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.

John Coleman: Welcome to the Faith Driven Investor podcast. This is our monthly Mark’s on the Market podcast, where we hear from experts around the world who are leading faith driven investment firms, who are people of faith and who are intimately familiar with the operations of markets, and can help us to understand what’s going on day to day in the financial markets around the world. Today, we’re really privileged to welcome two legends in the space. David Spika is the CEO of GuideStone, the largest faith driven investment mutual fund manager in the world. And Bob Dole is the CEO of Cross Smart Global Investments. Faith Aligned Institutional Investor. And both of these gentlemen also have long and storied careers in the investment industry. Hopefully most of you have heard from them before and they offer a great perspective on markets. And we’re just so pleased to have the two of you with us today. So thank you, Bob and David, for joining.

David Spika: Happy to be here.

John Coleman: So we’re going to kick off. It’s been a busy week. It’s been a busy month and it’s been a very active month in financial markets. To start off, Bob, I wanted to talk to you. We actually just had the GDP numbers come out today as we’re recording. And the question I have for you is, are we in recession? Which used to be a simpler question maybe to ask. But we’ve heard recently from Janet Yellen in the White House that maybe two negative quarters of GDP wasn’t actually a recession. So in this context, how are you thinking about recession and are we in a recession right now?

Bob Dole: You make a great point. That is, we’re not sure about the future, but we’re going to argue about the past. I think the headlines have just started. Many will say two down quarters in a row. Well, that’s a recession. Other people say not so fast. The truth is, the National Bureau of Economic Research declares when we have a recession, typically months after the fact. So there is nothing magic about two down quarters. Although I went back in my history books and found out the last time we had two back to back down quarters and there was no recession was 1947. So it’s been a long time. So typically when you get a couple of down quarters, you know, somewhere in that zone there’s a recession. So my view is that the weakness we saw in first and second quarter were the most volatile parts of GDP. First quarter it was trade, second quarter it was inventories. And the more traditional, possibly more stable parts of GDP were okay down in the first quarter from the record. GDP we saw last year is strongest since 1984 and of course even slower in the second quarter. My guess is forget the numbers and recession or not, we will continue to slow. That was in place already after the strong year last year, aggravated now by inflation, interest rates and attempts to quell growth, if you will. Let me add one more point. The reason I think we may escape a recession or if we have it, is just going to be short and shallow is the strength of the things that make up our economy, the US consumer not perfect and weakening for sure, but still has lots of excess savings on the balance sheet as a result of COVID either money not spent or money nailed by the government. Secondly, the corporate sector. Cash. Cash flow. Balance sheet strength. All pretty good. Not uniform, but pretty good. Profit margins are still high, albeit under a little bit of pressure. And then most importantly, the job market, we still have twice as many job openings as we have people looking for jobs. That’s a very strong job market. We’ve never had a recession in the US before with a strong job market. Now it’s beginning to weaken. We’ll see where it goes from here. So weakening for sure. Recession. You tell me what the definition is.

David Spika: Can I? If I could jump in. I think we’re asking the wrong question. I don’t think the question is, are we in recession or not? I think the question is how are consumers faring? Consumer spending is 70% of our GDP and consumers are hurting today. No question about it. Just look at Wal-Mart’s results from this week. That really is the key. And if we’re not in recession today, we fully believe we will be, because the Fed is going to have to continue to be very aggressive in raising rates and letting the balance sheet run off in order to bring inflation down. We’ve never seen inflation come down meaningfully without a recession, and we’ve never seen inflation come down meaningfully if we didn’t have a real positive Fed funds rate. And we’ve got a long way to go before we get there.

John Coleman: I want to circle back to the inflation question, but before we dig there, assuming we are entering, Bob, as you said, a slow down or David, as you said, there’s a recession on the horizon. How are the two of you thinking about which economic sectors or asset classes are likely to perform well in that type of environment? And how are you thinking about those that you’re trying to avoid as we enter those two potential situations?

David Spika: I think it is becoming a good opportunity to buy bonds, particularly high quality bonds and treasuries. Obviously, the first half of the year was absolutely horrible for bonds, one of the worst periods you ever seen for the Barclays AG. But with rates where they are and starting to go lower, they will continue to go lower as we move into recession. We’re going to have credit spreads widen. But if you own high quality bonds and if you own treasuries, you should be okay. We’re also going to see at some point an opportunity to see risk in the equity market. We don’t think that time is here yet, but at some point we don’t get these times very often. Very rarely do we get a chance to buy stocks 20, 30, 40% down. We’re going to have a chance to do that. But today, bonds and even cash, cash is yielding better than two and a half percent. What the heck? Let’s put some money in cash. Let’s increase our cash holdings, have some dry powder. So when that opportunity to re-risk comes, we’ll be ready. And on the bad side, I would be very leery of non-U.S. exposure, particularly risk exposure, whether that’s emerging market debt or equities, because the dollar’s likely to continue to remain high. That’s the flight to safety that we see in a volatile environment. And as long as the dollar remains high, you probably want to stick with U.S. assets. And the other thing I would be a little leery of is commodities. Obviously, energy has been great, but commodities are very economically sensitive. We’re seeing oil prices come down. Copper is down about 25% from its high. We need to be leery of those as long as we believe we’re going into a recession.

John Coleman: Bob. Anything you’d add to that?

Bob Dole: Yeah, largely in agreement. I’ll go in the same order. And our fixed income funds, we have length and duration. We’re still below our benchmark, having been way below our benchmark at the start of the year. So while we’re down for our clients, we’re down not nearly as much as the benchmarks. We think, as it sounds like David does that. At worst, we’re in a trading range for, let’s say, the ten year yield. It’s 280 ish as we speak. Could we move down that to 70 to 60? Sure. Could we move back to three? Possible. But the threat, the big negative sign in front of the bond mark is probably removed as the economy slows and we see less bad news on inflation, on equities. You know, the question is, was June 16 the low? It is the fifth close trading where we got a big bounce afterwards since the bear market started. I think we saw off that bottom the best news so far. But I still think we’ve not seen the capitulation that is typically as a bear market. I’m talking about, you know, volatility up the VIX over 40. A big explosion in put to call volume. We’ve not seen that a pick up in volume generally kind of, if I might, puking it out. We just haven’t seen that yet. So we probably have a lower low, but we are opportunistically and only on weakness beginning to accumulate some stocks, commodities. I agree. They had a huge run. Oil’s down. Copper is down for among the reasons we think inflation’s going to get less bad, if you will. And I guess maybe the only area I might put up a little difference is international. International stocks beat the U.S. by 300 basis points in the first half of the year. Very surprising to a lot of people. Despite the dollar’s strength, we expect there might be more of that to come. Non-U.S. markets are a whole lot cheaper than the U.S., although value never gives you a timing tool. And if the economy is weak, this flight to safety and the more defensive nature of the U.S. market could help us do better. So I think the jury’s out on that one. My guess is there’ll be some good stocks in both geographies and some bad ones in both, too.

John Coleman: And maybe before we move on just to zero in those, have you mentioned that there might be further room to the downside in U.S. equity markets? I think, David, you said you’re not ready to kind of start buying aggressively yet. Bob, you said something similar. I believe on our side we’ve been thinking the same thing. We’ve seen a lot of multiple compression back to more historical averages, but haven’t seen the weaknesses in earnings materialize, which could provide further downside if you have thoughts on it. We’d love to know. Maybe starting with you, David, just how much further are you looking for stocks to decline before you think it’s a buying opportunity? Is it 5% or 10% or more? And what would be your sign that we might be hitting the bottom of that trough and that it might be an opportunity to begin getting in more aggressively?

David Spika: Great question and several ways to look at that. We’re trading at about 18 times forward earnings today. Markets have historically bottomed at 11 times. Do I think we’re getting to 11? I sure hope not, because that’s a long way from here. But you hit it on the head. We haven’t seen earnings degradation yet. And if we’re going into recession, earnings are going to come down. So we need to start seeing earnings estimates go lower. Historically, in a recession, earnings fall by 30%. That will be the next leg down and that will create additional multiple compression. That 18 times is still not where we should be if we’re going into recession. So those two combined are likely to take us down further. The average decline for a bear market when going into a recession is 36%. So it wouldn’t surprise me to see us broach that 30% level. We’re down about 14 or 15 now. We did hit the 20 mark, so 30% would not surprise me in terms of when the bottom is in. As Bob referenced, there are certain signs, technical signs, 90% of the market trading above its 50 day moving average is one of those. But one of the things that we think will be a pretty clear signal is when the Fed has ceased raising rates. Now we’re not on board with the Fed cutting rates in the first quarter of 23, but if the Fed’s pausing, that means we’re likely at an inflation level that is somewhat palatable and the market will respond well to that. Now, that doesn’t mean we’re back off to the races, but it does mean that major headwind, which is rising interest rates, tightening financial conditions, is probably in the rearview mirror.

John Coleman: That’s excellent.

Bob Dole: Again, not a whole lot of agreement, maybe a little less bearish than that. I give it one in four, one in three that the June 16th low was the low. So the majority case by far is it wasn’t. And I have said that absent a significant recession, the risk is probably a 5% move below where we were then and we’re up ten since then. So that’s 15% from here. Kind of what we’re down from the high not too far from that. We’ve narrowed that gap. So I was saying the lion’s share of the bear market from a price standpoint is in the rearview mirror with this nice rally we’ve seen. Perhaps not now if we’re going to have a more significant recession with imbalances that we don’t see today, it could either be worse and or last longer. And I agree with David with those technical signs. Fundamentally, we’d like to see that we’ve had a peak in long term interest rates. Perhaps that’s in we’d like to see the end of earnings estimate cuts. We’re not there yet. We’ve only started. And I’d say the Fed thinks slightly differently, visibility on when the end of Fed tightening is likely, and I don’t think we’re anywhere near that yet.

John Coleman: I want to pick back up now on the topic of inflation. We’ve talked about it throughout here and obviously it’s high on people’s minds. There was recently a stop inflation bill. I think it’s come out in Congress, for example, or titled that, you know, as we think about this, inflation is obviously a policy issue as well as an economic issue. And I’m wondering if you could talk about what you’re looking to see from the Federal Reserve as well as from the US government as we seek to tame inflation and how you see that inflationary environment developing now. And perhaps, Bob, if you don’t mind, we could start with you.

Bob Dole: Sure. Be happy to. So, first of all, a little bit history. Put it in context. It seems like inflation was a topic we didn’t talk about forever because inflation was two or lower for years. And then all of a sudden, you know, we wake up and inflation’s, you know, eight, nine, approaching 10% because remember, inflation is transitory. That’s a joke, obviously. And we move on from there. Look, we have said since the first of the year, we think second quarter will register the peak in inflation. And I think that’s the case. Obviously, a couple of weeks ago, we got that June inflation number that was just so devastating after the negative surprise in the month before. So, you know, we’re at some levels that are reasonably high reasons. We think that we’re likely to have lower inflation in the next bunch of months. One, the slow down the economy. Two, as both of us have already commented, declining commodity prices, oil from peak to trough down more than $25, copper down 25%. Dr. Copper tells us a lot about both the economy and inflation. And then three, the supply chain problems. I’m not making the case for solving them, but I think they’re a little less severe and will be as we go forward than where we’ve been. All that takes the inflation rate down some. My guess and that’s all these things your hope, their educated guesses is by the end of the year, we’ll be registering monthly inflation numbers that annualized around four or 5%, down from your 8 to 10 where we speak. And that’s a problem because the Fed says they want too I think they’ll compromise at some point at three, but 4 to 5 is not two or three, which means there’s more work to do. And I think that could create problems for stocks and bonds somewhere down the line. Maybe not until next year.

David Spika: Yeah, I would agree with Bob that we’ve probably seen the peak a sure hope we don’t go above 9.1%, but I’m not quite as optimistic on the decline. You have to consider what the Fed is able to do to mitigate inflation. They have no control over the supply chain issue. The only thing they can have an impact on is demand, and they’ve got to take the consumer out at the knees. How do they do that? By reducing consumer wealth. We’ve already seen that financial assets, housing next and they have to reduce consumer incomes. We’ve got 3.6% unemployment today. Consumer real incomes are not good, but obviously nominal income is very good. Second quarter nominal GDP was over 9%. That’s too high. So the Fed is going to have to continue to raise rates until we start to see some weakness in the job market to really have an impact on consumer demand to materially bring down inflation. And we think that’s going to take a while. We think that could be another 12 months. The belief that the Fed is going to be cutting rates in the first quarter of next year, which is really why the market was up yesterday. And today they perceived Powell’s comments as dovish, which I don’t get. We just don’t think that’s likely at all. And if inflation’s running at four or five, as Bob says, if it’s running at six or seven, regardless, the Fed’s not cutting rates there. They may pause, but they’re not going to be cutting rates. And as long as they’re not raising rates, they’re not doing the damage to consumer spending and consumer incomes that they need to do in order to bring inflation down. So to us, it’s a longer cycle that we’re facing.

John Coleman: Just to pick up on a couple of those themes, because you touched on really interesting things there. One is just very simply, where do you see interest rates going over the next 12 to 18 months? Obviously, the Fed funds rate, but also how those filter out into the economy. What’s your outlook for the interest rate environment over the course of the next year, year and a half? And maybe, Bob, if you don’t mind, we’ll start with you.

Bob Dole: Sure. So let’s start with the Fed press conference yesterday. Chairman Powell, you know, if you read between his lines, he’s basically suggesting there’s 100 basis points to go. They have the luxury of no meeting for a couple of months here. And, you know, 100 basis points probably means 115 and 225. Reading between the lines, what David said, I think both of us believe that’s not the end. That’s just not going to do the trick. So I suspect the market reacting to all that positively yesterday and today probably get smacked across the face again at some point when people realize that’s just not going to do the trick. So I think the Fed’s got more to go. It’s going to take longer. I didn’t say it when I comment on inflation. I should have. David said it. Well, you know, the Fed has little control over inflation because they only can influence the demand side. That’s why the commodity price thing the of solving some of the supply chain problems is so key. If inflation is going to come down regardless almost of what the Fed does out the curve, I think that for now interest rates have found a level we got to that 349 intraday. A few weeks ago. I don’t think we’ll see that level any time real soon. But if I’m right, 4 to 5% end of the year, if David thinks six or seven, even more about what I’m going to say will come true, interest rates will head back up. It’s just not enough to have these big negative real rates in order to have an impact. David said this earlier Getting real rates to be positive is almost always required to tame the inflation. So I would expect they will have out the curve higher rates again starting, you know, months from now, but enough to be painful.

John Coleman: So, David, as you pick up on that question, I’ll raise a potentially frightening question, which is, you know, in some ways, this economic era looks a lot like the late 1970s, right, in terms of the rapid inflation, in terms of action in commodity markets, etc.. I know there are differences, but at that time, interest rates climbed to a truly phenomenal level. I think at some point we’re at 20% or something like that in the late seventies, early eighties. Do you see any risk of that type of interest rate movement? And if not, what do you think moderates this era versus that one?

David Spika: Yeah, I was in high school then, so fortunately I didn’t feel it as much as maybe my parents did. But my first mortgage was nine and a half percent and I recall being lucky that I got that. But in any event, I don’t think we get to that point. The economy, the global economy is much different today than it was then. The Arab oil embargo was a big component there. We weren’t producing the energy we produce today. We didn’t have the global trade then that we have today. And the Fed was, I think once Volcker took control, he really had to work hard because they were so far behind the curve. Now, this Fed’s behind the curve, too, but I don’t feel like it’s the same situation. All that said, one of the things that does concern me and I mentioned globalization, one of the things that is a likely byproduct of the war in Ukraine is the fact that countries around the world, economies around the world don’t want to be dependent on other nations for their needs, for their products, services. Look what’s happening in Germany right now. They’re in a world of hurt, given what the Russians are doing with regard to natural gas distribution. And so that reduction of outsourcing that becomes on sourcing, right? In-Sourcing producing more goods at home is going to create some structural inflation that we’re not used to. Now, that doesn’t mean we get double digit rates. I think the economy would react much more quickly today than it did then to a significant rate hikes. And again, we’re starting from much lower level today than we were there. I can’t remember where we started then, but we weren’t at zero. So on an absolute basis it’s not going to have to go as high. But there are some similarities between then and now that do give me a little pause. And it’s that globalization feature that has been a real positive for inflation over the past 20 years. That may be coming to somewhat of an end at this point.

Bob Dole: Yeah, the three reasons in my view that we had such low inflation for so long were technology, demographics and the issue of globalization. Globalization, as David has said, is disappearing. The nationalism around the world and lots of politics is causing that not to be the negative inflation pro growth thing it was before population. The all the developed world has dangerously low population growth, some places negative. And of course, a technology piece I think is alive and well. So that is among the reasons I agree with David that we’re not going to those crazy inflation rates that we saw before. This is a phenomenon that is painful now, but we should get it under some control. Doesn’t say we’re going back to 1% inflation, but I think we with a lot of work, probably a recession, we can get this thing back to three ish.

John Coleman: David and Bob, you’ve both touched on international markets. I think, Bob, you started by talking about some of the opportunities in international markets over the course of the year so far. And David, you touched on this idea of global supply chains, etc., in your recent comments. Obviously, the Russian invasion of Ukraine was a really negative shock to the global economy. China’s decision to pursue a zero-covid policy has been a negative shock to some extent, continuing to constrain supply chains. Just quick thoughts on what are the risk factors that you see now in the global economy that might impact investors here in the United States or around the world? And. Where do you think there might be opportunity in the global economy right now? And David, maybe you could start us off.

David Spika: Yeah. What’s going on in China is very curious and very alarming. The Zero-Covid policy, we’re hoping this is something that Xi is going to suspend once he’s reelected as lifetime ruler. But it just doesn’t make any sense for a country of a billion and a half people to expect a zero-covid. And that has that been a huge factor. You know, it’s funny. COVID was a black swan and it has spawned other black swans. Right. It’s born this runaway inflation. It’s spawned, I would say, to a degree, the war in Ukraine. It spawned what’s happening in China today. And so it’s almost like this continuous black swan. But to me, what’s happening in China is the biggest concern. China is the second largest economy in the world. They’re a huge factor in the global supply chain, a huge factor in production of goods and services. And to the extent they cannot get back to a level of production that is appropriate for the rest of the world, that could create some headwinds. The other thing to recognize when it comes to Russia. If Putin were to walk out of Ukraine tomorrow, the world not going to say all is forgiven. We’re going to start doing business with you again. He’s a pariah. As long as he’s in office, which is probably going to be an extended period of time. So those two things, which are a couple of the black swans that occurred this year, I think are going to continue to be headwinds to the global supply chain.

Bob Dole: I agree 100% with everything David just said. I’ll add just one point to it. That is a continued risk and that is a supply of energy. You know, I think one of the events I’ll call in an event that has not gotten enough attention is the curtailment of supply in the country that has the most opportunity to create incremental energy. And that’s the United States. If you go back to January of 2021, we were coming out of covid, the demand for oil was rising quickly. And in this country, we canceled the Keystone pipeline. We put a moratorium in many ways on new drilling and made it difficult on the permit side. So economics one on one demand for something. In this case, oil is going up. Supply has been curtailed. What happens to price? Definitionally, it goes up and we’re still struggling with just not enough of this stuff. As the global economy recovers, post whatever recession we’re going to be in. So that remains a risk, in my judgment.

John Coleman: And Bob, just to pick up on that briefly, you know, energy markets have been highly volatile recently. And to your comments, some of that is based on policy decisions. If you have a magic wand right now and could try and convince the federal government to enact policies that you felt like would restore a semblance of normalcy to the energy markets, what would you advise the current presidential administration or Congress to do in order to support energy markets?

Bob Dole: I’ll try not to be political in my answer, but, you know, I think, look, if I were the president and I believe big time in the environment and green this and green that, I think I would say, hey, folks, I believe in green just like you do. But can you give me a couple of years where I can address the problems we have right now, in particular inflation? And just I’ll put it this way, open up the spigots for a while and let’s let the supply try to meet the demand, bring the price down, and a lot of our inflation problem eases up. Not all of it, but a lot of it does. And then we can worry about the green stuff later. That’s why I would advise the administration.

