Subscribe to the Podcast:

In the US, public equity markets are in decline while interest rates and inflation are on the rise. In the UK a major tax announcement rocked the overseas markets. Are we headed for a worldwide recession? We discuss what it takes for investors to face the storm head-on and remain positive in the midst of it all. Joining the conversation are Justin Speer, Principal and Senior Analyst on the Public Equities team at Sovereign’s Capital, as well as Brian McClard, Head of Investments at Ronald Blue Trust, and Benjamin Bailey, Vice President of Investments and a Senior Fixed Income Investment Manager for Praxis Mutual Funds and Everence Financial. This is Marks on the Markets.

Episode Transcript

John Coleman: This is John Coleman and welcome back to the Faith Driven Investor podcast. We’re recording this just one day after the Faith Driven Investor conference this year. It was an incredible time. I know much of the content will become available over the coming days and weeks, and so we’d encourage you to dig in. And it was an encouragement to me, as always, just about the variety of different faith driven investing trends that are going on around the world. Hearing from our global colleagues in places like Africa was amazing and it was a really restorative time, so I’d encourage folks to dig in and catch up on some of that content, if you can, in the broader markets. It’s been it’s been a pretty wild time. We thought we had some volatility dampening and that normalcy might be returning. And instead, the last few weeks have been extraordinarily volatile in markets with a number of different topics breaking. Fortunately, as always, for our Marks on the Market series, we have a few very smart investors who are going to come talk us through that volatility, talk us through what they’re seeing in markets and offer perspectives on how we might navigate those markets. Well, first joining us is Benji Bailey. Benji is the vice president of investments and senior fixed income manager for Praxis Mutual Funds. And Everence Financial, he’s been in the business for 20 years or so, managing fixed income instruments, etc., and is just an extraordinary guy on those topics. Brian McClard is the director of investments and head of the Investment Strategies Group at Ronald Blue Trust Company, which obviously manages a variety of different institutional and retail clients. And Brian is in markets every day thinking about a variety of asset classes and brings a great perspective. And then we have Justin Speer, who’s a principal and senior analyst with Sovereign’s Capital, helping to lead the public equities team at sovereigns, having just recently developed the first public equities fund there. So gentlemen, thanks so much for coming today and talking to us through this.

Brian McClard: Pleasure to be here.

John Coleman: Benji, I’m going to start with you. Just to put you on the hot seat. You live in the fixed income markets, obviously, in addition to other markets. And one of the big pieces of information over the last couple of weeks was the recent Fed’s meeting and Fed’s announcements. What did you think of the most recent Federal Reserve announcement and interest rate increases? And what do you think the impact is going to continue to be on financial markets?

Benjamin Bailey: Yeah, so the Federal Reserve has a mandate. Some people call it a dual mandate. It’s really three things. One is maximum employment, the other stable prices, and then moderate long term interest rates. And at this point, though, they’re kind of viewing their entire goal, get inflation in check and they pretty much have nothing else in their mind. I kind of think of it. It’s kind of like a young kid or actually really me that likes to order ice cream and doesn’t really think about anything else whatsoever until they get that ice cream cone. That’s kind of where they’re at this point. But they seem to be using the playbook that they’ve had back from the eighties. They don’t have lots of different things that they can do, but they do have the Fed funds increases or they have decreases. And they keep talking about how important it is to lower inflation. So making those Fed funds increases and talking about it, the combination of those things is really what they’re trying to do to give people comfort that they’re very serious about inflation. So I don’t want to get too deep into this kind of bond nerd area necessarily, but when you think about where we’re at now, so we’re at a 3 to 3 in a quarter Fed funds rate, the market’s pricing in moves that are higher. But just because they’re pricing in another one and a half percent move, that doesn’t necessarily mean that long term interest rates have to move up another one and a half percent. Their more recent moves are really going to be a bigger deal for like your money market account, maybe your savings account. So a lot of these things that they’re already priced in, so they raise it one and a half more percent than really interest rates are kind of where they need to be at this point. But if the market get surprised and maybe inflation stays higher, you know, then they could move it up a little bit more. So the good thing is, you know, that we’ve actually have, you know, higher rates for savers. So that’s really a positive thing. And we have a lot of kind of this negativity already baked into the fixed income market.

John Coleman: That’s super helpful, Benji. And I do want to circle back to more bond nerd stuff in just a moment with how you’re thinking about those markets. And I definitely empathize with the fixation on ice cream. It feels like we get along on that crime. Before we dig into that too deeply, though, Brian, I was hoping to pitch it over to you. Obviously, there’s been a lot of volatility in public markets, both as a result of the Fed announcement, as well as maybe some other compounding factors. What are you seeing in public markets right now and what do you think has driven the decline over the last couple of weeks?

Brian McClard: And, of course, has been a volatile market the entire year. And really with this latest downturn from August, I think we’ve seen something like a 15% sell off in the S&P alone. So this last quarter has been enough volatility for a full year, even though it’s only been the last couple of months. But believe it or not, it’s really been because of some demonstrated economic resilience. We’ve had inflation be a little bit stubborn to come down maybe, and I don’t know if we’ll get into that or not, but because of those things, the Fed has really just reiterated their their idea that they’re going to keep at it raising rates. Just kind of as Benjamin was mentioning, you know, until inflation softens. And so you’ve had the situation where good news is bad news. And that means what’s happening is the market’s trying to stay ahead of the Fed, and that’s what you’re seeing in prices.

John Coleman: That’s helpful. And, Justin, maybe I’ll come over to you on that front. Are we reaching a bottom? I mean, we have seen these precipitous declines building on losses earlier in the year. Now, when is the bottom? I mean, do you think we have more room to fall? And what are you looking to figure out if we’ve reached the trough?

Justin Speer: You know, they don’t want to come out and say that I know where the bottom is going to be expressed. But I think it comes down to answering this question. It’s going to come down to whether or not we’re heading toward a hard landing or a soft landing. And I believe the market right now is pricing in in the equity markets something closer to a soft landing scenario today. And I’ll talk about that in a minute. But just to kind of retrace where we are, the market is back to the recent low that it achieved on June 16th. So the market from its peak in January. And I when I say the market, the Russell 3000, the broad U.S. market is down 25% from the peak that it achieved in early January. So just for perspective, that’s the fifth worst decline from a market peak since 1990. We’ve had, in addition to this, seven other bear markets since 1990. This is the fifth worst in historically. So you think about 105 days on where we’re literally as of yesterday, right on top of the low, we just retraced back to that low 105 days from that bottom in mid-June, and we achieved that 25% decline. The market historically, if we had bottomed, is up closer to 30% on average, 105 days off of a bottom. And we’re currently flat because of inflation globally being higher and stickier than the market expected, which means policymakers, as Benji was talking about, need to push harder and longer on removing the excess liquidity from the global system. So what we seen we see an interest rate spike, I mean, a dramatic spike like the speed to which this move has taken place. We have not seen in a very long time in terms of absolute stuff like this, the fastest year over year increase since the early nineties, but also a much lower base. So it’s a big move in rates. The yield curve turned negative for the first time since 2007. So when I look at twos versus tens, it’s negative. From the first time since 2007, business conditions are cooling and the dollar has raised higher against all other currencies. So postively the labor environment has been extremely tight and consumer confidence is held up and spending is held up pretty well outside of housing, which has collapsed to below pre-pandemic levels. But the bond market and the stock market are telling us that the labor environment, in my opinion, is about to face some headwinds. So we’ll see how consumer spending holds up. But ultimately, the pullback in the market has certainly been anticipating some of this. So let’s pull back to what we’ve been thinking about. As we’ve known, this is going to be coming to a certain extent, this removal of liquidity and excess stimulus. But I believe that most of the sell off has merely just removed a chunk of the post-pandemic froth in the S&P 500 multiple. You know, so if we think about the sell off, it’s been painful, but it doesn’t appear that the market is pricing in a deep recession here. The multiple right now and the S&P 500 is really approximating the 20 year average on forward estimates. And I think that those estimates are probably at risk of being revised lower because I look to 2023. So literally, I think what we have, we had a big party and we had $7 trillion of stimulus shoved in our pockets and free money and it led to the multiple going up to 22, 23, 24 times as recently as last year. And so all we’ve done is remove that froth. The multiple is literally on top of its 20 year average now. But a big question for me as I kind of think about this that remains elusive is how much consensus analyst board expectations for earnings will need to be revised lower in the coming quarters amid a slowing in demand. The lagged filter through that continues of accelerating cost inflation. That’s going to work its way into the P&L, into the margin structures of these companies. So I expect that the upcoming earnings seasons will continue to provide some answers on that front. So estimates have come down about 3% on 2023 estimates. And as we consider the removal of stimulus, we’ve done that back of the envelope. Just removing that stimulus, assuming that the pandemic never happened, I think we probably have another 10 to 15% risk to earnings estimates. Some of these estimates, I think, are embedding the idea that stimulus is going to go on forever. And we just don’t see that. Obviously, we’re going to see the opposite. So the debate we face today as we wrap this up is if policymakers can remove stimulus, camp down inflation without creating a hard landing scenario and it’s not […], we don’t know. I think that’s the real debate. But we don’t have to look far back in history to see other periods of extreme excess and how long it took for the market to break the tech wreck. And the early 2000 consisted of two painful pullbacks in the market. From August 2000 through September 2001, about 385 days, the market fell 36% peak to trough and it recovered. But then it fell back again. In May 2002 to October 2002, it fell another 30%. And then in the Great Recession, the housing bubble that corrected it took the market about 500 days to work without peak the trough, and that was a 55% correction. So that’s the question. Can we get out of this excess liquidity? Can policymakers globally do it without creating a hard landing or can we get through a soft landing scenario? And I think that’s the major question for all of us.

John Coleman: So I want to pause right here maybe and just reflect on that. And Brian and Benji turn to you all just for your perspectives, because I know this is top of mind for everyone. Reflecting on what Justin just said. What are your thoughts? Do you see the world in the same way? Do you think we’re actually nearer a trough than that? What are your perspectives on what’s left in the volatility and public equity markets right now?

Brian McClard: Yeah, I thought that was a great analysis that Justin laid out. You know, the drawdown this year, primarily valuation related in our minds because of, as you mentioned, the sharp readjustment of the discount rate. When you look at P/E right now, they’re really commensurate with where Treasury yields are. And you’re not seeing corporate spreads blow out either. And so in our minds, recession risk is not priced in right now. So if you have a recession, we believe there’s more pain to come if you don’t have a recession. You know what? We actually could probably be near the bottom.

Benjamin Bailey: Yeah. And for me, kind of just being on the bonds side, I almost feel like I should say I’m sorry or something from the beginning of the year just because, you know, like the dividend discount models and those types of things, that’s when interest rates started to go up and people are like, Oh my goodness. Well, if I have these, you know, high tech companies and they have earnings out multiple, multiple years, then it’s one thing if interest rates are at 1%, but something much different if they’re out three and a half percent. But yeah, I mean, there’s certainly a lot of negativity that’s baked in at this point. But certainly, I mean, it doesn’t seem like all of it is necessarily baked in.

John Coleman: Benji, I want to kind of pause with you for a moment and think about bond prices, about debt investments right now generally. You know, I’ve thought back to my childhood when you could get a certificate of deposit that would yield 7% or you could put money in a savings account and get a few percent. And there are a lot of people now who have never experienced that effectively since 2007, 2008. There’s no real return on cash at all. And some of these instruments, like CDs, have just become almost nonexistent. As you look at this environment right now, certainly this year, bond prices have been highly volatile as well. How do you think about approaching debt markets right now, where there are opportunities and where there are great risks in your mind?

Benjamin Bailey: Yeah, I mean, I mentioned a little bit about being sorry. And I think, you know, part of this is generally bonds have kind of played this diversification where it’s just been they haven’t played that role so far this year. I mean, in the 44 year history of the Bloomberg Aggregate Index, every time that stock returns have been negative, you know, bond returns have been at least flat or slightly positive. And they haven’t done that so far this year. But I also think I mean, at this point, they’re also offering really good value. Right. So the yield on that, Bloomberg Aggregate, and just as a reminder, that’s kind of like the S&P 500 for the fixed income markets and that yield is right now at 4.7%. So almost 5%. It hasn’t even been this high since 2008. And that was obviously during the Great Recession. And so and total returns for bonds, they’ve kind of have two main components in that. The one part is an income return or kind of the coupon or yield, and the other part is the price return that you get. So we started the year with just such low rates, it was about 1.7%. And that means that over a 12 month period, your income return would be, you know, that 1.7%. But since interest rates have gone up about 3%, right, that 1.7 up to the 4.7, that means that, you know, you’ve gotten your income return of 1.7 or a little more because interest rates have been going up. But that’s not nearly enough, you know, really to overcome these negative price returns that we’ve had of about -16%. So the net total return kind of net net gives you in this 13% area. But I think the good part, and again, while I’m excited about this, is that the math works a lot differently now. So interest rates go up a little bit more. Yeah, you can have a slightly negative return over the next 12 months, but with interest rates is high at almost 5%, you’re in a much better balance kind of between your positive scenarios versus your negative scenarios. And certainly things can get worse. I’m a bond guy, so I can always think of bad things that can possibly happen, no doubt. But, you know, if they stay solid or kind of I mean, even if they would actually have interest rates, it would fall a little bit. You would have your yield of about 5% and maybe even a little bit of positive price returns. I think, you know, big picture, this is actually a really good time for savers.

John Coleman: That’s really, really helpful. Brian, I want to back out from the U.S. markets for just a moment and look internationally, particularly at our friends across the Atlantic in the United Kingdom. You know, recently there was a new British government that came into power. They announced a new tax cuts, which I think the markets viewed as potentially inflationary. And then the Bank of England announced some actions. And there was a ton of volatility overseas. I think at one point the pound actually dropped to near parity with the dollar, which has never been the case before. What’s your perspective on what’s happening in the U.K. right now and any overflow impacts that U.S. investors can expect to see from that?

Brian McClard: That’s a great question, actually. And as you mentioned, for those who didn’t hear the whole situation, whenever the new government announces big tax cuts, they were the largest in 50 years and they were going to be deficit financed. And that was really concerning, I think, to the market because they viewed it as fiscally irresponsible and so they lost confidence. That’s what kind of caused the sell off in the currency. And of course, the rates rose. But a big piece of that that came up was the fact that the pension fund industry is so large in the U.K. is about 120% of GDP by some estimates. And because of the way they structure their investments, in essence, what it means is that when interest rates rise precipitously, they receive margin calls which require them to post collateral, which means they have to sell assets which causes a spiral. So the Bank of England had to step in and defend its currency, in other words, to keep it from going down and to also drive rates back down again and just really reestablish kind of an orderly market. So the reason why that’s important is because that’s essentially put them on the opposite course where central banks have been doing around the world. Right. Because everyone’s been tightening in order to fight inflation. Now it looks like the U.K. is going the other way. And so, you know, they’re wanting are you going to be able to fight inflation? Are you just going to exacerbate it and make it worse? And I think during times of stress, during times where liquidity is flowing out, I think you’re going to see these types of tests on the financial plumbing come to bear a lot more. So it’s very normal from that perspective to stress as the system stretches to to stress, test it and see what breaks. There’s speculative attacks even from folks who are trying to find opportunities. They are they we can see can we profit from there? And you know what? The U.K. isn’t the only one going through this. It’s just they’re the ones who are maybe showing a little bit more severe cracks at this moment. I mean, the Bank of Japan had to intervene to defend their currency. China’s talking about it. And so this is a normal part of this environment. And you’re going to see this. This is more of a liquidity issue in my mind, that it is a solvency issue. Yeah, we’ve got big long term debt issues on public balance sheets around the world and it has to be reconciled with that. I don’t believe they’re going to be reconciled in this way and in this time. So for the time being, I feel like, you know, there’s a little bit of a hiccup and things return to normal and then we’re good again.

John Coleman: Yeah, it’s certainly interesting. Oh, go ahead, Benji.

Benjamin Bailey: I am just going to jump in real quick. Just to say, I mean, a couple of bonds that I thought were just it was pretty wild what happened in the last few days. And they’re like the United Kingdom in their 30 years bond in one day went up 100 basis points or 1%, meaning like the price return on that was negative almost 20% in one single day. And then the next day. Then, of course, then, you know, they decided that they needed to jump in and it fell back about 1%. But just think about extreme volatility. When you own those long term bonds, you know, fall 19% and go up 19%. It is shocking what happened.

Justin Speer: Yeah, I think it just shows in these moments where you’re trying to fight inflation, pull back on liquidity, there’s opportunities for mistakes and policy mismatch that create this more risks. And so it’s something that I think every asset class we all just have to be mindful of and just be prepared for and take advantage of.

John Coleman: And this is in some ways the most complex economic environment that any of us have operated through. Right. I mean, if you think about just the U.S. market, this combination of inflation and recessionary pressures in this kind of mix hasn’t happened since the late seventies, early eighties. And then you throw in on top of that this process of de-globalization for probably the first time in many decades. The overseas risks with Ukraine and other economic moves by central banks around the world. There is just a ton of complexity here that makes it difficult, I think, to sort out which of those different factors is going to weigh the most on markets, right? Like what is actually going to win out in the prices of these different instruments?

Brian McClard: What in a brewing long term question as well that we’ve not seen in our lifetime is just the level of indebtedness that exists globally with these governments and we don’t know how that resolves. So that’s a big question.

John Coleman: Yeah, 100% right, Brian. I mean, the levels of data around the world are consistently higher, at least in the developed world than they’ve been at any point in history, to my knowledge. I mean, coming out of world wars, some of the major powers obviously had a heavy degree of indebtedness. But this kind of consistent structural indebtedness in the developed world is a relatively recent phenomenon. And, you know, we were told for a while by experts to not worry about it too much. But I think in environments like this, you start to worry about it. And interest payments on the debt become really concerning actually in this type of environment. I want to zero in on one specific aspect of that and then maybe pull out and ask you guys for a little optimism before we move to that. Justin, the inflation question has come up again and again throughout this question. Maybe you could lead us off, but I’d welcome other comments with the Fed’s actions. Do you think we’re actually getting close to taming inflation, or is there still a lot of work to go? And is the Fed going to be capable of doing it on its own, or are the actions of the US federal government going to play a meaningful part there as well?

