Richard Cunningham: Well, good afternoon. Good morning. Wherever you are tuning in, friends, welcome to the Faith Driven Investor Podcast. Welcome specifically to our monthly marks on the Markets segment. We are really grateful to have you joining us today. And now you might be wondering, hey, why does the voice of the host sound far less astute today than it normally does? And if that is the case, you are spot on in your observation. And that is because I am not John Coleman. My name is Richard Cunningham, and I have the privilege of serving on the faith driven, entrepreneur and faith driven investor staffs. And the reason you’re not hearing John Coleman is because we have a flip the microphone around today, folks. We are playing a little bit of musical chairs. And John Coleman, your normal faith driven investor podcast host, is in the hot seat today and he will be the interviewee as we dive into this month’s segment of Mark’s on the market. So your normal host is going to be the one fielding the question today. This is going to be a lot of fun. John how are you, friend? Welcome on.

John Coleman: Yeah. Richard You guys are really scraping the bottom of the barrel. I’m convinced Joey and the producers just wanted to make everyone feel grateful for the real experts that we bring on regularly. And so they thought they’d give them a glimpse of what the world could look like without that expertise by putting me on the mic. So happy to be here today.

Richard Cunningham: You know, most podcast producers are playing checkers. Joey is playing chess. This is an opportunity to say, Hey, let’s do the guest orientation. Let’s get John Coleman on. And what it will do for future episodes is just something that is just the furthest thing from the case. And here’s why. John, everyone knows you and appreciate you as our podcast host. Let’s take an opportunity now for people to understand your day job, what you do, a little bit of your background because it is expansive. We love you as a writer, as an investor. Your work at Soveregin’s Capital, obviously, but to yourself up a little bit to kind of frame this conversation and just who you are, where you come from, a little bit of your story.

John Coleman: Yeah, absolutely. Richard. So my background is I’ve spent most of my career between management consulting and investment management. I actually graduated college thinking we were just talking about this before the show started thinking that I’d be a journalist or an academic. I read a lot of liberal arts stuff in college, but somehow bounced into a first job as a quantitative energy hedge fund trader right out of school. I was objectively the world’s worst quantitative energy hedge fund trader, and so then quickly moved on to a consulting firm called McKinsey and Company. Spent a few years there before and after graduate school, did business school, Public Policy School, and then before joining Sovereign’s, I spent about nine years at a large publicly traded investment manager called INVESCO in a variety of roles, and then about two and a half years ago had the great good fortune to join the team at Sovereign’s Capital. Luke and Henry recruited me on as Henry was moving over to do more on the ministry side to help lead Sovereign’s alongside Luke. And it’s been an amazing ride. It touches on everything I like to do. I love the investment side of the business and I still get to do a little bit of that. I love thinking about the market environment. I love thinking about trends in the industry, including faith driven investing and how that’s evolving and how we as faith driven investors can get more sophisticated about that, can really develop the right frameworks to make that a positive thing. And then I have retained some of that liberal arts urge in that I still write a little bit as well. So I’ve written a few books over time, write a few articles once in a while, and it’s a way that I kind of process what I’m learning. So that’s a little bit about me.

Richard Cunningham: Man that’s fantastic. I know our listeners will love kind of the opportunity. You’re the one usually getting to ask that question. Hey, tell us about yourself. Tell us about your journey. And so a rare privilege to get to ask the host what makes up their story. And real quickly, double click on the writing piece, because I know there are just a lot of exciting things happening. In your work with HPR, you released a book recently, a hit that real quickly.

John Coleman: Yeah, absolutely. So I’ve been writing most of my life. I started back when I was in high school on the school newspaper. So it’s just it’s something I’ve always loved to do. I find it really cathartic. I joke some people golf, I’m not very good at golf, so I write as a hobby. I’ve done a few books over time. My first book was actually a Christian book with Crossway, which is the publisher of the ESV Bible. And then I did two books with the Harvard Business Review, both of them on purpose, meaning Next Generation Leadership, one called Passion and Purpose about 12 years ago, and then one just last year called the HPR Guide to Crafting Your Purpose. And My beat with HPR is really to write about leadership, personal and professional development broadly. That can be about strategy. It can be about the ways in which leaders lead, but it also has a real focus on purpose and meaning. You know, as a person of faith, that’s always been incredibly important to me. I’ve struggled with how do I achieve greater purpose and meaning in the work that I do. It’s part of what led me to Sovereign’s Capital. Actually, the story for me is I signed up to write The HPR Guide to Crafting Your Purpose in 2019. And in the midst of writing that, it got me thinking about the next phase of my career, about the type of work that I wanted to do, and I figured I’d better take my own advice. And so I ended up joining Sovereign’s, helping out with some of the faith driven investor movement. And it’s been such a joy. I mean, I feel like I’m achieving more purpose and meaning in the work that I do now than I ever have. And in the latest book has been totally off the wall. I actually wrote a novel called Miracles that hopefully everyone goes out and buys at least ten copies of. There is kind of a Christian book and a novel about what would happen if miracles started happening out in the world today. So on YouTube, on social media, Tik-Tok captured on iPhones. If something undeniable was happening, how would people react? In my my guess throughout writing it was that it would still be really divisive, just like it was in Jesus’s time. And so I follow a young woman who’s a newspaper reporter as she’s covering these miracles, and you get to see the world react around her to these miracles taking place in my home city of Atlanta. And that just came out about five months ago, right at the beginning of the year. So that’s a little bit of the writing I’ve been doing. And then I write a little bit for faith Driven Investor for Christianity Today and a couple of other publications on the topic of faith driven investing.

Richard Cunningham: Awesome. Awesome. Well, you heard it go out and buy miracles. And then I just loved the 2019 testimony of writing about your purpose, and all of a sudden the Lord starts doing the work in you and brings you over to Sovereign’s capital. And here we are. We’re on Marks on the market. We’re talking today, you know, just what’s happened inside of 2023. It’s been a full five months. And for those that don’t know and I’m sure you unpack this a little bit more, you know, Sovereign’s Capital is a multi asset investment manager across five asset classes. So you see it across five different verticals, whether it be venture capital, private equity fund investing, real estate and now in the public markets as well. And so with Sovereign’s, you’ve got a vantage point of kind of taking all of this macro data that’s happened in in 2023 and seeing it across a wide breadth of strategies. So, you know, before we dive in kind of on an asset class specific kind of rabbit trail of each of those, John, give us some just kind of macro perspective what’s happened this year, some of the kind of the key events frame this conversation for us, if you will, and kind of how you’re seeing all of that and your vantage point.