David Spika: The only issue I have with that, Bob, I agree, but the only issue I have is if I’m an oil and gas producer and if I think it’s a two year window, I’m not committing billions of dollars of CapEx into development. Heck no. I produce tremendous cash flow today. My shareholders love me and I’m sitting right where I am today. I love $100 oil, so we need, quite frankly, a change in tone on the energy industry as a whole in the United States. We support you and we are going to we are going to provide what you need to be successful.

Bob Dole: You went one step beyond me. I’ll sign up for that in a nanosecond. Yes.

John Coleman: It’s really interesting and it will be really interesting to see how it plays out practically. Obviously, we’ve got elections coming up. There are two very different platforms at play and there’s the chance of a divided Congress and presidency. And I think that will be one of the interesting questions along with spending as we enter that potential environment, just exactly what happens. I’ll note that on the supply chain question you know in our firm will often be invested in or own companies that have supply chain considerations. One of the things we’ve started to look at with our CEOs, they’ve been struggling in an environment for two years where the supply chain was constrained and where it’s been very difficult to get inventory. Therefore, everyone’s been trying to get in the queue for additional inventory as they can. Everyone’s been ordering. They’ve been telling customers that they’re developing backorder lists, and we’ve been trying to get as much inventory as possible. One of the concerns we’re continuing to navigate is what if that supply chain can stretch and continues? The other, however, is what if that loosens more than we think in the near term and we actually get a glut of inventory, which I know is something that some consumer companies are beginning to worry about as well. And this uncertainty around supply chain could create problems in either direction. Right. You could see people with a glut of inventory with working capital management problems. You could continue to see people not be able to get the components or equipment or goods that they need. And we’re not certain which way that will go at the moment.

Bob Dole: Yeah, I’ll comment and then let David pick it up. Look, the GDP report, we just got 200 basis points of GDP negative as a result of inventory. So it spoke loudly and clearly in the second quarter. I have to go all the way back to the pandemic. When the pandemic came, we shut down the economy. We turned it off. We’ve never done that before. And then we turn it back on. I think the assumption naively was I turn it back on and everything comes back to normal. Well, it’s just not the case. It created all kinds of dislocations that we are still dealing with today, and that’s going to take time to unwind. And my comments earlier, I said, I think some of the supply chain problems are easing a bit and I don’t want to be too Pollyannish here. So I think we’re solving some of them, but we got a lot of them left. Semiconductors, you know, a little less bad than it was, if you will. But we got a ways to go. And this is not going to be smooth and easy. And then if we try to layer a recession on top of it, it’s going to set us back a bit in figuring out how to balance supply, demand and lots of markets. So I think there’s a multi-year solve that we can’t underestimate.

David Spika: Yeah, I agree completely. Just like we’re feeling pain with regard to a significant increase in demand coming out of the pandemic. There’s going to be pain on the supply side and we’re just going to have to work through it. And quite frankly, I would just as soon see the supply chain issue clear up sooner rather than later and deal with those issues today as opposed to an extended period of stagflation.

John Coleman: Yeah, I agree with that, David, for sure. If I could bring it back onshore for a minute. One thing we haven’t talked about directly yet is the housing market, which is deeply related to interest rates. We were with Jonathan Reckford, the CEO of Habitat for Humanity International recently, who quoted a statistic that I hadn’t heard before. That right now is the greatest gap between median income and median home price in the history of the United States, that homes are less affordable for the average American than they have been at any point. And certainly we’ve been living through an incredibly hot residential housing markets. Interest rates are beginning to cool that, it would seem. What are your expectations, David, for the housing market over the course of the next 12 to 18 months? And what are some of the risk factors at play there?

David Spika: I’ll begin just by saying that my daughter is going to be 30 next month and her husband of two years are looking for a house here in the Dallas area. And I said, why don’t you wait another year? I don’t think the time is right yet, but I do think we’re going to see and we’re starting to see it. You’re seeing mortgage applications at 22 year lows. You’re seeing sales start to decline. Prices are leveling off, not falling yet, but with mortgage rates where they are and with the point you mentioned about the disparity between house prices and income, you’re going to see house prices come down. There is no question in my mind one of the good things about recessions that we all think recessions are bad and they generally are, but they tend to do a good job of reducing imbalances in the economy. That’s what recessions are for it’s like pruning the crate, modeling your front yard. You got to prune it back to get new growth. We need the same thing in the economy, and so that’s likely to happen. The good news is, in my mind, this is not like 08, 08 was a hugely demand driven run in home prices as a result of very easy credit. This run feels like, at least here where I live in Dallas, to be more of a supply issue, we just don’t have the supply that we need to meet demand today, and not just on the residential side, but if you look on the commercial side and talk about multifamily, my gosh, is there demand for multifamily? And so that demand is likely to keep a floor under prices for a period of time. But that’s a regional issue. I don’t think it’s going to be the same here in Dallas as it is and say, northern California or someplace else. There’s going to be some differences there. But bottom line, yes, there’s going to be a decline in house prices. It needs to happen. It’s part of the Fed’s plan to eliminate to reduce the wealth effect. But we don’t think it’ll be anywhere near what we saw in LA.

Bob Dole: I fully agree, a business cycle one on one. The most interest rate sensitive part of our economy is housing. And so it typically is the first to go this way and the first to come back out. It is part of what the Fed does when they stimulate to get us out of recession and you start seeing life in housing. So we are in the early days of the downturn, including the price of homes, as David said.

John Coleman: I want to touch on briefly. You know, we’ve gotten a lot of great macroeconomic thoughts here that you’re both extraordinary fund managers and you’ve been investing in companies for a very long time. David, I think it was you who mentioned up front that you were selectively looking at securities that might be worth investing in at companies that you thought were well positioned right now as you’re both looking at specific investments. What are the types of traits you’re looking for? Maybe starting with David that indicate to you that a company is ready for investment or something that you’re willing to bet on through this cycle. And what do you think our listeners should be looking for?

David Spika: I think if you’re going to be moving into the equity market, you need to be very focused on high quality companies, companies with good, strong fundamental characteristics, strong free cash flow, low debt. And really importantly today, pricing power, costs remain high, labor costs, input costs. Companies need to have the ability to pass those through to their customers in order to grow their earnings. Top line growth is great for everybody. It’s that earnings because we’re getting operating margin compression. So that high quality aspect to me is absolutely critical today. Being somewhat defensive makes sense, and that doesn’t mean you just buy health care and consumer staples. There are high quality companies with defensive characteristics in every sector of the market and companies that have good earnings visibility. Right. Not your cyclical companies, but companies with good earnings visibility. That’s where I would be playing today.

Bob Dole: We do not compare notes, but I would have said and I will say quality, quality, quality. And we define it three different ways. One, quality of the income statement earnings. Is it predictable? Are they measurable? Are related to cash flow? And we can call them quality of quality. The balance sheet. Can they service the debt that’s on their balance sheet? Do they have debt? Will it strangle them? The things really get bad. And the third and the hardest to measure is quality of management. Have they done it before, through a cycle? Have they demonstrated they know how to cut costs, the right costs when it’s time to reinvest? Can they do that intelligently? So quality, quality, quality. Now, I will say we’ve been on that theme for a while and as we approach a market bottom, we’ll have to root out some of that quality and with put some low quality in the portfolio, because when the market turns, you don’t want quality, you’ll be left in the dust. You want to own the junk too soon, but start doing your homework.

David Spika: Absolutely. Agree. 100%, Bob.

John Coleman: Yeah, we were just talking here. We’ve had the same advice to people with regards to fund managers quality, quality and quality. Because if you think about it, it’s been 15 years since we had some sort of dramatic correction. Obviously, we’ve had years where the markets were down marginally, that the last dramatic correction was the great financial crisis. And an extraordinary number of company leaders and fund managers really haven’t had experience at the top of the house in leadership positions with an economic cycle like this. And so you’ve got to look to your point to those leadership teams, both at fund management houses and at individual companies that have seen cycles like this before, are intellectually prepared for it, and know what types of steps to take and what type patients to have during periods like this.

David Spika: Can I make a quick comment on that? Because I think you struck a nerve there. It’s been 40 years since we’ve seen inflation at this level, so most people have not experienced this. But I’ll tell you what’s even more important in my mind, it’s been 12, 14 years since we’ve seen a market truly react to fundamentals. A lot of people in this business have only seen a market that’s been driven by monetary policy. They have no idea what happens when the Fed turns the other direction on monetary policy. They don’t understand about quality, as Bob saying, and that fundamentals should be driving stock prices. And to me, that’s a little concerning. And I think that’s one of the reasons why the market is rallying here this week. On something that I don’t think really has any merit. Oh, gee, the Fed’s going to cut rates at some point. Powell told us that. So let’s get back in. Well, that doesn’t make any sense. We haven’t even seen the earnings cuts yet. So to me, that’s something that I think we need to keep an eye on.

Bob Dole: I’ll extend that first of all with agreement. But we’re in an environment and should be for some time where fundamentals really do matter. We have basically a decade where all you want to do is buy high duration stocks with long tail growth. Because like in the bond market, when interest rates fall, you want to own the long duration paper. What’s a long duration equity? One that might earn some money and pay a dividend ten years from now. To exaggerate, to make the point. Now it’s which companies are delivering the goods? Which ones aren’t. And you know what the first outperforming the last don’t. But that’s not been normal in the last decade. It should be a year when those who do their fundamental homework have a better shot.

John Coleman: All right. I want to ask one final question before we move to our true final question about what you all are learning from scripture. Because in addition to being great investors, you’re great men of faith. And I know we would all benefit from hearing what you’re thinking about and what God is teaching you right now. Before we do that, I’ll just ask a 10,000 foot question, which is for those investors who haven’t lived through the cycle and for all of us who haven’t lived through it in a while, what’s your general advice to someone hoping to navigate this well and to steward their financial resources well over the coming couple of years?

David Spika: I’ll go ahead. Jump in. I would say, first and foremost, for believers remember who’s in control? The Lord’s in control. Don’t get caught up in what you’re reading on Facebook or hearing on Twitter or seeing in the mainstream media the Lord’s in control. The other thing I would say is recognize that it has been since 2008, since we’ve had a true recession. 2020 wasn’t a true recession. That was self-imposed. And as I said earlier, recessions do a modicum of good for the economy. They reduce imbalances and they cleanse the economy so that we can have growth again. The third thing is recognize that valuations were way too high and we’ve seen a significant decline in valuations. So we’re closer to the bottom, much closer than we were six months ago. And at some point, we’ll be there. And if you’ve got some dry powder, you can benefit from that.

Bob Dole: You prompt us on this question. So I made a list of five. One recognize that what we have is not ours. It’s the Lord’s. And not just our money, our everything, our minds, our bodies, our relationships, everything two. Therefore, it’s an awesome privilege, but also an awesome responsibility. You know, if the money is really mine. Who cares what I do with it? But if it’s God’s now, all of a sudden I better take care of it and be smart about it. Number three, don’t get caught up in the noise and the emotion of the day. If you name the name of Jesus, people are extra watching you in periods where it’s noisy and bumpy and controversial. Try to have that compass four this is for anybody, faith or not long term view. We’re talking a lot about the near term. But, you know, if your time horizons 20 years, there is no 20 year period in history where stocks haven’t gone up. So, you know, I don’t be stupid about it, but keep that sort of thing in mind. And finally, number five, sentiment. We haven’t talked about that at all. When everybody’s bullish is generally a good thing to be bearish. And when everybody’s bearish, which they have been being a little more constructive makes some sense. So they’re the five points I would consider.

John Coleman: That’s awesome advice, gentlemen. And before we wrap up, you’ve already started to go down this path. But even apart from financial markets, we’d really benefit from just hearing what’s on your mind and what God is teaching you through Scripture right now. David, I wonder if you could kick us off just any wisdom that you’ve encountered lately in your Christian walk?

David Spika: Yeah, this has been a challenging year for me, personally and professionally, and so there have been periods where I’ve gotten a little bit discouraged. But as I’m in my quiet time, a verse to come to me recently is Galatians six nine. Let us not become weary and doing good, but at the proper time we will reap a harvest if we do not give up. Now, that’s very encouraging to know that God’s there. He’s going to help me through the challenges I’m facing. And my part is to be obedient to him and to continue to strive to glorify him in everything I do. And I know that, GuideStone, we’re doing good. We’re serving those who serve the Lord. We’re providing retirement for people who spend their entire life preaching the gospel. And that’s important. And even when we have rough periods for 6 to 12, 24 months, it doesn’t matter. Ultimately, serving God will reap rewards for us as long as we continue to be obedient to Him.

Bob Dole: Mine’s not a whole lot different. I put it under the word patience in tough times. Personally and professionally, having perspective and having the patience. The patience of Job, as we often say. But even the patience the Lord showed us. I remember in the garden he was sweat and drops of blood. But, you know, he maintained his center Lord, not my will, but yours be done. So they’re the kinds of things we try to remember. Look things happen in markets very quickly, but in the real world they tend to happen more slowly. And I sometimes think those of us who are in the markets taking a patient’s pill once in a while will help us do a better job for our clients and not trying to anticipate every jot and tittle, but to get the longer sweep. So patients, my friend.

John Coleman: That’s a, I joke all the time. We’ve got a couple of our fund managers. The problem with the ticker moving every second there as you’re watching it is you can get tied up in the moment. And that idea that we’ve got faith obviously in something else and that we should be patient and think longer term is incredibly important. Bob and David, a tour de force. I would expect nothing less. I know that everyone benefited not only from your knowledge of markets, but just from your wisdom and maturity as believers. We’re grateful for the work that you do in markets and on behalf of clients. We know we’re stewarding resources for God’s kingdom, and we’re grateful to you, particularly for coming on today and sharing your thoughts. Thank you very much.

Bob Dole: Our privilege. Thank you.

David Spika: Thank you. Enjoyed it.

John Coleman: Welcome back to another episode of Faith Driven Investor. I am here today with my partner Luke Roush and we are soon to be joined by two incredible investors and folks who think about faith driven investing. Ben Erskine and Matt Miglarese. But before we do that, Luke, how are you doing today?

Luke Roush: Great day. It’s summer season, which means time with family, time outdoors and time cranking. And we’ve got two guys on the call today that are cranking in the realm that God has laid out for them. So I’m excited for this interview.

John Coleman: Yeah, me too. Me too. And you’re in Bear Lake today? Is that in Utah? Is that right, Luke?

Luke Roush: We are. It’s from the beautiful Bear Lake, 6000 feet elevation. And it is a great place to do remote work from, so I am greatful for my partners that let me to do remote work.

John Coleman: When was the last time you would say you worked, Luke?

Luke Roush: Well, I feel exposed. I feel exposed.

John Coleman: Well, indeed. We are privileged to welcome Matt and Ben today. Matt and Ben. Thanks so much and welcome to the program.

Matt Miglarese: Thanks for having us.

Ben Erskine: Great to be here.

John Coleman: So one thing we wanted to start with today, we’re going to circle back to Callis Capital with which you’re both affiliated. Ben, obviously, you were a founder of Callis Capital and a real estate investor. And Matt, you’ve come alongside Ben working with CallIs in an advisory capacity. But we wanted to start with this idea of the spiritual integration flywheel effect of the flywheel effect more broadly. You two recently wrote a white paper on this idea of the flywheel effect and how that applies to FDI. I was wondering if you could just take a moment to tell us what is this flywheel effect and why does it apply to faith driven investing?

Ben Erskine: Yeah, yeah. I mean, really what it is and there are probably a bunch of investors out there that are familiar with the term from Jim Collins book, Good to Great. And you know, before I forget, I always wanted to say this first time caller, longtime listener. I think that, so really it’s just an application of that idea that Jim Collins kind of gets into in his book, that lasting success is not the result of a silver bullet, but rather the result of consistent input over time. And sometimes that input might even seem insignificant. And so as we have been wading through the ecosystem out there of different operators that are doing great things with real estate business plans across the country and across different asset classes, we’ve noticed time and time again that it’s very much a process and sometimes things that feel insignificant are really the meat and potatoes that get you there on the spiritual integration side. And we really bucketed those things into three different categories that kind of fit into this flywheel.

John Coleman: It’s great. And Matt would you say more about what those three different buckets are and how those might apply practically to some of the ways in which people invest?

Matt Miglarese: Yeah, yeah, for sure. So we kind of assign the term like practice of the first category. Translation is what we’re calling the second category in purpose, really. I mean, Ben touched on a little bit where we want to be in a position where we get to look back and kind of say across this landscape, what’s the pattern that’s leading to all the things we really hope we want to see? Right. And so those are kind of it’s just our terms of trying to test that, but really describe it. And so the idea about two of this very simple, faithful but consistent and intentional practices that folks are doing that in the moment, you know whether it’s weekly or monthly prayer for their tending to their vendors or whatever it might be, or whether it’s, you know, just welcoming with a very like hospitable strategy like that. It might seem fairly repetitive and insignificant, but it’s done consistently, faithfully over time. And that practice then kind of jumps in to be able to share the why behind it and then jumping into if folks into internalize the purpose behind the integration you’re going for.

Luke Roush: So Ben and Matt, I want to jump into some specific examples of how you guys are thinking about incorporating your faith in the work that you do as a real estate investor. But first, I want to go back in time to the origin story and maybe take us back to the beginning. In 2020, Callis Capital is being formed. Help us understand from where you came in terms of form in the firm.

Ben Erskine: Yeah, yeah, sure. So like you said, we were founded in 2020, but it was really years of conversation and idea generating and prayer that led up to that moment. And so I’ve spent my career on the transactional side, the brokerage side of commercial real estate, usually working for the users occupiers of real estate and sometimes the investors into real estate as they manage portfolios around the country in different commercial asset classes, office, industrial and the others. And so as I was in that phase of my career, I always had an eye towards getting closer to the principle seed in transactions. And it really coincided with as that was starting to come into more focus. It coincided with observation of everything else that was happening in the faith driven investing sphere. So I had some exposure into that sovereigns with a part of that Sovereign’s Capital seeing what was happening in venture and private equity. I couldn’t help but ask questions about, Hey, what could this look like? What should this look like in the real estate asset class? And I’m biased. I love real estate. I have an affinity for real estate. But, you know, one of the distinctiveness of the asset class is just this power of place. When you control real estate, you control space in places where people live, where they gather, where commerce is conducted. And so there is a power to place the design of that place and the operations that drive the functions within that space. And so I was very much inclined to think, hey, if there’s ever been a phenomenal asset class for spiritual integration, it feels like real estate could be at the top of that list. And so, like I said, those conversations really evolved over the course of five or six years. And in 2020, we formed the fund that we had a few closings and took on some outside capital. And today, you know, we’ve been invested with nine different operators across 17 vehicles and had exposure to thousands at this point of multifamily units and a few hundred thousand square feet of other commercial real estate space. So it’s been a journey, and I’m grateful for all the support and encouragement today.

Luke Roush: So when you guys think of actually the problem that you’re trying to solve is the problem more around managers that just need to kind of be pushed to lean into their faith in how they do their work. Or is the challenge more of how do you actually help managers understand the tools that are at their disposal to be able to more clearly reflect their Christian faith in the way they manage real estate?

Matt Miglarese: I would say to some extent it is understanding tools. What are some opportunities? We have a lot of conversations with managers trying to sort of discerns and best practices and say, Hey, I’ve got this opportunity, I’ve got, you know, these types of properties or whatever it might be, you know, how could we best […], you know, somebody who has seen some success in this kind of a property of this kind of an opportunity? So there’s definitely a need for that as well. I think there’s also kind of the need for a vehicle that can help marshal some investors who actually care to come alongside those folks and are aligned in faith and values and want to pray and support and partner with those folks and give them a pathway to do that or vehicle to do that. It’s kind of two things at the same time. It’s almost that intersection of those two groups is the maybe the problem with I would say it that way. Ben, you’re jumping as well.