Justin Speer: Well, in terms of, you know, are we near taming? I do believe we are going to tame. I think there’s blunt instruments, but there are tools in the arsenal of policymakers that if we don’t, it’s because we made a mistake. But I believe so. And we’ve already started to see some of the embers of that. The shift hiring rates have already catalyzed a big contraction in domestic housing activity that’s ultimately going to cool inflationary pressures in the housing component of CPI. We’ve also seen oil in a broader basket of commodities sliding sequentially, which implies less year over year headwinds on the horizon for producers of goods. In the next 3 to 6 months, the yield curve has inverted, which suggests the market is bracing for a slowdown or even a contraction in the economy. And so ultimately, I think going to result in a rise in the unemployment rate, slow wage growth. And I really think that’s the goal of the Fed is to do that, but do it without causing a hard landing. That’s the delicate balance. But lastly, just looking at tips and maybe, Benji, you could talk about this, but looking at tips, the break even spread on the five year treasuries. I pulled it up last night. So the five year treasuries less the five year tips is implying about 2.4% inflation on average over the next five years, while that spread has been subsiding after peaking at over three in April. So it tells you that the bond market is telling you that they believe eventually we’re going in front of this and ahead of this. But what does it mean in terms of just this inflation, the impact of inflation in the coming year? What’s the impact? Big picture for companies, I think there’s different constituents to consider. But for companies in a weak demand environment and I’m thinking anything with volumes below 2%, so I’m actually going to see volume fall negative. I believe in certain areas of the economy. It’s extremely difficult to deal with inflation if you’re a company, just a traditional industrial company, big picture, weak demand, inflation coming through your P&L, very difficult to pass that on. You don’t get volume leverage and it’s very difficult to pass prices on to your customers in that kind of an environment. The other thing that’s happened is because of COVID and one of the big reasons for the inflation is we’ve had not just stimulus, but we’ve had supply chain disruptions that have been a function of COVID and absenteeism, but also government benefits that have incentivized people to stay at home. And so there’s that, too. But all these pictures of, I think, some of that element, that tension within the labor force is alleviating demand. Slowing is going to alleviate some of the supply chains. And that’s going to help. I think on the inflationary front, the big picture, it’s very difficult for these companies to deal with it. And we may see with risks to margins higher, we may see that lead to companies laying off folks, reducing wages, in other instances finding innovative ways to become more productive, which is something that we’ll be looking for for households. It’s just tough. It’s tough for us middle class folks. It’s tough for the middle class and lower income wage earners. We have to continue to respond by adjusting our spending and for our family, last week it was ribeye and this week it’s tuna fish, and next week it may be dog food. And my dog does not like sharing, you know, so we have to make adjustments. But also it’s very tough. And for policymakers, this is a major ballot issue. You know, for them it’s more of a what we’ve already seen the pressure on them to respond. And there’s potential for policy mistakes that we saw like we saw this week or perception of policy mistakes anyway, in these scenarios or policy mismatch from central bankers and governments like we’ve seen. And for us though, at Sovereigns like we want to see companies responding for the rank and file for the people serving their people, their team members, they’re going to be opportunities to serve in this environment. And our desire really is to see leaders and companies offering programs to help their employees cope with this environment. It’s a big challenge. It’s also a big opportunity to serve and point people to Christ.

John Coleman: That’s great. Brian, Benji Any difference of opinion on the inflationary front?

Brian McClard: I thought that was a great analysis. I think in terms of a framework maybe of how we kind of view it look pre 2019, the Fed was not able to get inflation essentially above 2%. Right now, suddenly we’re at 8%. So it’s kind of like, okay, what happened? Well, obviously, we believe some of the culprits are really that fiscal and monetary injection. So filling a $2 trillion hole with $10 trillion. Right. That extra 8 trillion has to go somewhere. So because of that, though, we view that that it’s temporary kind of adjust and was alluding to but how temporary just the two questions and the two questions are how fast and how far. In other words, how far does it go from 8% now to 2% where it was before or some, which is, by the way, the Fed’s target for inflation, or does it in somewhere a little bit above 2%? And the how far kind of relates to what’s changed and how fast kind of relates to what’s sticky, what’s sticky right now and what needs to change there. But it is suffice to say, I think there are some sticky items that make it a little bit slower. I think there’s a couple of things that have changed. Inflation comes down mostly, but maybe not all the way. Long term drivers like the debt issue we talked about the aging demographics and just really the continued productivity enhancements. I think the long term forces will still be inexorably lower from that standpoint.

John Coleman: Well, let me include some of the market commentary, and then I want to switch to more faith driven components of this, just how you all are thinking about managing clients, for example, and faith driven impacts. But I do want to end on a positive note. So maybe around the horns, starting with Benji. Give me one thing you’re optimistic about, Benji. You’ve probably been the most optimistic given that you are in some of the bond markets right now. But give me one thing you’re optimistic about in investing right now.

Benjamin Bailey: Yeah, well, I mean, I really do like the higher yields. I mentioned that before. But I do think to just the math, which I think the math is a little cleaner in terms of bonds and you think about yield. And when they go higher, that’s kind of your future returns. But I still think stock prices, yeah, we could go a little bit lower, but in the whole scheme of things is, you know, we had such high PE ratios and that meant future returns are going to be pretty low. And so this kind of adjustment back to, you know, sadly the E is going a little bit lower. Not obviously the price is going quite a bit lower. But I mean, I see this as a positive just kind of all around in that your basic 60-40 like 60 stock 40 bonds portfolio really has a better outlook than what it would have had a year ago or certainly two years ago. So that to me is a good positive.

John Coleman: Brian, what do you think something you’re optimistic about in investments?

Brian McClard: Okay. So Benji took my number one, which is the yield that but you know what? That shows that how important it is that there is yield again. And so I think that’s important. But let me throw out my second choice that I would throw out there is the fact that these economic woes that we have out there, that we’re facing, they’re known. And believe it or not, I’m almost scared to say it. But the fact that we’re close to crisis levels in some cases, like with energy in Europe and some of these things, because what that means historically, what we observe is that crisis brings opportunity right, you hear necessity is the mother of all invention and is during those times whenever we know the issues and then we can come together, we can solve them and we can have a better and more robust future. And so I’m very optimistic that our standpoint you can look at example after example, historically Asian debt crisis, 97 and 98. You know, it was painful, but it’s led to a lot more resilient economies with better policies for the most part, and improving, just as one example. And so very excited about what’s going to come out the other side of this painful time.

John Coleman: Justin. Round us out.

Justin Speer: Yeah. So, you know, shameless plug for the firm here at Sovereign. You know, our mission is to love God and love our neighbor through investing. And that mission really stays true irrespective of market environment. We have a dual mandate for our public equity platform and goal of generating returns, at least in line with the broader benchmark market. And secondly, striving for a deeper spiritual integration within the companies who we come alongside and engage them and leaders and who invest sharing best practices, putting them in a community with other like minded CEOs. So on the performance side of the ledger, yeah, I mean, you in a career, you don’t get many of these opportunities. You know these are pretty rare and an opportunity to serve our clients and put them in some pretty compelling opportunities. We’re actually starting to see it, particularly in smallcap growth realm, seeing some really interesting opportunities there already. Companies whose stocks have just been smashed disproportionately and in some cases it’s just merely a liquidity event. You’re calling a rally. What’s going on? There’s no news. It’s a hedge fund selling out. Oh, well, this is a great opportunity. So there are opportunities for longer term investors in a long term, and there’s going to be some mismatch in strategies. A lot of hedge funds are short term focus, we are long term focused. So they may be making the right move now, but in the long run, it may not be a good move for us. That’s an opportunity that can emerge for our clients in the long run. But also really important on the other side is the right opportunities for us in an already has to serve and support these leaders of these companies who are facing a lot of pressure right now. Not just performance but there’s also some political things that they’re dealing with. Sorry about that. In the long run.

John Coleman: That is one of Justin’s company calling, he get good counsel.

Justin Speer: I know I asked for a stock pick over here and I but this is giving us opportunities to share best practices, commune with them, and hopefully God can make a difference for them and our clients in these periods of volatility and interaction. So it’s actually accelerated some relationships for us that are really important. Part of our process.

Brian McClard: I love it.

Brian McClard: That’s really good. Justin and Justin is kind of talking to what we think of as positive spiritual integration in public equity markets in addition to our alongside what people conventionally think of negative screening, which is how do you positively influence or engage companies? You know, Benji, one of the things we’ve had less time to dig into is this idea of how to do that in fixed income markets. Right. And it does look a little bit different, I think, than equity holdings. How do you approach this idea of faith integration in fixed income markets?

Benjamin Bailey: Yeah. So I mean, what we do at the Praxis Mutual Fund, we call it Stewardship Investing. So we’re thinking about being stewards not only of the money and having appropriate returns, but obviously they’re God’s resources in the end. So we want to be stewards of that and I think it is quite a bit different in a lot of ways between equities and bonds, and it can be somewhat partial, but equity investors, they can buy stocks and they can be invested in community or creation benefiting type things. But I think in the fixed income markets we’re really offered a unique opportunity. So an example, earlier this year we bought a bond, has a government guarantee, so it’s quite safe, got a little extra yield than what you would with the US Treasury and all that money is going to supply clean water and good sanitation for 5 million people in Southeast Asian and Africa. So our yield was the same as other similar response, but we were literally enabling people to get water that they wouldn’t have gotten before. Matthew 25:35, says, So I was thirsty and you gave me something to drink, right? So and talk about making an impact on someone’s life. And we did do this in a mutual fund that people are able to buy, that they’re buying, you know, for a retirement or saving for their kids college fund. But talk about just making a direct impact on someone making that difference, and you can do it in your bond fund. So I think that’s an exciting thing that, you know, Bonds can offer that real direct impact.

John Coleman: And I love that. That’s an awesome word, Brian, maybe to round out. And we’re going to circle back to everyone on the question we like to in the podcast on which is what are you learning right now through Scripture that you want to share with others? Before we do that? Brian, obviously, you’re in touch every day with a number of investors, right, with individuals who are trying to weather these markets. How do you and your colleagues just think about helping individual clients, whether these markets right now and what kind of counsel are you providing them?

Brian McClard: Yeah, that’s a good question. That’s really at the heart of what we do, isn’t it? Because no one enjoys these types of markets. But, you know, the fact of the matter is, these markets are part and parcel of the investing experience. And we really believe the reason why the vast majority of our clients are really in a good place, even during this uncertain time, is because we really try hard to tie the investment portfolios directly back to the client’s financial plan. And and more specifically, I would say to the time horizon of when the client needs their money so that they can feel comfortable that their goals aren’t in jeopardy during these kind of uncertain periods. And so that’s one really critical part of it. And I know it’s human nature to worry during these times that I still think it’s okay to worry during these times because it points directly back to that plan because, you know, one wise person said, if you worry, then you don’t have to worry. Right. And the meaning is, is that if you’re worried, then you’re prepared, you’re doing something about it. And I would add to that, it’s not what keeps you up at night that you should be concerned with, but it’s what wakes you from a dead sleep. Right? And so that’s the importance and that’s the value of the plan. You know, these rough seas, they’re just a normal and expected part of the journey, but you never really reach your destination unless you leave the port. And so that’s what we’re here to do with our clients.

John Coleman: It’s really great, Brian, to conclude, as we maybe offer some counsel to everybody out there. We do want to start on a spiritual topic and Justin, we’ll start with you, maybe just a couple of minutes apiece. What are you learning through scripture right now that you want to share with others?

Justin Speer: No at the firm here for about a year now. And I’m just learning the power of culture and the power of servant leadership and what that can do for any organization, for not just companies, but my household, for families, for governments, for business. It’s a really powerful model that was founded by Jesus Christ. And I’m just reminded of Mark, chapter ten, verse 44, where Jesus is teaching all of us, teaching his disciples who had a heart problem about being the greatest. He says, Whoever desires to be greatest among you, you need to be slave of all, servant of all, for even the son of man did not come to be served, but to serve and for Jesus. It wasn’t just words. It was really powerful actions that demonstrated that he really meant it. And for me, I want to be great in his eyes. And it’s a real powerful reminder. But we’re finding companies with what we call level five leadership, […] level five leaders, who is humble, passion about their business. But we’re finding these incredible leaders who are trying to honor God and running a business, loving on their employees, creating these incredible cultures in a time where it’s really hard to attract and retain talent. These companies have a bit of a competitive advantage I think in all different stripes of industries and sectors. I’m just it’s really powerful to learn that. And I’ve been in the game a long time. I’ve been doing it for 20 years, investing now, come to work with my lunch pal, my little BCF, and get in front of these leaders and talk to them about what, you know, what are we going to see in the next year or two? Never really talk about culture that’s so powerful. A lot of that goes into generating these great businesses that generate good returns for their employees. But I’m learning on time and I’m just thankful for the opportunity learn. And it’s making me hopefully a better person because when you read these passages, you know, sometimes I tend to think about other people. But really I need to be thinking, master, is that I mean, are you trying to tell me something? And so that’s one and one more is just first Timothy 6:6 when Paul says, you know for godliness with contentment is great game and these types of environments, be godly, be content in whatever circumstance we happen to be in great game, not necessarily in this life, but in life to come. And it’s it’s a good reminder for me these types of times.

John Coleman: Benji, what’s on your mind?

Benjamin Bailey: Yeah. So I think that God’s been working with me on as am I looking for peace in difficult times of life, or am I looking for peace as in like calm, tranquility in my life that really just isn’t going to be there. So our church is doing this series. It just finished it up on an is titled Flourish and a lady shared her struggles with cancer and just really sad things that she went through. And she read a verse as Isaiah 26 three and it said, You will keep in perfect peace all who trust in you and all whose thoughts are fixed on you. You know, so interesting, though, when I think of that, though, when I hear that and I think so God wasn’t even offering her peace like calm, peaceful ocean, no waves. You really instead he is offering her this peace that even during this rotten thing that she was going through, that her body was going through, that he was going to be giving her that peace. And I think sometimes I want that kind of calm, peaceful ocean, you know, just kind of laying out there. And I get frustrated when things get hectic or they’re busy and stressful, but God isn’t offering me kids that are do exactly as I say. That would be fun at certain points. That doesn’t seem to work out many times, but or really a job that doesn’t have stress. Right. Because he wants to be that peace even when my life is in tumult. Right. So I need to be reminded of that because otherwise, I mean, I don’t even know why I want that, because the stress free life isn’t even what I should desire in the first place, because I really just want to make a difference. I want to make an impact. And when you’re doing that, I really need God to be that peace for me, even while I am, you know, probably ruffling feathers here or there or doing things that make my kids frustrated or whatever it might be. But really that he can be that peace for me when my thoughts are fixed on God. So that was an important thing that I needed to relearn, I guess.

John Coleman: Why don’t you wrap this up, Brian?

Brian McClard: Yeah. So, Benji, that’s a great truth. I tell you, it seems like peace is something that this entire culture is looking for and is just not finding. I read some headlines somewhere that said that they were recommending that all adults under the age of 65 be mandatorily tested for anxiety because peace has been so elusive. And we’re actually going through a study right now and the Holy Spirit has been fantastic. In First Corinthians two, it says that we understand the spiritual truths that are freely given us by God through the Holy Spirit. So in other words, we think about wisdom and peace and patience. It says not with human wisdom, because the natural person does not understand the things of the Spirit of God, because they are spiritually discerned, right? Not through our flesh. And so I think about how day in and day out, especially today, right? We have so many gifts, so many abilities, so many tools, so many resources. We have Google at our fingertips. And so it’s so easy to try and reason our way through life, to muscle our way through the challenging problems of the day. But it is critical that we are walking. In fact, I’m saying this to myself, that I’m walking in the spirit and not relying on my own power in order to find wisdom and peace and patience. Right. And which, of course, not only yields spiritual benefits, but physical benefits as well.

John Coleman: Guys, this is a fantastic discussion. Those are great words to end on. Again, we’ve got Benji Bailey from Praxis Mutual Funds, Brian McClard from Ronald Blue Trust and Justin Speer from Sovereign’s Capital. We’re grateful for your time, guys, and we hope that you’ll come back to the FDI podcast again sometime soon. Thank you.

Justin Speer: Thank you all.

Brian McClard: Thanks, guys.

Subscribe to the Podcast:

Once a month, we take a look back at what God is doing in the world of Faith Driven Investing and the global markets. We also spend time looking at current trends and outlooks with great interest and discernment in hopes to identify God’s redemptive work in the world. Tune in as Matt Monson of Sovereign’s Capital, Daniel Phillips of EverSource Wealth Advisors, and Ross Roggensack of Oak City Consulting push the conversation forward about faith, investment philosophy, and the frontiers where innovation is happening. This is Marks on the Markets for June 2022.

Episode Transcript

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman. And today we have our monthly marks on the Markets podcast where we find experts from around the industry to dig into the most prominent trends in the markets and the underlying economy as well as within faith driven investing. Today we have three extraordinary people on the call who can guide us through this. The first is Matt Monson from Sovereign’s Capital. Matt leads the public equities capability at sovereigns and has a long and distinguished career at other equity managers around the United States. We have Daniel Phillips from Eversource Wealth Advisors. Daniel is the director of investments at Eversource. He helps to position individual portfolios as well as to select and screen investments for Eversource and also has a long and established track record in the industry and a deep understanding of financial markets and the instruments that access them. And then finally, our dear friend Ross Roggensack of Oak City Consulting. Ross is a founder and the leader of Oak City. He advises large institutions about their portfolios and selects investments on their behalf and has been a longstanding not only participant in the financial markets, but also a real pioneer and longstanding contributor to faith driven investing. And someone I know a lot of other folks in the industry look up to for his innovation in that space. So thanks so much for joining us, gentlemen. And we’re excited to dive in.

Ross Roggensack: Good to be here.

John Coleman: So just to start again, we are living through exciting Financial Times right now and sometimes rocky Financial Times. Matt, I was hoping you could kick us off with just your opinion on what the latest is in financial markets, what’s driving that declines this year and what do you see happening in the remainder of the year?