John Coleman: Yeah, I think this is one of the most unique macroeconomic periods in any of our adult lifetime. I mean, you’d be hard pressed to find someone who invested through a period that even resembled this. I mean, the closest was probably the late seventies, mid to late seventies, with this intersection of supply chain shocks, global political unrest, high interest rates, raising interest rates, high inflation, potential economic impacts of that, etc. The great financial crisis, obviously in 2007 to 2009 or 2010 had a totally different set of characteristics. It was shocking at first, then led this massive bull run that was supported by extremely low interest rates and extremely easy money. And what we’re seeing now is that popping, right? We’re seeing an end to that period. We’re seeing the restoration of a series of global macroeconomic events, whether it’s the rise of China, whether it’s the Russian invasion of Ukraine and the international response to that, whether it’s all the lingering supply chain issues that were initiated by the COVID crisis, but have continued to filter or on the money side, whether it’s the end of this massive expansion of money where the Fed has raised interest rates from effectively 0 to 5.25%, most recently just a dramatic upturn in interest rates, which we then seen manifest in bank failures. Two of the three, I think largest bank failures in US history just over the course the last few months. And it doesn’t even feel like that’s been one of the more notable stories as you look back given the global pandemic and things like that. And so I think we’re in this incredibly unique time. I think given the bank failures where we stand today, I do think the Fed is at or near the end of its interest rate hikes, especially considering that inflation seems to have slowed and begun to decline. Rising inflation and lowering inflation are always lagging. Right. And so there’s an art and a science to trying to capture those. And I think from my perspective, the Fed likely has raised interest rates enough, particularly given the instability in the banking sector, which is also cause contractions. I was catching up with our public equities team recently. We’re actually seeing a real contraction in M2, the money supply right now, which indicates to us that it’s working. Inflation is so persistent. The late seventies taught us this stuff hangs around much longer than you think it will. But the Fed is constantly trying to weigh different factors, which is how much real economic instability and banking instability are we creating? There is a lagging impact. We don’t want to overshoot and have the economy fall into two deeper recession. And so they’re navigating that right now. I guess we’re within 25 basis points of the peak rate unless something goes wrong. And if I had to really guess, they’ll stop right now and see what happens. I think what everyone’s watching now is the impacts on real economy and whether we fall into. A recession. You know, one of the shocking things about this period from 2021 to present. We thought we would go into recession much faster. Typically, when you raise rates like this, what you’re trying to do is provoke a recession, which will end inflation. That recession is accompanied by rising unemployment and a series of other things, and we just haven’t seen that yet. We’ve seen some big tech companies trimming people. We’ve seen startups starting to trim people, which we can get into, but we haven’t seen huge movements in unemployment broadly, and we haven’t seen us really slip into a recession yet. And so employment and economic growth has remained more persistent than I think folks thought. Even as asset prices, which we can get to in growth, equity and venture etc., popped big time last year, you know, some of those are coming back now and housing prices have stayed up. And so it’s this weird economic environment where I think a lot of the levers that we would typically see being pulled or a lot of the impacts that we would see from those just aren’t working like they have historically. And that’s one thing that makes asset by asset classes such an interesting environment to look at.

Richard Cunningham: Yeah, those are really, you know, intriguing insights there because what you kind of said there at the end is like some of those levers or those things you would expect to move in tandem, almost feel like they’re moving in juxtaposition directions, if you will. And so it’s a kind of a first of its kind and, you know, interesting insight. And I think you’re right when it comes to, you know, the interest rate and the Fed’s and what they’re doing, you know, they’re next time to convene is June 14th. And you saw this morning in The Wall Street Journal recording this podcast episode on Thursday, June 1st. For those listening, their next time convene is the 14th. And it sounds like, you know, there is some mixture views as to if they will continue the hike in rates. But John, your points, it feels like we are reaching an end, if you will. And then yeah, let’s go right there to that specific asset class, the venture. Let’s get as close to the action as you can in terms of kind of the earliest stages the founders building at the earliest stages. Talk about just perspectives in the venture capital markets. What you all are seeing, you know, Sovereign’s is in, I believe, fund four on a venture side. So this is somewhere you guys have been for almost a decade now, if not more than a decade. So talk there.