Ben Erskine: Yeah, that’s great. And just to elaborate on that, on both sides of the fence, both the operator side, so the folks that are out there driving real estate plans in the market and the investor side, we’ve seen an incredible amount of activity and progress and even mature plans. You know, we’ve talked to hundreds of operators out there at various places on the spectrum of spiritual integration, but all intentional about how they are already or how they want to incorporate their faith into the stewardship of their properties and their real estate companies. And, you know, in terms of room for growth, less than 1% of apartment buildings have any form of intentional faith integration at the ownership and asset management level. And that number drops off dramatically when you get into other asset classes. So there’s huge opportunity. There’s there’s opportunity for existing operators to scale and grow with the right encouragement and capital and for new operators to innovate and apply spiritual integration plans with the right encouragement and leadership and example. And on the investor side, you know, there’s room for existing investors to expand their allocations in a faith driven operators and for new investors to get better exposure and education. As to the excellent business that is being done without compromising on values and in fact being very intentional about the application and integration of those values. So if you think about values aligned investing as a chain, we see ourselves as a link in that chain. And if we can cultivate really strong deal flow and we can work through and apply professional diligence to all of that access to construct a diversified portfolio with preferred terms in many cases, then we can deliver to the investor side of the fence a really attractive offering that is distinctly aligned with our values as Christ followers and also positioned for excellent performance. And that should in turn allow us to expand the financial capital that we can make available to those operators out in the market, those existing in those that are ready to stand up. And that is really the role that we see ourselves filling in the problem that we are aiming to solve.

John Coleman: Love those concepts and I can see how there’s a great need for that, I think. Ben You touch on this idea of a sense of place which we’ve talked about with others before in this space, and how important that is to people’s lived experience out in the world. Maybe to make it more concrete, I’d love to hear you guys talk about a couple of specific examples. Either of things that Callis has done or of things that you’ve seen that you’ve just been really inspired by, that begin to incorporate some of those concepts. You’ve talked about how those play out, real world developments.

Matt Miglarese: Yeah. So maybe I’ll take one on the Callis side and then one from our partners and we’re going to start there. Right. On our side, we want to model as well. Both be good partners on the capital side, but also model a spiritually integrated company as well. And so one of the things we try to do to keep ourselves accountable and intentional about you’re kind of going back to that concept of there’s practices that you implement faithfully over time. Ben and I, we’ve got a cadence where we will make sure we’re praying by name for partners, manager partners and things to do, and we’ll check in with them. We also have a tool. We’ve dealt with a couple of different tools that we kind of are trying out that might help us partner with them better. So we utilize something we call a statement of intentions that we will use just to help outline, kind of like, hey, you know, the intent behind this partnership is that we could come alongside you and pray and support you as well. And so, you know, tell us what God’s called you to do. Tell us how your how you’re looking at that, what your opportunities are, and then tell us how we can potentially partner or resource you, you know, certainly capital. But maybe even beyond that, maybe it’s an introduction or something like that or just prayer. So that one thing on our end, we’ve had some great conversations. The point of that has been a tool to generate conversations and a fruitful conversations where some of our partners are just call Ben or call me out of the blue and just say, Hey, you know, we got this going on. We’d love for you to pray with us. We’re dealing with this issue. Do you have an idea? And even sometimes if they want an idea, they just want us to pray with them. That’s been pretty powerful, I’d say. You know, I think of a couple of different stories. You know, one of the groups we have that they kind of own operate immigrant refugee housing. I think they’ve probably been on here previously and they’ve got just a really unique way that they manage their properties and that they engage their tenants and they take what is a normal business operations and workflow, and they just tweak it a bit to make it redemptive where they will train their staff members to show up and welcome folks in and just spend a little bit of extra time asking a few extra questions and establish a stronger relationship for the purpose of helping their tenants understand that this is their place, this is their home, right? The way that they’ve set up their operational system is designed to kind of accelerate that sense of place. […]. It’s kind of so strategic.

Ben Erskine: Yeah. And I could build on even that example, maybe with a little bit of an illustration of kind of what does that look like and feel like in the apartment complex in the apartment. And so using that same example of a group that really is aimed towards refugee and immigrant housing, you know, they have families that are coming in from overseas that have never navigated an American grocery store before. Right. And so is there an opportunity in that to pair up a refugee family with a local family that’s tied in to the local church to navigate the grocery store, probably share a meal together, perhaps operate a stove for the first time. I mean, there are there are stories around, you know, large fish on an open flame in the kitchen, in the stove, because, you know, that was the path of least resistance. They’re cooking the fish, right, and setting the fire alarm off day after day after day. And so practical little things like that. But then how does that tie into the business model? So, you know, part of what we believe is that this kind of integration, this kind of intentionality and accountability in terms of values and faith alignment can be should be synergistic with excellent business practice. And so you look at that same example and what does that kind of love and care ultimately translate to in terms of a real estate business plan or a PNL or, you know, what we call earnings net operating income. And the reality is that you can achieve incredible improvement in terms of retention, which drives down costs. You know, one of the biggest costs in most real estate models is turnover. So taking care of the capital improvements that are required when potentially even new tenants come in and all of that work comes at a cost. And if you can avoid that, if you can crank up your retention from 55% to 58%, that’s meaningful savings. And so as a result of that, you’ve created real value at the asset level. And so these two things, this intentionality and the impact side and. The business plan can very much be accretive. And we’ve seen that time and time again.

Luke Roush: So when you think about engagement with residents in a multifamily context, is it more about actually just engagement broader or going deeper with families that are really in need? Like have you seen one or the other actually be more impactful or more in focus for for Callas as an investor?

Ben Erskine: Yeah. You know, I mean I think that there’s an array is the easy answer right is not one size fits all for certain. And there are several spectrums that we see spiritual integration kind of play out on internal external word and deed, whether or not it’s pointed at the organization itself or kind of the outside community and tenant base. And so and there are lots of things that influence that, right? So depending on the nature of the organization and even how it’s capitalized, there’s sensitivity around how things are manifested at the property level. And so some groups are very, very much focused on community care and they will absolutely seek opportunity to share the word, pray over people, enter into spiritual conversations, make invitations to church when they present themselves. But, you know, kind of the starting point for all that is just love thy neighbor, you know, care for your neighbor very, very well. That relational platform will afford opportunities to more evangelical activities versus other groups are very, very focused on, hey, you know, we feel called to share the gospel and that’s really at the top of our minds all the time. And how do we, you know, get there faster? And so the short answer is it looks all different kinds of ways and we see beauty in that diversity.

John Coleman: That’s awesome. You know, we are living through a very interesting moment right now, let’s say, and particularly real estate has come under a microscope just because it’s typically viewed as an inflation hedge. There’s a lot of market volatility, though, right now where housing prices are viewed to be inflated. There’s a ton of uncertainty around commercial real estate given return to office. And then retail has also been a consistent theme for years, but has taken some twists and turns given. COVID would love to pivot and just get you all’s reflections briefly on the current market for real estate, how our investors should be thinking about real estate in this environment, and where you’re seeing the greatest opportunities and risks.

Ben Erskine: Yes, the affordability crisis in the housing space is real. Certainly when looking at lower renter income levels and is more pronounced in certain cities and markets than in others. But it is something that we should all be focused on and we should be putting time and energy and resources into solving. It’s also worth taking a step back to look at affordability more broadly across market rate apartments. And that conversation has often started recently with a look at the steep rent growth that has been reported, driven by a shortfall in supply and continued demand that is outstripping even historically high levels of new construction delivery. But on the renter income side, there’s also been pretty incredible growth. So since March of 2020, new renters signing new leases. Those renters have reported more than 25% growth in renter income. So again, without discounting at all the affordability problem that is very, very real in certain segments of the market that we need to work to solve. We do believe that there is actually still a very healthy and robust demand supply profile that supports investment opportunity in the multifamily space. And it’s been true for years that you need to be thoughtful and buy smart it’s been very easy to buy bad as more and more capital has flowed into the multifamily category in recent years. And that is a big part of why we are focused on the operational component of value add business plan. So our strategy is not to buy assets at a cap rate in today’s environment and hope for compression in the capital markets to sell at a reduced cap rate in the future. We rely heavily on the operational expertize of our sponsor and operating partners and whether that is physical improvement of the asset, operational improvement of the asset or some combination of the two. We’re relying on that expertize and that excellence in the marketplace to deliver the returns that we’re seeking. And spiritual integration can be a huge component of that operational component. So I’ve been focused on multifamily because that’s where we spend a lot of our time. But back to your question, to quickly touch on other asset classes, industrial has been another darling in the market alongside multifamily. So not only on the demand side, as there’s continued to be significant demand growth for industrial space supporting e-commerce, there’s also been a lot more attention from the investor community, again, putting downward pressure on cap rates and pushing up pricing. And on the other side, again, broadly on the other side have been office and retail with less investor attention, less capital flow into those asset classes and questions about demand going forward. Although the retail category is very nuanced, depending on whether you’re talking about neighborhood retail, big box mall, etc., and all of these shifts present major opportunities for adaptive reuse, you know, whether that’s of big box retail into industrial space or of traditional office to more flexible workspace mixed use or even residential.

Matt Miglarese: The only thing I’ll jump in real quick for tacked onto that is Ben kind of alluded to it. It unlocks this whole new category almost of spiritual integration with the concept of redemptive imagination. A lot of the beauty of real estate is it’s just very personal, relational. There’s a lot of on the ground stuff you’re doing with ministry activity, but then you go into imagining what a space should be or could be if it was the way God designed the world to be. And that’s just a whole new category, a whole new opportunity you can open up. So it’s kind of cool in that way.

John Coleman: Guys as, we’re going to switch now to a segment of the podcast we like to call Lightning Round Sometimes, where we pose a simple question to you and you give us your gut response to that in kind of 60 seconds or less. Okay. Now, what we’ll probably do is slide a few fun questions in there alongside some of the more serious questions. So beware because you never know what’s coming first. Luke Roush, do you want to start us off in The Lightning Round?

Luke Roush: I’m happy to do it. So I’ll give you two scenarios and you get to pick one and we’ll go. Ben, then Matt. Office occupancy is going to stay stable or go down by 30% in the next 12 months. Pick one. Ben.

Ben Erskine: Occupancy as measured by leased space, is going to go down. Occupancy as measured by butts in seats. People actually returning to work is going to go up .

Matt Miglarese: And I think it’s going to down. I think it’s a new era.

Luke Roush: Yeah. I mean, arguably, there’s kind of a hangover effect, right? Because you got multi-year leases, you can’t really get out of it. And yet actually people realize they need less. So that’s a hangover that comes due over the next two, three years. John, over to you.

John Coleman: Yeah. Ben So you’re a Chicago man, as I understand it. And so very serious question for you. Top three locations for Chicago, deep dish style pizza.

Ben Erskine: Giordano’s, Illuminati

Luke Roush: That was conviction. That was conviction on the first one. I want to go there.

John Coleman: Yeah.

Ben Erskine: Yeah. That will never change for me. And I’m I have to think about the third one […]. Might be on there.

John Coleman: Okay. Excellent. You were waffling on the third, so I think we’ll stick with those top two probably. Matt, any favorite pizza places on your end? Any style. Any city style, if you prefer.

Matt Miglarese: So my kids have a favorite just down the street. There’s a local spot, but we don’t have the best pizza in Raleigh, North Carolina. I’ll admit that.

John Coleman: Any letters and complaints can be directed towards Matt Miglarese for that response. Luke, back over to you though.

Luke Roush: I’m curious on New Single-Family housing starts, are multi-family housing starts, which is going to grow or shrink in the next three years, is one going to outpace the other?

Ben Erskine: Good question. I mean, it both starts and deliveries are at elevated levels right now as measured against history. It seems like they could both probably ember in the years to come based on construction costs being one thing and maybe just perception as we kind of get into the front end of a recession.

Luke Roush: Do you think it’s a tale of two cities where, you know, places like California, the Northeast struggle and other geographies thrive? Or is it sort of a kind of a across the board move?

Ben Erskine: Yeah, I was reading an article yesterday that kind of pointed to, to your point, Northern California, some of the expensive gateway coastal cities in terms of single family homes that the movement in interest rates has already translated at reduced velocity in the housing market out there in a way that it hasn’t, at least yet in some of the other markets. But I think it’s you know, it’s too early to tell. I think that prices on the single family home might be buoyed for a while, as so many people are locked in with attractive financing, but they’re just not going to put their houses on the market because it’s just hard to go replicate the cost of occupancy that they have through like 3% debt. So I think that could be a real artificial bouy potentially for pricing for the next little while.

Luke Roush: Yeah, it’s good Ben, thank you, Matt.

Matt Miglarese: Yeah. I don’t have a data to back me up that Ben is whipped out here. But I would say, I’ll tell you from my area, I think we’re going to see a lot more single family homes in the southeast. I think that’s where our pace is better. Yeah, that’s good.

John Coleman: So quick question for both of you kind of pivoting on what you just mentioned there about the southeast map. If you had to pick two cities to invest in right now for multifamily, where you all spend a lot of time, what two cities do you think you’re most interested in?

Matt Miglarese: Two cities. Just two. I’d say I’m a little biased here. The triangle area is pretty hot, right? So that’s one Raleigh-Durham area. That area, pretty good interest. And Charlotte though. Charlotte’s grown pretty strong too, obviously. Raleigh and Charlotte. And that’s not totally location bias.

John Coleman: Ben what do you think?

Ben Erskine: I think I maybe be a little contrarian, and I’d say some of the Southern Midwestern cities that have not gotten the attention, you know have not gotten the same attention that the Sunbelt has. And historically, the Midwestern cities typically don’t offer the same explosive growth in boom times, but they also don’t drop out when things get really slow. They’re just a little bit more steady, Eddie. But if you look at a Columbus or a Cincinnati or a Memphis, like some of these cities, they’re a little bit off the beaten path. I think there’s a lot of merit there for families and people that want affordability and can work from anywhere. You know, I think that that could be a wave of the future.

Luke Roush: Okay. I’ve got one. How many years? I just need a number. That’s all I need. How many years? Until the market realizes broadly the benefits of things like chaplaincy for multifamily complexes. Our apartment life.

Matt Miglarese: Six.

Ben Erskine: Six. Okay.

John Coleman: I love the conviction. He actually listened to the instructions there.

Luke Roush: I’m so grateful.

John Coleman: Matt and Luke

Ben Erskine: Ten.

John Coleman: Luke, you answer that one.

Luke Roush: I think four or five. And the reason is that I think that tough times reinforce the need to really care for people and care for people. Well, I think the data that apartment life has put out, among others, I mean, there’s a bunch of other programs as well, but clearly demonstrates less turnover, better satisfaction, things that are actually even more important in a down market, which I think we’re going to enter. I think it’s going to be more quick, but I’m an optimist.

John Coleman: Awesome. Well, we always close these discussions, guys, by asking the same question, which is what is something that you’re hearing from God in his word right now? So kind of something for inspiration for the audience that you’re hearing in your own life in your study of his word right now, Matt, if you don’t mind, we might start with you.

Matt Miglarese: Sure. Yeah. I think what comes to mind, I’m almost I feel like I’m relearning it right. Like so much we relearned over and over again. Maybe it’s just me. I’m hardheaded, but at my church, we’re going through a study right now to the book of Galatians. And so we’ve just been reading that book and fot the last couple of weeks, Galatians 525 has just been stuck with me. If we live by the Spirit, we should also walk by the spirit. You know, I feel like God has impressed on me that the phrase If we live by the Spirit, it means our life, our eternal life, is completely dependent on the power of the spirit and therefore our walking day by day, week by week, the stuff we do in Callis, whatever you know our work activity, our daily activity, that also ought to be by the same power. And it’s just been a conviction for me to turn around, say, God, you know, this is yours. I might have a lot of plans right now I might make. This day is yours. So I’ve just tried to implement a few, you know, kind of habits and practices to remind myself of that. But that’s really been the thing. God has re impressed on me in the last week or so just how important it is to rely on the spirit and walk by his spirit, led by it.

Ben Erskine: That’s great. So I was thinking about this and my pastor had incorporated Micah six eight into a sermon a couple of months ago. And it was timely because Matt and I were in the thick of working through this flywheel concept and kind of fleshing out this idea in a paper. And so Micah six eight is he has told you, Oh man, what is good and what does the Lord require of you but to do justice and to love kindness and to walk humbly with God. And I think that I like the word require in there just because it is clear instruction is required of you. I take that well. And just the notion that, you know, through our actions loving is doing and if you act and do loving things that your heart will produce loving feelings. And it just really resonated with me that there is this interconnectivity between actions and words and translation, and then ultimately posture, our posture and what you might call culture or purpose or identity for an organization, and both things feed each other. And so that was really what we were observing over the past year or two, and it resonated with me when I heard it from my pastor a couple months ago.

Luke Roush: It’s a good word, Ben and Matt, we’re grateful for the work that you guys are doing. Keep going. Keep getting after it. I think this is a sector that absolutely is ripe for transformation in terms of how investors think about deploying their capital in ways that are both responsible and also faithful and intentional. So grateful for the work that you guys are doing and grateful for your taking time to be on the podcast today. Blessings to you

Matt Miglarese: thanks for having us.

Ben Erskine: Thank you so much.

Henry Kaestner: If you’ve listened to this before, you know that I like to say this is a very special edition and this is indeed true. This is actually the first time we’ve ever had an investor and two entrepreneurs on the podcast at the same time. First, a word about the investor. Jeff is a good friend of mine and we’ve traveled the world together, or at least we’ve traveled to Africa together. But Jeff has been a great encouragement. We’ve done a lot of co-investing together. A man really serious about his faith, committed to the movement of Faith Driven Investor and is a part of this story we’re about to hear. But before we meet Paloma and Keren. Jeff, welcome to the program. It’s so great to have you. This is your first time on the program. Did you sleep well last night?

Jeff Kahler: Yes, I did.

Henry Kaestner: Good, good. Okay. And we’ve got Keren and Paloma with us as well. And the two of you are with Ethical Apparel Africa, you co-founded together. Welcome to the program. Really glad you’re here.

Keren Pybus: Thanks for having us.

Henry Kaestner: Awesome. We like to get an autobiographical flyover of all of our guest as we get started. And I’m going to go back to my friend of many words, Jeff Kahler and ask it. He do that first and then I to go back to Paloma and Keren. And I want you guys to each take a turn. Talk about who you are, where do you come from, and then bring us into the work of ethical apparel. And then we’ll have a great conversation from there. So, Jeff, you start, please.

Jeff Kahler: Okay. Well, I’m an old guy who is in a business his whole life, been a believer, follower of Christ since I was in high school and I spent my career as the CFO of multiple operating businesses. My background, I’m a CPA, and over time, that business background has morphed into working for a wealthy family and helping them invest. We’re Christians, and we just have a strong motivation to do good with our capital, not just be able to provide funding through foundation of money, but actually use the capital for, you know, the work in the kingdom. And, you know, we just have a strong belief that we want to be lovers in the world and care for people and be very missional with our capital.

Henry Kaestner: Indeed. Indeed. And that what is what unites you to our audience. Paloma and Keren, tell us each about your story and maybe work. Well, yeah, start at the beginning. But I do want you to talk about how you guys connected.