Matthew Monson: Thanks for the question, John. Good to be with you today. So if we rewind and start back on January 1st. What we’ve seen is that January 1st through the recent trot on June 16, the Russell 3000, you know, broad market indicator for market returns was down 24% and 24% is a big number. In fact, it was the fifth worst pullback that we’ve seen in the last 32 years. And so for perspective, the Great Recession, back in 2008, 2009, we were down 56% over a year and a half. And when COVID started, we were down 34% over two months. And the two other large pullbacks we saw were 2000 and 2002 connected to the tech bubble and 9/11. And those were also down in the 36 – 30% range, both of them. So that leaves this 24% pullback that we saw through June 16 as the fifth largest since 1990. So since June 16, now the market’s been up 6.7%, which leaves us now year to date, down about 18 and a half percent. And no one really knows whether the recent trot on June 16 was the bottom of this pullback or if we have further down side to go. If we look at the data, though, there’s two key things that I look at just to assess where we’re at. First is the multiple on earnings and then second is the absolute level of earnings. And so if we look at the multiple on earnings in over the last 20 years, the S&P 500 has traded at about 16 times forward earnings. And as of January 1st, when we were at a peak in the market, we were trading at 22 times forward earnings. And since that time, we’ve fallen down to 16 and a half times today. And so now we’re back in line with the historical earnings multiples. In terms of where earnings are at, you’ve seen a really nice run up in earnings. You know, pre-COVID, when things were, I think I’d say fairly normalized in 2019, you had $138 earnings in the S&P 500, whereas consensus earnings for the 12 months forward today is 237, which is a big number. So if instead you take that 138 pre-COVID number 2019 and you were to grow that at something normalized, call it 8%, and then layer in all the incremental inflation we’ve seen above and beyond normal run rates. You know, that would put us at a number about 15% lower than where consensus is today. So is there about 15% lower earnings that could roll through consensus? I think there is. You know, could we see that as an incremental draw down in markets? I think so. But that doesn’t mean that markets will get all the way there. It’s possible that they do. And it’s also possible that markets won’t go all the way there and people start buying and buying the dip. So we don’t know what’ll happen. But as we try to gauge what our downside looks like, that’s what we think about. One thing that I think is interesting is that off a trot there’s usually a really fast recovery. So within the first 90 days after those big seven trots that I just mentioned, you know greater than 20% drawdowns in the market, that first 90 days out of the trots, markets are up 27%. And so investors are really rewarded for being fully invested. At the bottom. And so as I just think through markets, if the draw down feels significant and if we feel like the multiple is a reasonable multiple on a normalized level of earnings, I’m focused on assessing how much more downside there could be, but also thinking through how much upside there’s going to be coming out of the trot and not wanting to miss those first few days and weeks of it.

John Coleman: And Daniel and Ross, just building on what Matt saying there, obviously a couple of fears that he’s highlighting are that this inflationary environment, which has got people scared, will be doubled with a recessionary environment, one in which the economy contracts. We had a little bit of contrary news this morning where jobs are actually looking better than anticipated. As you hear what Matt said with, you know, as much as 50% additional downside in the markets, although that’s certainly no guarantee of that. How are you thinking about the remainder of the year? Do you see those risks as high or are you keeping an eye out for a recession right now? I would love to get your thoughts on what you think the potential risks moving forward for the rest of the year are.

Ross Roggensack: I think that we never really know. I’ve been around for all of the dips that Matt was talking about. So I’m the old guy on the call. So I’ve seen all this before and you never there is no bottom, you know, we don’t know the bottom until well after. We don’t know if we’re in recession until well after. I think the biggest surprise for us this year, not surprise, but the biggest pain point for us has been the bond market. The bond market is usually the way that we can lever against a big drawdown and the bond market through June 30th. Just to Bloomberg […] is down over ten. Corporates are down 15% and emerging market bond funds are down over 20%. So this sort of free lunch, we’ve always been used to where we can put bonds up against stocks and it will ease some of that pain. It’s only made it worse. And so, you know, with positioning is pretty hard right now unless you’re already in cash, unless you’re already in something else, it’s really difficult to, for example, pull money from bond funds or bonds to put in stocks because they’re already down a lot, too. So it’s a tough position if you aren’t already ready for it, if you’re in a tough spot.

Daniel Phillips: Sure. So I would just add to that that just given where we are following up on Matt and Ross’s comments, it’s just going to be very difficult for the Fed to manage inflation back 600 basis points or so to their policy target without creating a recession. And that really hasn’t been done before. And I just think the real question is how long does it take us to enter a recession and then how deep is that recession going to be? We know it’s coming at some point, but timing is always just the big variable. We’re in the late part of the economic cycle from all of the coincident indicators, and the Fed’s just using very blunt hammers of monetary policy to create enough demand destruction to cool the economy off. And we’ve seen the market’s response today, but the Fed isn’t still halfway done, given their guidance at the same time. On the other hand, corporations and households are overall in pretty good shape, strong corporate profits, strong cash balances. And the employment numbers that, John, that you mentioned, we had a great employment number this day, although initial claims are starting to lift off again. So that’s the counterbalance. And so the question, of course, is when inflation is stretching everyone, especially those in the lower incomes that are most impacted and haven’t recovered from COVID, but I go back to it would be really helpful if you guys could let me know when and how deep.

John Coleman: So yeah, we’d all like to know that maybe just to pick up on what you’re talking about, Daniel, because I think this is a really important topic and then we’ll circle back to how you all are thinking about positioning your clients portfolios, which I think is an important thing to touch on. Obviously, the question right now is how the Fed and the federal government in the US can implement their tools to try and tame inflation while preventing a severe recession. You know, the danger whenever you’re trying to raise interest rates and tame inflation is that you go too far, too fast and tip us into a more dramatic recession or that you don’t go far enough and we end up with both an inflationary and a stacked environment. Stagflation like the late 1970s. I would love your perspectives on just how you think the federal government and the Federal Reserve are responding right now and what tools you would encourage policymakers to use to ensure that we do tame inflation, but do so in a way that’s not too dramatically impactful to the underlying economy. And maybe, Daniel, would you mind starting there?

Daniel Phillips: Sure. So the two big policy tools you mentioned are monetary policy and fiscal policy. And on the fiscal side, the Biden administration has been noticeably silent about any new stimulus measures really for the last several months after pushing very hard last year. So they’ve gotten the message and they’ve pulled back. And so don’t expect support from the economy on that side or more stimulus on that side any time soon. On the monetary policy front, the Fed is now aggressively raising rates and some people would argue that they’re already going too far, too fast. But they are really trying to avoid a situation in which inflation expectations get ingrained in the consumer psyche and corporate expectations. And we have a runaway situation like we had several decades ago. And so they’re moving fast. We’ll know in hindsight, with the bit of hindsight, whether they were right or wrong. But it’s hard to differ with them for that aggressive response that they’re now having after being very slow and claiming it was a transitory problem for the last 12 months leading up to their more aggressive stance earlier this year.

John Coleman: When it is, you know, and Matt, I want to get your perspective as well. But it is such an interesting confluence of events right now. I mean, we had almost a decade and a half, actually very low interest rates with fiscal stimulus at various times. COVID obviously led to a ton of fiscal stimulus, even though employment recovered very quickly out of that. And then we’ve had these supply chain problems, whether in gas and oil or in other parts of the economy, which are also inflationary. They raise prices. And so there has been this confluence of easy money, fiscal stimulus and supply chain disruptions that have really ratcheted up inflation. And it was unfortunate that it was thought of or characterized as transitory for so long when it did seem to be structural earlier and earlier, action might have been helpful. Matt, as you think about that question of the tools that our policymakers have at their disposal, what do you hope to see from the Federal Reserve or the federal government moving forward in order to manage this problem?

Matthew Monson: I think the Fed will be able to accomplish demand destruction through raising rates. The other side of the equation, though, is supply. And as the both of you have already commented on briefly, if we see China move away from a zero-covid policy and start putting people back to work and delivering goods, then that starts to ease supply chain issues. And we’ve also seen through just a really strong economy over the last couple of years. There’s a number of businesses, both domestically and overseas, that brought on more capacity. And some of that capacity has already come on. Some of the capacity, you know, like semiconductors, everyone sees on the headlines. Some of the capacity is coming on in a year from now or whenever that might be. And so both sides of that equation are important, because if you destroy demand but supply is going down, then you could still see high prices. Whereas if you destroy demand and you see supply neutral or going up, then I can see inflation coming back in check. And as Daniel said, I think that a recession is not just an obvious conclusion, but it’s probably a necessary conclusion to bring inflation back in check in. The faster we can do it, the better. Because otherwise you can enter this death spiral of, you know, picture it where there’s high prices of goods on the shelves. And so the worker goes to the employer and says, I need higher wages because I’m getting pinched on what I’m buying. And next thing you know, they make higher wages so they can afford higher priced goods on the shelves. And it just goes in cycles because if there’s no obvious end to that.

John Coleman: Ross, I want to come back to you because you were talking about the fact that, you know, with bonds also suffering right now, there hasn’t been an easy answer to positioning client portfolios. You advise sophisticated institutions with large pools of capital. How are you helping those institutions weather this period of volatility right now? And how are you positioning their portfolios to do that effectively?

Ross Roggensack: Well, like today’s news so often and again, I’m the old curmudgeon in the crowd here, John, it’s often just noise. And you have to be careful to differentiate news from noise and what makes you do something. And so this spring, we finally had enough news that it felt to us like it was time for us to make some adjustments. The Federal Reserve kind of reversed course. Inflation was not transitory. And then the Russian invasion of Ukraine, all those three things together made us stop and finally reduce equities a bit. Pullback, fixed income as much as we could. It was already at a minimum level, so we pulled the bed more, we raised cash and we added to our allocation to real assets dirt, oil and gas, things that are inflationary in that way. And so we’ve already made those changes. So we have a lot of cash and a lot of real assets and less equities. I think if you’re scrambling now to adjust your late, it doesn’t mean you can’t do it. It just means it’s a lot more difficult because of what I said before with with just a 50:50 allocation is down 11% through June. That’s a really hard time to try to reallocate those assets. So that’s what we’ve done. I do think, as Matt was saying before, equities are getting a lot more interesting. I think that if you look at stocks over five and ten year rolling periods, if you are a long term investor, it’s very seldom that you lose money over a five or ten year rolling period. It’s really hard to do. And so we think you don’t want to panic here. Certainly you should be eyes more wide open to adding to, especially to US small caps, value oriented companies that are much cheaper. They’ve gotten beat up a lot worse than large cap even. So, we’re looking in those kind of areas right now.

John Coleman: Daniel, any differences in the way that you’re thinking about advising individuals right now? Obviously, you have the opportunity to speak with a number of individuals. What are you advising them during this period?

Daniel Phillips: Right. Well, just for context at Eversource, Wealth Advisors obviously were asked allocators for private individuals and families. And we really allocate to three major asset classes, equities, fixed income and then the private markets section of a broad alternative space, which would include private credit, private real estate and private equity. And so when we’re thinking about the big themes we’ve all mentioned that are impacting markets that our clients lives, it’s just very important to us that we have a thorough understanding of each client’s objectives, that risk tolerance and their time and liquidity constraints, because that’s what really dictates how defensive or opportunistic we can be in this environment. So back to your question. Headed into 2022, we saw very elevated valuations in both US equity and fixed income markets and sectors and many of our clients were under allocated to private markets. So we were taking advantage of the opportunity to allocate to more defensive strategies that would perform well and a already very inflationary environment. Those included private market strategies like adding to core or value add real estate, primarily focused on multifamily or direct lending to US middle market companies primarily and senior secured floating rate debt funds. Now, as this correction in equity and fixed income markets has continued, that opportunity set, I would say, is shifting. And as a general rule, private markets tend to lag. Public market valuations and public markets tend to recover more quickly, as already been mentioned today, as this correction continues, if it continues in a significant way, we would probably shift our capital allocation focus back to public markets, equity and fixed income on the margin.

John Coleman: That’s super helpful. Daniel. Ross, I want to come back to something that you touched on earlier and then maybe also ask Matt to comment if he has anything to add. As we zoom out from the U.S. economy. You talked about emerging markets earlier, Ross. I know that you watch those markets closely. You talk about the impact of the Russian invasion of Ukraine on global markets. If investors are thinking about their international exposure, what are the similarities and differences between some of those international markets right now in the U.S. markets? And are there opportunities or risks that you see abroad that are very different than those we’re facing at home?

Ross Roggensack: Well, they’re certainly they’ve been exposed in Russia and in China. Those have been terrible markets to be in. It’s been a real focus on U.S. equities for so long that you have to wonder just a reversion to the mean will international and emerging come back? And we’ve avoided international markets mostly were in U.S. and emerging. We’ve avoided Russia and China as we have a freedom waiting to our emerging markets investment. But I’m certainly curious about emerging markets. We’ve also had at the same time, we’ve had this profound rally in US stocks. We’ve had a profound rally in the dollar, which is really hurtful for international and emerging market equities. And so should we get a situation, for example, like China, who is about to really stimulate their economy? I don’t know when it’s going to happen. We all know it’s going to happen. And when that happens, we’re probably going to see the dollar go down a bit, which would really be helpful for emerging international stocks. So we’re sort of keeping our eye on China right now. We’re not investors in China, but we certainly think that can drive returns going forward in emerging. So I would certainly keep my eye on that happening. And if it does, you should start to see some money flow back to emerging international equities for sure.

John Coleman: And before I ask Matt to pick up on that comment, Ross, one thing I love that you mentioned in passing is that Oak City incorporated, is this idea of a freedom waiting and monitoring the ethical behavior of countries outside the United States to determine whether you have exposure. And, you know, for a long time, people have argued on two fronts. First, that that’s the right thing to do from a values perspective. And secondly, that long term that’s actually a financially beneficial thing to do, and that you have higher hopes for countries that are respectful of human rights, that are more prone to democracy, etc., than you would have autocracies or countries that are disrespectful of human rights. And I think certainly that Russia in particular has proven an affirmation of that thesis right now. And and I think a lot of the same risk factors are at play in China right now, not just with some of the ethical lapses that people rightly highlight, but also the risk factors that if they were to invade Taiwan or if there were other international disruptions, that they could face a similar contraction or dynamic like Russia. So I think that’s something that Oak City has done that I find really interesting in both a line from a values perspective and also from an economic perspective. Matt, are you seeing anything substantively different in international markets right now or do you have a sense for other factors that might be at play?

Matthew Monson: Yeah, I would say I’m in full agreement with Ross. His comments about those were spot on. A couple of those that really resonate with me are just kind of waiting for some of that mean reversion and non-U.S. equities to occur and any of the strength in the dollar to unwind. But in general, we’re domestic equity investors and at these valuations we’re excited.

John Coleman: I want to pivot a little bit now just away from the pure economy. One of the benefits of all three of you is you’re not just really smart investors. You’re also deep in the faith driven investing movement, which is obviously important to the folks listening to this podcast. Daniel I might ask you to lead off and then Ross, I would love for you to follow. If you don’t mind, why don’t you just give us an update on the state of faith driven investing as you see? What progress are you seeing in faith driven investing right now? What trends are you most excited about and where do we need to make more progress?

Daniel Phillips: So in the public markets within the last year, I think the primary thing I’ve noticed is a marked change in the conversation, moving away from an emphasis on avoiding companies with objectionable practices to more of an emphasis on engagement. So John, I think your message than all investing is impact investing is getting through and investors are starting to wake up to the influence that they’re giving these large asset managers like BlackRock, Vanguard and State Street and the ESG practices those firms are pushing in boardrooms all across corporates in America. And some of those policies are good, they’re helpful. But others don’t align well with the Christian worldview, and they don’t value the flourishing of people, which is where God’s heart is. So I’m thinking of even that conversation this last week with a client who was just very focused on this just in an active, vocal way. So I think that there’s just going to be a growing demand for asset managers that will build excellent products like Vanguard and BlackRock to take their stewardship responsibilities seriously from a Christian worldview.

John Coleman: That’s great. Daniel. Ross, what are you seeing right now in the evolution of the industry?

Ross Roggensack: Well, usually the institutional market leads the retail market, but the opposite has happened here. We’ve seen the smaller retail market, individual investor, lion’s den sort of investor lead us out. And so we’re starting to slowly see better and better quality and think about people like Victor and James at Lumos and think about Patrick Fisher at Creation. I think of other people that are very high quality investors that are in our world now in the institutional space. And so what we’re starting to open up to is that there’s real quality in solving the problems like education and world poverty and other things that are in front of us from people that are well trained and well positioned, that are, you know, have excellent product to offer us to offer to our clients. And so it’s really exciting. The last five years and five years ago, we really didn’t have very much, to be honest, to offer. And it is exploding and getting better. And I think, you know, like Daniel said back to your all investing is impact investing. I think it’s getting through. I think the ESG movement is getting through to the faith led movement to say, hey, we can do this. And so really highly qualified people with pristine backgrounds are coming to the market and that’s very exciting for us. On the institutional side, for sure.

John Coleman: That is encouraging. And Matt, I know you’re very focused on the public markets and on driving faith driven, investing in the public markets, but aware of others doing great things as well. What’s your view on how the public markets are evolving and are you seeing the same thing that Daniel is in terms of engagement and more positive screening as well?

Matthew Monson: Yeah, building off of Daniel’s comments, which I fully agree with, you know, the market and public equities is really built on a foundation of negative screening and those tools have worked really well for us for a long time. But I see a transition towards, as Daniel mentioned, coming alongside companies and CEOs that are doing incredible things for the flourishing of man. And what we’ve found through data is that you can stand alongside companies like that and achieve investment returns that are very attractive [vis a vis] the market. And through strategies like that, you can also deliver impact, which is historically something that’s been difficult to achieve in the public equity markets, in private markets. It’s easier to achieve impact coming alongside companies, delivering them primary dollars they can put to work that you can see the impact on employees, communities, customers. Whereas in the public markets, impact has historically been more challenging because you’re buying secondary shares and the companies don’t really know who their shareholders are. But what we’ve seen is the ability for investors to come alongside CEOs to encourage them with the best practices they see from other faith driven CEOs, and to drive spiritual integration deeper across corporate America. So I think it’s a really exciting time for this next leg forward in what faith driven public equity can do.

