboration both across kind of individuals joining these teams, but also organizations themselves.

John Coleman I love those stories and I would love I mean, if you all have another example would be kind of fun to hear a story of someone who’s navigating this well.

Tamanno Hodjihanova Yeah. I don’t know if I have a story, but maybe to add on to what Andrew was saying is I think it’s also really important to have local leaders on the ground in those countries. Right. It’s one thing to try to have a fund here focused on a country in the West, you know, from the West perspective, and that’s great. But there’s a part of trust community building, relational building that you don’t get unless you have a team and people locally on the ground that know, get a sense for the culture, know what it is to work. And so a lot of the organizations that we interviewed and you tell me if I’m wrong, but most of them have and or travel pretty extensively into those regions or have teams on the ground or have partnerships that they have developed over the years that allow them to help with some of the due diligence, some of the work that’s happening in relational building as well as our story that we can think of. I think that’d be fun to share.

Andrew Winker I was just going to share, I think one group that’s kind of pulling together a lot of this stuff in a really cool way is a group called Angelo Investment Network. And so they’re actually a network of these different fund managers and kind of entrepreneurs. And so one of the really encouraging things that I learned through this study was just kind of seeing the seeds of some really incredible locally led ecosystems in places like Egypt, Pakistan, Mongolia, with a lot of national and leaders really coming together and saying, hey, how do we think about really blessing our markets? You know, and I think that we really have an opportunity to join with our brothers and sisters in those parts of the world, you know, and learn from each other, you know, and actually pull up to the table and listen. There’s kind of this convening of these leaders. And so I think that that’s one story, an example of I think that we really can kind of come to that table as listeners and say, hey, what does God do it in these parts of the world that we might not even know about, you know, and how do we kind of doing this? That’s one group, I think, from the study that I was really encouraged by. There’s there’s plenty more. We we actually kind of profile meetings like 5 to 7 that we know particularly well. So if you’re curious for more specific kind of stories, I would point to those in the study of some of those kinds of sources of capital or funds that have been operating for a long time in these parts of the world.

John Coleman That’s awesome And maybe articulate. You know, I think one thing that people overlook, there is such a history of charity in these regions, right? I think when people think about doing something good in Africa or in parts of Central Asia or in parts of Southeast Asia that are more impoverished, they typically think about funding one of the excellent humanitarian organizations, anti-poverty organizations like World Vision or Compassion. And those play a role. But I also think that the future of these regions will be contingent upon them developing their own sustainable enterprises. Right. I mean, that was really the work we were tasked with when I was in Afghanistan was aid was almost distorting that economy in unhelpful ways because the smartest, best equipped people were all figuring out ways to just work with the United Nations or with other organizations handing out aid rather than building businesses. Right. That would exist long after these aid organizations had exited. Talk about, if you don’t mind, just kind of the role that private capital plays in building sustainable industry or business in these areas versus the philanthropic which is worthwhile in its own right. So I’m not diminishing that but is not well equipped for certain problems.

Patrick Lowndes John, we have on page six of the report, we have a really. A nice classic. That kind of helps picture the difference and like kind of the role that aid and charity play alongside in sort of like relief as opposed to just like rehabilitation and then the final stages like development. How do we now develop out of that? Right? So I’d point people to page six of the study, but at a high level, you know, leaders like Angela have told us we don’t just need people to show up and dump lots of investment capital into markets today. We don’t need that necessarily right now. What we need is the awareness of where communities are and ecosystems are in the stage of maturity and readiness, because sometimes we’re still working on the basic like shifts in mindsets and critical thinking and shifts and mindsets on how does relationships work. But transparency, where I’m willing to collaborate instead of hoard power, right, where I’m not in a survival mindset, but I’m in more of a flourishing, an abundance mindset, right? Kurt Laird’s book, The Culture Key, really unpacks this. If you want a good long read on this topic. And he actually was in Afghanistan telling a lot of these stories. So I would say coming to the table as an investor, the first good question to ask is who’s already here? What’s already happening and how ready are they to pursue? Even if you have a pitch deck in front of you, like how ready are they within their market to operate this kind of a business? Right. And those are the kinds of questions, some of the most excellently run funds, they have networks of people on the ground. These are not people just flying in from across the world and have no context culturally. So I think that’s how we as Faith Driven Investor can come in with foreign direct investment as an excellent partner and co investor.