Keren Pybus: Right. So I’m Karen. I am English. In case you hadn’t worked that one out from my accent. I was born and brought up in the UK, but I spent some of my early life living in Tanzania when I was in my gap year and that kind of ignited my love for Africa. I was there with the Mission Aviation Fellowship a long time ago and really I ended up in the textiles and fashion world through lack of being good at much else things. But I think probably now realizing that that was what God brought me to. So I studied it and I worked for a couple of very large retailers in the UK across merchandizing and sourcing, which took me eventually to Bangladesh, where I started the George clothing sourcing office for the UK supermarket retailer Asda, which was owned by Wal Mart at the time, and started looking at how we source our clothing from Bangladesh in a different way. And that got me really excited about being close to the needle point and understanding what manufacturing really was about and how you could impact workers lives. And then I think really my faith has always been a core part of the vicar’s daughter. I am now married to a vicar as well, so I’ve kind of had that shaped all the way through my life. But for me it was a real moment of realizing that I wanted to do something that was going to shape an industry that had so many bad things about it and workers being treated in so many bad ways. And I had moved from Bangladesh to South Africa with Wal Mart as well. And when they were starting a business there and as I started there, a friend of mine called me with a prophetic word and said, But if you want to walk on the water, you’ve got to get out of the boats. And I thought for that, that was doing something terrifying. I was 40, I was single. I was like, I can do anything I want. I’ve lived in Dhaka and Bangladesh. You know what’s terrifying? I didn’t know what terrifying looked like. I was looking for it. And then my sister sent me the oceans Hillsong, which said the same thing basically. So I carried on looking for what the terrifying thing was and then realized that I didn’t feel scared of anything. So I was looking for different jobs. And then one day I got made redundant eighteen years into working for one big company and. I just I didn’t know what to do with myself, but I ended up being in Africa on gardening leave for six months. And so I was able to travel around and ended up in Ghana actually with a different company doing some consultancy work and realized this incredible opportunity there. And that was how I met Paloma, she who was also consulting for the same company in Ghana as well. And so we met in the country with this united vision about how did you take an industry that can create so many jobs and therefore create so much change in this incredible environment that had this incredible history but hadn’t really turned into an industry that was growing. And then I to cut a long story short, and I’m sure you’ll ask more about this, when we started, the company realized that actually being a CEO of the company was my walking on the water. It was the thing I was absolutely terrified about. I am terrified about on a daily basis. And the only way to get through being a CEO is to have God as your chairman and being able to know that you’ve got hope and trust in the person that created you and the person that’s giving you the vision to do the good work. And that’s my walking on the water.

Henry Kaestner: It’s fascinating. And we talk a lot about a Faith Driven Entrepreneur that entrepreneurship can be a lonely journey and what’s baked into that is an entrepreneur is their CEO, and it can be a lonely journey, but it doesn’t need to be. It’s kind of our tagline, a rallying cry, so to speak. And it’s fascinating that against a backdrop of having tried and been in so many crazy, crazy places, that the terrifying experiences, indeed the lonely journey that it might be to be a CEO. If you don’t understand that it sounds petty and cliche that God is my copilot. Right? But as it turns out, you also have a co-founder, the wonderful Paloma, who’s with us as well. Paloma, who are you? Where do you come from?

Paloma Schackert: Yeah, thanks. It’s great to be here. We have just been so impressed and overwhelmed by the support of this community. So, yeah, wonderful to be speaking with you guys. I am originally from Seattle, born and bred, but similar to Keren had these opportunities early in life when I was 14 – 15 to spend a lot of time in emerging economies. And actually for me it was more in Latin America initially in the Dominican Republic and other countries. And those experiences really pushed me around, kind of reflecting as to the privilege and opportunity I had in my family, especially through the economic empowerment of women. And this is something that I think about a lot in terms of the generations of history where my generation has been the first that I think has grown up as girls being told, you know, you can do anything you set your mind to. And my mom’s generation even didn’t have that. And yet she went on to have an amazing career in sales and had, you know, 200 people reporting to her around the world and was a real outlier. And being able to do that as a woman and as a mom and her mother also was one of the first in her family to go to college, worked at a time where her husband wasn’t able to work and really held up the family economically. And then on my dad’s side, his mom, my grandmother there was also incredible in being the first teacher in her family and really not only becoming economically empowered herself, but then later in her life working with women in the maquiladoras and the factories in northern Mexico and helping them to create economic opportunity for themselves. And so having these experiences young around being in countries where those opportunities literally do not exist for girls and for women and those examples don’t exist, just really became my kind of path and passion in life in terms of being able to create that opportunity and use my power to try to help other women and girls who wouldn’t otherwise have those paths available to them to create agency in their lives and to be able to feel God’s love through that. And really, my grandmother, that’s kind of when I think about my faith, she’s the shining beacon of that in terms of the the pragmatism of letting that come out through care for others and through letting people have dignity and possibility and hope and the economic opportunity ahead of them so differently from Keren, my background is not at all in garments or apparel. My friends and family when I first went into this industry were like, Are you? Are you kidding? You’re not a fashion person. Like you couldn’t care less about what you wear, which is true and remains true. But when you start to think about the economic opportunities for women in emerging economies, it’s, you know, apparel manufacturing is the obvious industry. It’s the answer to what can support a mother who has not had education opportunities in her life to have a career path within a couple of months. That’s an incredibly powerful thing. So very serendipitously and I’m sure we’ll talk about this more met Keren when I was taking a break doing that what’s called an externship away from I was in management consulting at a large firm at Bain. And saw the opportunity together in Ghana to create this opportunity for women at scale and went from there.

Henry Kaestner: Okay. So I want to hear about Keren and your Bonine as well. I want to hear about how you saw while I get how you saw the opportunities it baked in both of your backgrounds, in your stories. I want to hear about how you got started on that, because there’s a lot there. You’ve got a dream of creating thousands and thousands of manufacturing jobs. You’ve already made a big dent toward that bigger goal that you have. But in order to do that, you’ve got to bring a product to market. Paloma, by your own admission, is not a fashionista, but maybe Keren, as Jeff most assuredly is not. But what does it look like to take a product, bring it to market? And then the other parts, of course, which is how to identify the customer. But maybe the most important of these three things is how do you do what you just said, which is to encourage, inspire, equip, bring hope to, and bring training to and real skills to this population of these women that you’re enabling. What does that look like? And you put out an ad and say, okay, we’re we got a factory, we’re going to get started. I mean, how does that even start?

Keren Pybus: That’s a really good question. And honestly, and this is really it sounds cliché, but it’s honestly, it was God completely because we had this vision to basically prove that ethical manufacturing should be the normal way of doing things. And the ethical manufacturing generally is very linked to high end and luxury goods. And we were like, why can’t it be done at mass scale? And what is stopping it being done at a mass scale? So we started with a vision of an operating model that we still have today where we basically said, if you can create operational excellence within a factory environment, whether that’s lean manufacturing, whether that’s the way that you use renewable energies, however it is, and you can then create something that attracts those orders. And for us, it was export orders and not necessarily making for the African market at that point in time. There is enough money in the system to then generate profits that you can reinvest back into your workers. That, in turn will create operational efficiency by lowering absenteeism, by lowering labor turnover, by giving people a better place to work and a more valuable and sustainable job in what you do. So we created this model, and the obvious thing to do would be to then go down the consultancy route that was Paloma’s background. I had the background of being in the factories to go into factories and say, okay, we’re going to help you be operationally excellent, but actually without any orders. And what we had in Ghana was a whole load of factories that had had money from the government previously but didn’t know how to market themselves, didn’t know how to operate at an international level from a quality, efficiency perspective. If they didn’t have any orders going through those factories and you could make the factory look as beautiful and great as you want, but it weren’t proving a single thing. And so we needed to create a model that meant that we were bringing those orders in. But the timeline of the way that the garment industry works is that you get an order and you don’t get paid for that order for at least nine months to a year after you’ve made it. So you’ve got to finance all the raw materials, you’ve got to do all of that stuff upfront, you’ve got to pay all of your workers and then the retailer might pay you when you’ve actually delivered the goods. So like, how do we do this? So praying about it, one day we got I got a phone call from a friend of mine who is working for US Aid in Ghana. And the US Aid had started a trade hub where they were specializing in certain industries and looking at growth in certain industries. And the apparel industry was one of those industries and I didn’t know at the time that this friend of mine was suffering from cancer and he needed to subcontract his contract. Now you don’t get a USA contract unless your company’s been in existence for three years. We had been in existence for one week at that point and he called me and said, I need to do this you know and I need to help you with this. And literally, like a week later or something, we had $30,000 given to us by USAID and said, go off and recruit your technical experts to start training in the factories. And we have developed that relationship with U.S. aid and other donor agencies over the last seven years. That has been the reason that really we didn’t need to come to face driven entrepreneur and investors until recently because we’ve had a lot of donor funding believing in what we were doing from a training and a development point of view that enabled us for the first two years to just train factories and develop relationships, develop relationships with brands, and not even need to bring product into the market for that time period. So complete God, just giving us the starting that we needed to be able to do that.

Henry Kaestner: Can you walk us through the life of one of the workers that you have? Just make it real personal. Help us just understand what their life is like and living in Ghana, what their job opportunities have been before you started this together and then what is their life look like now? And maybe even just maybe it’s just a fictional name. You come up with. Maybe it’s somebody real name, but help us to just walk in the shoes of one of your workers a bit.

Paloma Schackert: I can give kind of the overarching structure. And then maybe, Keren, if you want to share a specific person story, I’m thinking even maybe one of the mechanics and you trainees at the factory but so we recently to lay the context have acquired a majority stake in a factory that’s 2 hours outside of Accra, where we first walked into this factory two years ago. There are about 40 people sitting on machines, but there was room to employ 800. And we were just floored because it was the largest industrial space we’ve ever seen in the country. And by the way, in situating Ghana and West Africa from an economic point of view, huge potential. So that’s a big part of the driving reason why Keren and I went there as well. If you look at the duty free rates, the logistics rates, the level of cost competitiveness, where there’s longevity to that cost competitiveness versus what’s going on in Asia and being able to really pay a living wage and create a decent livelihood while still remaining extremely cost competitive. So all of that is kind of laying the groundwork for the opportunity here where there’s heart involved. But there’s also a lot of head involved in the strategy of how Keren and I ended up in Ghana. So we saw this factory a couple of hours outside the capital as a huge opportunity to not only be deliver a competitive manufacturing solution for our clients, but also make a tremendous difference in the lives of the workers and the community that we could create, because the alternative employment opportunities in this region are basically non-existent. We’re now the largest employer. We have about 500 employees at this factory that we majority own. The next largest employer is between 50 and 100 people, and this is in a region of nearly a million people. So the vast majority are employed by completely informal endeavors. And this is actually, from a personal standpoint, a huge driver of and I didn’t kind of tell this part of my story, but I spent time living in Ghana in 2010, working on a philanthropic program to open savings accounts for women in the northern part of the country. And I would speak to a lot of women who were informally employed in the same way that a lot of individuals in Koforidua this region, where we now own our factory are informally employed and we were offering these women savings accounts, we were saying, you know, it’s great to be able to have a savings account and to put money away. And it’s financial literacy and all of these important things. But in the focus groups that I was running, where I would speak to a lot of these entrepreneurs, these women would say to me, I don’t want to be an entrepreneur. I’m not an entrepreneur by choice. I’m an entrepreneur because I don’t have any ability to have a wage where I know that I’m going to have a steady job and be able to put food on the table and send my kids to school. That’s what I would prefer. And I think there’s a lot of romanticizing that happens among the development community around. You know, it’s so great to support entrepreneurs and micro entrepreneurship and, you know, loans and savings and all of the financial mechanisms to help them. And I definitely think there’s value in that to give more financial freedom to people. But ultimately, the vast majority of us in our developed economies want to have a paycheck. And that’s the exact same motivation that I think is present in Ghana and other countries, and those opportunities just aren’t there. So being able to provide that formal that ability to have a steady job and, you know, that kind of basic economic well-being is, yeah, the driver for us.

Keren Pybus: For most of all. To your point about the people, so the vast majority of our factory, 75% of it women and 80% of them are between the ages of 18 and 29. So it’s a very young workforce. People come a lot directly from school. The Government’s done an incredible job recently of making education free up to the age of 18. So it is generally people are leaving school and going into jobs and they will live with families or live with friends so it’s a large groups of people living in one property together. You don’t have. You have some, but it’s not the same kind of slum environment you would find somewhere like Dhaka, where I lived in that sense of factory, particularly as rural. So we’re in a a large market town relatively rather than a city in that sense, very heavily Christian country. 85% of the country is Christian and particularly in our region. So we have Muslims and Christians working with us and we have a team, an expat team and a local team that managed the factory together and an expat local team at our office in Accra of mixed faiths, mixed religions, mixed backgrounds, I think from about 13 different nationalities we employ in total. So for the average worker, their opportunities are limited, particularly where we are, they have a basic education. Most people can read and write, but they haven’t had the ability to learn how to do a job that enables them to. Think outside the box or to progress. So the idea of career progression for a woman there is about you get a job, you leave and you have children and you work your way through the family kind of model in that sense. So being able to support women as they have children, if they want to come back to work as well within there has been a really important part of what we do and we’ve got some great examples of people. A young girl who Florence, who was an operator, obviously had something about her in terms of the way that she handled the fabric, her enthusiasm, the way she did it, the way that her mind was working. We developed her, gave her opportunities to be a sample operator, to do some things differently, and then we put her on to. So we worked very closely with GIZ, the German development organization, and we’ve developed a specific training program with a public institution in Ghana to do specialist training at those kind of middle management technical roles. So most people in Ghana can sew, like you’re brought up with your own sewing machine. That’s kind of the easy part, sewing complicated garments and then doing the next stage of things pattern cutting, mechanics, those things, all skill sets that they don’t have. So we’ve brought this training program in with this training school to be able to do that. And we’ve trained around 150 people across 39 different factories in Ghana, in schools in those areas.

Henry Kaestner: So well beyond the factories that you own.

Keren Pybus: Yes. Yeah. This is not specific to that.

Henry Kaestner: Because I was going to ask the question. So you’ve got this highly trained workforce now. Are you finding that they’re a flight risk and is that something you celebrate or is that something you try to protect against? But you are absolutely trying to just change culture in the skill sets of the populace.

Keren Pybus: Absolutely our vision with more grace, which is the factory owners. It will be a model factory that can teach at the factories. So we regularly have other factories in. We also have partner factories that we also place business in as well that we don’t own. So we have five partner factories that have reached the right level of international compliance and standards that we also work with to develop. And then beyond that, we want to be a light to train the industry and to develop people and move people on. In fact, our compliance manager this week has left to go and run one of the factories and to take on the management of another factory. So we absolutely believe in that and we have a US aid grant that we want as well that is enabling us to do that as well. So the money that we have raised through this investment round, through Jeff’s money has been matched, funded by US aid to effectively double up the investment that we’ve got there into the factory to enable us specifically to do the model factory. And we get measured by U.S. aid on how many factories we are outwardly teaching.

Henry Kaestner: Okay. Gotcha. And so 159 factories a lot. So you presumably your measurement, your grades are pretty good.

Keren Pybus: 39 factories, 139.

Henry Kaestner: So 159 is aspirational then.

Keren Pybus: hundred and 50 people.

Henry Kaestner: Maybe that’s prophetic.

Keren Pybus: Fifty nine factories.

Henry Kaestner: Just go with it.

Keren Pybus: Yeah, that’s right. Yeah. So 159, will start 300 at least?

Henry Kaestner: Sure. So, Jeff, I want to bring you into this again. It’s not every day that we have an investor and the entrepreneur together on the podcast, I guess I doubt our audience knows the back story of how you two met. How did you guys meet?

Jeff Kahler: Yeah, we just met through one of your entrepreneurial days. What do you call those?

Henry Kaestner: Demo days?

Jeff Kahler: Yeah. And these two put on a pretty impressive little demo, and then they have chat rooms afterwards, and I ended up being the only one in the chat room. So it was a great time for Keren and Paloma. And I get to know each other. And you know, as you can tell by listening to these two, they’re very impressive. And we were looking for these kind of things and this just hit all the buttons for me. You know, we’re ethical capitalists. So when you name your business, ethical in your name, that speaks to us. And, you know, we’re looking for ways to partner with people like this. And we also found that we had a lot of interesting connections. I had actually spent a short time, 30 years ago working in West Africa, in the Ivory Coast. I worked for USAID briefly, in fact, because our coast is French speaking, almost all the employees that worked in the USAID office were Ghanaians. And so because Ghanaians largely speak English, they were most of the employees there. So we found that we had that connection. And I’ve always had this heart for Africa, for the kind of the poorest, the poor. And we’ve done some investing in other places in Africa, and we’re just looking for things like this. And it was a good business model. These women were impressive. They have all this interest experienced with Keren. And so we felt like it was a good mix and a good match for us. And it’s just wonderful to be able to have a connection with somebody to about how they operate and and understand what they’re doing and to share our faith. And in that they care about people like we do.

Henry Kaestner: So some number of our audience want know that we have a ministry also called Faith Driven Investor. Faith Driven Investor was started because we found that a good number of faith driven entrepreneurs we came across really did appreciate the content and community we have. We have these groups. And the January, February cohort, we had 1600 entrepreneurs from 66 different countries getting together in groups and learning about the call to create and learning about each other’s stories and just super encouraging. I think the average group probably has members of three or four different countries in them, but we do content, we do community, of course, we do the conference, the blog and the podcast. But we also came to understand the felt need for many entrepreneurs is to raise capital, and that really made a special impact for us, for those entrepreneurs that are in markets like Africa, where there are not a lot of angel investors. And so we started the demo day in the marketplace out of response for that for a group of Faith Driven Investor. And unfortunately, because the way the tax laws work, they tend to have to be accredited investors. We’re working on expanding that through a new partnership we have with we funders. So stay tuned on that. But I actually had known that that you guys had met that way, so that’s a great encouragement. I love hearing that and it’s really neat when the Body of Christ comes together. Tell us a little bit more and we’ve obviously heard some of that through the background. You want to invest in a problem to be solved. You want invest in who’s trying to solve the problem, how big of a problem is it, etc.? What are some of the other things that you’ve picked up on from their story that you look for in a Faith Driven Entrepreneur that you might invest in? What are the things that just they grab you? Obviously Africa is part of it because of your background, but what are some of the other things that if you’re an investor listening to this podcast and saying, okay, I think I want to get involved in investing in Africa, but my goodness, you talk back about the things that Keren listed is terrifying. That sounds kind of terrifying. How did you go about doing it and make it a way that maybe some of you might be able to take action on this listening to this podcast?

Jeff Kahler: Well, it’s a good question because, you know, I do believe that investing in Africa is pretty risky. We’ve done a number of investments, but we are continuing In fact, you probably don’t know this, Henry, but we’ve made two more investments kind of through this Faith Driven Investor Network just in the last three months. Two things that we found on that trip to Africa we’ve invested in. So we’re committed to it, but we’re also lies wide open. You know, there’s supply chain risk, there’s political risk, there’s exit risks, there’s there’s a lot of risks. But so I’m looking for business models that work. I’m a financial guy. I’ve been a CFO for 30 years. I eat, breathe and sleep financial statements and, you know, cost profit margin. So I have a strong belief that if a business isn’t profitable, it’s not sustainable. So I’m looking and we’re kind of willing to take kind of an extra risk, but I’m not really willing to invest in something that doesn’t look like it’s going to be very profitable because I don’t think it’ll survive. And I do kind of believe in the triple or quadruple bottom line that a business needs to work for everybody and be good for everybody, including the owners. You know, my scene I probably told you this, Henry, but that the cost of everything is a sum of its costs. And one of those costs to some of us is the cost of capital. And so business has got to be profitable.

Henry Kaestner: Yeah. Do you, have a rule of thumb, then look at an investment and say, okay, is this going to be the last money they’ll need to raise?

Jeff Kahler: That’s unlikely. So, yeah, you do it. Typically, you need to look at it in the long run and think in terms of am I going to be able to do another round or will they need another round? And if they will, will they be able to get it elsewhere? In our case, we have a fairly large pool of capital to work with, and so our minimum investment that we like to do is too large for angel investing. So we’re looking for bigger things in most cases. And you know, probably the one drawback about long current business that is pretty capital intensive. There’s a lot of equipment, you know, receivables equipment. There’s a lot of it’s a pretty capital intensive business. So it needs a fair amount of money to get going and to sustain it and might need more money, you know, down the line. It’s probably will given the kind of growth that they want. But that’s why we’re here. And I know it’s a real cliche, the whole thing about, you know, giving up a fish to somebody that we have for a day or teaching somebody to fish they’ll fish for a lifetime. But what people really need is a fishing boat. You know, a lot of people know how to fish. They need the fishing boat.