John Coleman: That is exciting. And as Ross mentioned, you know, the space is evolved so much over the last five years, it still has further to go. You all highlighted some great progress that we’ve made so far. If you had a magic wand to kind of wave and introduce additional strategies or additional ways of approaching faith driven investing here, what’s the next horizon for the industry? What do you think are the big gaps right now and what are you looking for? And Daniel, perhaps you could start, if you don’t mind.

Daniel Phillips: Sure. So just back to just my earlier comment, I think we need to see more institutional level asset managers come into the public market space and create high quality product, particularly product that can gain scale on the index side and really compete with the high quality products that BlackRock and Vanguard have created. But product that really focuses on engagement from a Christian worldview perspective with U.S. corporations and really balances out a lot of the pressure that these corporations are getting from the other side of the spectrum. So we would be very excited to see movement on that front.

John Coleman: Ross, anything on your mind on that topic?

Ross Roggensack: Well, I was thinking the other day, I would really love to see somebody figure out how to invest in the ability to clean water across the world. I think that it’s really hard for us and if we can find a faith driven kind of organization that would try to tackle that, it affects so many people. I would love to see more things that affect human flourishing, like affordable health care and again, clean water, a better environment that can sort of love our neighbors in a way that’s tangible and also be good investments for institutions. So I would I would love to see that I’m looking forward. If anybody wants to holler at me, I’m glad to listen.

John Coleman: Well, as we conclude our podcast today, I want to ask a couple of questions here. First, I’m going to do a lightning round and put you all on the spot with a couple of basic questions about the economy. And then we’ll conclude just with a quick question to each of you about what you’re learning from God through his word right now that you think might be helpful to others just to prepare you for that. If you don’t mind, in a few sentences. But the lightning round first and maybe as we go through this, I’ll ask Matt to lead us off and maybe Daniel, you go second, Ross you go third. What do you expect inflation to be over the course of the next 12 months? If you had to put a number to it.

Matthew Monson: I would bet that we come down from the level of 8% we’re at today and we start to enter way down. We won’t reach all the way down to the Fed’s target, but I think that we’ll start making progress in that direction.

Ross Roggensack: Higher, I’d say 10%.

Daniel Phillips: So as the supply chain eases in China, we’d hope to see that trend down more towards 5% towards the end of the year. But it’s there’s still a significant part of that that’s structurally persistent. Still, without the Fed creating enough demand destruction.

John Coleman: I got a little divergence of views there.

Ross Roggensack: Yeah, sorry. I think I don’t think the Fed can handle it. I think inflation goes higher, oil goes higher, grains go higher, and they just can’t. But who knows? That’s why it’s a market, right? Yeah.

John Coleman: I’m a little nervous.

Daniel Phillips: God’s in control. The Fed is not.

John Coleman: Ross has seen more cycles than the rest of us, so that does give me pause. Similar question. Do you think we’re in recession right now? And if we slip into recession, how long do you think it lasts? Matt, maybe lead us off.

Matthew Monson: I don’t think that we are yet. And just my gut is that if the Fed could manage it and we slip into one, I think it’s a shorter term, more shallow recession. Maybe that’s too much of a glass half full kind of answer. I’d love to hear from Ross second, because he had a really good contradiction last time around.

Ross Roggensack: Yeah, I don’t know if we are in a recession. I think that I don’t really worry about it. I think we’re in a bear market for sure. And I think that we’re in a position where the government is not our friend and the Fed is not our friend. If they’re raising rates and if the government’s trying to figure out ways to spend more money, and then bode well for capital markets for a while until we figure out maybe we can get through the midterm elections and maybe there’s some hope that comes through that we can kind of right the ship. But for now, you know, and recession or not, we’re in a place where it’s usually not great for capital markets.

Daniel Phillips: Right. Well, the official arbiter of who decides when a recession starts will tell us, I’m sure, 6 to 12 months down the road. But my instinct would be just know from how strong current corporations and individuals are, financially speaking, that were fast moving in that direction. And inflation has really been like a rubber bands just stretching, stretching, stretching. And the Fed is trying to ease it back without popping it pretty bad.

John Coleman: Last lightning round question this time next year, is the S&P500 higher or lower than it is today? Let’s start with Ross.

Ross Roggensack: Well, it’s always a coin flip one year, right? So I think the odds are higher. 60:40 is usually the way it is, so it’s probably higher, although we’ll see how much higher.

John Coleman: Daniel, what do you think?

Daniel Phillips: So I have to contradict Ross just for the sake of argument and so probably lower, but there’s no confidence going into that answer right there.

John Coleman: Matt, any difference of opinion? You might be the tie breaker here.

Matthew Monson: I would place my bet on the same or a little bit higher.

John Coleman: Okay. Okay. So we’ve got a relatively optimistic view of the public markets over the next year. Just as we conclude, gentlemen, given that we are the Faith Driven Investor Podcast, I want to go around and just ask you for a brief word of encouragement, something that you’re learning from God through his word right now that you think might be useful to others. And Daniel, if you don’t mind, maybe you could start.

Daniel Phillips: Sure. So just most recently, I think I’ve been convicted for myself and our firm by passage from the end of Colossians, three, that’s addressed to servants that talks about working diligently to the Lord, not by eye service or people pleasing, but with sincerity fear in God, because it’s Him we’re serving and He is the one who is going to give us our inheritance or our reward. And it’s so easy in the business of finance and investing, I think, to get distracted and to pivot with people’s perceptions. But we do. And we serve the great perceiver who sees all and knows all our hearts and he is after our hearts. So I just want us to bring that mindfulness, myself and our firm, everyone who works there to work each day and serving our clients.

John Coleman: Awesome word. Awesome word. Ross, what would you offer today?

Ross Roggensack: Two things real fast. I’m reading a book called The Economics of the Parables by Robert Sirico. It’s really interesting, and it’s just it’s just a lot of moral, economic wisdom taken straight from the parabels that I would recommend to folks that haven’t finished it yet, to be honest, but just received it. And it goes through parable by parable. I think it covers 14 of them. The other thing just on my mind is the assassination of Shinzo Abe in Japan just kind of should remind us all. I was thinking about what would have happened if after Ronald Reagan left office, if he were assassinated. And that’s what the people in Japan are going through today. And so it should take our mind off of whether Elon Musk is going to buy Twitter or what the Fed’s going to do. There’s more important things to think about than those little things that really don’t affect us day to day.

John Coleman: Very true. Very true. And I know everyone’s sympathies are with Shinzo Abe’s family today and with the people of Japan. Thank you for bringing that up Ross. Matt, close this out. What are you learning right now that you want to share?

Matthew Monson: You know, I’ve just been drawn towards a bias to action. And there’s this verse. It’s a little bit of a life first for me and the end of Luke nine, where it says anyone who puts her hand to the plow and looks back is not fit for service in the kingdom. And, you know, every time I feel like I’m really being directly led, all assess it, but I’m not going to sit and wait on it. For 12 months, I really have been moving towards a bias to action. And and it’s just something that resonates deeply with me.

John Coleman: Well, gentlemen, an excellent session today. We have Matt Monson from Sovereign’s Capital, Daniel Phillips from Eversource Wealth Advisors and Ross Roggensack from Oak City. We are very grateful you joined us today and very grateful for the advice you gave us. Thanks so much.

Ross Roggensack: Thank you, John.

Daniel Phillips: Thanks, John.

Subscribe to the Podcast:

Ben Erskine and Matt Miglarese join us on the Faith Driven Investor Podcast to discuss a concept that is gaining momentum: The Flywheel Effect of Spiritual Integration. But more than just a philosophy to discuss, Faith Driven Investors are deploying capital into real estate assets with operating partners that have a model for spiritual integration. Ben, a managing partner at Callis, and Matt, an advisor and consultant for faith driven investors, business leaders, and impact organizations, will explain how owners and operators of real estate have an opportunity to faithfully steward the properties and businesses that they have been entrusted with well. And they can do so while also achieving superior results in the marketplace. Sit back and enjoy the conversation.

Subscribe to the Podcast:

Dr. Michael J. Rhodes is a Lecturer in Old Testament at Carey Baptist College in New Zealand. He is a Teaching Elder in the Evangelical Presbyterian Church and serves as an assistant pastor at Downtown Church in Memphis. Michael co-authored a book on economic discipleship, “Practicing the King’s Economy: Honoring Jesus in How We Work, Earn, Spend, Save, and Give” with Robby Holt and Brian Fikkert. He joins us today to share more of the story.

Episode Transcript

Henry Kaestner: Welcome back to the Faith Driven Investor podcast. I’m here with Luke. Luke, good morning.

Luke Roush: Good morning.

Henry Kaestner: It’s good to see you. It’s not even morning here in California anymore. It definitely isn’t in Tennessee. So I just I spaced out one. But I just want you to know that I’m thinking about you and I’m missing you and I’m fired up that we’re going to do this podcast because it’s hits on something that’s really near and dear to both of our hearts as we get involved in investing together. We wanted to do something other than just just a regular private equity fund or an index fund or something like that. We wanted to do something that was more innovative and participated more in what God is doing in the world. And we’ve got a guest today who’s written about that concept, the concept that we’ve kind of tried to live into very, very imperfectly. But when we think about the backdrop about us living and allocating capital and seeing entrepreneurs get out there and create redemptive products and services, it’s in this larger framework or matrix, if you will. And I think that all too often I’ve been thinking about it in an incomplete manner and just I didn’t do great my micro macro classes at the University of Delaware. I was too busy selling t shirts, but I remember just these different principles, like, this is the way the market works, don’t mess with it, just kind of get on and you know, it just there’s something bigger and there’s a guy who’s written a book on it and we’ve got him with us on the podcast. Welcome, Michael Rhodes.

Michael Rhodes: Thanks, Henry. It’s great to be here.

Henry Kaestner: So, Michael, what do we like to do with every one of our guests as they come on as get a biographical sketch? Who are you? Where do you come from and what’s brought you to today?

Michael Rhodes: Yeah. Thanks, Henry. Thanks for having me on. Yeah, I’m Michael. And right now I’m in Memphis, my home where I have lived for most of my adult life. I grew up here and sort of a lifelong follower of Jesus who was really taught early on that the key to a full, abundant life was to live under the Lordship of Jesus, guided by Scripture. So I took that on board pretty early, but I was a part of a church community with a really ugly racial history and a very wealthy church community in a very poor city. And when I was growing up, the church was trying to grapple with both of those issues. And so as a result, there were just some incredible leaders who came into our church and opened God’s word and really exposed me to his heart for the economically poor and the heart for reconciliation and solidarity with all people. And so I kind of went into college, really fired up about participating. Living a full life under the Lordship of Jesus in line with Scripture in those areas. So I went to Covenant College. I studied community development with Brian Ficker, who we co-wrote Praxis in the King’s Academy with. And it’s always fun to write a book with somebody that you would have dedicated the book to if you hadn’t written with them. And that was true of writing the book that we’re talking about today with Brian and my pastor, Robby Hall. But anyways, I was at Covenant, learned about three developments, got married right after college and was headed to Kenya for two years. But sort of by what looks like an accident, it was definitely God’s plan. I ended up for six months in this one very poor, predominantly African-American community in South Memphis, and I was working for an organization almost by accident that was doing job training and financial literacy and helping people get their GED. All adults, almost all African-American in this one shop, in this community. And it just totally blew up my world. It wasn’t any credible experience. And so after two years in Kenya, my wife and I came back to Memphis. We moved into that neighborhood, and I went back to work for that organization called Advance Memphis for about five years. And that experience of living here in this neighborhood and working among economically poor people and being a part of a church that was trying to be involved with that has driven really all of my adult life and all of the kind of questions that I have. And so those questions that I have from living here and working here drove me back to seminary and then a Ph.D. program. Eventually, I left advance and worked for five years for an organization teaching community development and mission at a Bible college for adults predominantly black bi vocational ministries here in Memphis. And then the really crazy left hand turn in the last two years is that through a long process that caught Rebecca and I completely off guard. God now seems to be calling us to New Zealand, to Carey Baptist College in Auckland. And so the pandemic has made that complicated. But for the last year and now a little bit of some change, I’ve been teaching Old Testament to students who are in New Zealand. So that’s a little bit about me. I have four incredible kids, Isaiah Amos, Nuba and Jubilee. My wife is Rebecca, she works at our church and. Yeah, Jubilee.

Henry Kaestner: Yeah, what an awesome name.

Michael Rhodes: Yeah, that’s kind of fun because you know, when you write a book, people are asked to come talk about it. And I was out talking at a church and I was giving a talk on the Jubilee and Rebecca was pregnant and I came off the stage and she goes, We’re going to name our little girl jubilee. And I’m like, We are. That’s amazing.

Henry Kaestner: So it’s pretty cool.

Michael Rhodes: Yes. I got two prophets As and Amos, one legal institution, Jubilee, and then Nova, the hippie name is actually named after Rob Holt’s wife, whose name is Nova. Christine Holt. So my coauthor, Robby Holt, his wife is the namesake for our third child.

Luke Roush: It’s exciting. How excited are they to go to New Zealand?

Michael Rhodes: Really pumped. The history of Rebecca Nye’s relationship is that I come up with a crazy idea and then kind of get cold feet right at the edge and she like takes the ball and runs it into the end zone. And so I applied for the job in New Zealand. She was the one who was like, No, we have to do this. And the kids, you know, we’ve been teaching them words like bittersweet to try to think through this move. But they’re really excited to me. Six months decide to do it. And when I came out of the room and I was like, I just wrote an email to New Zealand, I’m going to take the job. You know, Rebecca knew that, but I was sort of saying it and I came back a few hours later to the house and the girls, my two girls had packed their bags already. They got their.

Luke Roush: Wires crossed about what.

Michael Rhodes: It meant to say we were going. So, yeah, they’re pretty pumped.

Henry Kaestner: That’s all. Is there a chance you actually go from winter to winter, though?

Michael Rhodes: It is very possible. We’re hoping that we’ll be able to be there by this summer, our summer, which would be their winter. So, yes, that’ll be kind of a maybe a worst case scenario on the move. But at this point, we just be happy to be there and for me to not be teaching online anymore.

Luke Roush: Yeah. You know, Michael, you talked a little bit about just what inspired you to write the book on practicing Kings economy. If you had to pick sort of one thing, you know, many great companies are born out of just a sense of calling purpose, maybe frustration with the way the world works. And then entrepreneurs want to do something about it. And I think many great songs, works of art books, are kind of out of that same kind of calling a sense of purpose and need to speak into it. We had to pinpoint that on one thing. What would it be?

Michael Rhodes: Yeah, so that’s a great question. I have seen my whole life, adult life under this sense of call to help the church hear and respond to Scripture summons to become a community of justice and mercy and righteousness for the economically poor. So that’s the big mission. That’s a subset of God’s mission that I feel particularly drawn to. But this book has an even more narrow sort of inspiration. So when I was working at advance, I was going out trying to help people with stuff on their criminal background find jobs and whatnot. And because I grew up here, I would get asked by churches to come who supported the nonprofit to come talk to Sunday schools and whatever. And, you know, I was used to giving the giving talk, right? And I had done that a lot, you know, raised money as a missionary. God wants to give your money so that we can go do this thing. But I realized working at advance that people could give us $16 trillion, you know, but if nobody was willing to hire someone with a violent criminal offense on their background, we didn’t have a model, right? We could not do our work unless people were living differently in the way they hired and managed, not just in the way they gave. And that was the transformation point because, you know, I think if you think about our economics, your life or my economic life like an equation, and on one side of the equation, you have all the inputs, all the stuff that goes in our work, what we own, we invest, what we save, blah, blah, blah. And then on the other side of equal sign is profit. We take home the vast majority of the time when Christians have talked about our economic lives, we’ve laser focused on that take home pay, what Christians can give from what they’ve earned. And that is a huge piece of Christian economic discipleship. But from a biblical perspective, it is just one piece. If you look at the Bible, the Bible talks about how you work and with whom you work and how you treat your workers, and for that matter, how you treat the land and the animals that you interact with. It talks about how you interact with other farms, if you like, other small farmers, the whole of economic life. Right? That’s the subtitle of the book Work, Earn, Spend, Save and Give. The whole of the equation is what God is Lord over in Jesus. And so economic discipleship then isn’t just about what you do with what’s left over. At the end of the day, it’s about bending all of that towards Jesus’s Lordship and Jesus Kingdom. And so on the one hand, you know, you can hear that it’s like bad news because it’s like kind of more stuff where Jesus is getting in my business literally. But on the other hand, it’s like the most exciting news ever because it means that every aspect of our economic life can be an opportunity to experience God’s presence, to participate in His mission. And that’s like the most exciting thing. So when I was at Advanced Memphis, working with this company and I would see business guys who’d been asked for money for their whole lives get asked for, Hey, would you hire this guy or this woman? And when that worked, all of a sudden it’s like a new aspect of my life has become a site of God’s generous kingdom. People’s eyes light up. They get super fired up. And that’s the kind of joy that I wanted and desired for myself and for my neighbors. And so I really got disappointed that so much and I don’t mean to be uncharitable, but so much Christian stewardship material, so much faith and work stuff, so much entrepreneurial. It just misses this idea that all of your economic life God cares about. And secondly, all of your economic life can be bent towards God’s kingdom concern for the vulnerable and the marginalized. So that’s why Robbie and Brian and I wanted to write this book and felt like, you know, I mean, it came out of talks that I started giving at these churches to say, look. God cares about it all. And it was largely as a way to get them to try to partner with this organization to help invest in. One of our entrepreneurs that we were working on were hire one of our job training graduates or whatever. So that’s really the laser kind of catalyst for the book in a lot of ways.

Henry Kaestner: And it since I have is you just talking to us is that not only does God care about these things, but that as we look at these multiple dimensions, that we have this opportunity to step into something that’s much more complex and beautiful and is less black and white. It’s more like Technicolor. And presumably the joy that some of these employers experience when they’re a part of being involved in relationship with some people, just gives them a new dimension and more joy, right?