Richard Cunningham That’s really good. All right. So there’s so much in so many different directions we could go in and I’m enjoying this conversation a lot, but one of the things I want to talk about is making it super relevant to the Faith Driven Investor who’s listening to this and is just like, Man, I’m just trying to think about how to implement negative or positive screens in my public market holdings and my asset allocation here domestically at home, like Frontier and Emerging Markets was maybe on my mind from a like a charitable capital standpoint. Now you’re kind of giving me the argument that, okay, like maybe this should also be something I consider from a investment capital standpoint. Patrick, you mentioned on page six that kind of overview of moving beyond charity. And I also think, you know, Greg learned a hand as the person I think of in the FDI ecosystem is help kind of popularize this idea around. Like as Americans, we give $557 billion and I’m using your data here. This is from 2023 to charity. And we have a million and a half nonprofits in the US competing for that same kind of pool of capital, which is that $557 billion it’s given the charity. Now that’s a significant amount of wealth and capital that’s given, but there’s $50 trillion of investable assets in the US alone. And we probably estimate just from kind of demographic data that 50% of that is held by Christian. So I love the way that you guys unpack this, where it’s saying, Hey, there is a charitable universe to this, but there’s also an investable universe. So maybe lean more into those tensions. And I also want to talk about kind of dipping back into the terrible waters, how this is possibly a way for someone to engage with donor advised fund capital. So now it’s kind of the blended world where it is given capital that can also be thought of as impact investment capital, not just given capital to adapt. That goes out as a grant to A501C3, but it’s given that could then be invested. So what thoughts do you guys have there?

Tamanno Hodjihanova And that’s great. So I think the question of I love that we get to blend both charitable and investment, all our conversations in the ways that we approach capital and maybe to make it super practical to the general Faith Driven Investor audience. Right. It certainly is recognizing that and we say this a lot on the feature and podcast, Everything that we own, everything that we have got, owns, right? It is all his those resources all belong to him. So what would he have you do? What could that look like? Is there things that you’re not currently thinking of in the ways that he would have you to do with that capital that may be a little outside of your comfort zone, and a part of it is leaning in to recognize that that could be the case. And a second is there’s a section in the report where we talk about how do you prepare yourself and then how do you walk with people and walk alongside them? The stuff is really hard and nuanced and it’s not something that you jump into and automatically know what to do or how to walk in the steps over. There are people who are leaders that we stand on the shoulders of that have continued to do this work. And so I would just encourage you to walk alongside your financial advisor if that’s the case. Right. Or finding people in the future in space that are working out sort of answer the questions that are hard and take a lot of time and due diligence. The other part of it is getting involved in communities and in events that are doing work like this that allow you to take small steps and invest with others to learn more. Something that I think I would encourage our veteran community is to look that our patients, we often want really quick results for lots of different things. I want to be able to invest capital and great after this all works out. But the reality is most people have been burnt out in front of an emerging market investments. We’ve talked about this beforehand. This is really hard. It’s probably not going to go the way that you thought will. And so taking baby steps will be the best way to walk into that space to know how you do that with others and then recognizing that there are ways and things that we can learn even when investments may not go the way that you thought. And this is also not a big part of your portfolio. Please don’t put all of your investment capital into what this looks like. But there are ways that we get to deploy mindfully and with wisdom to know how to do that. Does that help A little bit. And Andrew, please. The deaf world is fascinating because I think it’s a great first step that will allow you to donate, but also then get to experience kind of the investment side and working alongside some of the funds and companies.

John Coleman And maybe before Andrew jumps in, the one comment I’d offer there is people can often put more capital to work here than they think. I agree with you. If you’re managing kind of a balanced portfolio of your private capital, that frontier in emerging markets would typically be a small percentage thought about differently in the dark world, for example, which you just brought up. If you’re dedicating a lot of philanthropic capital to the emerging world, your ability to repurpose that, at least temporarily, for investments in the emerging world, which could ultimately then also be given philanthropically because you’re trying to earn a return on that capital could be a smart way to deploy that. Right. If you’ve got a great deal of your wealth, I mean, we know people, thank goodness, in our ecosystem who really believe this idea. You talked about that it’s all God’s right. And so they’re putting 90% of their net worth into philanthropic capital. You know, thinking about repurposing some of that, at least for a time, into investment capital or vice funds through places like Impact Foundation, etc.. You can actually put a lot of capital to work here and with a totally different mindset than you might take to call it your standard investment portfolio. Right. And so I would push our listeners maybe a bit further than you would because you’re being so conscientious that especially with resources like you all are developing that give people Guideposts to where they might steward this effectively, our ability to think creatively about the capital we deploy in this space and hopefully provide enough capital that we can be catalytic to those regions. I think there’s an extraordinary opportunity there. And you’re right, everyone needs to be sensible. You don’t want to put capital to work that you need to survive or that your kids need to go to college necessarily. But there are pools of capital out there that I think people could see through this way. So not contradicting what you said at all, but just saying you’re being incredibly conscientious, which is appropriate. But I think the vast majority of Christians who are dedicating a lot of philanthropic capital really could think more creatively about the ways in which they deploy that sometimes in this space.