Henry Kaestner: Yeah. So I want to switch it back into Faith Driven Entrepreneur lessons here and say I’m going to hand it back to Paloma and to Keren. But I do want to throw one other thing that I think as you talk about investing in Africa, that I think is good for the audience that are investors and listening to this, I love the way that you talked about profitability. I think that while many of the businesses you might invest in could take in other capital to continue to have a great growth rate. And when you listen to Keren and Paloma, you get a sense that you really want to help them to grow as quickly and as long as they can grow with quality as much as they can. And if they’re just limited to profits, they might, you know, get to their goals in 20 years instead of five years. Some number of them are going to be able to be qualified for bank financing. But one of the things that I think that an investor needs to know is that the larger late round ecosystem for equity deals is not as robust in Africa as it is in America. And sometimes we’ll think, well, we’ve invested in a company and America and it’s going great. They tripled revenues and surely some other venture capital firm will come in and then continue to fund their growth. In this case, one lesson that we’ve learned is that it’s good to have an idea about where the future funding will come from. And to a point that you made is let’s have at least some visibility to where the company could go profitable, even if they have to throttle down their growth rate, lest otherwise we find a company has some success, shows some promise, maybe even has a product market fit. And yet the next round of institutional investors isn’t there yet. I think in five or ten years we’re seeing that developing ecosystem where more and more institutional funders are coming in. But just a word of just caution on something like that. I think that that is mitigated, though, by working with entrepreneurs like this that have these types of longer connections and have this type of a background. But I want to throw back to them, as you have work with investors, they come in to get involved in what God is doing through you. What have you looked for? What are some of the lessons that you’ve learned? What’s maybe been different than maybe you might otherwise have expected?

Keren Pybus: I think the first thing has been the values alignment. So whether they’re being Christian investors or non-Christian investors, having somebody that understands that what we are trying to do is create a profitable business. But it’s more than that. This is about creating a model for the industry, but also about the creation of jobs that are sustainable, worthwhile jobs. And if that means that we reinvest money to be able to get there rather than paying back sooner or what those things are that we have got that heart. And so to find investors that have got that same heart and that passion and are as excited about receiving our impact report and wanting to come visit us and see what we’re doing as they are about receiving the P&L. That’s been a really key thing for us. And so a large percentage of our early round investors were friends, connected friends, people in that kind of industry. And in fact, our seed investor is the ex CFO of Microsoft, and he and his wife have a trust and they provide that perfect balance for us of he’s got the CFO side of things. She doesn’t care about the numbers. She is absolutely passionate about the people and that’s what she wants to know about. So we have these great calls with them where you get the both side of things.

Paloma Schackert: And I think the other element of it is, just as Keren was saying, the individuals who have came on the journey with us are motivated by so many different factors, but also do bring that understanding of what the capital evolution will look like. So our seed investor, John, for example, was pushing us from the very beginning to think about, okay, what is the next round look like? What is the round after that look like? And very clear about what their involvement in that journey would be. Similarly, you know, Jeff and the foundation, absolutely the same mentality of this is not just a relationship of one investment. This is thinking about the long term and wanting that participation over and over again and everyone being excited to do that because the values are so aligned. I’ll give just one other example. There’s an investor we have who this is a private investment he’s making as a high net worth individual. But in his day job, he runs a private equity firm that invests in emerging economies, mostly focused on India so far, but now expanding into East and West Africa. And they would be a perfect fit for our next round, where we’re thinking about raising closer to four or 5 million to stand up a couple more factories. So it’s laying the groundwork through the people that are committed to the journey from multiple angles, but still have that strategy of where does this go from here in terms of growth and scale?

Henry Kaestner: Well answered, great perspective. And I look forward to hearing more how you progress and how you expand and how you bring in the right type of development capital from some of the governments. You mentioned the Germans, how you bring in some of the right type of grant capital from people like USAID and then the right type of investment capital and maybe on a different podcast will get into that kind of destruction in that I can get detailed on that. But with the time we have left, I’d love for you to talk a little bit more about how your faith ends up working its way through to the bottom line worker. And I don’t want to be presumptuous or prescriptive about what that might look like, but how do you see God show up every day and what does that look like in the relationships you have with folks? What are you saying?

Keren Pybus: So prayer is the most important thing because you can’t ground everything in your relationship with God in prayer. Then what else do you have in that sense? And so we have various different networks of things that happen in that area. So we have a prayer group on WhatsApp that any employee of any faith can be on. That’s where we share prayer requests or people or situations or things, and their friends and family can be on that group too, so that they are praying and there’s people praying for that industry. We have personal prayer networks then too as well that we lean on for things that may be a little bit more confidential or things that are personal in that sense. I’m also part of the Faith and business network in the U.K. and there’s also another pro network called Fashion for Christ and based in the UK as well. So those are two other networks that are very, very powerful for me. And then the factory has prayers every day. So they start the day with prayer and they start the day with what they call devotions. And we have a space in the factory for other faiths to be able to pray as well, so that we create that environment of a focus on God and a focus on prayer. And as a board of directors, we pray together in terms of the factory as well. So the later that we’ve acquired the factory with also very strong faith in terms of that being the driving force. And so that really has been the part and then being able to share those answers to prayer. So, you know, those parts where the miraculous has really happened and being able to share back so that even for those that maybe don’t have the same faith or don’t have the same level of faith, see that for us that we see those coincidences being actually a result of prayer and trying to understand where God wants us to go next with what we’re doing, rather than just sort of plowing ahead into what we’re doing.

Henry Kaestner: Paloma, maybe you build on that, but also maybe you take us in another direction. We don’t oftentimes have partners on the podcast together. We have 12 marks of the Faith Driven Entrepreneur you might know about them, but we talk about them, of course, in the book and we talk about them in our courses, etc. And one of them is in partnership. As an investor, as an entrepreneur myself, that’s been blessed three times now with incredible godly men that have encouraged me in my walk with God and I would have been lost without in terms of my business. What are some lessons that you are learning from as partners in this business?

Keren Pybus: That is so horrible when each other goes on maternity leave.

Henry Kaestner: But I’ve never had that problem.

Paloma Schackert: That it’s so great to have somebody who understands it. Yeah, I think I was reflected on this the other day, actually coming back from maternity leave. My daughter is now six months old and Keren’s is three and a half years old. My gosh, I can’t believe it’s been three and a half years that it’s just having our partnership has been the thing that has never wavered and has always been as strong as it is now. And I don’t think we’ve ever had any moments of doubt around it. Speaking for myself, yes, you can go again, which is incredible because we’re doing something that is so, so risky, so challenging, so new, so audacious. And to have that level of strength and trust and just ability to lean on each other in every circumstance.

Keren Pybus: And I should add that we probably only see each other once a year. So Paloma is based in New York and I’m in the UK. I mean, Covid is obviously made it worse, but even pre-COVID. So the whole like online, working from home, doing everything on Skype and Zoom was completely normal to us. But we’ve developed that through our faith and through the things and through a level of trust of each other. Also not being in the same place or even on the same time zone.

Paloma Schackert: And I think we’re also just so complementary in our skill sets. Like, as I shared at the beginning, I don’t bring anything related to the apparel industry, but, you know, management consulting and strategy and finance and investment and all of that side is my bag. And then Keren brings everything in terms of the networks and the knowledge of account management and critical path and factories and manufacturing and together. It’s been such a just incredible journey.

Henry Kaestner: Outstanding. Keren, where are you in the UK?

Keren Pybus: I’m currently in a little village just outside of a place called Peterborough, which is an hour north of Cambridge.

Henry Kaestner: Gotcha. Okay. I’m an Anglophile and many of our listeners are as well. I got engaged over there and I’m coming over next month. I shouldn’t timestamp or time guard this so much, but I’m going to a next month. I get a great treat. I get to do a Faith Driven Entrepreneur event with Holy Trinity Brompton. We had Nicky Gumbel on the podcast recently, who’s a great entrepreneur and really helped to grow the Alpha project. And I love what God is doing over there. I’ve taken some notes down fashion for Christ. It sounds like there’s some other networks of what God has been doing for a long, long time.

Keren Pybus: Fashion for Christ came out of HTB after 24 seven prayer movement.

Henry Kaestner: Oh, wow. Okay.

Keren Pybus: Yeah. So. Okay, yeah. Let me know when you’re in town. I’m always down in London as well.

Henry Kaestner: So April 27th, Tuesday night, April 27th, I think is when we’re doing the event and I’d love to see you in person. That’d be great. And for any of the listeners that might listen to this before, maybe you can show up. And the odds are that most of you will listen to this after we’re done. So look on the podcast for the time we spent with Nicky and Pippa Gambol at Holy Trinity Brompton and the work that they’re all doing over there. I want to close out the podcat, the way we do each one of our episodes, which is to ask our guests what they’re hearing from God through his word. I’m going to ask all three of you so we’re not going to be able to spend maybe as much time unpacking each one. But nonetheless, I fully believe that God is answering your prayers. And Keren, thank you for that emphasis on prayer, and that is answering your prayers. And oftentimes he’ll do so through his word. What are you each hearing from God through his word? Maybe it’s today, maybe it’s this week, but some way that you feel he’s talking to you. Please.

Keren Pybus: For me, it’s very clear at the moment it’s about David and Goliath. And David saw that opportunity, saw how big that thing was and wasn’t scared because he had God with him. And we deal with a huge amount of very large corporations. And we’re a small company trying to grow, but actually it just takes. He selected five stones. He only needed one of them. And actually it’s about seeing the giant and then trusting God to go after it.

Henry Kaestner: Good word, Paloma.

Paloma Schackert: I think for me I’m feeling very reinvigorated, so I share that I recently came back from maternity leave. There’s been a lot of ups and downs for the business over the past six months to a year and as there have been for so many with COVID and pandemic and now what’s going on in Eastern Europe and the world just feels like it’s kind of moving under our feet. But a number of things have happened this week and just having this conversation as well as just rerouted me and where we’re going and then the strength of the foundation. I’m very grateful for that.

Henry Kaestner: Excellent, excellent. Jeff.

Jeff Kahler: Well, I think it’s just that God loves us. He love us so much. He loves people so much. And that gives me a great deal of hope and encouragement in the world that people may be lost, but they’re still lost children of God in that, you know, we get to be a partner in sharing that love in the world. And I’m just more excited about doing that than ever.

Henry Kaestner: Well said. Well said. Okay. I should have probably asked this question earlier on, but if you’re listening to podcasts and you’re just inspired by the story, what are ways to get involved maybe as a consumer? Yes, it sounds like you may have another round that you might be talking about in the marketplace at some point in time in the future. But maybe as a consumer where we find your products, how do we support the work of your workers?

Keren Pybus: That’s tough as a consumer because we sell to businesses. We don’t sell directly to consumers. So, oh, we supply to brands that they obviously then sell. So the two biggest brands that we are supplying at the moment are called Refrigeuor. If you happen to work in cold storage, there are uniform specialists that working really well, just what our very.

Henry Kaestner: Small percentage of our listening audience.

Keren Pybus: Or just want the most amazingly insulated sweatshirt you’ll ever wear in your life.

Henry Kaestner: I bet they’re great. And coming out of where that’s bizarre that it’s kind of you’d think there’s something like that come out of Norway’s coming out of West Africa.

Keren Pybus: Yeah, yeah.

Paloma Schackert: There’s a lot of value addition in that. Yeah.

Keren Pybus: We also supply a big nightwear company in the US called Pajama Graham, which is an incredible company. So nightwear like a telegram and through the post, get your family ready. So those are two businesses that you could buy from. But we have a foundation based in the states called the EAA Foundation as well. So there is opportunities if you wanted to if we have that nonprofit, we also have a nonprofit in Ghana as well that does all of our training and development of some of our compliance programs. So enabling the factories to kick start things like building a kitchen so they can feed the workers, buying a bus, so they can transport workers, that kind of thing as well. So there are opportunities there. Just get in touch via our website www.ethicalapparelafrica.com.

Henry Kaestner: Excellent. All right. God bless you all three of you. Thank you for being with us.

Keren Pybus: Thank you.

Jeff Kahler: Thank you Henry. And good to see you both too.

John Coleman: Welcome back to Faith Driven Investor podcast. I am here with my partner Luke Roush today and we’re very excited to welcome a very special guest. Luke, how are you today?

Luke Roush: I’m doing great. I’m excited to be on with David Wills, who is our guest and long time friend of Henry and myself, and just the broader Faith Driven Entrepreneur and investor movement and just grateful to have him and his wisdom with us today.

John Coleman: Indeed, it is exciting. So, David, for those of you who don’t know, is the president emeritus of the National Christian Foundation was a co-founder of Generous Giving, a board member of various organizations involved with the Impact Foundation, author of multiple books. A truly interesting guy and a leader in the faith driven giving and faith driven investing spaces. And we were just really privileged to have him on today to talk about a number of topics which he’s uniquely qualified to introduce to this audience and to address. So, David Wills, thank you so much for joining us today.

David Wills: Well, it’s a privilege to be with you guys. Looking forward to this.

John Coleman: Well, why don’t we just start with the basics? For those who don’t know you, David, would you mind just given us a little bit of your background and what led you on this unique journey?

David Wills: Well, certainly just a quick introduction, kind of who I am. I have a dear friend when they’re asked this question, has a special way that they answer some of the news. Her method, if you’ll allow me. So I am the son of Don in Sioux City and the husband of Chris, the father of Jonathan, Maggie, Chuck, Luke, Josh, Drew and Sam and the father in law of Abby and Courtney. That’s right. There’s seven. And then now we have plus two and soon to be the grandfather of a bouncing baby boy who is arriving in the next month. I’m also blessed to have some of the best friends in the world, but most importantly, I’ve been delivered from the domain of darkness and transferred to the kingdom of his beloved son, in whom I have redemption and the forgiveness of my many sins. So that’s kind of who I am. My wife and I both grew up in Wichita Falls, Texas, and I’ve known her since she was five and I was nine. Now, we didn’t start dating until we were in her twenties, just to make sure that’s clear. We now live outside Waco, Texas, after having spent about 25 years in the great state of Georgia. So let’s see. The last question was, how did I get to where I am today? I think, as you might imagine, that’s a people centric thing as well. So I’m a lawyer by profession. And in 1991, I, I actually met a stranger who spent some time with me, and neither of us even knew there was such a thing as half time. But he essentially was challenging me to go into half time and leave my litigation practice to move on to a tax practice and help Christians become wise stewards. And his name is Greg Sperry. That’s how Greg has been my mentor since the first week of 1992. We talked day before yesterday, so we are constantly engaged to this day. And I sit at his feet both from a professional and a spiritual standpoint. And then a few years after we got together, we met a guy named Terry Parker. And when we crossed paths with Terry, Greg and I both ultimately landed at the National Christian Foundation. That was about 25 years ago. So along with that and my wife, he’s been my best friend and counselor through it all. That’s kind of the path that the Lord has brought me on.

John Coleman: David That’s awesome. And I think you’ve won the intro sweepstakes. I have to say that’s the best one we’ve had so far. You know tons of topics to dig into there. Maybe just to start and I know Luke wants to get into some questions about donor advised funds. You’ve been involved with two organizations that have just been central to giving within the Christian movement, to innovating on giving, which is the National Christian Foundation and the Impact Foundation. Could you just tell us a little bit more about those and how you became involved with them?

David Wills: Well, I like the Impact Foundation at first. The Impact Foundation is a relatively new entity, really set up to meet a need that just was constantly increasing inside the NCF world and outside as well. And so Jeff Johns and Aimee Minnich founded the Impact Foundation. I’m honored to serve them as a board member. And really the simple purpose is to use charitable capital to invest in for profit impacting ventures, which of course in the world we live in now, it’s like, well, we do that all the time. Well, we didn’t used to do that ever. So it’s a new thing. And the Impact Foundation is growing like a weed and it’s just fantastic. So I commend it to anybody. NCF has been around a little bit longer and it’s kind of helped to in partial ways, birth these kinds of generosity entities. But this is our 40th anniversary this year for the National Christian Foundation. And a couple of weeks ago, we granted our $15 billion in grants, which is just crazy. We serve 25,000 plus families. And so at this point, they’re granting. About $1,000,000,000 every seven or eight months. So we keep the money moving. As I mentioned, we were founded by Terry Parker, a lawyer from Atlanta, and he had two clients 40 years ago, a guy named Larry Burkett, a guy named Ron Blue, who really nobody even knew who they were except for Terry. And the three of them were the founders. Larry is now in heaven, but Ron and Terry are both in their eighties now, and they are both going as strong as ever. Incredible role models.

Luke Roush: So David, thank you for that overview of where Impact Foundation has been and where NCF has been. Love to go back to the origin story of NCF, which really involves the concept of donor advised funds which are familiar to many of our listeners but not all. Be great to get a definition of what a donor advised fund is. And then maybe also just have you walk us through history of how they have evolved as a structure for givers over time.

David Wills: Sure. So donor advised fund, I’m going to take that kind of in reverse order. They’ve been around way before. NCF was around. So maybe over 100 years there have been donor advised funds and really kind of donor advised fund started in the community foundation world. And there are well over a thousand community foundations around the country. And it’s a tool that sort of is a cross between a charitable checking account and a low cost personal foundation is the way I would describe it. And of course, nowadays they’re all driven by technology, so the use of them is turnkey and simple. You can click and contribute into your fund. You can click and grant out of your fund right off your phone. And so it is it’s a very simple way, I guess, to describe it also, I could kind of give you my own personal experience. My wife and I have used a donor advised fund since before I worked with NCF. So maybe 30 years we’ve been using a donor advised fund and the first reason we did it is because we got bombarded with literally maybe a hundred receipts per year for our charitable giving and the donor advised fund just eliminated that issue. So now we get one receipt per year for all of our giving. So that was just, you know, kind of an administrative advantage. We also love to give anonymously. We do have a pretty high percentage of our giving goes out anonymously and a donor advised fund is unique and that can let you do that. And we’ve also given a piece of real estate, piece of a commercial building that we owned. This was gosh, before I was in NCF, I think, and we gave it to NCF. They sold it and we took three or four years distributing out the proceeds to probably six or seven different organizations. So it’s a tool and it just really simplifies the giving process. And as far as where they are today and where they’re headed, donor advised funds continue to be used in more and more creative ways to help simplify giving. To help collaborative giving. Lots of giving clubs are coming around because of donor advised funds, and also donor advised funds are under the umbrella of a public charity, not a private charity. And so the flexibility is much greater to do investing inside the donor advised fund we’re on. I know we’re going to talk about that in a minute.

John Coleman: So why don’t we pick up on that last topic. David, you know you mentioned that donor advised funds have obviously revolutionized giving. They truly have. They’ve made the personal family foundation available to anyone effectively. An NCF was a leader in that, particularly in innovating the way that that could happen. But as you touched on towards the end of your answer there donor advised funds, whether NCF or the Impact Foundation are innovating also the way that people invest. Talk to us a little bit more about those blurred lines now between investing and charitable giving and how that plays out within the context of the donor advised fund marketplace.

David Wills: Hmm. They use a little bit of a pejorative word, blur the line. I’m not sure exactly what you mean by that. But, you know, any time you have a donor advised fund and any time anybody’s ever had a donor advised fund and there were excess funds sitting in there, they were invested in some way somehow. It’s just that the sophistication is growing in what you can invest inside of a donor advised fund. But really, from my perspective, the divide between giving and investing is diminishing. So let me go back 30 years ago and maybe getting a little bit off on a tangent, but so 30 years ago, you know, you have your non charitable personal capital in one bucket and your charitable personal capital in another bucket. It used to be that your non charitable personal capital was either completely passive in its investment or if you were really sophisticated you screened out bad things and that’s just where it was. And then with your charitable capital, you put it in a money market fund until you gave it away, and that was about as sophisticated as it got. Well, those days are over on both sides of the coin. Giving and investing are now a very commingled, holistic endeavor. So actually when I hear you talk about the Faith Driven Investor, my mind goes to two buckets, not one bucket. So I don’t just think about the Faith Driven Investor investing their personal non charitable capital. I see it as one big thing. It’s just a matter of whether it’s this return your tax exempt or whether they’re not. And so it’s opened up a lot of doors that I think are really, really exciting.