Michael Rhodes: Yes, I think so. And it allows for connection. So one of the laws that has really animated me has been the gleaning walls in the Old Testament. I just love the gleaming walls. I think they’re so cool because, you know, at one point when I was working at Advanced, the statistic that we were using was at six or seven out of ten adults in our neighborhood were not working right. So in a context where six or seven out of ten adults are not working, and then we were seeing the transforming power of a good job. Not just any job, but a good job can really be transformative in a person’s life. You know, and this idea in the Old Testament that farmers who are kind of the family firm, if you like, are supposed to leave some of their harvest, which is functionally their profit in the field to create opportunities for the vulnerable, to work the orphan, the immigrant, the widow and the poor. That just blew me away. And that sort of became kind of one of the things that I would talk to guys, men and women about is like, Hey, what would it look like to create space, right, for the outsider in this company? And, you know, again, that can be a hard message, you know, because not only do we like money, which is maybe okay, some of the time and profit, but we’ve sort of been taught that the very purpose of a business is to maximize profits. Right. Which the gleaning laws just they just don’t work along those lines. They require a different sort of framework. They don’t reject profitability. The farmer wants a harvest, but they don’t maximize it because they create space. So the one thing that seems like a hard ask, but then you look at a book like Ruth, right? The whole book of Ruth only works because of these cleaning walls, because the gleaning laws exist. Ruth, who is this like complete outsider? This outsider’s outsider becomes a fully invested insider in the community. She’s inspiring the neighborhood. When Boaz sees her in the field, he says, the entire Israelite village knows what you, foreign outsider, have done for our widow, Naomi. So the gleaning laws allow Ruth to become a fully invested member in the neighborhood. They allow Ruth to become the just woman who takes care of the widow, her mother in law, and the farm. All of a sudden it becomes this site for connection, where Ruth and Boaz meet right to the most powerful men in the story. Boaz and the least powerful person in the story, Ruth, meet in their economic life because of these cleaning walls, which I just think is a vision of what you’re talking about. Henry, where like when we get that multi technicolor, you know, we complicate the picture a little bit. All of a sudden, every aspect of our economic life is an opportunity to encounter God and our neighbor, including some of the neighbors that we often don’t meet. Right. That we often screen out, which is really important. You know, we live in an age where just economic segregation, right? Forget racial stuff. Economic segregation in our neighborhoods is on the rise. And there’s some argument that economic segregation is on the rise in the workplace. And so it’s more important than ever that we ask how can the spaces of our economic life be places of encounter with God and neighbor?

Luke Roush: Are there any specific examples just in terms of companies that you’ve interacted with or storylines that you’ve kind of watched unfold? That would be a great manifestation of what this looks like practically.

Michael Rhodes: Yeah, I love that question. So I mean, one of the huge privileges for me has been to get to know companies, not because of me who are living this out, you know, whose stories we kind of some we got to share in the book and some I’ve learned since, you know, and I’ve been working on a project with the Chalmers Center for a while now where we’re gathering some of these stories as well. So just name a few. One is my friend West Gardner out in Colorado. He’s a serial entrepreneur. He started this thing called prime trailer leasing.

Luke Roush: Love was an awesome story.

Michael Rhodes: It’s such a great guy and his, you know, the youth pastor, his church at the time, Dave Runyon, you know, helped him kind of think through some of this stuff. And so they started hiring single moms from a halfway house that Wes had been giving to. Right. So they’d been generous with what’s on the profit side of the equation. But now they’re saying, how do we be generous? How do we bend the way we work towards those same concerns? And now all of a sudden, these single moms are coming in to work in the company. And I talked to Wes one time. This is the thing that has stuck with me from West Side Story. He said, you know, Michael, I used to see payroll as a liability. You know, I go look at my pal and payroll is, you know, a problem. Now I go look at all the money that we pay people, and I see my payroll as profit. I look at that number and say, look how much money we’ve earned, right? I think that shift is like so radical, right and powerful. And, you know, that company did great work. They didn’t stop being a business and start being a nonprofit, but they did figure out how to bend their workplace towards these single moms. Cascade Engineering is a company I believe they’re in Michigan. Their chief talent guy, Dave Barrett, and I have spent a lot of time on the phone together. They’ve helped, like more than 800 workers get off welfare through working in their companies. And one of the things that shifted for them was they made every single person in the company do some training on material poverty. Because what Dave would say is we tried several times to make this shift and we failed again and again. And finally we realized the reason why we were failing was because we looked down on poor people. And when we stopped doing that, we started seeing transformation. And these are all sorts of crazy stuff. They’ve worked with their local government to get a social worker like on site in their business and all this stuff. And then there’s like some cool local stories. A couple of years ago we put on a conference where we were talking about some of these ideas and company here. Bryce Core in Memphis heard what we’re doing and came and listened and they heard about it. And organization here called Economic Opportunities that takes men and women coming out of prison. And they have a model where they bring in a group to your company and you sort of pay the nonprofit and they pay the guys, the men and women. And it’s sort of a transitional work opportunity. Now, this Bryce Care, they heard about this opportunity at the time. As I understand it, they were throwing away any resumé that anyone had any kind of serious criminal record on. Well, they went and got in partnership with this nonprofit. And a few years later, it’s like 10% of their local workforce has a criminal record and they’ve promoted people into management and they’re taking our guys. So it’s really cool stuff on the employer side that I think is just really phenomenal. And I course tell stories about guys who said, You know what, I’m going to start seeing wages as an opportunity for generosity and I’m going to bump starting wage up to $15 an hour. I had a friend who called me up and said, Hey, I’ve been listening to you. I’ve been listen to your boss. I’ve been reading about the civil rights movement and one of the guys who was striking in the sanitation workers strike here in Memphis, which is a big part of our city story said, I just believe a full day’s work ought to allow man to put food on his table. And he’s like, I’m just going to bump up my starting wage as an act of just commitment because it seems like the right thing to do, you know? So there’s all sorts of stories like that, you know. And in the book we tell lots of stories, tell stories about worker owner cooperatives and people who are sharing profits with all sorts of fun stuff at the level of the firm, the business for how we can bend our economic life towards God’s good news, particularly for the economically poor, which is a real focus of the book and of Robby and Brian and us.

Luke Roush: That’s great. I’m excited for Lightning Round, but I don’t know if it’s the right time yet. Henry We’re.

Henry Kaestner: Almost there. We’re almost there. You know, Michael, at the beginning of the podcast, the interview, you’re talking a bit about your time in Kenya. Yeah. And as I think about this alternate imagination for how you run your business across these six themes that you have in your book, the worship and community, etc., I think that you’ve done a good job of scoping out what that can look like in cities like Memphis. Talk to us a little bit about your thought about how those of us in the West and this is actually a quote from you, but the church in the West is rediscovering the fact that God cares deeply for the poor. More and more churches and individual Christians are looking for ways to practice economic discipleship. But it’s hard to make progress when we’re blind. Our own entanglement in our cultures, idolatrous economic practices talk about that through the lens. Just any wisdom you have about a Westerner realizing things like they’re going to be more entrants into the job market in sub-Saharan Africa over the next 20 years. Then like India and China, I mean, it’s a big place. And yet there’s also 50 years history of colonialism, right? So you want to kind of go in there and then, you know, you read a book like with your coauthor, Brian Fricker, you know, when helping her out. So what’s a framework from your time in Kenya so that those of us are listeners and say, I think we need to invest in sub-Saharan Africa. How do we do it? But how do we do it? Well.

Michael Rhodes: Yeah, I mean, there’s a lot there. I do think that in the first part of that quote from the back of our book about we in the West, I think it’s worth saying and Henry, I think you were getting at this earlier, that the dominant economic picture of what humans are like in the West has been what Brian Ficker, who’s an economist, calls the homo economicus, the economic man. Right. So, you know, this is going out of style a little bit, but most of us, if we took economics in college, we had books that talked about homo economicus. This is what people are like. And what Homo Economicus says. Is that what people are? Fundamentally is we are individuals with limitless desires in a limited world who are constantly seeking to maximize our own consumption of goods and services and experiences. So we are fundamentally individual profit maximizers. That’s who we are, right? And Scripture has a very different view of what people are and what we’re called to be. But our economic way of thinking has been based on a kind of homo economicus idea. So in our book, the first thing we say about our economic lives, first principle is what you worship God with your money. Right. That’s the background is you love God. Right. To worship key is the first. The second here is the community care, which basically says that I am always part of a we and my economic well-being is always to be oriented towards that way. And, you know, we have this metaphor that we use in the book where we say typically when we think about care for the poor in the church, our functional metaphor is of a soup kitchen. You know, I have some leftover profit on one side of my equation, so I’m going to give that away to people who don’t have whatever the resources. You think about soup kitchen, you got soup scoopers on one side and empty bowls on the other. And that’s the theory of change. And we say, okay, food insecurity is a real thing. There are definite times when we want to do that kind of one way giving of goods and services. But the Bible’s fundamental vision is not a soup kitchen where everyone gets fed, but a potluck where everybody brings a plate. So, like, if a soup kitchen divides the room up into givers and receivers. You can’t have a potluck until everyone’s a giver to everyone and a receiver from everyone. And that makes the community fundamental. Now, that’s a long way around to say. My friends in Kenya know that deep in their bones and I’m on like baby step kindergarten level, learning it because we’ve been disabled into that western homo economicus. I am fundamentally a pleasure maximizing individual. We have trouble getting just how communally oriented the Bible is. My friends in Kenya do not have that problem. Right. They get it. And so the first thing I would say is when we’re interacting with saints in the Global South, we should expect that in many ways their economic discipleship, they will be further along that journey than we will be because they have experienced less deforming discipleship from this kind of hyper individualistic economic way of being. And so I was part of a phenomenal church in Nairobi, and it brought together people from all these tribal and ethnic groups that really don’t like each other outside the church. And we would have these potlucks and you would see everyone giving and receiving, and you would see the community becoming central to who we were. We were becoming family. And I think that picture of becoming family is central not only to the Bible’s kingdom vision, but to the Bible’s kingdom economic vision. And so, you know, one thing I think is when we think about how to invest, well, we need to defer a lot to the folks on the ground from the places where we want to participate. So often the and I say this as a former missionary, so, you know, I’m not trying to cast guilt somewhere else. It is so easy, so often for us outsiders to come, assuming we have all the answers because we are wealthier. And wealth is the sign of success. So really deferring to the folks on the ground, not only because they’re closer to the issues, but also because sometimes they’re just less screwed up than Jared comes. The money is really important. Also, I really am excited about folks who are investing in people in the global South’s ability to bring their best plate to the potluck through their economic lives. Right? So there is a ton of need for food aid. There’s a ton of need for health aid. There’s an argument for direct giving in a variety of contexts. But I also think it’s really exciting. And Christians are involved in the Global South in the way that allow people to bring their best plate to the potluck through their own energies and agency. So the trauma center has done incredible work helping some of the poorest people on the planet start savings groups. And the stories of these usually women who gather together and pool their resources are just amazing, you know? And I have friends in Kenya who are starting businesses in some of the poorest neighborhoods in Nairobi to try to help people who are in a community with just incredible unemployment find dignified work. And there are people you know, one of the reasons why I shifted away from like sort of direct nonprofit work into more teaching is because I realized sort of my gifts and where they are and where I’m strongest and where I’m not strong. So, you know, for people in the Faith Driven Entrepreneur and Faith Driven Investor network who are geniuses at figuring out how to make things work economically. And some of those folks. There are good ways of investing financially in businesses in sub-Saharan Africa and elsewhere. And I’m not an expert on that, but I think participating in that is really important. And I think when we go to invest in the Global South financially, we’re partner with companies in the Global South. Economically, it’s more important than ever to remember that just as God calls us to be risky and sacrificial with our giving at the end of our economic productive output. God might be calling us to be risky and sacrificial in the way we invest and partner and do business in those places as well, especially since there can be enormous roadblocks to doing all of that. So, I mean, those are some quick intuitions, although I’m certainly not an expert anymore at kind of thinking about that in a global context.

Luke Roush: There’s so much to unpack there. We could spend a ton of time, but I love the idea of taking the last five or 6 minutes that we have and going lightning around. This is something that Henry and I just recently started doing. We both are really liking it. So I’m going to start off and then I’m going to turn to Guy Henry. He’s gonna follow my lead better than I followed his lead last time. So first up, 30 seconds or less. Author you most disagree with and why?

Michael Rhodes: And author I’m so agree with and why.

Luke Roush: Yeah, just for the support of it.

Henry Kaestner: Just show somebody who’s left. That’s easy. Just showing things.

Michael Rhodes: Um. Oh, gosh, throw bombs.

Luke Roush: We encourage you to throw bombs.

Michael Rhodes: I didn’t know you could pass.

Henry Kaestner: You can pass at any point time you could pass.

Luke Roush: You got 10 seconds and I’ll try.

Michael Rhodes: I’ll tell you, I don’t like people who think that we need to be encouraged to appreciate material possessions, people who think we’re too worried about being affluent. That bothers me. I think a plain reading of the New Testament says if we’re the most wealthy people that have ever existed on the planet and we are, we have some tough questions to answer. So any author that’s trying to blunt that a little bit drives me bananas. I like.

Luke Roush: It. I like it. Okay, that’s.

Michael Rhodes: Good. You can fill in those blanks. These days are on your own.

Luke Roush: All right. It’s good. It’s good. There’s nobody on today’s call, though, which is great. Second question what is the belief that you hold that most of the world would probably disagree with? 30 seconds or less go.

Michael Rhodes: In addition to the thing about every aspect of our life being an opportunity to bend sacrificially towards the kingdom. So every economic transaction gives us that opportunity potentially. In addition to that, I would say that where we live is a fundamental aspect of our discipleship and that if we want to experience real community, where we live will matter a lot.

Luke Roush: So defend. Okay, so this is good. This is good. And again, just for the support of it, defend moving to Auckland, New Zealand versus Nairobi, Kenya in that light.

Michael Rhodes: Yeah, that’s a great question.

Henry Kaestner: Still in the global south.

Michael Rhodes: Well, for one thing, you know, God opens doors. So, you know, I applied to this school in Auckland as a practice interview going to Old Testament jobs on the planet. I didn’t know I wanted an Old Testament job. I just thought I’d got a Ph.D. in that, so it was worth exploring. I got a third letter of rejection from one of them, and then the other one was from Kerry, which I knew nothing about. But then as soon as we started talking, I realized these people were looking for someone to teach Bible but oriented towards mission and justice, specifically on issues of economic and ethnic justice, which is my passion. And Tim were saying it’s for a long time I have really felt I have lived in kind of a black, white world, partially because of the make up of Memphis. One thing that I know that I have missed is getting my mind around the experience of Native Americans in this country and First Nations peoples more generally. And our school is very committed to being bicultural among basically descendants of the Brits and the Maori Indigenous people of New Zealand. And so that emphasis really got me excited for what I could learn from them and that has already paid huge dividends. So that’s that’s a big improvement.

Luke Roush: Okay, I’ve got one more that I’m doing. My partner. Yeah. Okay. Yeah. Versus New Testament write as an Old Testament scholar, given some of your talk track. Right. In terms of the realities of what Jesus said about sacrificial living, I would have expected you to be a New Testament scholar. How did you end up getting kicked out on Old Testament?

Michael Rhodes: Yeah, I think because it’s easy to fit the New Testament into that give more away box, whereas the Old Testament, because it covers more ground across more different kinds of economic systems, it’s sort of the earthier testament. And so it gets into the fundamentals of how you manage the entirety of your economic life. Now, I actually think that Jesus speaks to that like forgive us your debts, right? That’s something I actually think we misread as to where they’re sharing their goods. We read that wrong because we make it all about generosity. But I think the only reason why I know that stuff is because I really dug into the Old Testament. So I love Jesus, but I think you get Jesus best when you start with Moses and the prophets and move forward. So little bit by bit.

Luke Roush: Thank you, Henry. Over to you.

Henry Kaestner: Okay. Lightning around 30 seconds or less. Best ribs in Memphis.

Michael Rhodes: Cozy corner, no doubt.

Henry Kaestner: Really. Okay. All right. Next. Next, what flavor of ice cream do you like to have after a great Memphis dry rub? Ribs.

Michael Rhodes: Man, any ice cream? Sounds good. Now, I’m a sucker for strawberry ice cream these days.

Henry Kaestner: Where do you get it?

Michael Rhodes: In Memphis. There’s a place called the Beauty Shop that has phenomenal ice cream.

Henry Kaestner: Okay.

Michael Rhodes: All right. Nashville Beginnings. Back in the day.

Luke Roush: A baby. Bring it, bring.

Henry Kaestner: Okay, Ecclesiastes. Does Ecclesiastes offer up that our economy is fueled by coveting another’s goods?

Michael Rhodes: Okay. So Ecclesiastes is really tricky. Started talking about in 30 seconds. But basically what you have is the narrator telling us a story about the teacher, right? So the narrator gives us the story of the teachers wrestling. So I don’t think you can take anything the teacher says without a grain of salt. Right. You’re always going, where is the teacher in this journey that he’s on? Right. But I do think he has a very poignant observations that much of our economic life is driven by greed and competitiveness. And what conservative Christians need to know is you can build in the short term a functional, effective, growing. Economy on set. That’s what Ecclesiastes would remind us. So the fact that it works doesn’t mean that it’s good, right?

Henry Kaestner: So it’s meaningless or it’s meaningless under the Senate, right?

Michael Rhodes: That’s right. It can be driven solely by, you know, what you’re describing, wanting to be better and all that stuff.

Henry Kaestner: Okay. Could you play Brian Ficker basketball? Who wins?

Michael Rhodes: Uh, he fouls a lot, cheats, so.

Henry Kaestner: So you play it? It’s happened.

Michael Rhodes: It’s happened? Yeah. I’ve run down the court with him trying to grab my shorts. I mean, he’s like, nine feet tall. You shouldn’t need to do that.

Henry Kaestner: But I said, okay, okay. We’re going to say that you get it next when you’re ready. Yeah. Okay. How cool was it for the boy in the story of the five loaves and two fish? And is that something is available for us?