John Coleman: Yeah. Venture capital has been such an interesting environment over the last 18 months or so. The venture market went on this incredible bull run from at least the financial crisis. I mean, you could argue back to the dot com bust and then the subsequent recovery. It’s been on this remarkable bull run, partially encouraged by these incredibly low interest rates since at least the financial crisis. And that kind of ended at the end of 2021 into the beginning of 2022. You know, we were seeing record deals in venture markets. We were seeing record capital flow into it and all that stopped in 2022. You typically see that begin to impact the publicly traded growth equity and technology firms first, and then that kind of filters through growth equity deals on the private side down that kind of Series B and C down to kind of early stage seed in Series A, And the question was always, will those trickling impacts really get all the way down to seed in Series A and start to impact those valuations? Or will the economy recover fast enough that you might not see as much of an impact there? I think we’re seeing a mixed bag right now. Obviously, public markets got just destroyed last year. A number of growth equity stocks were down really substantially. I mean, you’ve got stocks that are down 70, 80, 90% or more sometimes from their highs over the course of 2022 and that trickle down into growth equity markets. We had a partner show us some statistics probably four months ago now. So it might be a little out of date where the average growth equity multiple. So that’s private deals. But nearing public markets, typically pre-IPO investment in private markets had gone from something like 14 to 14 and a half times revenue in 2021, all the way down to about five times revenue. So about a two thirds drop in 2022. And that was beginning to trickle down into the early stage venture markets. I think that’s continued. Compounding that, the banking trouble that happened earlier this year had a disproportionate impact on venture and venture backed companies. You know, Silicon Valley Bank and First Republic and Signature Bank were all three, some of the biggest supporters of venture capital markets in the market. And so venture firms and their portfolio companies were directly impacted, but it also led to a dry up in the venture debt markets, right, Because Silicon Valley Bank and Signature, for example, were two of the leaders in venture debt. And so some of the capital that you would typically see available to venture firms outside of equity raises dried up, even as fundraising has dried up a lot. And so what we are seeing in early stage venture right now is valuations definitely have stabilized. We’re not seeing quite as dramatic a series of drops, I think, early stage as we do late stage in venture, but it’s definitely come down. We’re definitely seeing a lot more companies being very judicious about their cash, trying to extend their cash runway 18 to 24 months venture. Firms are encouraging them to raise additional cash, even if they have to do a flat round or a slightly down round to secure themselves against the prolongation of this dry up in funding for venture. And it’s just a really tough market. Now the other side of that, which we may get to in public markets shortly, is that the public markets in technology have suddenly begun to recover. And so this year you look at the S&P 500 is up about 10%. The Nasdaq is up about 25%. And if you look at the S&P, it’s really been a rally in megacap technology stocks that has led that. If you take out the seven best performing mega-cap tech stocks, the s&p is actually down for the year. And so they’ve driven this 10% outperformance of the entire index. So that’s a little bit on what we’re seeing in venture. We think it’s an opportune time to be looking in venture and to be investing because we do think it’s stabilized a lot. We do think there’s the ability to do great deals right now, but we’re also just like everyone else, encouraging portfolio companies to be very thoughtful about their cash.

Richard Cunningham: And that’s what I was going to ask you. There is is first off, these are just remarkable insights. So the question I’m going to ask you there is, you know, Sovereign’s capital in the venture space led by Jake Thompson, see the series a investor. And when you net it all out and you think about all of the competing factors, you know, the venture debt market, you know, almost drying up the fund raising trail, it feels like there’s just a remarkable number of funds that market right now kind of hunting that same capital from institutional investors, family offices, what have you. Who is at the advantage, you know, is the valuations coming down to the benefit of the venture investor. Is this just a remarkably difficult time for everyone involved? You mentioned this is a good time to invest. How how are you all looking at it right now? Just kind of from your perspective?

John Coleman: Yeah, liquidity is light in the markets right now. Fund raising, if you’re a venture firm, is very hard fundraising. If you’re a venture backed firm, is really hard raising your seed round or series A, you know, it’s just not as explosive as it used to be. It’s taking two or three times as long. We’re seeing a lot of venture and growth Equity funds delay their fundraisers because of that environment. So definitely liquidity has dried up. You know, our perspective right now is you can never perfectly timed these things right. There are some folks who are just entirely sitting out this period. The challenge with that is if you miss the initial upside of a turn in these sorts of markets, it tends to be pretty damaging to overall returns. Just like, you know, in public markets, you always hear catching the five worst down days is 90% of the losses in the five biggest up days is 90% of the gains. You know, something on that order, you can’t really time a lot of the venture markets. So our perspective is just to remain really steady. Right now. We’ve reset our expectations on what the valuations of these rounds are going to be. We find that because liquidity is a little light in markets, there are a greater variety of deals. So deal flow is looking really good right now because there are a lot of deals that are looking for capital to sustain them through this period and that’s great. But it also means that we have to be very thoughtful about evaluating the quality of those deals. Given that the future is uncertain, the near-term future is uncertain. That said, I think, you know, we are moving forward in a steady way on the investment side because we do see really good companies out there and really good valuations. And ironically, I think some of this can actually be good for the venture backed companies as well. And this is my personal perspective, Jake or Phil, who lead our venture fund, might have a slightly different perspective. You know, I think the valuations that we were seeing were making it very hard in tech world because options were constantly under water. People were convinced as talent that they weren’t going to get the value of their options because valuations were too high. And so it was actually difficult to get and retain talent if you were a big venture backed company before. I think that’s recovering a little bit, especially as labor markets in tech have gotten tighter. And I think this is encouraging some discipline that’s healthy for early stage companies as well. You know, before it was all revenue, even the revenue was all subscriber growth or it was all user growth. And then sometimes it was revenue growth. And now I think there has been this realization that, wait a minute, these companies have to make money at some point again. And so there’s more of a cost discipline, more of a planning discipline than I’ve seen in some time. And I think overall that’s really healthy for the market and I think it’s healthy for those venture back companies in the market, though it can seem painful in the moment.

Richard Cunningham: Well-said. Yeah, a little bit of a reshift in what fundamentals, what things do we have the microscope on and should the bull’s eye be, you know, shifting appropriately at an appropriate level, if you will. All right. Well, let’s go venture before we go into private equity and real estate and kind of transition markets and asset classes, let’s see the maturity of venture kind of into the public markets. You leaned on it a little bit. And what’s happened in the S&P this year and NASDAQ as well. Any commentary on the public markets? And one of the things that, you know, I think everyone. Is reading any type of headline as focused on, you know, go up into the kind of the congressional ranks. Right now, we’ve got this debt ceiling crisis. Some people are throwing that word around there. There’s, you know, just bipartisan efforts to try to pass a bill that kind of potentially prevent any type of crisis. So any commentary there and what you’re seeing in the public markets and what’s going on and how this debt ceiling situation and the approaching ex date that Congress has tossed around.