John Coleman: That’s awesome, David. And we we obviously agree with this idea that, you know, if you’re going to keep a pool of capital for giving, you might as well use that entire pool of capital for impact rather than just waiting for impact until the time you can give it away. You mentioned that people are moving beyond where it started with negative screening into other types of investing. Could you say a little bit more about that and what that looks like within the context of the organizations that you’ve worked with in the DAF marketplace?

David Wills: Well, I’m going to broaden your questions if you’ll let me a little bit here. So let’s go back to that left hand bucket. That’s your personal non charitable capital that used to be passive that’s going away. So both giving and investing. The concept of social change is now melded into all of it. And so no matter where you invest, whichever capital you’re talking about, you are affecting social change. And if you’re faith driven, you’re also the social change has a spiritual aspect to it as well. But I would think if you went to the CEO of Apple and said, okay, if you have to give up one or the other, which one are you going to pick? The valuation of your company and the returns to your shareholders or the social impact that your company is generating. I believe he would say I’m unwilling to give up either one of them and they are both completely interlinked with each other. That’s exactly what’s happening on the giving side as well. So when we give our charitable capital, we are very intentionally now becoming investors. We used to kind of call it donors, but we don’t use that language anymore because donors are they? How do I describe it? They give away their resources and they move on. Requires very little effort. It’s actually the most common identity that I even have as a giver, is a donor. But that is diminishing. And so people are becoming what I would describe as Faith Driven Investor. And the reason they turn into investors is because they care, they’re accountable for the results of their giving and they’re investing. And so that requires a great deal of effort. But people are embracing that. But keep in mind, this isn’t new. This is not a new thing. This goes back to the time of Jesus, where in the parables of the Matthew 25, Luke 19, the parable of the talents, the terrible, the mind is, it’s exactly the same thing. So I think the day of kind of bifurcating these worlds is starting to go away, which is really exciting. NCF has been kind of processing and dealing with that for over 20 years. And one aspect that we can talk about if you’d like, but hope that answers your question.

Luke Roush: So when you talk about just kind of this shift and you described it well, we often describe one on the spectrum. We find donors trying to become more sustainable in the way they give or the way they invest. To use your language, which I like. And then also on the investing side, people are trying to become more thoughtful about the impact that their capital is having beyond just purely kind of dollars and cents. As you think about the shift in mentality that’s going on, on the giving side, becoming more investment, sustainable, focused. What’s driving that? Is that an intergenerational thing that sort of as millennials or kind of second gen, third gen folks are starting to act as allocators of capital. Are they driving that? Is it actually an awakening of the original donor advised fund account holders? What are the core drivers of why that shift is occurring?

David Wills: Yeah, I would say it’s a spiritual shift and in the past 20 years, at least in the world that we work in, which is not, you know, the massive amount of folks out there is more on the upper end of the scale. Frankly, we’re seeing a I don’t know if you would call it a revival of generosity or just an outpouring of generosity, but people are dramatically increasing what they give. And because it’s becoming a more intertwined part of their life, it’s now becoming a more important aspect of their life. And they’re not willing to do things the way they used to. This is double down with the younger generation, though it’s even more so. But it’s not just the younger generation. There are old people like me in their sixties that are caring as much about this. I mean, we now even have terms that we use on the generosity side called giving champions and giving evangelists who are using, you know, their influence, their spiritual giftedness of giving to influence their peers. And that’s another factor that’s really causing this to change because it makes sense. It’s actually biblical generosity is what’s happening here. Another factor, I’ll give you one more and there’s others. But I think that probably the biggest one is the issue of ownership, and it’s on both sides. So, you know, ownership that’s kind of like control. It’s an illusion. We think that we own things and we think we have control of things, but neither are true. And so as people understand more and more that they’re an owner that has the steward mindset, several things start to click. Scarcity becomes abundance. Caring about and being accountable for what happens with your giving starts to happen because you’re a manager, you’re responsible to manage. And so that ownership and manager role clarity is also another big reason that this is happening. So you’re kind of get me on a soapbox here, so I’ll step off.

Luke Roush: That’s great. I like the soapbox. Keep rolling. John, over to you.

John Coleman: Yeah, just a couple of topics I want to dig in before we leave this area of donor advised funds, David. One is, you know, if you look at the average age of a donor for donor adviced funds in the US is 65 years old and this is common across anywhere that you have pools of assets that it’s critical to get young people involved in these movements. And you touched on that a bit. How do you think donor advised funds can start to get young people involved? And what’s the purpose of a donor advised fund or what’s the use of a donor advised fund for a younger person with a lower account balance?

David Wills: Well, I’ll start with the second question first. As I mentioned, my wife and I started using donor investments 30 years ago and I was 30 years old. So I think I was a young person at that point and we had a little balance. So all of the reasons that I gave earlier perfectly, in fact, they actually primarily fit with people that are younger. The only exception might be the gift of the real estate, but even that’s not an exception anymore, because these younger folks are now either creating wealth much earlier than my generation did and or they’re receiving wealth much earlier than my generation did. And so I think that the younger and smaller is really just not as big of a deal as it once was. I think that those folks I also think that they’re more conscientious and they’re more holistic. The younger people are. So it’s the older folks that are more likely to bifurcate their lives. Younger folks are far less likely to do that. Everything. So they may be more interested in the social impact of Apple than they are the returns of Apple. Now, my generation couldn’t give a rip about the social impact of Apple. I wanted a higher return on my investment, and thank goodness I invested Apple a long time ago, but it’s a very different mindset. On the donor advised fund side. You know, these demographics are real and it’s the young people. I think they’re going to be giving more. I don’t think they’re going to be getting less and they’re going to be giving more conscientiously. And so these kinds of tools are actually going to become even more valuable for them than they were for my generation.

John Coleman: David Switching topics a bit. One of the one of the things I’ve noted is just the diversity of things that people give to you through donor advised funds. And I have a question about whether you think a donor buys one platform and the nature of a donor advised fund really matters depending on your values. For example, I noticed that one of the top five donor advised fund out there of their top three charities that they support. One was a major church organization and one was the country’s largest abortion charity. How should Christians think about that? And does the nature of the platform actually matter?

David Wills: Well, I’ll give you two points on that. The first one is the pressure on the secular donor advised funds, and that’s who you’re giving an example of, obviously is becoming very significant on their role in supporting religious organizations. And so we’re even seeing people move over to NCF from secular donor advised funds because they’re getting wind of this pressure, which is totally understandable and I think it makes a really big difference. So in the world of a foundation, I know that it feels like when you have a donor advise fund, that’s your fund, but you actually don’t own that fund. It is a part of a much bigger body of funds and you are under the auspices, under the fiduciary responsibility of a group of people. But even more so than that, I encourage people to, you know, there are many faith driven options out there for a donor advised funds. They should pick one because inside of the donor advised fund, most people on the outside that use them say that there’s fees, but there really aren’t fees at a donor advised fund. They’re actually grants to the operating fund of the charity. And I don’t want one penny of my grant making to go to the operating fund of a charity who’s going to make grants to the largest abortion provider in the country, not one penny. And so there are plenty of options now where you don’t have to do that. And so I encourage people to pick one of those options and dive all the way in.

Luke Roush: I love that. It’s a great remit. And to your point, there’s a number of good options that are available to folks. Let’s all pick one and I want to come back to something that you and I have talked about before. David.

David Wills: Hey, Luke. Before you. Should we make a disclaimer of your wife’s prior employment at the National Christian Foundation? You’re starting to talk.

Luke Roush: Yeah her first boss. It’s her favorite boss. I think she’d most certainly rather work for you than work for me. That’s. That’s for sure. But, yes, Brooke, once upon a time was the first marketing employee at National Christian Foundation who worked under the tutelage of David Wills. We would have attribute much of our marital success to David in his bride.

David Wills: Okay. Just wanted to make sure that that disclaimer was out there. So.

Luke Roush: Well, I’ll tell you, David Wills and Ted Day are two of her all time favorite people, and I am grateful for them.

David Wills: That’s wonderful.

John Coleman: Where do you rank in those all time favorite people Luke among those.

Luke Roush: I’m somewhere way down the list. It depends on the day. Depends on the day.

David Wills: Oh, come on. Top ten for sure.

Luke Roush: Top ten? Yeah, that’s good. Okay.

John Coleman: You have thrown off David. We managed to throw Luke off. This is a legendary day in the Faith Driven Investor podcast. We should mark this for posterity.

Luke Roush: Oh, so. Okay, I got it. I want to come back. David, something that you and I have talked about before is this idea of some significant or insignificant stroke of pen risk that exists around Christians ability to donate to Christian charities or to invest into to use your words Christian charities in a tax advantaged manner. And there’s been a fair amount of speculation, particularly in the last ten years, that that may or may not continue into perpetuity. Any thoughts from you on where we stand now regarding that issue?

David Wills: The issue of whether or not people that are using daughter bodies, funds are going to be able to invest?

Luke Roush: Going to be able to give to Christian charities. Is a Christian charitable exemption at risk? Oh, you come out of D.C. This is your old world. Your old stop. Yes.

David Wills: Okay. Yeah. That’s a very fair question. One of the great things I mean, it’s from my perspective, having spent a lot of time doing advocacy work in Washington, which is kind of like beating your head against a wall, but you have to do it. Is that the biggest fans of charity in Washington? Are they very conservative and very liberal members of the House and the Senate? And so, in fact, some of the biggest champions of charitable giving and who would never want anything like that done are on the other side of the political spectrum than you would expect. Now, there are some exceptions to that rule, and I’ve had the privilege of speaking with many of them. But by and large, the risk to the non religious sector is so great if they were to start carving off and picking winners and losers, I can’t really imagine that ever happening. But there are some that would like for it to happen. Of course, there are some conservatives that don’t think Greenpeace should be a tax exempt organization or Planned Parenthood. I disagree fully with that, and I believe that churches also churches are even at less risk because they actually are outside the cap. But anyway, I think that answers your question.

Luke Roush: It does. Thank you.

John Coleman: Maybe to pivot a little bit, David, to move to a new topic, obviously, you’re very experienced with both investments and giving. Given the nature of your history and experience in investments, we have a ton of metrics around the success of those investments return on investment, etc. Many of our listeners, I think, struggle with how to measure success in the charitable world or how to determine whether their gifts are having an impact. Could you talk to us a little bit just how you think about metrics for giving and how those who give can think about the return on their investments in charities?

David Wills: Sure. Yeah. Some of the metrics that exist in investing in any corporate environment apply to tax exempt corporate environments. So there are definitely some ratios that you can use to help you understand that. And it’s just like in the socially responsible investing world, there are social ways to do metrics on social change. It’s a little trickier when you get into spiritual change, but even that is something that can be measured to some degree. In some cases, sometimes it can’t. But, you know, one of the great things about the metrics from a spiritual standpoint is, is that the metrics on a spiritual side, though often more difficult to distinguish clearly, are so much greater return than any earthly return could possibly be. But there are a couple of things that when I’m talking with somebody and they’re asking, is this a good investment? Is this a good charity? There are some things that I would tell them to look for. I would tell them to look for, you know, tested leadership, good tested leadership. I would tell them to look for a crystal clear vision and demonstrated momentum. But that’s the same thing you would tell somebody to look for if they were looking at a for profit investment. You get all three of those and you’re now you’re digging. To the details to make sure that it’s a sound investment. And digging into the details is a little bit different. But the starting point, by and large, is very similar.

Luke Roush: So thank you for that. I want to dove into a topic that I’ve heard you speak before about in terms of asylum being on the move, and that is the concept of God sized projects. So particularly as it relates to the Great Commission, maybe just an example or two of organizations that have successfully embarked on a God sized mission.

David Wills: Okay. So I’m glad that you use that phrase God sized mission projects. So I’m going to rewind just for a second because I want to make sure that when we’re talking about metrics on the spiritual side, that most of it’s unseen. And so the angels in heaven rejoice when one soul comes to faith. Now, that is a God sized celebration right there, buddy. And so when you think God size, I want you not to just think quantity. I want you to think quality. So that’s a little caveat, but some examples. One of the things that’s happening in the I would say what it starts to feel more like an investment are extraordinary collective and collaborative efforts that are going on. And I’ll mention those the examples that you asked for as opposed to mentioning like specific organizations, though I definitely could get into that. So I’ll give you three quick ones. One of them is the Illuminations Foundation. And every tribe, every nation, this is a collective effort. And the goal is that every one, every language, every person will have their native language in at least some meaningful portion of scripture. Their goal is to see that happen by 2033. That’s a tough goal and resources are needed to make that happen. The next one is what I call the finishing fund. It’s actually a mutual fund that’s been started by giver a guy named Doug Cobb and their goal in Fund One. They’re actually getting ready to start fund two. And their objective is to see that all unengaged people groups are engaged with the gospel. And that sounds like that’s crazy. But to give you an idea of where we are on that, because that’s something we’ve been working on now for over 15 years. Collectively, in 2005, there were 3500 unengaged people groups in the world, 2005. Now there’s 12,000 total. Okay. So 3500 of them were unengaged today, less than 250. So if you want to invest and I consider it an eternal investment in this deal, you better get on it because this is about to close. I think it could happen in the next two years that there will be no such thing as an unengaged people group on Earth anymore. And I promise you, if you invest in that, you’re going to reap the returns when you get on the other side. Fund two is very interesting because as we have engaged those 3500 groups, there’s now a groundswell of what I would call marginally engaged groups, just slightly engaged. And we need to turn those into sustainably engaged groups and then see that they become reached, which is 2% of the population. There are almost 4000 of the 12,000 people groups that I would describe as marginally engaged with the gospel. There’s some presence, but we need to go deeper and we need to do it quickly. It’s like taking a hill in a battle. We’ve taken the hill, but our troops are thin, so we need to move in reinforcement so that we can hold the land. The last one that I would mention quickly is the Strategic Resource Group. It’s another collective group and its focus is simply in what I would call investment grade options in the Middle East and North Africa for getting the gospel in the Middle East, in North Africa, which is also a very difficult place. So those are some examples that are just there crushing it. All three of those are just crushing it.

John Coleman: David I love that and I love that you guys are taking big swings for the gospel, that you’re really trying to do things that have a kingdom impact and that have an extraordinary impact. One more question before we dive into our lightning round, which should be fine. You know, recently Hulu released a documentary about the rise and fall of We Work and We Work is just one example among many of big, big start up projects. You know, these big enterprise that people invested in but went astray with the ego of the people involved with deception, with people misleading one another, etc.. Certainly this has happened in ministries as well or in charitable enterprises as well. Have you ever had experience with that and what advice would you give to people to make sure that their capital isn’t flowing into ventures that end up going astray like that?

John Coleman: Unfortunately, I have worked with folks that have dealt with that. I will say that to some degree, some of what we’re involved in where I meaning all of the investing, but there are some angel investing opportunities that are out there across the spectrum of charitable and non charitable that are risky and we shouldn’t shy away from those. However, what you’re talking about is deception. And that’s a different animal. So I want to make sure that people aren’t hearing your example of we work and saying, Well, I should not be an angel investor. And these startup deals, people go into these crazy places that nobody else has ever been willing to go to. Absolutely not. We should be significantly supporting those kind of angel investment opportunities. But I would tell you have a herd mentality if you want to avoid that kind of stuff. Don’t go it alone. Those three examples that I gave you of the illuminations, the other two that I mentioned, it’s a way to not go it alone. So invest and give in herds. Don’t go it alone. It’s one of the powerful things about Sovereign’s Capital. You’re not going it alone. You can of course, anybody can go invest in we work if they want. But this is the kind of thing that happens when you go it alone. And also, I would encourage people to have very good faith aligned, faith driven. That’s probably the catch your term. But advisors have faith aligned advisors. So leverage your peers. Leverage your advisors, be faith aligned. And not only will you improve your game, you will help avoid some of these unfortunate situations. And it’s just more fun. And so that’s how I answered that question.

Luke Roush: That’s great, David. I want to transition as to kind of the last section here, which is affectionately called The Lightning Round. So these are a series of short questions, one at a time that we’re going to throw to you. And some of them are fun. Some of them are actually most of them are fun midsummer. Some of them are also serious. So I’m going to kick us off. We’re going to go back and forth. And your answers need to be 15 seconds or less or you call those terms.

David Wills: Let’s go. I’m ready to play.

Luke Roush: All right, let’s roll. So here’s the first one. What was the bigger deal for you personally? Baylor winning the Sugar Bowl or dancing it? March Madness.

David Wills: Oh, March Madness. Easy. Next question.

John Coleman: All right. I’m going to ask this is a native of the great state of Georgia. David, when you move back to Texas, is it true that you kissed the ground upon your return?

David Wills: Absolutely. In fact, I kissed the ground, Texas. Every time I came back to Texas, but especially when we moved back here.

John Coleman: Oh, it hurts. It hurts.

Luke Roush: Okay. Okay. So you can start one super niche charity. What is it?

David Wills: Yeah, I would support any of the three that I mentioned, which I believe are super niche charities. But the finishing fund resourcing, the completion of the Great Commission, engaging all the unengaged would be that I would knock out that 200. That’s not the right term. I would see that the gospel penetrates those 200 plus remaining unengaged people group and get it done.

Luke Roush: That’s great.

John Coleman: That’s awesome. So, David, more specific question. Who is the most interesting person with whom you’ve consumed a pie near Crawford, Texas?

David Wills: Oh, well, what you’re actually talking about is Georgian and Laura Bush. And that’s actually it’s the Coffee Shop Cafe in McGregor, Texas, which is just down the road from Crawford, Texas. And they sell the best pies. I mean, their peach pies are better than the ones in Georgia.

John Coleman: Oh, David. Oh, my gosh. This interview is over. Luke, I have to excuse myself now.

Luke Roush: Okay. Okay, next up, what is your favorite Bible story about giving?

David Wills: Oh, that’s easy. The widow in the temple who out gives all of the rich religious people by putting in two small coins. Is that not just fantastic? Everybody in the world knows about her. Everybody. It’s incredible.

John Coleman: All right, David, we’re going to tee you up for this last question to bring us home. How do you think the world would change if every Christian regularly gave to charity and other purpose first entities?

David Wills: Oh, yeah. Yes, that’s easy. You can answer that with a Bible verse, Matthew 24:14 and it says And the gospel will be proclaimed throughout the world as a testimony to all nations, and then the end will come.

Luke Roush: Hallelujah.

David Wills: But what happened? That’s what would happen.

Luke Roush: Maybe some last thing and then we’ll wrap where has gone taking you recently in his word. And how do you find God’s word speaking to you?

David Wills: Well, I kind of think I just answered that question, but I’ll I’ll do a bonus round. So, you know, Luke, we have our daily Bible texting group and today is Psalm 45. So we do a chapter every day. There’s a group of us that text each other about one thing we now know, one thing we know ought to be, and one thing we ought to do. In light of that chapter, the heading of this chapter says, What should I fear in times of trouble? What a great title for where we are today. And basically, it asks a rhetorical question. It says, Should I trust in wealth and boast in the abundance of riches? And the answer to that question is no. And the reason the answer to that question is no is because that won’t sustain you and it won’t last.

John Coleman: Awesome. David Wills I think I speak for both Luke and I. It’s always a pleasure to have you on, to listen to you, to learn from you. And we’re really grateful to you for sharing with the Faith Driven Investor podcast today and with our audience. Thanks so much for joining us.

David Wills: Honor to be with you. Thank you.