Michael Rhodes: Yeah. I mean, I think that question, you know, what’s in your hand? You know, what do you have? I think that’s a beautiful I think the surprising thing about the story of the good news is that God chooses to use people and he never gives up on that. And so often, you know, God chooses Adam and Eve and they rebel. God chooses Abraham as the vehicle of his blessing to all nations, the world, and they fail. And so where Israel is faithless on the whole, God sends the faithful Israelite Jesus, right? And so often we read the story of Scripture as God had these big plans for people, they mess it up. So Jesus came and now we’re off the hook. And that is a garbage reading of the New Testament. The story of the Bible is that God sent Jesus to get His project of crewing his world back on track. That’s why the end of Revelation God’s people are co ruling with God in the end, because God wants to use people, which is incredible. And so would that boy with his few loaves and fishes is experiencing is a glimpse of what God invites all of us into, which is to be used to participate by the King in making everything that is broken, new. Right. What could be more exciting than that?

Henry Kaestner: Okay, Spectrum, you can go 8020, you can go 60, 40, 40, 60. But you got to end this spectrum as we allocate our investment capital. On one hand, there’s Ben sacrificially. On the other hand, there’s leaning into the joy that is available to us by participating in the work that God is doing. His Kingdom Where are you in the spec version of Christ, our being and that spectrum?

Michael Rhodes: I don’t know that I see the spectrum. I think that bending sacrificially is part of how we participate joyfully.

Henry Kaestner: Well said. Well answered. Well answer. I love it. I refuse. I don’t think I hemmed in by that.

Michael Rhodes: Yes, I don’t think that means that we’re not ever investing in ways that we expect to yield a good financial return. Right. And, you know, really honestly, one of the same is for me to come on to a podcast like this that has investors on it is to say, look, I’m a Bible scholar. I’m going to try to give you some principles. You’re going to have to work it out, right? You are going to have to figure out how to do this. But what I know is when we invest our money, we often have the opportunity to exploit. Right. And we often have the opportunity to intentionally bend our investments to impact words the way that God wants his world. And that what I’m saying has got to be better for everyone, for the world, for me, for you. So we talk about impact investing in the book some this idea that we can intentionally invest in companies and in spaces that bend towards God’s kingdom, that could look a lot of different ways, you know, that advance. Sometimes we were helping people invest in small businesses started by women and minorities in our neighborhood. Right. Sometimes that means taking more risk or potentially a lower return to do something that matters. In my neighborhood, I’ve been able to do impact investing by buying homes on two occasions in a residential economy. That does not work to try to help some of my neighbors become homeowners. That’s hard. I’ve made a little money on that. I think on the current one, I’m going to lose a little money possibly. But man, I know the joy of getting to put my money to work, doing something that God cares about. And there are platforms. You guys, Henry, are running a platform. I think marketplace is a new opportunity for accredited investors.

Henry Kaestner: Okay, sounds too much like a commercial in your through the 30 seconds. As much as I love the fact that you’re going there.

Michael Rhodes: You want. Can I give one more advertisement? Yes. Nice try. Not for you guys. So because Marketplace is only for accredited folks. Right. And so if you’re not an accredited folks like me, I’m not. Kiva allows you to make zero interest lending and we funder is a platform that a friend of mine helps run. Johnny Price Yeah, exactly. Allows you to make equity investments in companies. So just this week, my family was able to make an investment in a company that’s trying to turn restaurants into worker cooperatives. Man, I’m not going to make as much on that as I might make in the stock market. Whatever, man. What if the money that God gave me I got to use to build an economy that he’s going to be more excited about? And that’s awesome. Yeah, it is. But you guys, it’s you guys and your constituents, you’re going to have to work out the details, right? Because I’m just a Bible teacher and.

Luke Roush: Hey, we always like to wrap up with something that God is teaching you and that you’ve discovered recently, in God’s Word, a whole bunch of good nuggets from our podcast that would suggest and point to different things. But one thing that God’s taught you recently.

Michael Rhodes: Well, I’ll say two things. I am working on a new book right now on justice and studying justice in Proverbs. I’ve been really struck by this idea in the Bible. I think that justice and wisdom go together. And so if you seek justice without wisdom, it ends up being powerless. But if you seek wisdom without justice, it ends up being predatory. And I really want to meditate on what that means for my economic life for a while. And then also I’m on a couple of years journey in the Psalms of realizing just how much God wants a relationship with us, that he not only will say, Hey, Michael, you can say anything you want to say to me. He’ll give me some scripts that require me to say some crazy stuff to him so that I can learn just how vulnerable God and I can be in our relationship together. And that includes scripts from the Psalms that have us asking God about where he is and why he hasn’t shown up and whether justice is really working in the world. So those are some things I’ve been thinking about and writing about and they have touched me personally recently.

Henry Kaestner: Michael is awesome to be with you. Thank you very, very much. Heavenly Father, bless Michael and his family as they get ready to move, go in front of him to just be with him, to make new friends and to be able to have just great relationships with his students. And dear Lord, please speak to them. Continue to speak to them from your word in the Old Testament, the beauty from there and the wisdom that comes in mixed with justice and may your kingdom come on Earth as it is in heaven, in Jesus name. Amen.

Luke Roush: Amen. Amen. Amen.

Michael Rhodes: Thanks, guys.

Subscribe to the Podcast:

Allison Long Pettine is an investor and entrepreneur passionate about supporting leaders who strive to positively impact society. Allison’s approach to investing is built on respect, collaboration and partnership. Because she began her career as one of the first employees of a medical device startup, Allison’s perspective on investing goes beyond simply financial risk and return. She brings over 15 years of venture capital experience to each new venture, taking an active role in her investments, from co-founder to serving on boards. We’re excited to learn more from Allison on the Faith Driven Investor Podcast as she talks about increasing the success rate of entrepreneurs.

Episode Transcript

John Coleman: So welcome back to Faith Driven Investor, where we get to talk to a variety of people working in different areas about the intersection of investing in their faith and the way in which they are creating an impact on the world. I’m John Coleman coming to you from Atlanta today. And we are very, very privileged to have Allison Long pertain with us today. It’s hard to sum up all of Allison’s experience. She’s a venture investor. She’s been an operator. She’s got a variety of passions, I think, in and around the investing world. And we are really privileged to welcome her and learn from her today. Thanks for coming on, Allison.

Allison Long Pettine: Thank you so much for having me.

John Coleman: So, Allison, talk to me a little bit just about your background. Introduce yourself to the community and tell us how you got to where you are today.

Allison Long Pettine: Sure. Typically, I’ll just talk about my work background, but I think because this podcast really focuses on the integration of faith and work, my background and my purpose is I think I see God’s definition of that is really like precedes me. Even so, my family is originally from China. My dad immigrated here when he was seven and so I’m kind of second generation and I’m also one of three girls. So I have two sisters and I’m the middle. So that kind of frames, just like my childhood, my growing up and I lived with my grandparents, I lived with my dad’s parents. And so, you know, just being multicultural, having that whole side of my grandparents, my parents who escaped communist China is very rooted in my identity. And faith has always been a really big part of my life. So my parents raised me and Christian. We prayed every night before dinner, you know, like I grew up reading scripture with my mom. So I think for me, like my first identity, right? My first background is as a Christian, a child of God. And then in terms of my career, I knew really early on. So my dad was an entrepreneur. He started his own real estate business and he kind of was the American dream, right? So he escaped communist China, moved here when he was young, started over his whole family, started over, and then ended up going to UCLA, Harvard Business School, and started his own career in real estate after an eight year stint at Carnegie Hall. So for me, like, that was always the narrative of him in my life. And I knew from a very young age I wanted to be in business. And my dad told me, You know, you can do anything you want, you just can’t be in real estate. So I had to pay my own path, right? So after I graduated from college, I moved to New York City, part of finance. This is in 2004 and really like it was very God led. I think my whole career has been God led where I thought I was going to get a job in finance, you know, work for an investment bank. I was interviewing at all of the investment banks that were around and of which half of them aren’t even there anymore in 2004. So I moved to New York and I ended up getting a job in venture capital. So I didn’t get a job at an investment bank. I got a job in venture capital, and at the time I really didn’t even know what venture was. So it was one of those things where a friend of mine, he’d helped me prep for all these events and big interviews, and then I told him, like, I have an opportunity to work at this venture capital firm. They invest in medical devices. And he was like, You have an opportunity to work in venture. You got to take it, you know, like that’s the job that us bankers, he was a banker at the time. He’s like, We want those jobs, so you take that job. So I had the fortune of working for this venture firm that happened to be run by three brothers. So it was a family business and they invested in orthopedic medical devices and they had an exit out of their first fund. And they started basically this incubator concept where they would acquire undervalued technology and create companies around them. And so I was one of the first employees at one of their first incubated companies, and the CEO was my boss, and he was also a partner at the venture firm. So basically I worked for him and I got exposure on the startup side and I also got exposure on the venture side. So it was kind of like a crash course in all things, you know, early stage ecosystem related.

John Coleman: Was that hard to navigate that kind of dual role between the investment and operating side?

Allison Long Pettine: You know, I was primarily on the operating side like that was my primary role and then I got opportunities to, you know, due diligence on new technologies they were looking at. And for example, there was an orthopedic surgeon who had a really great idea for a technology in medical device technology, and they gave me the opportunity to basically work with him. Filled out his patent, his IP, and then negotiate a deal and structure a deal with him. And that was, you know, maybe three or four years into my time there. So I feel like it wasn’t actually challenging because my primary focus was on the operating side. And then I got these incredible opportunities to just try things out. And it was a very entrepreneurial place in that sense where, you know, you kind of either sink or swim, like they would hire a lot of entry level analysts and kind of just see what happened. Right. It was like, well, if you’re going to make it, you’re going to make it, you’re going to figure it out. And so that was really a great training for me because I had to learn on the fly. And I’m a very experiential learner in general. But I think it also gave me confidence to say, okay, like if I can’t figure something out, I will figure it out. And you know, like fast forward to today where we invested a lot of founders. I think that’s one common trait that I always look for is just people who realize, like even though they don’t know something, they’ll figure it out or they’ll surround themselves with people that they need to in order to figure it out. So anyway, back to that, you know, like I worked there for six years and then I left. That was in New York City and came back to California, got my graduate degree, and then started my own fund in 2012 to invest in early stage companies.

John Coleman: That’s amazing. So, you know, as you think about that decision to do something more entrepreneurial, even working at a venture firm because it is a common path for highly educated folks, go work at an investment banker consulting firm or something more structured. Where do you think that entrepreneurial impulse or that willingness to embrace entrepreneurship came from? Is it something ingrained in you? Do you think it might have been a part of the immigrant story, for example, that your dad pioneered starting over a new life, starting a company like how do you think you got comfortable with that more entrepreneurial approach to life?

Allison Long Pettine: Yeah, I mean, I think it’s very much in my DNA just for my parents and my grandparents. Right. I think being an entrepreneur, that word is very overused in this day and age. I think all of us possess entrepreneurial characteristics. Right. And it doesn’t really matter if you’re, quote unquote, traditional startup entrepreneur or if you are working at a large company. Right. Like we all have entrepreneurial characteristics. And so I think it’s really a matter of being aware of what those are defining them and then being able to structure and utilize those characteristics in your everyday life. And I think that’s part of what God calls all of us to do right, is really understand what are areas that we’re strong, where areas he’s calling us to take risk to be uncomfortable. Right. But for him, not for us. But yeah, I think, you know, like it was just in the way my parents thought, right? Like, they were always encouraging me and my sisters to do things that weren’t comfortable. Like, I studied abroad at a very, very young age. So in high school, I studied abroad. In Montreal, I studied French, I studied Italian and Chinese at home, but I went to Montreal. My parents really encouraged that, right? Like there was no sense of fear around the unknown for even on their part of like, don’t go there. It’s a far place. You’re only 14. And I think that kind of encouragement really led me to have the courage to do it without really thinking about it.

John Coleman: What did failure look like in those contexts? Because, you know, it’s one thing to push yourself or to push your kids out. I’ve got kids now to do something. And then the way in which you embrace failure or handle failure as a person seeks independence, I think really shapes who they are and how they operate moving forward. What did Encounters with Failure look like for you on that journey to independence as you charted your own course?

Allison Long Pettine: Yeah, well, I think, you know, I talked about my first job adventure. When I think about a failure like that was one of the most difficult times in my life. And I think for me, I really try to reframe the word failure, right? Because there’s such a judgment on failure where failure is a part of life. And I think if we see failure as a step in the direction that God ultimately wants to lead us, then, then it’s less about something we did wrong. It’s less about our egos. So I think for me, you know, like when I think about a traditional failure, like I graduated from UCSD, I wanted to move to New York, as I mentioned, and I interviewed for four months at literally, like when I say every investment, think it was like every single investment bank, Morgan Stanley, Goldman Sachs, Bear Stearns, UBS, in every single department, wealth management, investment, banking, research, sales, marketing. And time after time, get turned down, turn down, turn down. Right. And I’m sure a lot of entrepreneurs can relate to this, right? It’s like you pinch people, you get turned off. And that was I mean, it was wearing on my soul to have again and again people just say, hey, you’re not good enough. You know, like that could be seen as a failure, right? Like, I didn’t get the job that I wanted. And I think what came out of that was. I was like, Look, I know that I can get a job. It’s ridiculous that I’m not. I know that I can. And I just kept trying. And, you know, those four months that I interviewed, like I was at the top of my interview game, right? Like I could walk into any place. I knew exactly what to say. I knew the story like from September to December, like I had honed it on that skill. And so then when this job with the venture firm came up, I was ready for that interview. And so I think when you think about failure, it’s like, well, yeah, those were a series of failures, but God was shaping me and he had a different plan for me. And, you know, I think if we can look at that with his perspective, then it takes it off of us a little bit, but also like it even changes this word failure mean. So like similar to you, I have young kids, they’re four and seven and I’m trying to normalize this word failure, right? Like, what did you try? So first of all, they’re like, What’s failure? I’m like, That’s awesome. And second of all, it’s like, well, failure is just trying something that didn’t work right. And so we talk about this at the dinner table, like, what did you try that didn’t work today? And it could be something super small. My son was like, I kicked the ball on kickball with the wrong way. I’m like, That’s great, right? Like you tried something different. You didn’t know how it was going to go, didn’t work out the way you thought it was going to. But the next time you try it, maybe it will. Maybe it won’t. So I think it’s reframing kind of this definition of failure. And I think even with the entrepreneurs that we invest in, we try and hopefully instill that message to, right? We’re like, Yeah, we want their companies to succeed. But like, it’s God’s plan. If your company doesn’t succeed, it’s not because you weren’t trying 1,000% right. It’s because God had a different plan for you and for us as investors. If our investment company doesn’t succeed, that’s not on me. Like I’m doing everything I possibly can to make this thing work.

John Coleman: One You’ll often look back, as you said, on these periods where you thought you were failing, where there wasn’t a fit with something you were interviewing. I see this in careers all the time. I’ve seen it in my career. You know, when you get to our age and our stage in our career, people often look at it and say, Oh, you’ve achieved some success. And it must have been, you know, an upward ride. And they get discouraged about where they are. But I think both of us would say almost everyone we know who’s ultimately been successful has encountered these periods where things weren’t working right, regardless of what you call it. And often you look back on those periods is incredibly providential, right, that you thought something was supposed to go one way, but the failure was actually, you know, either God or life telling you that it wasn’t the right fit, that you actually had a different path to pursue and it was helping to shape you to pursue that. And I love that about your story and how you’re able to learn from those experiences as you weren’t getting the jobs you wanted to ultimately shape, the career that you would then take. I think that’s that’s inspiring. And I think a lot of younger people need to hear that because they’re encountering the same thing right now. And it’s easy to see that as failure rather than as a redirection.

Allison Long Pettine: Right.

John Coleman: So talk to me. One of the great things about your career, and I think it’s a good thing about venture investing in particular, is that there are very few venture investors who don’t have some sort of operating experience who are worth their salt. You know, when you go into a lot of private equity shops, you’ll find folks who were bankers and then private equity investors and never actually spent time in the company. Whereas I think venture investors will often have come from a product management role or CEO of a company, or at least worked within a startup. What do you think you learn from being an operator in startup companies or in venture backed companies that is paid dividends for you as an investor?

Allison Long Pettine: Yeah, well, I think the whole venture ecosystem has really changed a lot, you know, and I think you’re spot on. I think now most people who are venture investors do have operating experience and oftentimes you’ll see first time fund managers who have come from some sort of role that they’ve been successful in on the operating side, on the startup side. And then they’ll translate that into an investment role, you know, for me. So I started Chris and Rich Partners in 2012. And honestly, one of the reasons why I started it is because in San Diego I saw that most of the people who were doing early stage investing, like first there weren’t a lot of seed funds, but then I think a lot of people who were doing early stage investing were individuals who had a passion for helping people succeed. Right. And they had success in some line of business, whether it was like they were a lawyer or they ran a company for 30 years, but they didn’t really have startup expertize. And so I think for me, at the very beginning, when I started Crescent Ridge, you know, I didn’t have that much investment experience per say, you know, in terms of sourcing my own deals and doing diligence and all of that sort of stuff. But I did. The understanding of what it took at the very early stages to build a startup. And I think having that perspective of like all odds are against you. Right? Like day one, you have nothing. Like, you’ve got to basically create something out of nothing. At every step along the way, you’re trying to fight for cash. You’re trying to fight for talent. You’re I mean, it’s everything. And you’re trying to figure out your customer. And so I think really understanding that and feeling that and living through that helped me immensely, just empathetically. But also when I was doing diligence on companies, right? It was like, Well, what characteristics do you look for in entrepreneurs? Because I had been there myself that I wasn’t the founder, but I feel like I was there along the entire way. And, you know, I had been in positions where, you know, I crafted all of our board presentations, but I also did all of the presentations to our investors when we were running on fumes. Right. Like I remember one point in my career, we had literally like one week of cash left and I was the one responsible for putting the presentation together, pitching our investors saying like, this is why you need to invest in our company right now, because we need to make payroll. And I think going through that and really understanding like the ups and downs of it helps me be a better investor because you know, it’s going to be okay or it’s not going to be okay. And I think knowing that and having that perspective aligns me a lot and puts me and the founder kind of in sync as opposed to like, I’m bringing the money you need to be responsible for the money as a founder. Right? Like I’m here with you.