Andrew Winker John I think that’s spot on. And if you look at the last like in 2022, there’s an estimated 224 billion in DAF assets. You know, if you look at our study, like when we kind of layer in, I mean, obviously pointing to Tim McCreadie did some awesome research. There’s 100 billion public markets Faith Driven Investor you know so even if you just think about wait, there’s two acts the number of DAF capital assets sitting waiting to be deployed. I think that the idea of permanent capital is an excellent lever. You know, it seems like a no regrets move that if if you had a magic wand and you could think about how can we creatively and patiently take that capital, that might be it’s already pre given, you know, and think about really joining alongside others. I think that’s a definitely a an arrow in the quiver to think about. That being said, I mean I do think there really are opportunities from anything from pure donation, you know, to helping to operating budgets of things, to catalytic capital, you know, looking at more kind of below market returns, but with a longer term impact all the way to there are opportunities for above market returns, as Patrick was saying, in some of these places. You know, I think those are all kind of areas in the quiver in an impact foundation. Using your DAF to invest is definitely an important lever there. I think that on the concept of time horizon is important here. You know, in general, I think that faithfulness over long periods of time is what yields fruitfulness. And so if we really are investing for eternity, you know, I think that we need to be able to stretch beyond that typical ten year fund life cycle that most people think about. And that’s typically the book end of our time. And if we’re honest, a lot of times you’re not even patient for that long. You know, if you’re really trying to invest for enduring transformation, it’s going to take time and patience, but it will be so worth it. It is so much joy to get to labor alongside our brothers and sisters, join Shoulders and do this together. But it’s going to take it out of the comfort zone a little bit.

Richard Cunningham I want to do this real quickly. I want to hear from each of you. When you think about the number of funds you got to interview the 40 something plus that ended up in the study and a name comes to mind from it from an impact methodology and approach. We’ve got to be careful here that this is by no means an investment recommendation. We’re trying to highlight and shine a spotlight on great work and faithful believers getting to work in markets that otherwise there hasn’t been a lot of activity. But I think each of you Rapid Fire would love to hear you talk about a particular approach that you’re captivated by and maybe kind of set up who they are, where they’re operating, what their kind of methodology is to kind of help give more kind of color and texture to some of these funds you’ve interviewed. Patrick, let’s start with you.

Patrick Lowndes Yeah. I mean, I think clearly the leader in this space, I would say, is transformational as Sammy for more than 20 years, I mean, $9 million of capital and the level of diligence and rigor on the ground and the people, I mean, they have basically shown us as younger, you know, next generation shown us, here’s how not to screw it up. Right. And so I think I look up to transformational, see me as probably one of the leaders in the space. And we did highlight we did a little feature on them. And again, it’s not a recommendation, it’s just something to go research. We’re a research group with that. So yeah, that’s one.

Andrew Winker I can go next and let tomorrow. Hopefully I don’t steal yours tomorrow. And I loved I think a lot of listeners might be familiar with the Lion’s Den. You know, there are some great lions dens in Birmingham and in DFW. One of my favorites that I’ve gotten to participate in the past couple of years is a lion’s den put on by a group called the Open Network. And that’s a really incredible way to kind of learn in community. You know, so making direct investments in some of these companies, getting to meet and just hear the stories of people running these businesses, but then also going to invest alongside others, you know, who have some experience doing that. So it was a really fun way for me, kind of relatively early on to pull together capital with some friends and invest in that kind of way. So again, as Patrick said, caveat that with 50 million different kind of disclaimers of not professional investing advice, but we really I think they’re doing some great stuff. And Angela network, as we said earlier to you.

Tamanno Hodjihanova Yeah, I’ll hone in on Angela for a little bit. I know we’ve already mentioned them, but something that really stands out to me with them is that they’re not operating out of the US. They’re also very locally ecosystem minded, right? So they are bringing together leaders and investment operators that are based in those regions and helping them to think holistically about a transformational plan not just for their city, but for the entire country. And then looking at how to create ecosystems and support around that, that allow for long term development and transformation, which I think is just super, super cool. That’s really encouraging for my heart to know that we have local leaders on the ground that are creating funds and investment networks and working alongside to do that for their own regions, which is at the end of the day, that’s where we want those communities to be.

John Coleman Well, I know Richard’s about to drive us to our final question, which we always ask about what folks are learning through Scripture. I wanted to conclude before we do that and we closed the podcast just saying two things. One is I really appreciate the work that you guys are doing. I think we are called as Christians to engage with the poor and disenfranchized. We’re called to engage with the world broadly to those who are unreached. So many of those are outside of the developed markets right now, where most of us live. Most listeners are actually in the United States, for example, where there’s a mission field of its own. But we’re really called to engage more broadly than that and to bring the church abroad. And I think we have an obligation to that, not just as Christians, but as human beings, right? Where there’s the greatest need in the world is often outside of our country. And I love that you guys are adding rigor to this, that you’re trying to help be a guidepost to others. Patrick That you’re putting your own all of your putting your own resources against this in a way that’s showing that you’re supporting on behalf of something greater than yourself, not just for yourself and the heart that you all have for this is awesome. And I’d really encourage FDI investors, as Richard was saying, this is kind of the final horizon. This is the frontier for most folks because, you know, public equities is where you start getting into private equity itself is a little bit challenging. Sometimes thinking about doing that in Ethiopia or in Afghanistan or Tajikistan, etc., is probably even a step further. And the fact that you all are trying to professionalize this space, but research against it to identify those who can be effective partners in this space. Man, what an awesome mission. Field and our our hope. I know I know Henry is deeply passionate about this is that folks will join him in that mission or really inappropriate ways to monitor to your point, with their own finances. Think about how to do that and really make this a core part of the way in which they engage philanthropically and through investment dollars, whether philanthropic or private in me. And I’m just so encouraged by the work you all are doing to put diligence behind this and rigor behind this, because I think it’s exactly what’s needed in this space.