Rusty Rueff: Hi everyone thinks once again for finding us here at the Faith Driven Investor podcast. It’s great to have you. So what is a family office? Well, some of the confusion may stem from the fact that the original family offices manage the financial affairs of a single, extremely wealthy family, such as the Rockefellers or the Vanderbilts or the DuPonts. Such single family offices still exist, but the wealth management industry has evolved so that multifamily offices can bring a higher level of expertize than most single families can attract a family office as well. It’s not for everyone, but for those with significant assets, complicated financial lives and a desire to make the mundane as well as the complex flow just a bit smoother. A family office could be an ideal solution. Ronald Blue Trust advisors go a step further by applying biblical wisdom and technical expertize to help the clients they serve make wise financial decisions when it comes to money, family and generations. On this episode of the Faith Driven Investor podcast, we talk with Scott Calhoun, Skip Perkins and Kyle Kutz about the benefits of a family office and the importance of finding balance in life, investing in the next generation, and most importantly, leaving a godly legacy. Let’s listen in.

John Coleman: Welcome back to another episode of the Faith Driven Investor podcast today. We’re very fortunate to have three guests with us to talk about family offices, single family offices, multifamily offices, how they’re structured and how they invest. All of our guests are from Ronald Blue Trust in Alpharetta, Georgia. And we’re privileged to have with us Scott Calhoun, Skip Perkins and Kyle Kutz today. Welcome, gentlemen. How are you all?

Scott Calhoun: All right, John. Thank you.

Speaker 6: Thanks for having me.

John Coleman: Well, look, it’s going to be a fun discussion today. I know you’re all experts in this field and you’ve got a lot of great stories. But maybe I’ll start with you, Scott, just a little of your background. Why did you get into the family office space and why are you passionate about it and what gets you up in the morning?

Scott Calhoun: Yeah, certainly, John, thanks again for having us. I got to admit, is really by accident. I started my career in public accounting as a tax consultant with KPMG here in Atlanta. And my wife and I, we’re actually from south Georgia and we decided to go back home to raise a family. And one thing led to another. And I went to work for a bank that had a trust company that had a multifamily office embedded inside. And so I was kind of brought on board to be kind of the estate planning. Financial planning consultant for this multifamily office had worked with some family offices during my KPMG days, but that was my first kind of venture into the family office world. And so I started in the multifamily office world, kind of did a quick detour of my career into the investment consulting arena, and then really just kind of a Lord put it on my heart, kind of want to come back to the family office world coming back to be that global problem solver, as we like to say, but really intentionally looking to how can I do that, incorporate my faith and bring honor and glory to the Lord’s kingdom in doing so.

John Coleman: That’s an awesome story, Scott. And tell us. You had mentioned as we were catching up in advance of the call that each of the three of you have kind of different backgrounds that are complementary given the family office. Skip and Kyle, I was wondering if, just as a complement to what Scott articulated, if you just give us a few seconds on your backgrounds and how you came to this as well.

Skip Perkins: Yeah, so I’ll go first. I was practicing law and actually recommitted my life to Christ about five years into my career and really felt called in a different direction. And I wasn’t sure what direction that was going to be, but I wound up talking to a friend of mine from law school and he had gone to work for a family office. As it turns out, the same one Scott was working for at the time, and he kind of explained a little bit about what they were doing and able to help families and serve families. And so I made the change from the private practice to the family office world. And then after about 15 years of working there, Scott called me up because he had just gone to work at Ron Blue and just shared this vision of being able to serve families from a biblical perspective and bring, you know, biblical wisdom into the picture of serving these families. And I just was like I told Scott, I’m really not looking to leave, but wow, how do I not do that? So that’s a little background on how I got here.

Kyle Kutz: Yeah, and similar story. I think we all have different God stories of what has led us to where we are now. But when my wife and I moved to Atlanta in 2015, before that, I had done some public accounting CPA track, sort of the tax world. So I’m a recovering tax accountant now, a little bit out of that, but still, that might happen every now and then. But when I came to Atlanta, joined a large multifamily office in Buckhead in the Atlanta area and thought I’d be there probably forever. Great team, really great experience serving some great families. But really through that interaction with some folks at my church, I had heard about Ronald Blue Trust and had heard that they had a family office division and thought, Well, maybe someday God will lead me there. But never thought it would be earlier in my career. And the story I like to tell folks that when I was at my previous multifamily office firm, you know, again, great families, but some of them I remember going through some of the exercises on retirement planning and there was a gentleman there who was an inheritor in his forties, Harvard guys, super smart guy. I mean, he can make a buck, but for every buck he made, he spent $2. And I remember just doing retirement planning for him thinking this guy’s inheriting a $300 million fortune and he’s finally making $1,000,000 a year, at least, if not more. But he had gotten to the point where he was spending upwards and some month of $1,000,000 a month personally. And we were worried that he wouldn’t have enough to retire. I remember sitting there thinking, Scratch my head. Is this normal to most people who are inheriting $300 million after worry about having enough at the end of their life? But I think that was part of just God’s story in my interaction with some of those situations and thinking maybe someday God will lead me to a spot where we can have a multifamily office environment and serve individuals who are looking more out into the future. From eternal perspective and using their capital in ways that influence lives here on Earth. And that’s what led me to Ronald Blue trust. So tax background, estate and trust background, a little bit of an investment background, but that’s what led me here to this time working with Scott and Skip.

John Coleman: That’s great. And Scott, just this set the table for us. You know, most of us don’t have a family office or aren’t a part of a family office, and there are some out there who are considering it. Would you just explain to us what is a family office and how does a family think about choosing between a single family office and a multifamily office like the one you all run?

Scott Calhoun: Yeah, good question, John. I mean, I think there’s actually a great saying in our industry and it’s if you’ve seen a family office, you’ve seen a family office because each and every one of them are so, so different. So a multifamily office, by definition, is a group of professionals that serve multiple, unrelated families. For instance, Ronald Blue, we serve a little over 30 different distinct families across the United States, single family offices where a family’s situation is so complex and so large that it really kind of commands, Hey, we’re going to create our own single family office that serves us, our family and our family only. Sometimes that single family office actually might be embedded in their business. Sometimes it might be external. There’s actually another one that’s kind of in between. It’s actually called a private family office. A private family office is a dedicated team of professionals that serves one family and one family only when it’s actually embedded inside a multifamily office. And we actually have that here at Ronald Blue, where we’ve got advisors that serve multiple families. I serve about ten or 12 different families, but we also have advisors and teams that serve one family and one family only. I think the key, the determining factor is it’s really complexity. It’s hey, has the family situation gets so complex on the private business front, the investment front, the estate planning foundation front, all of those various things that kind of add to complexity as the family’s wealth grows. Has that complexity gotten so great that we need some form of a family office?

Skip Perkins: Yeah. And John is going to add to that a little bit. Just to say, you know, a lot of times when we go around the country, people have different ideas as to what family office means. So we didn’t found that geographical and a little bit like a lot of times when we’re in Texas, they think it’s oil and gas. It’s bookkeepers keeping up with oil and gas rights. And if you’re in New England, it’s the office where they go to get their tickets, to go to, you know, go out of town or to go to the, you know, the ballgame or whatever else. And, you know, different people have different ideas. And a lot of times people won’t, like, create a it’s almost like a business. So they’ve had a liquidity event or they’ve had a, you know, something that has happened. And they say, you know, we want to pool our assets and, you know, we can do things better together. So we may have a portfolio of operating companies or we may have a portfolio of marketable securities and some private investments or whatever else. Every family kind of sees it differently, and that’s sort of what we think. Our goal, our job is really is to sort of help families identify, you know, what is the goal, you know, what are we trying to do here and how do we bring you know, we’ve got that sort of joke when we add up. The years we’ve been doing this together, we bring, you know, almost 60 years of experience, which still makes me kind of shudder. But it is true, I think. But, you know, how do we bring that experience to say, what is it you’re looking to do and how can we help you do it? And how can we build your office to fit that.

John Coleman: Well and that’s fascinating, Skip, because you’re picking up on a topic, I think when a lot of folks think single family office or multifamily office, they’re thinking investments, right? Somebody construct the investment portfolio. And that’s obviously a very important part of a family office that we’ll circle back to. But I think fewer people are aware of just the complexity of family offices and the different services that are offered maybe to pick up on that thread. And Kyle, you could start us off. What are the major functions within a family office is Skip was beginning to articulate and what can those look like for families as they participate?

Kyle Kutz: Yeah, great question. I mean, a lot of times we start serving new families. We’ll spend a lot of time with them just really understanding their needs, their goals, really where they’re at, whether they’re first gen wealth creators, second or third gen wealth inheritors. And the more generations that there might be within a family, there’s more complexity. I just typically comes with both family enterprises, whether it’s the family business, whether it’s family inherited wealth. So let’s discuss a little bit. Sometimes it’s a regional difference, but some of the key tenets that are out there in the secular space, you know, would sort of be that wealth management side. Okay, investment management, asset management, tax planning, estate planning. Then what we call is support services, maybe family office support services, which might be a little bit more execution on a day to day basis, could be bill paying, could be reporting, could be a, you know, accounting of the activity, could be concierge services like helping folks on their travel expenditures or going to buy a car, getting a house insured, those kind of items. But we like to distinguish ourselves a little bit differently, especially it’s done in their previous multifamily office experience, where they just noticed as the generations got more and more complex and larger and maybe they spread out more, there was a mission services aspect that was ignored. A lot of times the focus might just be on the dollars and cents and every decision to maybe push through what’s the most tax efficient way, what’s the best way to gain a dollar in every decision that’s made? But the personal relationship side is often ignored. So what we like to do is also focus on those family mission services, family governance, how to families come together and maintain the mission of the family. As their situation gets more complex and grows in value, how do they ensure that their philanthropic goals are accomplished? How do they make sure if they’re coming from a position of faith that each generation doesn’t forget about God, the Creator of everything that is provided to them that well? So there’s a couple of different pillars that we like to look at with families, the family wealth management side, the family support services side, and then the family mission services side. Scott and Skip feel free to jump in and maybe add anything that I missed.

Scott Calhoun: John I’ll add there too I think, you know, even in the secular family office world, a number of different surveys, surveys are taken every year from family office exchange, family wealth alliance. And when they interview families of substantial wealth and they ask, you know, what’s the thing that keeps you up at night? It’s generally not the taxes, it’s not the estate plan, it’s not the investment returns. Although all those are important, it almost always tends to be focused on the next generation of the family. How are we going to prepare and equip the next generation of the family? A lot of it, I think, may be more fear based in terms of, hey, are we going to destroy the work ethic in the next generation? You know, back to that situation that Kyle alluded to, if they’re going inherit 300 million to the year and even do not have to work. So, you know, how do we continue to perpetuate that idea regarding stewardship and work ethic and understanding, you know, your giftedness and all that? And so that’s why we probably put so much focus on kind of that family mission services bucket, because that pretty much dictates the conversation everywhere you’ve got to start there before you even think about diving into the estate plan or the investment plan and that foundational focus of the family and the next generation, you know, how do we prepare and equip the next generation as opposed to protecting and insulating them from their own mistakes? You know, how do we teach this understanding of you’ve been blessed to be a blessing and actually you’ve been blessed even beyond just your financial wealth. You’ve got individual giftedness that you’re really kind of commanded to understand and take that giftedness and take it into the world, you know, really kind of changing the vernacular. So it’s not about what you’re going to get, it’s about what you’ve been entrusted with. Again, the financial wealth, individual giftedness, the relationships that you steward, all of that. And so that’s why we put so much focus on the family mission component before we even try to, you know, tackle the things and the wealth management side.

John Coleman: Yeah, I know. We interacted recently with a family that was very thoughtful about this. They were in their fifth generation, although the third generation was currently leading the company and they had approached really diligently the idea of kind of biannual whole family meetings, board meetings, where they get training and things like that, how they’d select leaders for the company, how they would steward wealth across the family and what values they had. And I was just so impressed at how complicated that was and how important the governance and generational transition was. Skip I’m really fascinated by this idea of a family mission as well as just the idea of governance. And maybe if we could pause on that for a moment, you know, we as a family also have a mission statement for our kids, like how do we want our kids to grow up and what do we want the in state to look like? What does the family mission look like for a family and how do you, as one of their advisors, help them to structure a process where they can engage together on that mission and try and decide what this looks like across generations?

Skip Perkins: Yeah. So in a way, we start with, you know, you may start at the senior level or you start with whoever is kind of engaged immediately with the family to just understand, you know, a lot of times we start with their values, you know, what are those values that the family shares? What are the values that they hold like really, really deeply and they anchor into? And, you know, the difference between really where I was before and being at Ronald Blue is it’s funny when you start with a blank slate and you kind of get to make up your values or, you know, kind of make up what’s important. But for us, you know, our families, we really try to anchor them and root them in values that are eternal values that, you know, come from the Bible, come from scriptures and but really understand what’s important to the family and then build on that. And really, you know, I think what you said or Scott said was really important. It’s being intentional about it. It’s because, you know, especially when you get to future generations, you have to think about and be intentional about how you’re going to instill into them values that motivate them or get them to work. I mean, to instill purpose, frankly. That’s really what your you know, they have to have purpose. I think God makes us to have purpose. And we have to figure out how the family can encourage and instill that sense of purpose in each family member. You know, I give you an example of one way we do it and it’s kind of fun, I think, you know, I do this with a couple of families, but one stands out because they’re a lot more intentional, a lot more dramatic about it. But we have like initiation. So like we actually go through it. We’ve identified the values of the family. We’ve created a mission statement for the family. And that’s just an exercise we go through and we try to engage everybody because we want everybody in the family to feel bought into it. You know, very often if you have somebody who says, all right, this is our family mission, and then you go out and tell everybody what it is, you don’t have the same buying as you do when they’re part of kind of building that. But in this case, what we do is we actually have an initiation when kids turn 13. And so there are eight gen threes in this family and four of them so far have gone through this initiation. And we’ve got a kind of a timeline of early you learn about very bare bones about the family business. You learn about the family mission, the values. They really spend time talking about the family story. These are immigrants. So there’s a powerful, powerful story of them coming to the United States and building this and having a history of even being homeless at one point. I mean, it’s amazing story. And then you build on that story, but you share that with the kids. And as they get older, you provide them various opportunities for development, for education, for learning about the family, about investments, about how to give, how to do all these things. And you give them opportunities to join in mission trips and things like that that you help develop them. And it’s really hard to give kids grit. Like when you grow up and you don’t have anything. It’s really hard to give kids grit, but you can instill a sense of purpose and values in them that can help get them that kind of that meaningful purpose and grit that they need to where they’re not looking at this, I think Scott said it earlier, they’re not looking at what’s going to come down the line is what am I going to get? You’re really empowering them to contribute to the kingdom purpose that the family is doing and the family is trying to accomplish with what they’ve been entrusted with.

Scott Calhoun: And John, I think I’ll just add there, especially as the family goes forward and new generations are born and new generations are born into wealth, and there’s this disconnect between the sacrifices of the senior generation. It gets really hard. It gets harder for them to understand and truly comprehend. I had a family in Arkansas we were working with and we had three generations for a family meeting. Family business been around for about 100 years. The patriarch at the time got up to kind of tell his story of kind of stewarding this family company for the last 40 years. And we we really asked them to be very open, transparent and vulnerable, which is very unlike him. But he followed our direction and. Basically told his children and grandchildren the four times over 40 years that he had to leverage his personal balance sheet in order to keep the business afloat. And I tell this story a lot, and he had two grandsons came up to him afterwards, and the responses were priceless. And the first one said, Granddaddy, thank you so much for telling us that story, because we weren’t quite sure what you did on a day to day basis. But the second one was priceless when he said, Granddaddy, thank you so much for telling us that story. We never knew our family ever experienced hard times. I mean, these were kids that grew up traveling on a private jet, going to exotic locations, going to private schools, understanding that they lived in a very different economic environment than a lot of their friends, but never really had that direct connection with the sacrifices and the stewardship that kind of came along with that. And so that becomes a very intentional part of our process. How do we create an environment where we can continue to perpetuate that understanding into the fourth, the fifth, the sixth generation that understands the stories, the values and the connections, even if they weren’t part of the original sacrifice.

John Coleman: Man, I love that. And you know, even in my own personal family, which isn’t quite as well off as you’re describing, you know, I grew up with nothing. And we worry about the kids not having that grit, as you mentioned, Skip. And how do we instill that in a kid while also you want to provide for them, right? You want to give them good educational options. You want them to be able to travel to see new things. And yet you also want them to learn what it means to be hungry, to have to succeed on their own, to be independent. And that’s a real tension. You know, one of the things I think is important in Christian family offices in particular that I haven’t heard you touch on just yet is giving. Before we circle back to the investment portfolios, would you guys mind picking up this topic of giving and what role that plays in your advice or counsel to to families?

Scott Calhoun: Yeah, I think I’ll start. I mean, I think fortunately, although not all of the families we serve are Christians, a lot of families have actually intentionally engaged us because we come from this value perspective. But fortunately, most of our clients are Christians, and so the giving conversation is easier. So we’re all kind of starting at that basic starting point, and that is God owns it all. And if God does own it all, how are we supposed to effectively steward the assets that he’s been blessed us with, including giving back? And so giving back and really kind of fostering that idea of giving back has never really been a challenge. And I think especially for our clients who have the financial wherewithal to give exceedingly and to give exponentially, that is there. I think the biggest thing, though, for our families is how do we instead of just writing the check, because the stewardship doesn’t end after we write that check. It goes on. So how do we bring the family into the family giving story so the family understands. Okay, here’s where my passion of giving comes from. Here’s where I’ve given. But really kind of inviting the family into the story because guess what? At some point, time, gen two, gen three or gen four beyond, they’re going to be making the decisions of where these resources go. And so, again, I think creating a conversation where we can honor, you know, multiple perspectives on how we can share these resources and how we can give exponentially, but also understanding that the stewardship component doesn’t stop after we write the check. In fact, if anything, for large givers, your stewardship responsibility is actually even greater if you’re giving a check, if you’re writing a check for 100,000, 500,000, etcetera, to one particular charity, you’ve got to understand, are there negative implications, potential negative implications for writing such a big check? Are we creating a a sense of dependency? Are they expecting that same check year after year and are not taking kind of the actions they need in order to be able to attract other donors? And so, again, I think the family story, the culture is very important, but also understanding that stewardship doesn’t end after we write that check.

John Coleman: Yeah, I love that. And, you know, one of the things that’s been most impressive to me as I’ve entered the Faith Driven Investor in community is just how generous people are. I mean, I’ve been blown away, Kyle and Skip, any stories that stand out of generosity before we move on or things that you’ve seen that have just impressed you that some of your families have done?

Skip Perkins: Well, I’ll go. Although I feel like we’re not giving Kyle as much time as we could. But I’ll jump in real quick, okay?

Kyle Kutz: I’m a good listener.

Skip Perkins: Yeah, there’s so many. I mean, you know, that’s one of the things about working, you know, with a bunch of generous families is that it’s so amazing to have seen. So, like, I’ve got this sort of slew of things running through my mind to choose from. But a couple that come to mind is, you know, as we’ve been working with the next generation in multiple families, but, you know, one that I’m kind of thinking of in particular, they as they give the children these opportunities to kind of learn about what giving is and that God owns it all and that the whole they see the picture of the family being generous and helping folks. It’s neat when you see the next generation start to step up and find things that they’re passionate about. One client who their a 17 year old son is just he was passionate about homelessness. And so he went and just really came up with his own ideas that he brought back to the family and was like, I really want to do this and I really want to do that. And to see the family, it was almost like create an entrepreneurial spirit in his giving as he was trying to go make a difference and help. And, you know, the family kind of encouraging him and supporting him to understand that, you know, this is God’s heart for people, that this is God’s heart and this is where this comes from. And this doesn’t just feel good because it feels good. It feels good because God is wired us that way. And again, that’s part of that. When you think about the next generation learning that same family, actually, they go on a vacation every year that we actually facilitate where they go, somewhere where they’ve given to something. And it’s not to get any credit. Like they don’t have like a big crowd that follows them. It’s for the kids to see. We have a company. This is the kind of stuff that can happen when you’re using your money for the right things. And we’ve had some powerful, powerful trips where the kids have really been able to see some incredible stuff and you see them beginning to learn. You know, that’s just what it’s about. Like that’s normal is that we’re going to give and we’re going to make an impact. We’re going to be intentional and we’re going be careful about it.