John Coleman: Yeah, obviously super hot topic right now. I want to make one kind of 60 seconds comment before I get into that even is the Faith Driven Investor podcast. One thing I would note is this is an awesome opportunity for people of faith who are venture investors to support their founders spiritually, mentally. This is a super stressful time. I’m kind of talking about the potential silver linings and things like that for venture investors, for limited partners and certainly for founders. This is a really, really stressful time and we are seeing some companies that simply don’t make it right, which is always true in venture, but I think we’re acutely aware of it now. And my encouragement to the folks that are listening is, you know, if you’re a venture backed founder, lean into your real identity. You know, our identity is in Christ. It’s not in the money that we make. It’s not even in the success of our companies that we want to do well by those who have backed us. And if you’re an investor, whether a limited partner or a fund. Never forget the spiritual component of this and never forget that even in the midst of difficult decisions, sometimes, you know, we’re called to be good counselors to others and encouragers to others. And there are ways you can do that even while making tough business decisions. And so I think for faith driven investors, that’s important to remember as we dovetail into the public markets in this big macro fight, it looks like the debt ceiling fight is over. So again, we’re recording this June 1st. This week, they had announced that McCarthy and Biden had reached a deal, I believe it was yesterday that it finally passed through the House. It ended up that it had more Democratic support than Republican support, which was a surprise. There is a lot of criticism on all sides right now. It is one of the most bipartisan deals I’ve seen lately in the sense that, you know, basically everything we see right now is either know, 100% Republican against 100% Democrat or vice versa. This was mixed. It was mixed, Right. I don’t think anyone’s happy because it was a compromise solution. But I believe they reached a deal to extend through 2025. And so the immediate term crisis of potentially defaulting on the debt has subsided. It’s over. People were worried about that and it was delaying deals. I think it really it caused some tumult in public markets. But public markets have been super interesting this year. There have been a couple of runs that have really defined them public markets over the last five months. I mentioned one earlier, which is these technology based mega-cap stocks that just got crushed last year have been on an incredible run. I did pull up a couple of statistics this morning because I’m a nerd, but I mentioned the Nasdaq’s up about 25, S&P is up ten. The S&P would be negative without the seven biggest movers in tech rally. And if you look at those and this is not an endorsement of any of these companies, I’m just reading off statistics. Apple has been up 36% this year. Microsoft, which obviously did the deal with chatGPT Open ai to incorporate AI, which is a huge thing, up 37%, alphabet up 39%, Amazon up 44%, NVIDIA, which is effectively the chipmaker behind all the artificial intelligence right now, up 159% this year, 159%, Meta up 120%, Tesla up 66% this year. And those seven stocks have effectively created all the gains in the S&P 500 this year. That’s interesting because some of that is simply a reversal of some of the losses last year. Some of that is a flight to quality where these mega-cap stocks, the ones that I mentioned, are largely profitable companies that we know are sustainable, that aren’t going to disappear. I think the growth stocks that are still mostly underwater, those without profitability, where they’re still struggling to get margin, where the companies I read off by and large are not. And then there’s been an interesting artificial intelligence angle to this where, you know, I talked to a lot of people right now and they think artificial intelligence is the biggest thing since the Internet. And I would probably agree actually, this is probably the biggest thing to happen in markets in at least 25, 30 years in AI has the potential to fundamentally transform life right in the way that the Internet did, maybe even more. And so what you’re seeing is companies that may benefit from that, they’re in the mix for that are just exploding like Nvidia, like Microsoft. And I think that’s going to be a persistent theme. The other side of that is that for the first time in a while, Smallcaps have really lagged the mega-cap especially so we’ve seen. Huge headwinds in small caps. And if you look at the statistics right now, I talked to Matt just in our public equity teams, you know, small caps look like a value for the first time in a while. Right now, they’re undervalued relative to the large cap stocks. And so if you’re looking at markets, there’s been a run in growth recently after the big collapse last year, but there might be some value to be had moving down market to small and mid-cap stocks.

Richard Cunningham: I mean, there’s a lot there, you know, you talk to NVIDIA and just kind of the the AI frenzy that is taking place. I believe NVIDIA touched $1,000,000,000,000 market capitalization, which is just staggering, shocking when you think about it.

John Coleman: Has like an Nvidia tattoo. I think I saw somewhere.

Richard Cunningham: Sovereign’s capital tattoo.

John Coleman: Who says I don’t have one? Richard So.

Richard Cunningham: That’s awesome. So one of the directions I want to go quickly before we kind of have you speak to what Sovereign’s is doing in the public markets and kind of some final commentary there is, you know, Faith driven investor podcast. You made the remarkable comments just in terms of the opportunity for investors to lean in with more than just capital in this season, specifically in the venture markets, those that are angel investors, venture capitalists, that you have an opportunity here to be the hands and feet to love God, love neighbor in a very real way. You know, it is for founders who are experiencing a lot of pressure and and kind of on the front lines of what is a tougher time talk about, you know, from a faith driven investor lens, the AI frenzy. There’s a lot of people who are sitting there and saying job replacement, the ethics that can be at play here in terms of how far AI can go. Any commentary or insights there? In a ways, you kind of are looking at that.

John Coleman: Yeah. Wow, such a good question. I haven’t thought a ton about the intersection of the Faith and AI component. I would say, and this is a personal perspective, so not everything I say certainly is on behalf of FDI or Sovereign’s. I think being a person of faith means that I don’t have to get quite as worried about technology trends as some people seem to. You know, that’s good. I think, A, if you believe that Christianity is true, then we are in touch with fundamental truth about human nature that are not going to change. Right? God is sovereign. He has a plan, right? We are following that plan. He has plans for the world are beyond our comprehension. But I don’t think we fundamentally have much to fear either in scientific discovery, because ultimately that’s always going to align with the truth that we know or in technological innovation, because he is sovereign. And, you know, even if AI ended up eating the world and one day the world may end and nuclear crises could in the world, you know, we have confidence that our future is secure because of our faith. And so I probably tend to be a little less alarmist about those sorts of trends in general. I also think from a practical perspective, every time we’ve had a panic about technology ruining employment, making life more difficult, etc., it’s proven false. It’s factually never been true in the history of human nature. So if you go back to the Industrial Revolution, what was it? It was Captain Swing or something. There were all these movements basically where workers of the world were just like raiding factories and destroying factory equipment because they thought it would put everyone out of work and that employment would skyrocket. Only the owners of the factory equipment would effectively have any future. And of course, that didn’t end up true, right? The Industrial Revolution had bumps. It certainly had many negative sides, but at the end of the day, what it actually did was relieved a lot of individuals of incredibly grueling manual labor that was unsafe and improved worker safety standards. It opened up freedom of movement for workers to do more innovative and exciting things over time. The Internet revolution did the same thing right. The automobiles and airplanes that we invented did the same thing, electricity did the same thing. So if I had to guess, artificial intelligence will dramatically shift the economic landscape. It will be a difficult adjustment in the near term, but it will ultimately help improve humanity’s ability to pursue the things that they love. It might even make our lives easier, like most technological periods in the past. I do think that raises a spiritual crisis, right? Because if you look at markets or if you look out at studies right now, we’re the most prosperous, the most safe, the most healthy we’ve ever been in the history of the world, ten, 20,000 years, history of humanity. And yet statistics on happiness, loneliness, purpose are all pointing in the wrong direction. We’re seeing statistics come out right now about, tragically, things like suicidal ideation among teenage girls, loneliness and depression, mental health issues among people of all ages. And all of this prosperity has not helped that it’s actually maybe made it worse. And there are underlying factors for that. And so I think the real spiritual challenge of the age might be how do we deal with the spiritual crisis that can erupt when societies become prosperous, when they become less in need of God, when leisure time increases and when people start to lose hope? How do we deal with that? Spiritual crisis. So I’m much more worried about that than I am an economic crisis on the back of AI.