Richard Cunningham Yeah, I’ll pile on because I’m scrolling through the research report in full, as John is saying this comment, and I’m astounded. Like you’ve got a market map and it’s not just the sources of capital. We’ve been talking about the funds I’ve highlighted, but there’s also the capacity builders, there’s the investor support. So the advisors that are really thinking about this, there is the infrastructure in terms of like, hey, how could this capital actually flow? Then there is specific breakdowns of those different sources of capital who they are, where they’re operating. There’s investment minimums. Then there’s thought leadership around like, Hey, is that equity, is it debt, is it performance based kind of revenue financing? What does that look like? They unpack the value of having a guide. They provide specific highlights and amounts deployed. I think people often ask is like, hey, give us the specifics. We’re looking for kind of the the teasers and the two pages and that overviews of like how I could actually as a Faith Driven Investor step up and get in the game. And so I think this research, as John is saying, is crucial to that. I’m also a sucker for a good two by two framework, and Patrick got into that earlier. It’s phenomenal. It breaks it down geography basis. So I’ll stop there. I could pile on all day long, but thank you guys for this exceptional work. And we’re going to close with what we always love to ask. I’m going to go around the horn and be brief because I know we’ve gone a little long here. Is that what’s God been teaching you in in through his word lately? We’ll go Patrick Tamano and then Andrew. That’s our final question we love to ask each and every iPod.

Patrick Lowndes Well, we’re in the book of Exodus at our church and how God shows his power over the gods among us. And the most popular competitor to God being the God of men in our money. So I’ve just been encouraged that even in this alternative investment class, I shouldn’t worship my financial security or my portfolio return, but I should be just remembering that God is my provider. Seek His kingdom first. You know, even like I was just mentioned in the Richard Garnett episode 180, just being focused on eternity. So that’s what I’m learning in the Book of Exodus.

Tamanno Hodjihanova Yeah. That’s awesome. I love the Book of Access. I’ve been reading through the Gospel of Matthew and I’ve just been struck by how many times the word behold gets used before miracles or certain things that Jesus will do. And just a reminder for my heart. Right. The Lord is not asking us to do all the things just for the sake of doing them, but rather we get to behold and see the work that he’s doing and will continue to do and join alongside him in that. And man, what a cool way of getting to see his glory and his faithfulness even more so as we just get to look to him for those things.

Andrew Winker It’s an awesome company. Yeah, I’ve been trying to spend a lot of time just naturally. I’ve kind of run pretty fast, so trying to slow myself down and really enjoy, just kind of trying to chew on just the Sermon on the Mount. And so specifically just it’s been incredibly freeing for me, hearing Jesus’s words talking about do not be anxious, you know, just kind of soaking in the language of will he not much more. Just those kinds of words. So really trying to simplify my life around what does it mean to seek first the kingdom? You know, it’s his job to provide for my needs, not mine. A lot of times I can kind of run to that. And so those types of things can sound cliche to me, but so I really have to remind myself that seeking first the kingdom doesn’t mean seeking first my job or my work so that I can seek first the kingdom or trying to mobilize others into seeking first the kingdom without doing it myself. It it’s really, truly trying to build my whole life purpose around enjoying God, beholding Jesus and partnering with Him to build this kingdom where it’s moving. And so it’s truly what my heart longs for, or at least it’s what I want it to. Sometimes it doesn’t, but that’s been freeing for me.

Richard Cunningham It’s good. Andrew My wife’s memorizing the Sermon on the Mount right now, and I think it’s slowing her down.

Andrew Winker She’s got me beat. I’m not trying. I’m. I’m. I wish I could memorize it.

Richard Cunningham She’s way cooler and better than I am. All right. A bonus round question really fast, Patrick. Pragma has done this incredible study, but there’s more that you’re up to. And I think kind of the framework of what all you’re doing helps people kind of understand the necessity and the size of the opportunity. So close is there.