John Coleman: Yeah, that’s great insight. So take us into Crescent Ridge Partners a bit. You’ve mentioned founding it in 2012. You are in San Diego, which is where you’re from. I think you went to school there, which is an unusual place for an early stage. Well, maybe not that unusual today, but traditionally has not been a hub for early stage venture investing, for example. Why did you set up in San Diego and why did you set up Crescent Ridge to do.

Allison Long Pettine: Well, the San Diego is another good thing because I was in New York very happy in New York. I love New York City. You know, the energy just the it’s a very special place and I have a lot of fondness for it. But I met my husband there and he got a job in San Diego in 2009. So he moved here several years before I moved here. And it was honestly just we got married. He really loved his job. I wasn’t sure what I was going to do after grad school. I knew I wanted to, you know, probably do something on my own, wasn’t sure what. And he ended up, like we said, let’s just give San Diego a shot. And then I moved down here and I realized that there was actually a lot happening in the startup ecosystem. It was just very it was local, right? So a lot of people didn’t know about it. And it was different than, you know, L.A. was just starting to emerge at that time. Silicon Valley had already had kind of an explosion, but I think San Diego had a different feel and a different vibe. And I feel like investors would come down here and they wouldn’t really get it and then they would leave. And so I identified, you know, like, no, there is something here. And I think that, you know, even though there’s not a lot of capital, there’s a lot of talent. And any time you see talent like, you know that there’s opportunity, at least that’s how I see it. So I started Crescent Ridge thinking actually like, okay, I’m going to have to go to L.A., go to the Valley, go to New York just to find deals. And as I dug more into the local San Diego ecosystem, I realized, no, actually, like there’s a lot here. And because there’s not that much capital, there’s lower valuations. There’s actually a lot of opportunity for an investor if you can find the good deals. There’s a lot of junky deals, too. And so I think for me it was just a matter of like I felt an affinity toward San Diego because I lived here, I wanted to integrate in the community. I saw an immense opportunity, incredible opportunity for the ecosystem to grow and flourish. And so I just started investing here and I think, you know, so one of the things that I’m passionate about also is investing in women led startups and women leaders. And I didn’t actually start doing that until 2018. But I think that there’s a lot of similarities between what I identified in San Diego, just in terms of, you know, kind of under estimated talent regionally. You know, it’s very akin to kind of what I see in women. Right. And I think it’s just there’s certain patterns that investors are used to that don’t exhibit the same. And that’s what we see in Woman. I think that’s what I saw geographically in San Diego. And so. I think for me it’s always like, well, where can I identify, you know, kind of talent where others maybe are overlooking? And I think that’s a differentiator because I don’t have other things to lean on, right? So like, there’s a lot bigger funds. There’s a lot of people who maybe have a better pedigree than I do. Right. And I think for me, it’s utilizing the talents God’s given me in the place that He’s brought me to. And how can I do his work in one of the places?

John Coleman: I love that theme between San Diego and women founders that you talked about. It’s in investing in folks that others have underestimated who still have the same kind of talents and abilities as everyone else right there and undervalued thing in the marketplace, whether that’s because of their gender or it’s because of, you know, their geography or some other characteristic of them or ethnicity or whatever. There are all these opportunities to find people of great potential and underestimated areas, but it does rely on you being able to identify potential and to see that potential. And I think that’s an underestimated part of being a venture capitalist is the people side of things, the ability to look at a founder in an early stage and see potential. How do you think about that? How do you find that you spot potential in these early stage founders that gives you confidence that they have what it takes to fight through this entrepreneurial process?

Allison Long Pettine: Well, being a venture capital investor is it’s a very roundabout path, right? Like it’s not linear. And I would say for a long time, I was like, I have no idea if I’m any good at this. And some days I’m like, I still don’t know if I’m good at this, but I think, you know, like after I passed the 15 year mark, I was like, okay, I feel like maybe I know a little bit like I know what I’m doing. But, you know, I think the tricky thing with venture is it’s about pattern recognition, right? And so pattern recognition, once you identify those patterns, it’s great. But it also is very dangerous because essentially that’s what biases are, right? Like biases are just a very snap judgment based on our patterns. And so I think the best venture capitalists are able to identify a pattern very quickly. Right. Like I will say, like within a few minutes, I know whether or not, you know, company will fit within our investment thesis. But I think for me, one of the things that’s important in our investing work across venture and we do real estate and private equity as well is just making sure those patterns don’t get stale or like we’re not sticking to one pattern. And so we’ve developed this framework that I think helps us do that where so we have this framework called Four Dimensional Wealth. And that really came out of my own experience with investing and feeling kind of this conflict between the purpose of investing purely to create monetary wealth and like what God has put me on this earth for, right? And you know, I can get into that story later, but I think that God doesn’t really care about money, and that’s just my personal belief. And so if as an investor, I’m here to create money, then like, what am I doing right? Like, what am I doing to satisfy God? And so I think this four dimensional wealth framework really helps redefine wealth in a way that for me aligns my profession with what God is asking me to do, like why He’s put me on this earth and because it’s been inspired by God. I would say like he’s at the center of it all, but it’s not a Christian framework, if you know what I mean. So the four dimensions of wealth are one financial and we are an investment company. We’re in the business of making money. We want to generate competitive or superior to competitive returns, and that’s very important to us. But I think in addition to financial, relational, right, so like we’re also creating relational capital and relational wealth and that is essentially building and deepening bonds between people. So how are the companies that we’re investing in? How are we creating relational capital with the founders, but also how are they doing that in their businesses? And then third is social. So we are here on this earth to steward this earth and this planet and the people in this planet. And God really clearly states that in the Bible. And so it’s not enough to just say, okay, well, we’re making money and we’re also deepening connections and building close relationships. Like we also really need to think about our environment, our communities, the people who have been overlooked and how are we creating businesses to actually serve those people. And then finally, it’s intellectual. So intellectual capital of creating an. Electric Apple. And that’s that’s really maximizing the talents that God’s given us know. So I think we’re called every day to show up as the best versions of ourselves, because God has given us these incredible resources and talents. Right? Whether it’s our brain, whether it’s our money, whether it’s our network, whether it’s, you know, just the clothes that we have. Right? Like the fact that we can get up in the morning and walk out the door. And if we’re not, you know, utilizing those to the fullest to serve others, then we’re not doing him the justice and we’re not serving him fully. And so I think really for me, it was almost like an accountability because there have been so many times in my life where I feel like God and God works different for all of us. Right? Like for me, God’s usually like he, like, hits me over the head with a frying pan. You know, I’m doing my own thing. He taps me. I’m like, Thank God he tossed me again. You know, I feel like, hit me on the back and then he’s like, okay, you’re not listening to me. And so this four D well framework we call 40 well, for sure it really is to make sure that, you know, I don’t need to be hit over the head with a frying pan again because I think God leads me to places. And then I’m like, thank God. Like it’s a bus stop. Right? Like, thanks for dropping me off by. Yeah. And that’s not what he wants. You know, he wants us to be on the bus with him the whole time. And even though he leads me somewhere, I think there’s an accountability around my own actions. And there’s always this constant desire to do things for myself and for my ego and my pride. And that’s not pleasing to him and that’s not fulfilling to him. But I think it’s challenging. It’s not easy, right? Like we live in a world where it’s about being the best and it’s about competing and it’s about headlines. And so really, it’s redefining what my definition of success is and aligning it with what would be pleasing to God. I think I went way off what your question was, by the way.

John Coleman: No, no, no. That’s fantastic. No, I love your reading in the spiritual component of that. You know, by day, I also work at a values aligned investment firm. It’s a faith aligned investment firm in our case explicitly. And I love your articulation of the four dimensional framework for wealth that you use in objection we often get is that people believe those dimensions are in conflict. So they’ll say, sure, you should have, you know, in ours we even have a spiritual dimension to it explicitly, but we’ll have social dimension as well. And they’ll say, Well, you’re an impact fund, right? Meaning concessionary, because obviously the financial return in the social mission are in conflict. Do you ever get that objection? And how do you handle that? How do you think about that tension?

Allison Long Pettine: I think from the earliest days of when impact investing came around, that was my biggest issue with Impact Investing. And you still hear it where people say, well, if you’re an impact investor, you’re basically sacrificing returns. Right? And I think that to me, really, it’s like nails on a chalkboard, because I don’t think that’s the case. And I think one for us, it’s framing our time horizon, right? So, yes, if you want to juice returns and you want, you know, the highest IRR in the shortest amount of time, then maybe you can achieve all four dimensions. But our definition of success is actually sustainable companies over the course of, you know, ten, 20 plus years. And if you want to build a company that lasts, it is actually essential to focus on all four dimensions. You can’t not. So our investment thesis is basically by focusing on the non-financial elements of wealth, dimensions of wealth, relational, social and intellectual, you strengthen the financial case. So the financial case has to be there to begin with. But if you’re investing in the other three, the financial actually becomes greater. And what happens is a lot of times people will disregard investing in the three, right? They’ll say, oh, those three things are nice and they’re nice to haves, but we actually really just care about financial and we’re only doing those three in order to get the financial. And then it’s not authentic, right? Then you’re just back to one day, you’re just trying all these things in order to create one wealth. And so for us, it’s really, I think, this authenticity around the four dimensions. And if you really care about deepening relationships, that is going to pay off at some point, maybe not in this year, maybe not in the next six months, but it will. And we’ve seen this time and time again. So one of the things that we’re trying to do actually is prove out this investment thesis. And so we’re embarking on this journey where we’re developing actually scorecards. So we’re developing 40 scorecards. All our diligence is going to start the process. Any time a company goes through diligence with us, we’re going to take this assessment and we’re going to spit out a 40 wealth score, and that’s going to help us essentially underwrite the company. And once we invest, if we decide to invest, then we’ll actually do a case study with these companies and say if they opt into it right. And say, hey, if you want to build 40 wealth, let’s see if what we believe actually holds true. We’ve got some companies in our portfolio anecdotally that we can point to, and we’re going to do some retrospective case studies as well. But I think this is where, you know, having data to back it up is really helpful. Part of it is for us, I think, just to say like, okay, is what we’re saying actually true? But I think also part of it is so that other people who aren’t necessarily early adopters are interested in pursuing this type of investing. And I think the 40 wealth, I mean, a lot of people have something similar. So it’s not proprietary to us. I think for us it just helps us give us a common language because I think there’s so many people who want to do the right thing, but it’s so abstract. What does it mean to do the right thing? And the four DS can look different for every founder, every investor. But at least we have some sort of commonality to say like, okay, well, we’re pursuing 40. Well.

John Coleman: Yeah, I love that. And we don’t have the 40 framework ourselves, but we are similarly trying to prove out a framework that says, look, we actually think the incorporation of values along the lines that you’re identifying not only aren’t in conflict with financial return, but like you said, they’re essential to building great long term companies. And there’s especially in the private equity side. And I want to get to how you diversified your investing a bit before we we kind of circle back to the spiritual side, especially in the private equity side. You’re always going to find firms that are able to juice returns through excessive amounts of risk or through transactional behavior. Right. But it doesn’t create long term sustainable companies, typically. And it introduces a lot of risk to the equation where in both the venture and private equity worlds and likely in the real estate world or even the public equity world, if you have this more forward approach to to a company, you’re building a culture and a foundation for that company that’s sustainable long term and ultimately sets up a greater competitive advantage. Right. Which can reinforce the financial return that you’re getting over time. And so I’d love to see the results as you start to get those back. We’re all, I think, engaged in our own little exercises, trying to make sure we quantify that. But I think, well.

Allison Long Pettine: Maybe there’s even a collaboration that I’m I think my mind always goes to like, how can we help each other? Because I guess also part of it is, you know, we’re doing this for God. Like, I think for us it’s not I would love for several people to work on something together. Right. Because I think it’s just the more we are able to prove this out, I think the more we do his work. Right. You know, also part of it is just we identified on the financial side that financial metrics often are lagging indicators. Right. So, yes, I think what would be fascinating and for you as a who we were in private equity because you have that you as you venture and private equity but I think on the private equity side you have more data right venture so early and so volatile but private equity like you’ve got a lot of data and I think you can potentially look back and see like okay the years that were really good. Like those are actually a result of investment in the other three dimensions, right? And then like one of the things we talked about is if you could look at like stock market data and see companies like a blockbuster, right? Yeah. Why did that happen to Blockbuster? Like they were probably low on a few of the other dimensions of wealth. Right. And because they didn’t invest and you could argue maybe intellectual, maybe relational, right? Like because of that, they ended up going out of business. But I think there’s ways to kind of put all of this stuff together. But I think it’s also a matter of perspective. Like you can’t like to your point, you can never prove to someone that’s looking to juice their returns over a three year period that 40 wealth is going to work. It’s not going to work.

John Coleman: Actually, it won’t work. Not net one.

Allison Long Pettine: Fan. Exactly. So I think it depends on if you’re talking about apples and you’re saying like, try this orange, it’s delicious. It’s like you’re just speaking a different language. So I think it’s a matter of also really understanding like what’s our definition of success over the long term? Over the short term, right? Like what are you aiming for?

John Coleman: Well, so I want to touch on one topic and then maybe circle back. We always ask everybody at the end what you’re learning from scripture right now and why that’s important. I’d love to talk to you about a million other things, including digging into the idea about female founders and female venture capitalists and getting deeper. So maybe we’ll have to get you back on some time. But my impression is now you have expanded your remit again. You’ve got a great passion for founders, but you’re also doing private equity and real estate investing now? I think so. Your dad told you never to do real estate investing and you actually are touching on that now. And if I understood correctly, you’re actually working with your father to some extent now on some of that as well. Talk to us about that transition. And is it different at all to be working with a family member and how you navigate that as an investor?

Allison Long Pettine: Well, I work with my dad. I also work with my husband, who technically is the one on the real estate side. So okay, so maybe following that rule. But no, my dad and I have come full circle now. We work together. And then I also work with my sister who runs our family foundation. So now I work with my whole family basically. And her brother in law runs the solar finance company, which we’re invested in. So yeah, I’m deep in it. But, you know, I think part of it is, you know, that’s the position that God has put me in and he’s allowed me to. And it’s been incredibly rewarding. I mean, there’s challenges for sure, but I think that I feel honored to kind of. Serve my family and be in this position where we all share the desire to serve God, right? And we all have the same perspective around capital and our talents and our resources, which is like we’re stewards. And that’s really unique, I think. I think a lot of people who are investors don’t have that luxury. And so I’m just grateful that I’m able to do what I do in the context of my faith, because, you know, I have people who are aligned with me in that. And I think, you know, you guys probably feel the same. It’s all runs. And I think it’s a gift that God has given me.

John Coleman: Yeah, I totally agree. And especially the more the diverse, the more diverse the environment. I think the more important a shared sense of mission or values. Right. Because you need things that hang together or the greater the potential for interpersonal conflict, the more that shared mission matters. And that’s so interesting in the context of a family dynamic, too, which is even more complicated than than your typical organization in a lot of ways, but that that can hang true for you all and that you’re able to work so smoothly with that similar perspective on wealth and a similar perspective on the reasons you’re investing, not just what you’re investing in.

Allison Long Pettine: Yeah, I always say like if I can deal with these interpersonal dynamics in my family and it’s a great training ground for other people, it’s like the most sensitive first, you know, relationship.

John Coleman: And you can’t get rid of them with your family. You know what.

Allison Long Pettine: I really mean? I know. Okay.

John Coleman: So talk to us. The last thing maybe to touch on, you’ve been very open about your own spiritual walk. We love to conclude just with what you’re maybe studying in Scripture now or something. You’re learning that you’d love to share with everyone else.

Allison Long Pettine: Yeah. So I feel like God always gives me themes for the year, right? So one big theme that I was working on a few years ago was surrender. So I think for me this year it’s identity. And a lot of my life I’ve struggled with my own identity around like ego pride, not being good enough inadequacy. And this year really just God has placed on my heart this desire for a sense of peace in knowing like my identity is actually found in being a child of peace. Wow. And that’s a very powerful thing. It’s like I’m able to receive that, but I think sometimes it’s hard to receive that, you know? So I’ve been trying to integrate that into, you know, all aspects of my life as a mom, as a businesswoman, as a wife, right? Like as whatever else we do in our community. And I think that it’s also allowed me to experience God’s grace, and it’s been very, very profound. So continuing to listen to him, make sure my intentions align with his intentions and redefine and reshape my view of myself and the world in his life.

John Coleman: When it’s ever finished. She always heard working through that. Like you said, just reshaping his life goes on. So that’s a great word, Alison. This was a fantastic discussion, really excited about what you’re doing in the investing world. I excited to see the results of your data on the 4D approach and hopefully we’ll get to have you back some time. Thanks so much for joining today.

Allison Long Pettine: Thank you for having me. Sounds like we’ve got a lot more to talk about.

Subscribe to the Podcast:

Jimmy Wright is co-founder and President of Launch Capital Partners, based in Louisville, Kentucky. Growing out of years of conversation about business, ministry, and the Christian life, Launch Capital was founded as a viable marketplace response to ministry opportunities presented by the global migration crisis. We talk to Jimmy about ways Christ-following investors can direct capital into the marketplace and work towards establishing redemptive real estate.

Episode Transcript

John Coleman: All right. Welcome back to the Faith Driven Investor podcast. This is John Coleman. And today I am joined by a fantastic guest, Jimmy. Right. Jimmy is the president of Launch Capital Partners in Louisville, Kentucky. And he knows a wealth about investing, particularly about the idea of built communities and redemptive real estate and everything in between. So please join me in welcoming Jimmy to the show. Jimmy, how are you?

Jimmy Wright: Good, thanks, John. Glad to be here.

John Coleman: How are you up in Kentucky today? Is everything going well up there? You on the road?

Jimmy Wright: It’s finally starting to break here. The weather is it’s getting a little bit warmer. It did this to us last week. It does this this time of year is rough here in Kentucky. You get really hopeful and you get 70 and 80 degree days and then boom, you’re back to forties again. But yeah.

John Coleman: I feel it. I think we’re all anxious to get into spring and summer here. You know, Jimmy is we just dove in. You know, I’ve gotten to know a little bit about your background, but just for the benefit of folks here, tell us a little bit about yourself. Where are you from? How did you get into investing? What was your path to this point?