Richard Cunningham: Really, really good comments. All the more reason to go back to the point you made at the beginning about this of the worship of a sovereign God. Anything happening on this planet did not happen by surprise to him. It did not pass through his hands as a surprise. He didn’t miss this one. And all the more reason to go back to that sovereign God and ask for his will, his design for our specific stories, and then beyond that, our companies investments as a byproduct of that kind of overflow. So great comments. Thank you. Well, hey, I want to close on the public markets and we’ve hit on AI we’ve hit on what’s happening with these mega-cap stocks, just kind of what’s happening at Sovereign’s Capital in the way you are specifically investing in the public markets. I know this is a newer strategy for Sovereign’s. It’s been a really exciting one. Couple of comments there and then we’ll move into, you know, the real estate market. In the private equity market.

John Coleman: I won’t get specific just because of […] limitations on this. Maybe I’ll make a couple of general comments, Richard, just about my outlook on public markets. And I think our outlook, you know, one of the other interesting trends and this will dovetail into the FDI conversation, I want to get your update on where faith driven investing stands as well. I’d love to have a dialog about that. Marks on the market today, June 1st, the last 12 to 18 months, we’ve seen the biggest push back in the mainstream values investing movement, which is basically synonymous with the ESG movement in decades. Right. 23 years ago, ESG was almost nothing. I think now it’s somewhere around $35 trillion. I looked at the latest statistics. It’s been booming. I mean, sometimes doubling in a given year, although that’s slowed a bit. The growth in ESG declined 76% in 2022. And there’s been this massive pushback from the left or from some people that has been a pushback against greenwashing or justice washing this idea that ESG is really a commercial grift, you know, it’s not authentic from centrist or slightly right leaning groups. You see push back on performance. ESG is hampering performance. It’s not in the fiduciary interest of folks or asset managers are voting ESG stuff without telling their constituents that they’re doing it. Denying them that choice is the wrong thing to do. And then I think people on the political right or sometimes people of faith have pushed back on the nature of the policies embedded within ESG, that they’re more progressive politically. They’ve been very focused on things like climate diversity, social justice, so to speak, those sorts of things. And there’s been a pushback on the political right. And so ESG has actually began to retract. And I think correspondingly, awareness of ESG and values investing is the highest it’s ever been, the highest it’s ever been. I think five years ago, the average investor didn’t know much about this. It was driven by institutions and asset managers. Now everybody knows about it. I think that is a massive opening in private and public markets. To do something different is, I think, the right way to push back. If people want to push back on ESG, it’s not to simply say all this is wrong, right? We want to get rid of it. Because to get rid of something, you have to replace it with something. I think it’s an amazing time to posit a positive vision for the future, to say these are the things we don’t like about the existing mainstream approach. But here is a way that we can create love of neighbor and human flourishing in companies in real estate developments. Here’s what is fundamental about our faith and what that implies for human flourishing. How to make people’s lives better, which is what faith driven investors want to do, right? We want to make their lives better because of love of neighbor. And how can we begin to advocate that in public and private markets? That’s what we focus on every day, is how can we advocate for human flourishing, love of God, love of neighbor in the companies and real estate developments that we work with and do so in such a way that leads to outperformance because we believe great cultures are the greatest competitive advantage in business and they have the opportunity to outperform if done well. And so I think my hope right now is because of all this awareness to be the pushback against ESG, people are now more aware of the impacts of their capital, good and bad, in the world. We say all investing is impact investing, right? Just what impact you’re having. And I think our opportunity as faith driven investors in public and private markets is to redefine what values investing looks like, to really set a new standard for what can authentically create human flourishing in the marketplace, and to do so in a way that continues to unleash the innovative and economic power, the creative power of capitalism, which I think is not necessarily in conflict with those things. And so I know that’s not specifically an answer to the public equities question, Richard, but that’s kind of where my head is at right now. And what I think the massive opportunity for us and for others in this space is at the moment.

Richard Cunningham: I think that’s fantastic commentary, John, because I think what you’re advocating there I think is really a good conviction push to our listeners, to our audience is saying, hey, unlike ever before in history. There is an axis of information, there is a proximity to the investment process and methodology that otherwise might not have existed. You know, I’m Joe and Jane Smith, and I invest with my financial advisor and I kind of leave all of the decisions up to them. And I trust that my financial advisors, a good guy or good gal who has my best interest in mind, there is now an opportunity to get as close as you can under the hood as possible and look under that hood and say, Hey, what am I in? What am I actively deployed in? And like you said, there’s been pushback to ESG. You know, just this morning, Delta was sued for greenwashing and a massive kind of class action lawsuit. And there’ll be, you know, multiple years of that playing out. But you’re starting to see kind of mainstream media wake up to the fact of like, oh, we really pushed this hard. And so what is that alternative? What is that replacement is faith driven investors like you’re saying there is a real call to stewardship here, a real call to have the information is accessible, unlike it probably was ever before for you to lean and understand, Hey, this movement of this dollar pushing this capital towards something is almost an endorsement. It’s impact investing. So what kind of impact do I want to have? You know, whose hands I’m going to leave that impact? And so I appreciate your commentary there. All right.