Patrick Lowndes I’ll give you three pillars. So this is our first pillar insights into research. And this is also what has been happening where capital is flowing. We’re also beginning to look at where market opportunity could be in some of these markets. So more on that. That’ll be a future episode. We’ll talk about that. The second piece is just investment advisory and trying to work with family offices that are looking to get more strategic. How do I take the first steps? How do I think about all the different options in the space? And the final piece is, even if you have market opportunity and you have a plan to deploy capital, you need talent, you need great operators. And so we’ve been doing this for six years now, helping operators get a little bit sharper. And so that talent pipeline is the third pillar of what we like to do. And there are some ways that we do that. But yeah, we love any and all those things that are going to catalyze more resources, more excellent operators. And at the end of the day, a lot more people that love Jesus blessing the nations and the whole world with their gifts.

Richard Cunningham Super cool. Well, hey, this has been the Faith Driven Investor podcast where we’re zooming in on the 2024 pragma investment market study focused on emerging and frontier markets. Patrick Kimono Andrew, one encouragement to have you on Friends. You’re going to download this report either at pragma advisors.com or we’ll have it in the show notes. So we’re going to look at and say, Yeah, this looks like it was put together by some expert consultants. It’s good work. And so thank you for being on Friends and we will catch everyone next time.

Andrew Winker Thank you.

Speaker 2 We are grateful for the opportunity to serve this community and see your listeners come in for more than 100 countries. Faith Driven Investor. It can be a lonely journey, but it doesn’t have to be. The best way to stay connected is to join a group study with other investors looking to get the same answers to questions you have and find great community as they do so. There’s no cost, no catch. In person or online, you can meet an hour a week with other peers from your backyard or the other side of the world. You can also stay connected by signing up for our monthly newsletter and faith driven investing Dawg. This podcast wouldn’t be possible without the help of many of our friends. Executive Producer Justin Foreman. Intro mixed and arranged by Summer Drags Audio and Editing by Richard Barley. Our theme song is Sweet Ever After by Ellie Holcomb.

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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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Today on the show, we’re highlighting an asset class that we haven’t talked about much in the past. 

Our host, Luke Roush will be joined by Trevor Hightower to talk about investing in agriculture.

The two will talk about how this unique industry brings a ton of potential for positive returns and redemptive impact. They’ll also discuss how God has worked in Trevor’s life through setbacks, mentors, and unexpected opportunities.

Episode Transcript

Joseph Honescko: Welcome back to the Faith Driven Investor podcast. Today on the show, we’re highlighting an asset class that we haven’t talked about much in the past. Our host, Luke Roush, will be joined by Trevor Hightower for a conversation on investing in agriculture. The two will talk about how this unique industry brings a ton of potential for positive returns and redemptive impact. Let’s get into it.

Luke Roush: Welcome everybody to the Faith Driven Investor podcast. We are grateful to be here. We have a wonderful guest today in Trevor Hightower, a longtime friend, first time guest on the podcast. I am your host, Luke Roush. And welcome, Trevor.

Trevor Hightower: Luke. It’s an honor to be here. Long time listener and it’s great to be on this side.

Luke Roush: Wonderful. I must say, I’m really excited about today’s call because of the asset class that Trevor and his partners are focused on, which is agriculture. And so, you know, most of the time when people think of investments, they picture urban areas, technology companies, Wall Street. But the team at Macfarlan is investing in ag. All of us eat every day. So this is a subject matter that we should care a lot about. But, Trevor, why don’t you give us a 30,000 foot flyover of what the ag industry looks like and the role that Macfarlan plays in that arena?

Trevor Hightower: Yeah. Happy to. We first got focused on the asset class coming out of the pandemic, and historically, Macfarlan Capital Partners had invested and value-add office value-add retail real estate as a GP sponsor, doing deals deal by deal. Macfarlan Capital Partners always had a thematic focus where we could switch in and out of assets based on the right timing and the right conviction. We had conviction coming out of the pandemic. I think that many people had pretty early to [….] credit that inflation was coming. The other conviction that we had was we had a loss of conviction around the asset class that we had historically invested in, which is the office asset and retail asset class. And so to the credit of the team, when you’re looking for a non correlated asset, an asset that doesn’t trend with other assets on the return profile and as an inflation hedge, it’s not too long before you get to farmland. Just when you look at the historical data markers, farmland has been tracked and [….] index for about 30 plus years. And the asset, as you mentioned, has very low volatility, historic returns that are on par with the S&P 500. So just under 12% returns in that same time with low volatility. And then that really fascinating, historical marker with farmland as you mentioned. And kind of why we got focused on it. Was it being a non correlated asset, one that is negatively correlated with public equities and then has zero correlation, interestingly enough, to other real estate asset classes. And the reason for that is not too complicated to understand. It’s actually pretty straightforward. It’s the macro drivers that drive the farmland asset class, which they’re really redemptive macro drivers that the world needs its food, fuel and fiber. It’s not a surprise to anyone listening that food, fuel and fiber is growing in its demand as world population grows. And then we have a growing middle class. What might be a surprise is on the supply side of farmland, there’s the age old expression to buy land. They’re not making any more of it in farmland. It’s interesting that it’s actually a decrease in supply for new development reasons and some water issues. There’s a pretty rapid rate of decrease in supply in farmland. So when you combine growing demand and decreasing supply, you can see why there’s been a pretty strong secular drive for both the appreciation of farmland and then how farmland generates income is through the yield of its crops, which has had to increase and has done so because of technology. As an investor, the yield is either from a lease. So this is why I call farmland the OG of real estate. Because on leased farmland, it’s essentially a commercial real estate asset. You have, income driven by a lease or a rev share. And then the other source of income is the appreciation of the asset. So that’s very similar to how a lot of real estate investors would think about a real estate investment. You just have, really strong risk adjusted returns that are supporting the farmland asset class.