Jimmy Wright: Yeah, so I was born and raised here in Louisville, Kentucky, still live here in Louisville. My wife, Dana, and I’ve been married for 14 years. We have five kids in the house. They range from ages 11 down to five months old. Oh, wow. We’re pretty busy at home. We just moved a little bit outside of Louisville to a little more rural community, which is fun to have bunch of dogs and cats and whatever the kids catch in the creek and the moved out to a little country church. So it’s a lot of fun. Yeah, we’re having a good time.

John Coleman: That’s fantastic. And how did you get interested in real estate? Was this where you kind of entered or were you interested in the faith aspects of this previous to getting into real estate?

Jimmy Wright: Yeah, I mean, this is really it’s really a story of God’s providence all the way through because it’s definitely not a planned past that I had really thankful for and glad to be here. But it wasn’t my plan at all. So we started this journey about 12 years ago when I started really considering integrating faith and work together before I just I had the two separated and went to church and put on my work and went to work, but I went on a mission trip. Had two pretty important points during this time. I went on a mission trip to Indonesia and helped some missionaries there do some work on water. And while I was there, I noticed that I couldn’t help them with language, I couldn’t help them with anything, except I had project management experience and I was like, Well, you could do this or that in your business and I think improve it. And I think you could get more production and more clean water to people in the response that I got was, Yeah, that’s great. We don’t really need business improvement here. We just need and I’m like, Well, what do you need? And can you go back and just make money, give them assistance, and then and then we’ll do the mission. They said it in a very kind way, but that’s what I took from it. And even talking to some pastors, it’s like, well, you know, like make all you can and then give, or which was just really, really unsatisfying because I didn’t feel called to vocational ministry, but I was serious about my faith and learning more and wanting to apply it in every way that I could.

John Coleman: Yeah. And you know, what we hear commonly, Jimmy, around here is this separation of faith and work where people have work on one side and they think I’ll just make a lot of money and then do philanthropic activity for the things I want to support or the churches I want to give to you. And that that activity is over here. And really, I think there’s an emerging consensus among folks that it’s really the integration of those two things. It’s most powerful. You know, you mentioned your mentor talking you through that. What did that look like as you transition from the corporate world? There started to evaluate your position in the corporate world to this idea of potentially starting a new venture like Launch Capital Partners.

Jimmy Wright: I mean, Ross McGarry mentored me and he was really great about is a former pastor but also at work some in the business world. So he was able to kind of bridge that divide. And one thing that he just did really well was be able to speak into your business. So he had a pastor’s heart and he had a heart to love the world and love neighbor and see that worked out everywhere in life, but had some of the acumen and some of the background to be able to speak in to broad categories in your work. This again was not planned, but I started into real estate by another guy that worked at the corporate America with me, and he said basically like, why don’t we get into some real estate, be good for retirement? And that was the plan. That’s how I got started into real estate.

John Coleman: And so this was entirely. Of a side hustle, so to speak, in modern terms. At the beginning where you had a job in corporate America, it sounds like project management and other things, and this was in a friend deciding real estate could be a really interesting path to secure retirement, to generate extra income.

Jimmy Wright: That’s exactly what it was. So we listen to podcasts and learned real estate and then on the side nights and weekends, we would go and buy these houses and rehab them and refurbishing them and then put them in bank financing and put a tenant in. And we just we started cycling through that. And then at the same time, a co-founder of Lunch with me, him and I, our families, moved into the same neighborhood in Louisville. And that neighborhood was a historically refugee neighborhood of immigrant nutrition and really which was born out of both of our desires to do outreach. So we were just trying to do community outreach and looked around and noticed that all the nations were around us. So I got on the board of a local nonprofit. We did backyard bible clubs, we did an apartment complexes in the neighborhood, and then we also did homework help and some after school care for kids and just started working with and loving the refugee community. And out of that, Ben Hedrick is his name. Ben and I’s relationship came word launches and it came about through really serving the refugee community and being an advocate for them.

John Coleman: And had that been a passion of yours forever, or was this something that you kind of moved to the neighborhood for that reason or it just kind of happened as you coincidentally moved in? Like where did that passion come from for you?

Jimmy Wright: We moved into the neighborhood because it was where you could get the most house for the money. Yeah. So my wife thought Spanish. She was involved in missions and had a heart for the nations. And I did too as well. So we had that bent a little bit, but we didn’t really get involved until we found ourselves in the middle of it.

John Coleman: That’s amazing. So you and Ben were building this business, flipping houses. How did that evolve from the two of you kind of rehabbing houses, putting in tenants to this idea of launch capital where you’re starting to aggregate capital and it becomes more central to who you are. It’s not just a side hustle anymore, but it becomes central to who you are.

Jimmy Wright: Yeah, great question. So we started we were rehabbing the houses. We started working with resettlement agencies to place tenants. And we thought about a business model that could really cater to the immigrant immigrant community. And as we were developing that, we just continued to grow. And God blessed it in several ways to where we were able to scale pretty quickly. We then brought on some private investors who came in and gave us financing. We then rehabbed and refinanced these properties out and managed them and scale it that way. And then really the turning point was we got a few tenants in. And so just how well the ministry aspect was going and I just decided that I want to do this full time. So I was saving up money for to launch out, so to speak, and go full time. And at the time my company was going to get bought. So I had a severance package that supposedly was in line for me. And what is happening was it never came through. We never got bought. So Oh wow. And in the meantime, my boss moved apartments and my job was on the innovation side and wasn’t core and the company was cutting costs at the time. So what ended up happening was I got let go and rather than having six months of runway, I got let go. And they’re like, your insurance ends tonight and see, wow. So we just prayed at that point and we’re thinking like, what do we do? I want to pursue launch, but I have a growing family to provide for and didn’t quite get my savings up to where I wanted to. So Dana and I just prayed and decided to just go for it. And when we did, literally, it was two weeks after we decided to go for it full time that some bigger investors came through. They’re now partners and then a portfolio of about 150 units that needed a big rehab. And this was in 2016. So exactly the time where there was a big refugee rush, all that came through at exactly the same time to where I could pay myself as a general contractor and have a job and get going. So it’s yeah, it’s really amazing how it all came through.

John Coleman: It’s amazing how providential that process is sometimes. You know, we’ve heard versions of this. I have a version of this myself where. Crying situation turns into the thing that helps you to catalyze, to move into something that really is a calling for you and that ignites you. And at the time, it can feel hard. But I think looking back, you often see the providence in that and see the word you’re getting from God about what you’re intended to be doing.

Jimmy Wright: We never would have been able to buy that property, and I may never have been able to even go full time had that not happen.

John Coleman: And talk to us about. So this started as a thing where it sounds like you were doing standard real estate by house for a good price rehab it get a tenant and launch has really transitioned into something that’s deeply spiritually integrated or that incorporates a lot of meaning and value into what it’s doing with communities. How did that arise? It sounds like partially organically, and what does that look like now for many of our listeners, this idea of redemptive real estate or communities is new. So talk to us about what that looks like for y’all and how that came about.

Jimmy Wright: Yeah, so we had planned to do it from the beginning. We wanted spiritual impact baked into what we did. So traditional property management tends to automate, tends to distance itself from the tenant, all in the name of efficiencies. So what we were doing is the opposite of that. So we went backwards in time and hired resident managers. So we have one resident manager onsite for every 50 units that we are interesting and 1400 units right now. So these families live on site and they’re like the old building supers. So if a tenant needs anything, they have a door to knock on, which is really helpful with language and cross-cultural dynamics. So they come to the door. These are often families that are connected to local churches. Some of them have been overseas. Some of them want to go overseas. And we have many that are now overseas and they yeah, they just care for the tenant and they can’t care for 50 other families like one family can’t obviously care for 50 others. So the nonprofit that we initially volunteered with, we now have a deep connection to and we’ve helped them to expand out to work with 50 different churches here in Louisville. So we have volunteers come in and they’re connected to our resident managers and they deal with some of the overflow of needs that come through. So the nonprofit will do homework help. They have a ladies tea. They have on after school care, some ESL programs and different programs on site. And since we don’t need the office space because we have resident managers, we use that office spaces, community centers that the churches do program out of.

John Coleman: So that’s a core model. You basically set up and align Capital Partner or partners with a nonprofit that’s dedicated to impact in the community with a residential model and people on site who are dedicated to the health and well-being of the residents. And it’s at the center of those things. You can really enable this model that’s meaningfully different than others that you’d find in these communities.

Jimmy Wright: I imagine it is, yeah. It’s highly relational, highly impactful and really focuses a lot around building the community.

John Coleman: Was there ever a concern? I can imagine that one of the reasons people have automated is cost, right? Is making the financial model work. How did she think about the business model underlying this impactful group that you’ve set up and were you ultimately able to reconcile the idea that this could actually be a better investment as well as the right thing to do?

Jimmy Wright: Yeah. So normally on apartment complexes of the size that we buy, there’s a leasing agent on site and a property manager on site. And what we’ve done, the math kind of works out to where if you divide the leasing agent out for 50 units, then that pays for the resident managers and then the rest of the property management staff. We have a central back office and we have centralized maintenance. So the resident managers aren’t typically doing maintenance activities, they’re doing leasing it like property management. It’s whatever they call it. So economically it’s neutral on the cost side. But as far as the model, typically our tenants stay about twice as long as national average. So the turnover rate is about 45%. We’re at about 22% on our stabilized. Wow. So part of that is the community development and the word of mouth advertising that happens. So once you go into a community and start to improve it, word travels and then good tenants refer other good tenants and you get a. Virtuous cycle there. So we’ve shared a lot of meals together. We’ve shared stories with each other of different heartaches. We we’ve walked together to life. We have Yusef, who’s a Syrian, with him and his family, still connected closely with, and he makes waffles every Monday. It’s the best waffle round. And so you can go over every Monday news that will be out there frying this waffle. We have Elizabeth from the Congo who arrested me and your family arrested very deeply with she’s now a member in our church. So we see her here for her regularly. There’s so many stories of the resident managers stepping into people’s lives in really extraordinary ways. As a hunter, for example, is a resident manager and apartment complex. It’s primarily Cubans and an elderly Cuban gentleman who he built relationship with ended up being taken to the hospital. It’s very, very serious for him. And so he called for his property manager to in his deathbed. And he wants to see his property manager. He’s he’s known for several months. And it’s just a beautiful example of these people living out there. Common.

John Coleman: That’s awesome. And it’s such a great representation of the church as well. You know, the real church, the global church, the body of Christ, where it is every single person on this planet, you know, from different backgrounds, with different experiences. And I think it’s so easy living in any community to get in a bubble of your community right here in my little part of Atlanta or in your little part of Kentucky. And yet because you’re able to live in these diverse communities with people relocating, dislocated from their places of origin and united only in this common experience or hopefully in their dedication to faith that you get such a cross-section of the world right. And of what the body of Christ can look like. How have your kids responded to that? I can imagine. It’s been an amazing experience.

Jimmy Wright: Yes, they’ve loved it. My oldest is 12, so it’s 12 down to five months. I don’t think they quite appreciate it as much as they will, I think, in the future. But yeah, they have friends from many different cultures and hear different languages all the time and are asking their friends questions about their home, where they’re from, and yet they love it. And as parents, we’re really glad to give them that experience and exposure that normally you pay thousands of dollars for, go overseas, but the nations are coming here and we as a church have to learn how to receive them.

John Coleman: That’s awesome. As I think through what you’re describing, I also think, wow, you’re just so invested in these communities. You have such a dedication to them. At the same time, you’re trying to build a business, right? A commercially viable business. Do you find there’s ever a tension there between the kind of care that you have for these communities and making this business economically sustainable and successful?

Jimmy Wright: Yeah, sometimes there is a tension. We have been really fortunate to be able to find property that we can preserve affordability and also have some quality to the housing. And we have a dedicated maintenance staff that’s really experienced and goes above and beyond to give tenants a good quality property. There are and we try to have we have as much grace as we can. There’s tension sometimes with a tenant doesn’t pay, then creates conflict and difficulty. Fortunately, there are actually the refugees. Immigrants are really committed to paying rent.

John Coleman: Yeah, I mean, that’s fascinating that I would have thought that refugee communities would actually have greater problems as tenants with delinquency, with financial troubles, with stability. And yet part of your model seems to be that those folks are actually really great tenants, that they’re thoughtful, that they pay on time that’s stable. Talk more about that. What makes these communities such good tenants and how does that feed into the model?

Jimmy Wright: Yeah, so the model works great with immigrants and refugees because what they’re missing is that cross-cultural peace. And a lot of times there’s misunderstandings and inability to communicate. They cause tensions and it’s not a lack of willingness to pay. And think about these people have come over from. Many of them have lived in tents or in conditions. And the first thing they’re going to pay this is the roof over their head. They’re really committed and family oriented. So they pay well. They are also are great workers by and large. So Homeland Security does a lot of checks. There’s no drug issues. They generally get employed here in Louisville. The market is like the UPS. It’s a big hub here. So there’s a lot of warehouse jobs that pay pretty well that translate to affordable living conditions here in Louisville. So it works well in this market. Also, they’re just generally overlooked because they come over with no credit history, no job, and then they’re putting their application down in a market that’s already short. Millions of homes now at this point. So they’re constantly beat out on paper.

John Coleman: That’s fascinating because it is it is this overlooked group for exactly the reasons you mentioned. They don’t fit neatly within the categories that we typically have for renters with a credit history, etc.. And yet all of the intrinsic qualities that would make them great partners as tenants in a community are their right, and they understand what it means to be in a more stable and safe environment and how valuable that is. You know, as people are listening, they’re probably wondering, A, how they could potentially get involved with the work that you’re doing at launch, or B, how they might serve immigrant communities or refugee communities in their own part of the world, wherever that might be, either here in Atlanta, for example, or also in other cities. You know, if someone were asking those questions, what would you say to them about ways in which they can support your efforts or potentially even stand up their own?

Jimmy Wright: Yeah, our effort. We’re constantly raising funds, so we’re always raising new funds. We also are looking for like minded property management so that as we’re getting ready to raise a large fund and we’re looking to different cities for property management help because it’s difficult to export property management, it’s a hard to take across the country. So we’re looking for that. I would just say that there’s many cities that have thriving refugee ministries that are connected to churches. We’re not special, unique in that way. Our innovation is tying all these things together. So feel free to reach out to me. I’ve spoken to many of them and I’m happy to connect you to different ministries.

John Coleman: That’s awesome. What cities are you moving into?

Jimmy Wright: Jimmy Well, we’re looking at Dallas right now. We’re looking at Raleigh, North Carolina and the Triangle area, actually, and also where the fund will take on it, probably another Midwestern city or two like the Midwest. It’s a great place for people to settle, and it’s where a lot of people go for secondary migration. So they land somewhere and then realize that they can’t afford to live there or they sort of resort and talk to each other. And the Midwest is growing a lot.

John Coleman: That’s awesome. Good luck in that expansion. I want to end with a couple of questions. You know, we always end and I’ll circle back to this in a moment with what you’re learning from scripture right now or what God is teaching you right now that might be relevant to our audience. Before we get to that, though. I would love to know, is there anything you feel you’ve learned in working with either a particular refugee that you all are serving or with these communities that you would want to share with others that you think could be valuable?

Jimmy Wright: Yeah, I’ve learned to be less ethnocentric. I’ve learned that I felt like my world and my culture was at the center of the map. And in working with refugees and immigrants and learning how they do things and how they approach things, how they generally think differently has really opened my mind and a lot of the people here at launch to new ways of thinking and really broaden our perspective. It’s been a real joy to work with them and I think we get as much as we’ve given in a lot of different ways.

John Coleman: One of the lessons I feel like I come back with every time I travel and spend place in a somewhere that’s culturally different than my own is just how much there is to learn from different ways of thinking, how different people operate around the world, and how ours isn’t the only way. Right. And in fact, there are ways other places in the world and other communities that are better that we could learn from. And being surrounded by that every day and this melting pot of these refugee and immigrant communities has to be a really powerful experience. I’m sure, as we talked about, it needs to some tension sometimes, but it’s also a really powerful experience.

Jimmy Wright: Many of the warm cultures that I’ve learned a lot from like so are and are super hospitable and put me and my family to shame and how welcoming and appealing giving they are and how, you know, there’s never a closed door. I think that we can learn in the States a lot from that.

John Coleman: And it’s a lot of this idea of welcoming the strangers among us. When you’ve been a stranger, it’s probably a lot easier to kind of empathize with the stranger in that experience that they’re going through. Must be so powerful about being disconnected from their communities and having to form a new community and must forever change the way in which you work with others and empathize with others. So, Jimmy, I want to conclude with something we ask everyone, which is just a lesson you’re learning in Scripture right now, or that you feel that God is teaching you that you’d want to share with everyone here.

Jimmy Wright: Yeah. Sort of two quick things. So my wife and I have been praying and thinking about loving our neighbor and who is our neighbor. And as we’ve been reading scripture and praying, it’s been on our hearts to care for widows, orphans, materially poor, and continue to care for the soldiers. We call them the wops, jokingly. But that’s throughout the Bible. You’re never going to go wrong caring for those groups that we’ve been praying and thinking through that. And then also, I’ve been reading Ecclesiastes recently and kind of thinking about the concept of beginning with the end in mind. So we’ve been thinking through both the winds of the widows and orphans and the truly poor and sojourner, and where do we want the end to look like in life and working backwards? Because there’s so much that is so distracting in life that I’ve come to think about a lot of distractions recently, and our world is just full of distractions. And I think if we’re not super intentional now where we’re going. And I think the Book of Ecclesiastes really comes with a fine point. And then if we focus on where we’re going, keep our eyes on Christ and our eyes on the target, then we’re able to eliminate distractions.

John Coleman: Jimmy, this was an amazing story. You’ve mentioned it a few times, but Jesus obviously told us the two greatest commandments are love, God, and love your neighbor. And it’s hard for me to think of a better way to do that than building communities like you’re building that reflect the love of God and that serve the people who are most important to Him and whom He loves and creates a community among these people who probably wouldn’t have thought of themselves as neighbors, but now are, and they’re neighbors with you. And I just think it’s really powerful what y’all are doing through Launch Capital and really, really grateful for the work and the service that you’re doing there. So thank you for joining us today and telling us about it.