John Coleman: So what are you saying? I mean, you sit at the center of the world here as part of faith driven investor. What are you markets right now? What do you think is happening?

Richard Cunningham: I mean, that’s a world class question. I appreciate you asking, know, quick commentary. I would have, as you know, our one of our co-founders, Henry Kaestner, who I know many of you know on the face you’re an Entrepreneur podcast, is on the feature and investor podcast as well. He’s in Africa right now, and by no means is this an advocacy that the only faith driven investing can happen in emerging markets and frontier markets in places like Africa? But we were talking this morning on the phone this the encouragement he has from the people who are flocking to this concept in an economy like Africa, you know, the big four markets in Africa are Lagos, Nigeria, Nairobi, Kenya, Cairo, Egypt, and then is kind of broadly South Africa. The youth on this continent, like if you look at that kind of population demographic and how much of Africa’s massive population is concentrated at the younger end of the spectrum and how many of these people are well-educated, coming out of school but then do not have access to work because of just a work shortage crisis taking place in Africa. The youth in Africa are building. They’re in the entrepreneurial space. They’re showing up by the hundreds to faith driven entrepreneur events, which is just such an incredible encouragement. And then what I believe is even more encouraging from kind of the faith driven investor aspect is the local capital, the local skin in the game, The folks that want to say, Hey, I want to back what’s taking place in my backyard. It’s no longer that an African entrepreneur or a Southeast Asia based entrepreneur has to fly to New York, has to fly to San Francisco as really the only source of capital. There are leaders in their own economies who can be those friends and family investors, who can be those angel investors. And so that’s one aspect that is just remarkably encouraging is just what’s taking place in emerging and frontier markets, the innovation, the building, you know, the ai frenzy, the Internet, kind of democratizing availability to technology is something that’s remarkably encouraging. I’d say another trend and I’ll finish here is just we talked about this earlier in the podcast as the number of funds and markets just led by exceptional Christ followers who have something inside their thesis that it really gravitates you in from a faith driven investing standpoint. So, you know, sovereign’s, you all invest explicitly in Christ following owners and operators because you believe the best cultures are set forth by those leaders. And there’s alpha to be had there. There’s other fund managers and funds out there and market who are investing in what we’re calling the great wealth transfer. Now there’s going to be $60 trillion handed down from really the baby boomer generation into this next millennial, Gen Z, Gen-Y gen X, next generation. And what’s also being passed down in that great wealth transfer is a number of Main Street businesses and it’s people waking up to the fact of like, well, this is a rare and privileged opportunity to go and acquire these family owned businesses with great legacies that employ dozens, if not hundreds of people. We can go in and compensate the baby boomer for really a job well done at a really healthy, fair. You know, Ebro multiple, whatever it might be kind of in the private markets. And then we can now operate that business, keeping those values intact. And so there’s a number of those funds and markets out there saying, hey, let’s be the next generation, next next kind of owners, if you will, of the baton that’s being passed. So I think that’s really exciting. I think there’s a huge push to philanthropy and generosity unlike we have ever seen. Folks are waking up to the incredible tools within the donor advice fund markets and things of that nature. And a lot of that wealth that’s transferring is being passed down in a state that’s being passed down in charitable vehicles. And so people are saying, hey, what am I waking up to that I’m uniquely called to that. Now I have $500,000 in this trust that I can’t access for my family, but I could potentially access for good in the world, whether that be impact investing, whether that be giving to that charity that I’m extremely passionate about. So that be kind of my general commentary around. FDI and what’s happening in the world of faith driven investing. And I think the last thing I would say is this is not a prescriptive or presumptuous movement. Faith driven investing is just as much backing an early stage entrepreneur and their very beginning stages of growth as it is being a financial adviser, walking alongside families. And they’re primarily invested in the public markets because they aren’t an accredited investor, a qualified purchaser. They’re kind of the retail investor who just wants to be an excellent steward with what they have in their 41 K or their IRA. And so I think that’s just as much the faith driven investing conversation.

John Coleman: And let me take a moment to pitch Richard’s incredible platform, which is if you think that sounds interesting to an investor now has a series of small groups you can be a part of, you go to the website and sign up on those. Richard and team have created genuinely one of the most fascinating libraries of content. I think out there. Experts that we’ve had around the Finny Kuruvilla all over the world, the Andy Crouch is of the world, you know, etc. Shundrawn Thomas, all these awesome, awesome people who are in investment management. And I think you guys do a great job of supporting those who want to lean into this with content like the small groups which people can sign up for, of creating content that help to educate people and also just highlighting the amazing people in the space because there are many more Christians who are very serious about their work as investors and very serious about their faith. And people realize, I think you can clearly see to think that investments is a space without that kind of moral compass. And Richard, you and I know that we meet people at all these amazing firms. We just have Brent Beshore for permanent equity, Marcus Stroud from TXV. We’ve had Evan Beyer from Warren Capital and Victor Hugh from Lumos and all these other folks. And they’re just amazing firms out there doing the right thing. And I think a kudos to you, Richard, for creating a platform. I think that’s so adept at helping people to lean into their faith as they invest.

Richard Cunningham: Appreciate that, John. I think the the commentary I’d give there is this is a it’s a big, large conversation and faith driven investing for us as Christ followers. We do not want to put a box around it and limit, you know, what the Holy Spirit can do in the work of someone’s life and what that actually plays out in terms of how they run their business. As the entrepreneur of the faith, you’re an entrepreneur. And then also how they steward capital is the faith driven investor. And so to the groups portion of what you’re talking about, that’s a lifetime of wrestling to come up with that maybe investment thesis as a family, as a fund manager, as someone who stewarding capital, as an advisor, or maybe just your everyday kind of personal angel investor, It’s a lifetime of wrestling. So that’s what these groups are for. That’s what our website, this podcast, these resources that we produce, are forced to essentially help you take that first step of, Hey, what is practically getting in the game look like for me and my spouse, my family, my children, you know, the generational impact I want to have. And so I appreciate your kind words there, but we are coming up on a close here before I have our kind of legendary FDI question where we get to ask you. So plant a seed here about what you’re learning in scripture. Real quick commentary on anything you’re saying specifically just in the private equity markets and the real estate markets. And then we’ll close.