Luke Roush: I think the analogy of commercial real estate, and this being a different type of commercial real estate, is really relevant to a lot of our listeners who may be really familiar with that asset class, maybe just share a little more on the specifics of how these investments might be structured. And just to orient our listeners.

Trevor Hightower: Yeah, they’re very similar to real estate investments. Again, as I mentioned, let’s just take a farmland asset that is a leased asset. One thing that is a difference between other real estate asset classes is the typical yield that you’d have from a lease is going to be lower than some of the other real estate food groups, whether that be multifamily or industrial or office. You’re looking for leverage at a. Yield in the 4 to 6% range in farmland. So when you add a 4 to 6% yield from a lease with appreciation, that’s where you’re getting that low double digit return. And that’s the historical return profile. You’re just doing it in a safer asset. And that’s what we really liked is a non correlated, safer asset that in a portion of a portfolio investors can get exposure to. But to dive in a little bit deeper, the two primary structures in farmland that you could set up are a lease or a rev share. The lease is going to be very similar to a commercial real estate asset. It’s going to be varied in terms. The one nuance is the full lease gets paid upfront, typically so that the farmer pays the full amount in March, and then you have that lease that will extend for the period of the year, and that will be your income on the asset. The rev share model is taking a percentage of the yield of the crop and exposes the investor to commodity risk and yield risk. So the two factors that would drive the revenue of a farm on any given year is going to be commodity prices. And then the yield based on how much bushels of crop are harvested. And so in a rev share model, the investor is going to be exposed to a little bit more volatility, but be able to get more of a range. And ideally if you’re going to go into a rev share model as the investor you’ve underwritten that you want to take on that additional risk because you think you’re going to, on average, get a higher blended yield over the term of the investment.

Luke Roush: Yeah, that makes a lot of sense. And, you know, you’ve participated in some of the different food groups that you called out previously. I want to go to kind of your interest in this asset class. Like what’s most compelling for you talked about just some of the inherent appeals of food, fiber and fuel, but maybe speak a little bit about your own personal journey, because I think that’s helpful.

Trevor Hightower: Yeah. I mean, so you’ve had great leaders on this podcast that are in the small to medium sized business investment, like [Brent Beshore], and really trying to bring a redemptive solution to what is a major problem that needs to be solved in our country, which is the transfer of ownership of a lot of assets that are going to occur because of what it’s typically called the silver tsunami. But that dynamic of a majority of assets being owned by baby boomer generation. And then in many cases, there’s not the second gen or the next gen behind those assets owners that either have the skill or the will to take on the operation of the asset. Well, that dynamic is absolutely playing out in farmland in a very significant way, in a way that, to me is existential and important to our country and really the vibrancy of our food, fuel and fiber supply. So just to lay out some of those data points. The farmland is a $3.5 trillion asset class that is every bit as large as the US office market or the US multifamily market. The nuance in farmland that’s very different from the other real estate food groups is the the lack of institutional capital in this space. So.

Luke Roush: Which is shocking to me.

Trevor Hightower: It’s amazing. It is shocking. It has been changing and there’s been more capital in the space. But yeah, as you know, Luke, it’s less than 2% institutional capital that own, you know, up to $3.5 trillion of that, just the United States of farmland. So that means that 98% of U.S. farmland is owned by generational farmers, who really have been the backbone of our country. These are amazing men and women. I mean, I have such a growing respect and appreciation for the United States farmer and really what needs to continue as a majority of ownership, continuing to be in these incredible owners, if they have a solution for the next generation to come and farm. The issue is in many cases, the next gen doesn’t have the skill or the will to farm. And so what you’ve been seen as aggregation of farmland by more successful, I’d say farmers who are able to operate at scale and use some economies of scale and use some really good technology and best practices to start to aggregate larger portfolios of farmland that they can operate. And that’s the portion of the market that we’re trying to support, and we’re trying to support the best in class operators that are values aligned, that have a redemptive view of large scale farming so that we can continue to produce really great yields of food, fuel and fiber, but do so and a regenerative way. And that’s only part of the solution. There’s so many other really great redemptive solutions that. Are more micro in nature and those are needed. It needs to be multi-pronged solution to think about how the next generation of farming is going to occur. But that’s what gets us really excited. Effectively, we can be growth equity partners to these best in class operators that are really trying to operate in a way that is maximizing the, financial, but also what’s best for the land and the surrounding communities. And that’s what we found in our first partner and what we love to do with, more partners going forward.