Kyle Kutz: Yeah. And just to follow up on what Skip said, it’s neat to see how God leads the hearts of different individuals to give to different causes. And we’ve got some clients who are a couple different families who are very focused on education. Some of them write $500,000 checks, some of them write $10 million checks. And God blesses both of those. Right. I mean, it’s impressive to see it in their communities, how they can sort of impact those around them in a loving way. We’ve got another client who loves giving towards retired pastors and realizes that those in the ministry usually have taken some kind of financial sacrifice through life. And at the end, when they get to that retirement age or they move on from being a minister, that there’s usually a shortage of cash and ability to live off of. So we’ve got one client who just really tries to help lift up those who’ve maybe retired from different ministries. I leave you with maybe just five different reasons. I mean, some listeners might think, why should we give from a heart of a Christian? Why should I give? And just to keep it real quick and simple, the first reason it’s sort of been mentioned a few times that giving is a tangible way to acknowledge the ultimate ownership of God and how a sovereign God rules over our lives. So sometimes if you’re like me, you can have some of this best approach. We don’t want to let go of things that supposedly open our hands. That’s just a tangible way to say, God, I understand that you own it. So I need to give to recognize that the second reason we can find some of these sort of scriptural references in Proverbs chapter three, but we show honor and obedience to God when we give, and the God even gives us commandments to give throughout Scripture. It’s it’s pretty hard to miss those commandments look, because he knows that money and Mammon and the attractions of this world are going to keep us from him, and if we don’t decide to let go and follow after him. So the second reason be to honor and obey. The third reason is that charitable giving is done in order to help prioritize issues in life. I know that when my wife and I give, a lot of times it’s easier to realize what’s the most important thing. So giving breaks, the power of money. And then the fourth and fifth reason. The fourth reason would be that charitable giving is done to meet the needs of others. You see this all throughout Scripture. You see in second Chorinthians chapter nine, Paul commands, and it says, Hey, open your eyes for those around you to essentially realize where a need is. And then the final reason, and this isn’t really the main reason, but there’s also promises in Scripture that there’s rewards, eternal rewards from giving and following Christ. And we get to understand that we can lay up our treasures in heaven instead of laying them up here on Earth. And there’s a promise that God gives us to give. So we love to help people along their giving strategy. And when you think through what makes maybe that philanthropy plan successful, especially when you’re dealing with family office clients and multi generations, we like to define that success by determining the appropriate vision for the family and then the structure and the training that goes along with that to ensure that future generations experience that joy of giving.

John Coleman: Man Kyle coming in with the five points framework. The former McKinsey consultant and.

Kyle Kutz: I got to keep

Kyle Kutz: It simple.

John Coleman: if you could come with a two by two chart. Kyle next time I think.

Kyle Kutz: Next time I finished out.

Kyle Kutz: Bullet point excel.

Scott Calhoun: Hey John. I’m sorry I can’t help but add to Kyle’s last point in terms of the joy of giving. I mean, clearly, you know, one component of giving is the tax advantage for the last couple of years, when they expanded the deductibility under the CARES Act so that you basically our clients could donate 100% of their income as cash gifts directly to public charities. In the first year it came out, we had a number of clients that took full advantage of that. I mean, clients that gave literally 20, 30, 5000 dollars Million or more in 2020. And we came back to them when they extended it into 2021. It is interesting because, you know, if you’re in the secular world, some clients might respond by saying, oh my gosh, I wish I had waited. And, you know, said doing a 20, 20, I wish I’d waited, done in 2021. Our clients were different almost uniformly. They came back and they’re like, Wait, I get to do it all over again. Wow. So that was the first component. That it was just really kind of giving beyond all expectations. The other was this is some of those same clients have come under audit by the United States Treasury because the IRS comes in and says nobody gives away this kind of money and these are just cash gifts to public charities. So it’s not like there’s anything surreptitious going on here like. No, there actually are people that give away this kind of money. And so it’s almost like this badge of honor that, hey, if the IRS is questioning because I gave away so much, I must be doing something right. And I’ve never seen this before in my 30 years career. I literally have clients who are looking forward to that next IRS letter. I’m just waiting for them to send me a letter on 2021 saying nobody gives this kind of money away.

John Coleman: Scott Calhoun, witnessing to IRS agents.

Kyle Kutz: And telling them.

John Coleman: I like him sharing the gospel.

Kyle Kutz: Yeah, the IRS agents. It’s like, who does this? Well, let me tell you about this person named Jesus. I mean, they had no idea what they were signing up for to audit that return, but.

John Coleman: It’s right. Well, I want to shift focus just a bit, guys, before we end here and do deep dive on the investment part of this. Because, you know, obviously, as your wealth grows, the complexity of your investment portfolio grows and you guys have a great window into some really interesting asset allocation into the types of assets that you try and get access to. Maybe, Scott, just to start with you and then we can feed off of that. Talk to us about what your family office portfolios look like in terms of the assets that you guys are trying to allocate to and how families think about that mixture of personal assets. Like you said, they own real estate. They own a family business versus the portfolios that they have.

Scott Calhoun: Yeah, yeah. I think this is probably one of the areas that we’re most excited about, John, because I think we’re seeing so many evolutions and we’re just loving the participation with Faith Driven Investor because again, I think especially over the last ten years, we’ve seen this dramatic shift and new opportunities and new understanding that I think clients are understanding new ways of how they can incorporate their faith into their finances, whether it’s their investment portfolio, their business, etc.. But also the options are ever increasing and I think the understanding is ever increasing. Clients are starting to understand I don’t have to sacrifice investment return in order to make an impact. And so I think in direct answer your question, we’re seeing it, everything’s all across the board because clients are in different levels of understanding in terms of that spectrum of the different ways you can incorporate faith into your portfolio and that how they personally, through prayerful discernment, are led to incorporate their faith into their portfolio. So it’s really all over the board. We may have some that still have what I’ll call a more traditional secular asset allocation between, you know, public equities, public credit, as well as private assets. But others are starting to understand, hey, I can incorporate faith here, maybe through screening out certain industries that are, you know, I’m just going to personally have issue with others might be more on a factor basis of really kind of intentionally investing in things that are productive conduits of how I can incorporate my faith. And so I think it’s a great conversation. Clients are really being challenged on. If God owns at all, then the next question is how am I prayerfully discerning how I should be investing or stewarding these assets? And it looks different for every client. I think that’s the beauty of it from our standpoint is it’s not a one size fits all, it’s a multitude and the client can kind of grow and understand what those new investment solutions look like.

John Coleman: Yeah, that’s fantastic. And I think the faith driven component of it is a really interesting one where it’s a supply and a demand problem. We discuss that here at FDI a lot, which is a asset managers have to come up with a lot more innovative ways in which to express faith through a portfolio, particularly positive ways in addition to negative screening. And then clients or limited partners or family office clients have to demand that right. They have to be on the lookout for that, wanting to allocate it to it. And there’s a little bit of a fax machine problem there and that the products don’t exist without a market and the market doesn’t exist without a product. And so it’s kind of growing slowly as we’ve seen. One of the more interesting things about a family office portfolio, especially as they grow, is that they can begin to incorporate different types of assets beyond public equities and fixed income, which you talked about. Scott, is there a threshold at which families begin to think about that? And how do you advise a family on which of their assets to tie up in longer term strategies and just how they think about those timelines? Because it’s you know, it’s scary for a lot of folks to look and think, I’m tying up assets for ten years or five years or 12 years. At what point do you begin to broach that with families and how do they think about that longer term horizon?

Scott Calhoun: Yeah, no, I think it’s a great question, John. And I think we kind of go back to the fact that Ronald Blue as a firm, was started as a Christian financial planning firm. And so everything we do from a financial advisory standpoint comes we start with the financial plan. So whether you’re worth $1,000,000 or you’re worth $1,000,000,000 from an investment allocation. Standpoint, we start with, okay, what’s your financial plan look like? What are your sources of income? What are your expenses? How does that change over the next ten, 20, 30, 40, 50 years? And then really kind of start the asset allocation process based on those investment time horizons. So, you know, that two year bucket, that 5 to 7 year bucket, that ten, 15, 20 plus year bucket. And so making sure that they understand that trade off between need for liquidity and potential volatility in asset classes. And so really trying to target the portfolio from an asset allocation standpoint based on those time horizons is first. The second is, again, when we get into those longer term investment buckets, for those that have the wherewithal to tie it up into illiquid structures that may be illiquid for eight, ten, 12 years, making sure that we’ve got that properly allocated. So even if it is in the 20 plus year bucket, we’ve got an allocation balance between, okay, what is liquid and what is kind of long term. But I think in answer to your first question is what’s the threshold? I think the beauty is because of the new introduction of new solutions, both public as well as private, literally every single client has a way of incorporating their faith into their portfolio in some shape or form. Now, granted, as you go up the spectrum, the options become more and more, especially as we enter the private market, the alternative market. But even if you’ve got a client that’s solely focused on public exposure, there are tremendous ways of incorporating faith in their portfolio.

John Coleman: Skip and Kyle any thoughts on how you’ve seen clients navigate either faith driven investing as a topic or just their asset allocation in their portfolios?

Kyle Kutz: Sure. Yeah. This is Kyle. I think Scott hit the nail on the head there. Just talking through when we help clients think through how God leads them. Right. Just prayerfully discerning and sort of seeing where their hearts are when it comes to how they want to integrate faith into their portfolio. What we do with every client is sort of go through that time based analysis of you know helping them meet their goals, but then also make sure that there’s enough liquidity in the short term where they can meet capital calls, meet maybe just different investing opportunities that might come up, meet different giving opportunities that might come up within the family. So we’re always sort of looking at the whole portfolio from a global OCIO type perspective to make sure that there’s tactical decisions all along the way. But what’s been fun on the faith integration side is just, again, to see more and more options, whether it’s private or public, that are coming to the table, that we can add to the menu, items to offer the clients that then even when it comes down to the nitty gritty, you know, investment policy statements, right? I mean, there’s probably some listeners on this call who’ve drafted investment policy statements to make sure, you know, the IPS is your map, your guardrails, to ensure that there’s a fiduciary mindset and a proper allocation mindset that they don’t get over concentrated in a position that may hurt the overall portfolio. But then what we’ve seen a lot of families of faith do is start integrating their values in that investment policy statement, which takes it from a more of a nerdy process to a spirit led process of saying, Hey, how do I want to make sure that as I maybe there’s a trust that’s set up for my kid, there’s a large pool of capital there that I want them to be able to access someday. But I also, in the meantime, want that capital to be put to work in a more impact type way. And I want my kids and my grandkids and my great grandkids, if that pool is still around at that point, to understand what my values were here at this point in time. And I maybe funded that trust. So we’ve even seen IPS construction changed drastically over the last ten years when it comes to Faith Driven Investing.

Skip Perkins: Yeah. And I would say it’s interesting, you know, and I may be restating things that have been said different ways before, a couple of ways, but one is the walls breaking down between thinking of giving versus investing for a purpose. I mean, the walls are just coming down to where they’re saying, this is all God’s money and I’ll give over here where that’s going to be helpful. But even as I invest, I want to understand how I can invest and it make a difference. And then, like you said, John, really, you know, what’s happening now is I think as that’s becoming more and more common and, you know, you’re starting to be able to give them better tools to do that, you know, how can you help them? You know, like Scott meant, you know, in the public realm, you think about, well, I don’t want to be part of this. Well, guess what? If you are invested in that, then you might have a voice at the shareholder meeting, or you may have a voice to the CEO. You may, you know, actually, by engaging, you may be able to actually go have some influence on those places. And then, of course, with private opportunities of going investing in companies that are going to be value driven or faith driven or whatever else, I mean, it’s just it’s really finding opportunities to let your money go, have a kingdom impact and breaking down that wall of whether that’s going to a five or 1c3 or whether that’s going to a company that’s going to go, you know, create a profit that will, again, you know, allow even more giving and allow even more kingdom work.

John Coleman: One, you know, one of the interesting things we touch on is the typical foundation or even DAF structure is such that obviously Scott, on one hand, there are those who just give away in the current year, which is amazing. Many people. Put money in a DAF or in foundation, and then they really focus on that 5% or 7% that they’re giving away each year, but don’t really focus on the 93% or 95% that they’re investing in the impact that that can have. And really thinking of that portfolio as one as a way to make a positive impact, I think is one of the more exciting ways in which we can start to view the future.

Scott Calhoun: Yeah, and I’ll tell you a story, and this also is a great story of how, you know, the walls are coming down between the philanthropic story in conversation and the investment story. But it’s also an incredible story in terms of kind of this generational linkage we were talking about. So there was a family that basically was taking a vision trip to Africa. The next generation, Gen three, was really passionate about a charity in southern Ethiopia, and they brought kind of genuine the patriarch along and he came along a little bit begrudgingly. He was excited that his grandkids were passionate about this, and so he wanted to be there and supportive. Well, during the course of their vision trip, they came to understand. They toured the orphanage, but then they came across an investment opportunity there, basically trying to build a water treatment plant. And they’re trying to raise $4 million of capital, you know, to create a water treatment plant that would basically benefit the entire region, not just the orphanage. And it’s going to be a for profit capital investment. Well, the patriarch, he basically cut his teeth for the last 50 years, building industrial power plants, so literally producing billion dollar power plants. Now, he didn’t necessarily get water treatment, but he knew industrial power. And so he brought his expertize and his knowledge, not just from an industrial power plant, but from a private investor standpoint and understanding kind of the nature of this private investment. And all of a sudden there was this link between the families. So now Gen one was able to impart their wisdom, their value prop, their giftedness so that the next generation could see the value component. At the same time, the younger generation was kind of sharing their passion for these orphans in southern Ethiopia. And so it was really just kind of this beautiful connection, but also this great understanding for the family that God truly does own it all. Not just the assets that were looking to invest in a power plant in Ethiopia, but also, you know, the money that’s going to support God’s children in the orphanage.

John Coleman: You know one what Henry and Luke and I often talk about is there are some things that are done better through charity. There are some things that are done better through private capital or through capitalism. We believe capitalism has helped to destroy poverty in many parts of the world. It unleashes a lot of really positive influences, although there are some negative influences, the materialism, etc. and there are things that capitalism can’t do, like properly fund children’s health care, maybe in certain areas or other topics, for there’s just not a private market solution. But where you can actually stand up a business that can then operate for a long time, you can create meaningful, lasting change.

Scott Calhoun: Yeah. And I think, John, just one last point is I think we’re fortunate given that, look, most of our families, the wealth originated in a family run business. In fact, a lot of our families, the wealth is still heavily concentrated in operating companies, but virtually bar on almost every one of those situations are situations where the family were actually trying to incorporate their faith into that privately owned business. And so even after they sometimes monetize and sell that business, they still have that understanding, that deep understanding of what it look like to incorporate your faith into your business. And so it’s a really kind of just a natural extension of that to say, well, how do we incorporate our faith into philanthropy, into our investment portfolio? It’s just kind of part of their DNA.

John Coleman: Well, I want to end with a 60 seconds question for each of you that we try and ask everyone we have on. And that’s one thing that God is teaching you in your life today. And so what I might do is start with our friend Kyle and then you Skip and then you Scott. So, Kyle, what’s one thing that you feel like God is teaching you today?

Skip Perkins: Okay, I don’t always want to be a rule breaker, but I’m going to give you two things. I would say there’s been two things that have been been providing really comfort to me in the last year or two. I know we’ve all probably had a rough couple of years in different ways with COVID and just dislocation of family and different items. That just happened personally in a nice life with our extended family. And there’s been two sort of promises from Scripture, I guess one promise and one command, one of them being, you know, in Luke Chapter 12, where we’re told that Jesus and God, they know the very hairs on our head that they’re all numbered. And there’s no reason to be afraid or to be worried about the future because of his eyes on the sparrow. Surely he’s looking after his children. So that’s one thing that it’s been very comforting to me over just the last couple of months. And then the other command from Scripture that has really caught my attention lately is just Jesus saying, seek first the kingdom. So all that you do throughout each day, seek first the Kingdom of God, and just let that be your inspiration. Let that be your reason to wake up each day. And that’s what it is for me to get excited, to go to work and serve our families and just continue to do what God has for me in my life.

John Coleman: Skip No pressure, but Kyle had two verses locked and loaded there. Man. What’s on your. Yeah.

Skip Perkins: That’s great. Hard to follow that a no. You know for me, I mean. Matthew seven just really has always been a verse that has resonated with me, you know? You know, seek and you shall found ask and you shall receive and knock and door will be open. And to me and I don’t even know how. For me, it’s somehow that God uses that to translate almost everything. It’s like, you know, before I do something, let me ask him, you know, seek him first. You know, Scott, Kyle and I each have technical backgrounds and technical understanding, and so often we sort of jump into it and we just want to seek him first and then ask, you know, ask. We don’t always have the in fact, we rarely really have the true answer, you know, so we need to ask the one who does and then, you know, just sort of that, knock, and I even think of that as just as consistent, keep on knockin and keep on knocking because the door will be open. And, you know, that helps us as advisors to know how we approach our clients and it helps us as we advise our clients for them to understand that there’s all these things before them, especially in the family office, there’s a almost endless set of opportunities in front of them. And, you know, we try to help them seek God’s guidance, ask him and then knock if there’s something that’s preventing it, you know, just be persistent and continue to knock and the door will be open.

John Coleman: It’s a good word. Scott, wrap us up.

Scott Calhoun: Yeah, I think, you know, and Skip and Kyle, I’ve heard this ad nauseum, so I apologize, guys, but Acts1:8. Acts1:8 keeps coming back to me day in and day out. And it’s, you know, the Holy Spirit will come upon you and you’ll be my witnesses in Jerusalem, Judea, Samaria and to the ends of the Earth. And we understand kind of the geographic component that of city, state, nation and the globe. But what we’re finding is we’re incredibly blessed. People come alongside some very intentional families, and we’re finding ways of, in addition to serve that family, how can we connect families with each other? Because guess what? Each family has their own Jerusalem. It could be a family here in Atlanta. Atlanta is their Jerusalem. That’s where their business is. It might be where a lot of their philanthropic focus is. But we’ve got clients in Charlotte and Baltimore and Boston and Miami and all points around the globe, and those are their own respective Jerusalem’s. And so how can we connect these families to create opportunities for collaboration that they can understand their passion for building schools in Charlotte, they can understand their passion for serving the underprivileged in South Florida. And so really kind of that opportunity to come alongside and serve families, but also bring those families together for the benefit and the glory of the kingdom.

John Coleman: Guys, this has been a fascinating discussion. Thank you all for the work that you’re doing, enabling others to steward their resources. Well, and I hope we get to have you back on some time. This is a great discussion. Thank you for coming.

Skip Perkins: Right. Thanks for having us.

Scott Calhoun: Thanks, John.

Luke Roush: Hey, everyone. All opinions expressed on this podcast, including the team and guests, are solely their opinions. Hosted guests may maintain positions in the companies of securities. Discussed in this podcast is for informational purposes only and should not be relied upon as specific investment advice for any individual or organization. Thanks for listening. We are grateful for the opportunity to serve this community and see listeners come in from more than 100 countries. Faith Driven Investor It can be a lonely journey, but it doesn’t have to be. The best way to stay connected is to join a group study with other investors looking to get the same answers to questions you have and find great community as they do. So there’s no cost, no catch. In person or online, you can meet an hour a week with other peers from your backyard or the other side of the world. You can also stay connected by signing up for a monthly newsletter and faith driven investing dot org. This podcast won’t be possible without the help of many of our friends. Executive Producer Justin Foreman. Intro Mixed and arranged by Summer Dregs Audio and Editing by Richard Barley. Our theme song is Sweet Ever After by Ellie Holcomb.