John Coleman: Yeah, absolutely. I’ll just touch on real estate briefly. What a confusing real estate market right now. No kidding. No kidding.

John Coleman: We’re all waiting on pins and needles to see what happens in office, in retail right now, with rates resetting, with leases resetting. I think I’m nervous about that space in housing, single-family housing and multifamily housing. There was this COVID boom in home prices, the greatest gap between median home price and median income in the history of the United States. We all thought rising interest rates, which have effectively doubled the cost of owning a home because of mortgage rates, would lead to falling house prices. But what’s happened is because no one’s selling their houses and there’s a structural shortage, even though it’s more expensive to buy a house. With mortgage rates rising, the prices have not come down because no one’s selling. So the supply is incredibly limited. And so I think private equity is going full steam ahead right now. You know, leverage is has been a problem. If you were a private equity firm banking on leverage to help you do deals, I think you’re in trouble if you’re more operationally focused. And I think a lot of private equity is doing well. I think real estate is a very intriguing sector right now, let’s say, because the dynamics with interest rates, with office occupancy, with a structural housing shortage, have just created some of the most fascinating moments in markets that I can remember.

Richard Cunningham: Yeah, that’s right. That’s really well. So one of the things I sit there and think is, you know, if I’m a homeowner right now and I bought ten, 15 years ago, whatever it might have been, and I was, you know, buying it with almost free money, a two, 3% interest rate, why would I ever want to go refinance? Why would I want to sell in this environment to go now lock in a new 30 year fixed mortgage at 7% or 6%, whatever the new kind of going rate is that’s available in your local financing context. But then I drive around here in Austin, Texas, where I’m based, and there’s for sale signs everywhere. Once again, it’s kind of those those levers you would expect to move in tandem feel juxtaposed. And I think you’re right, we’re all kind of waiting on pins and needles to see what plays out. So. John, That is remarkable commentary from top to bottom. I know for your listeners there, we hit a lot of markets. We went from venture to private equity to real estate. We touched on what’s all happening in ai the public markets. John, of course, hits all of it with just excellence. He is far more than just a podcast host. He’s proven himself a capable guest. And so, John, we’ll close here. What’s the Lord teaching you in scripture? Take us home there. That’s an encouraging word of what God’s kind of showing you on that side.

John Coleman: Well, the good news, Richard, is anything that I got wrong today, I’m going to hear from the various leaders of our teams within 24 hours of airing about all the statistics I got wrong. So, you know, caveat emptor, the passages that a few of my partners and I have been lingering on lately is Luke 16, 11 through 12, which people know is the true riches passage. It says if then you have not been faithful in unrighteous wealth, Mammon money, right? Money. Who will entrust you with true riches? And if you’ve not been faithful in that which is in others, who will give to you that which is your own. And really, I’ve been trying to reflect on this passage in in effectively two ways. One is this is a call to be faithful in the stewardship of wealth, particularly the wealth of others. Right. Which is the game that we are in. This is my profession is how do I try and take money that others have worked very hard for that supports their retirement, their missions, their charitable giving, and try and help them get a return on them that allows them to do more good work. Right. So it is a conviction that we as stewards of our own wealth and of others wealth, need to take that very seriously. It is also a reminder that money is not true riches. I think the easiest thing to get sucked into when you’re in the investment world, I see this among wealthy people. I see this among professional investors. Wealth managers is you keep score with money. It’s easy to measure, it’s easy to manage. Your world, start to become money. You start to view that as something more important than it is. I saw a shocking Wall Street Journal ORC poll just a few weeks ago that people now in the United States value money more than religion, more than community, more than their profession, more than patriotism, more than this host of other things. They value and trust money more now. And I think that’s part of this hollowing out of society that we’re struggling with. Money has always been a tool. Money is a great servant and a poor master. And the Bible talks to us a lot about serving money, but it warns about almost nothing more than the love of money, right. And being a servant to money. And so we’ve been reflecting on that passage a lot. This idea of true riches, both in terms of how can we be better stewards, but also how can we keep front and center for us and for those that we serve? That money is actually not a good measure of value. That money is not true riches in the Christian faith. That money has a role to play as a tool, but it never touches on what’s so unique about our Christian faith in the eternity that we’re targeting. And so I think that passage is one that my partners and I are batting around, and it’s one that I’m trying to kind of reflect on and understand. And I think it’s one that all people of faith, all people of means should really take seriously in terms of what it calls us to do on both sides of the equation.

Richard Cunningham: Man John Coleman, that’s a fantastic word. Let’s reframe the conversation. Let’s move the balls out of faithfulness and let’s get it off of money as the scorecard. And so, John Coleman, thank you for being on the day of.

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman, your host. And we have a very, very exciting episode today, I think, with a great friend of the Faith Driven Investor podcast, the Faith Driven Investor movement, our firm Sovereign’s Capital. Michael Eisenberg Michael has been on the podcast before talking about his wonderful book, The Tree of Life and Prosperity. But today we’re going to get to delve even deeper in what the Jewish Scriptures and Jewish philosophy say about investing in financial life. Michael is a long term venture capitalist. He co-founded and now leads Alef, a Tel Aviv based venture capital firm that invests in technology companies. He’s a frequent author on many different topics, and we’re going to talk about a massive writing project that he’s taken on with multiple books now. I’ve had a chance to read one. I’m anxiously awaiting the translation into English of the others, and we’ll get into that more deeply. And he’s also a family man, and we can talk about that large family there, all of whom are remarkable people and has been deeply involved in community service and government since he migrated to Israel from the United States in 1993. And so we’re very, very privileged to welcome Michael on the podcast. Thanks for joining us today.

MIchael Eisenberg: Thanks for having me, John. And I’m looking forward to welcome you back to Israel personally and physically so we can share a handshake and a hug.

John Coleman: Awesome. Awesome. I did get to visit Michael last year, last spring in Israel. It was my first trip to Israel, although my wife had been a couple of times and he was a really gracious host in his beautiful office there. So we were very grateful to visit. Michael You know, one of the things that impresses me most is just your remarkable capacity for intellectual exploration, for ideas, for writing. And that’s been a part of your life forever. Talk to me a little bit before we get directly into the investing side. I think this will lead in. Where did you first get interested in writing and grappling with ideas through writing?