Luke Roush: That’s wonderful. And talk a little bit about just your journey. I mean, you most recently were an entrepreneur or started your own business, and you’ve known the Macfarlan team for a long time, but maybe just talk a little bit about that transition from craft work to Macfarlan and what God taught you in and through that journey.

Trevor Hightower: Well, I really appreciate you asking. And it’s, redemptive story. And I hope it’s one that’s an encouragement to other entrepreneurs out there or other investors out there. To me, it’s a way to highlight and provide a great testimony of Dean Macfarlan and Mac Macfarlan, D. Macfarlan was the largest investor in Craftwork, the company that I co-founded, with my partner, Riley Dean, was an incredible investor in that he was very helpful strategically to the business. We met every month. He got into the details. He helped in so many ways, strategically and tactically in our business and made it very intentional effort to do so. At the end of every monthly call that we would have with Dean, his very next set of questions were around, how are you doing, Trevor, as a husband, how are you doing as a father? How are you doing as a leader in your community? How are you holding up with the stresses of what’s going on in the business, and made it a very intentional effort to both, help steward the business and steward the entrepreneur. The best story around this is actually one of the most difficult, in that there was a investor meeting that Dean had asked me to prepare for, and I prepared for it like I was presenting in front of a a Wall Street bank. I mean, I was ready to go with my optimistic case, my base case, my pessimistic, and I hit that out of the park. I mean, I just I had a really good, convincing explanation of why a Craftwork was going to change the face of multifamily experience and hospitality. And he was very encouraging, had some points of feedback that were constructive and said, okay, Trevor, I’m going to take my investor hat off and I’m going to put my friend of Trevor hat on. And that’s something that I’ll never forget, and really something that if I’m ever in his position, I hope I can replicate to anyone that I invest in. And he asked me kind of some specific questions about my equity, and the company did some back in the napkin math and then just said something that I’ll never forget. He said, you know, Trevor, I am so proud of you for what you’ve done in this company. And he said, I still think that there’s a significant gap between what Craftwork would generate and the opportunity cost you have as an individual, because at that point there’s been some dilution and and also some challenges in the growth of our company. And he was highlighting both. And he said, you can do whatever you want. But I just want to highlight that because the other context was this was the fifth year of the company’s existence, and it had been really difficult on my marriage, and we weren’t growing the way that we really wanted. I just had the burn the boat mentality as an entrepreneur, and I couldn’t see any other path but to march forward. And this, our largest investor, was the one who actually told me to take a step back and see is it the right time that we look at, you know, at that? What would the selling parts of the business and closing the other part of it down? And I have to admit, it was very disorienting. It was the first time that someone I really trusted gave me permission to even ask that question, and I am so grateful for it. It was obviously very rare for an investor to take that approach. It took me about six months to actually agree that that was the right path forward, but it was something I’ll never forget. We then went through a process where we made that decision six months later to start to sell parts of the business and roll the other part down to do what we call a redemptive close down. And we went through Praxis Accelerator, and we’re just huge fans of Praxis, as I know you are. And they have the redemptive framework. And I remember we all just put our hands together and said, we want to with as much vigor and energy and vitality that we did in other parts and other stage of the business. Apply that same level of vigor to how we in the chapter. Which is, was really difficult, but essentially what it meant was what is the redemptive way to take care of our investors, our team, our stakeholders, our vendors in a way that was, you know, sacrificial. And I don’t think that we did it perfectly, but I know that we did that. And the amazing grace behind it all was those were long, hours, long weeks. Didn’t really have a lot of time to think about what was next. It was all in to try to do that well. Which was scary and scary for my wife. And so when it was all closed down, I started to think about what was next and kind of convinced that I was going to have to go back and get a real job. And the amazing grace behind it all was that’s when Mac reached out and asked, hey, do you want to talk? Dean and I just had a really healthy transition where Dean had stepped into senior Advisor and Mac had stepped into managing partner of the firm, and they were both praying for a partner. And you know, the reason why grace is so transformative is it’s undeserved. And it provides that clean fuel, because when you receive it, you just want to give back. And that’s how I felt with even the opportunity to work with Mac as a partner and still have Dean involved as an advisor, was I had known both of these men and really their team for ten plus years. We’d been in the trenches together in different ways at craft work, and I had seen Mac and so many different settings and just I never had to underwrite their character, and I never had to underwrite their heart. And they already had an impeccable reputation. So it just felt like grace. And it’s been why at this stage in my career, I’ve never been more energized. But it was through a lot of pain and a lot of uncertainty, and I wasn’t sure how it was going to all play out. But obviously God was in it throughout the whole thing, even at the darkest time. So God works all things together for good, not in the way that we have planned, but in a way that forms us and forms our character and ultimately makes us open our hands and surrender more to him. And I can attest to that. And I’ll throw out if there’s anyone out there that is in that spot and needs someone to talk to, just reach out to me, because I think the pain and trials that we go through are our greatest superpower. Then to help others once you go through them. So reach out if I can help in any way.

Luke Roush: Trevor, I think you just signed yourself up for at least 20 hours of couch time bringing on investors that need, some formation or entrepreneurs and information. But that’s that’s awesome story. And I love that word of just kind of formation. That is what God intends to do in all of us, not in an episodic way, but in a continual way. And certainly that’s evident in your story and the transition from craft work to Macfarlan. I’d love to wrap just with maybe just a couple of comments on you are very intentional, not just as an investor and some of the things that you talked about with farmland, but also as a husband and father, I’d love to hear your comments on coaching the journey that we’re all on as followers of Christ. And then, you know, there’s a way to tie in kind of the farming narrative and agricultural narrative of kind of crop formation, seeding, harvest. If there’s some way to do that, then you get bonus points. But we won’t we won’t say that.

Trevor Hightower: Oh, I like that challenge. Yeah. I would say, thank you for that compliment. And I will say, you know, the the people to really ask are my wife and kids. And I heard a story of someone who was kind of lauded in the public. He was a pastor, and it was his funeral, and everyone was there and just saying so many great things about this guy. And then his son was there and said, you know, I love that all these great things are being said about my dad. I just I never knew that guy. And that would be a total loss for me. And I think it’s just on my heart that I have a long way to go so that, you know, my kids and my wife are the ones who really get the best of me. But I had a awakening to that reality where I went through a life plan, and in that process, you identified what your giftings were and what your talents were, very much from the Scripture of the talents and the realization, which was really eye opening when I went through this was the bringing those gifts and my work. I was doing a pretty good job of bringing those gifts to my family. I wasn’t it wasn’t conscious that God had gifted me in different ways, that I was using it in my work and in business, that I should be using those very same gifts for my family. And I think a lot of guys and gals maybe miss that, that the gifts that really are apparent and that are making you succeed in business. Think about how you can apply those to your family. If you are a visionary leader which many listen to this that you are, no doubt about it. How how are you bringing your visionary leadership gifts to your wife and to your kids? How are you doing that? If you are an operational wizard, you know, how are you bringing your inner greater giftings to your home in a way that’s blessing your family, and I’m definitely more on the visionary side. Thankfully, my wife is an incredible integrator, if you know those those terms visionary integrator. That’s been a huge blessing to say, how can my wife and I really act more like a team in that way where I’m visionary and she’s integrator, and so I’ve been more conscious to bring that gift into my family, which does look like, you know, how do I come to my wife with more ideas about how we can, you know, bless our kids, bless our family. And so I think it’s kind of surprising, even as I talk about it now, that I didn’t recognize it for so long. But the encouragement is, again, if there are things that you do really well in the work environment, how can you bring those same gift things to your family?

Luke Roush: That’s great. Well, we always end each episode with a question about what God has been teaching you specifically in and through His word. And so I want to give you an opportunity to do that and share what God is telling you and speaking to you through His word.

Trevor Hightower: Yeah. Thank you Luke. This is where I will try to tie all of our passion around farmland and ag land together, along with how I’ve mentioned kind of key mentors in my life. And my mind and heart goes to Psalm one, which is blessed is the man who walks not in the counsel of the wicked, nor stands in the way of sinners, nor sits in the seat of mockers. But his delight is in the law of the Lord, and he meditates on that law day and night. He is like a tree planted by a stream of water, which yields its fruit in the season, and its leaf does not wither. And all that he does, he prospers. So ag land farmland has just so many references in Scripture, and the flourishing farmland is a byproduct of having the right source of nutrients and the source of water. What Psalm one reminds us is that the man who prospers is like a tree, is like a healthy, you know, farmland that is by the source of all things that is true and good and beautiful, which is God’s Word. And I will say just to shout out Dean again, that dude, you cut him and he bleed Scripture. He just has a scripture memorized in a way that it just pours out of him. And I want to be more like that. Terry Luper as well, that the key mentors in my life, I come to them with questions and they give me scripture, and it’s so ingrained in them because they’ve memorized and they studied and they’re like this man, that they are not giving just their own opinion. They’re giving God’s word. I want to be more like that and aspire more to that and be this fruitful tree that is mentioned in Psalm one.

Luke Roush: Trevor, that’s a good word for me, and I think for everybody listening to this podcast. So thank you Trevor.

Trevor Hightower: Thank you Luke.