MIchael Eisenberg: I had a ninth grade English teacher whose name was Ms. […..]. We used to call her the little lady. She was tough as nails. I mean tough as nails. About five foot one. She yelled all the time at us, but she forced us to write. We read a book, I think it was every two weeks or maybe every week. I can’t remember. And I think it was Wednesdays. She would say 20 pages, write. And you start writing and you had to kind of quickly organize your thoughts. Sometimes she would just give topics and say, seven pages start writing. And I thought she was amazing. And I kind of became interested in writing, I think, through her, funny story about it I had her in both the ninth and the 10th grade, and she taught 11th grade too, but everyone wanted out of her because she would often she put you in the corner. She had this great line. She would say, Do you see what’s written behind the me on the on the blackboard? You know, says, No fidgeting, No, stop fidgeting. And everyone wanted out. But in 11th grade, I wanted to go back there and I went to the principal because they put me in a different English class that I’d like to go back to Miss [….]. They go, Nobody wants to go back to Miss […..]. So no, you can’t. And they didn’t let me go back. But I. I give her a lot of credit for my love of writing.

John Coleman: Well, what I love when I read your stuff and maybe it’s the same for you. I write because I know so little. I feel like when I’m interested in and passionate about a topic, the best way for me to explore it is to research it well enough to write about it, because I figure if I can write about it well and teach others, that means that I’ve actually taken the time to understand it. And I can sense that kind of intellectual exploration in your writing to where you’re really reflecting deeply on the topics that you explore. Is that something similar to the way that you approach it, and how do you pick the topics that you’re going to write about Michael?

MIchael Eisenberg: I’ll start with the second question first, which is how do I pick the topics I don’t is what happens. So I think life happens and in my life I’m an investor, I’m a venture capitalist and a person of faith. And we read, as is the Orthodox Jewish tradition, we read the Hebrew Bible every week in synagogue, and you read one portion of the Bible, and so you run into it every week. And as you kind of run into it, you develop your own lens. And I think we need to take these things seriously and I take them seriously cause you to ask questions, particularly as a modern person. And when you ask questions as a modern person, both of the texts and of other people and you want to take it seriously, you need to figure out both how you apply it to modern times and to kind of what is the intent here, even if the situation is different than an old agrarian economy. And that’s what I found myself exploring. And at the same time, I literally just finished yesterday what you call a […..]. So in Jewish law, which persists, the way it evolves is through questions and answers. It obviously started to evolve through the Talmud and then through questions and answers. And I’ve run into particular questions. When Silicon Valley Bank failed, it was Sabbath in Israel. And so how do you deal with a failing bank when you’re, you know, 9 thousand miles away, and it’s the Sabbath under Jewish law. So I just finished yesterday the a two and a half month journey that describes exactly what you said, which is I got to figure this out. And so I spent together with my study partner and writer of my book, two and a half months deep in this topic. And we sent out the 23 page response yesterday to ten rabbis to get their feedback to see what they thought about the Jewish legal analysis of this problem of what happens when Silicon Valley Bank fails on the Sabbath. Wow.

John Coleman: Wait a minute. I almost have to ask the follow up now. Any early insights into how a faithful Jewish believer can approach that question?

MIchael Eisenberg: So in general, under Jewish law, we have a rule which says that things that endanger your life allows you to violate the Sabbath. This obviously doesn’t qualify as something that endangers your life. It’s very fundamental. There is a a commentator from about 300 years ago. It was called the McGuane Abraham the Shield of Abraham, who writes that in certain conditions of massive financial loss, you can violate rabbinic prohibitions of the Sabbath, but not biblical prohibitions of the Sabbath. And there’s more to it than that. We took an entirely different approach because we think it’s very difficult to figure out how this is a risk to your life. And also, we think the notion of a large financial loss is a very blunt tool. But we think in the digital economy, which is I think was very different here, we had a digital bank run within 48 hours. Depositors withdrew their money and sank a bank. And we think in a digital economy, things both like cyber and digital bank runs fall into an entirely different category that has been lost to the Jewish people for 2000 years. But it does appear in the Talmud because we haven’t had sovereignty. And so what we suggested is that in a sovereign country, businesses and particularly digitally connected businesses are actually part of the piercing of sovereignty when they fail. And because of that, it would be permitted to violate rabbinic prohibitions on the Sabbath in order to make sure that the businesses stand up or businesses are not attacked either by digital bank runs or cyber attacks or whatever it is. That’s the approach we took, you know, still under investigation and dialog. We’ll see how it comes out.

John Coleman: Man, Michael, I love this. I love this. And I want to follow up about this broader reflection on the Scriptures, on the Bible that you’re doing and how that integrates with economics and technology. As I understand it, like you said, you’ve been writing about that intersection for some time on a weekly basis. And I think one of the things that I’ve come to admire the most about my Jewish friends is the deep reflection you do on the Scripture portion every week and how that begins to inform your evolving faith and how much debate there is about that. You know, it’s really an active intellectual life. Talk to me about this massive writing project that you’ve taken on, starting with the Tree of Life and Prosperity and how that intersects between those three things your faith, technology and economics.

MIchael Eisenberg: So first, you give me more credit than I’m entitled to. You described it as a massive writing project. I actually didn’t sit down to do this. It’s kind of happened in waves along the way. I sat down to discuss the topics with my kids at the Sabbath dinner table, and I started writing myself notes. It evolved into longer form items and then it evolved into the first book, and then I became obsessed. And I’m now four volumes into the five books of Moses. So I’ve done Genesis, Exodus, Leviticus and numbers, and I’m already kind of done with the rough infrastructure of Deuteronomy as well in Hebrew. And I think as I was saying before, one of the benefits of being in synagogue every Sabbath and kind of, you know, coursing through the Bible every Sabbath, is that you become familiar with the text. But I find that too often there is a dichotomy between our modern situation, let’s just call it and text that we consider to be eternal, but we actually don’t treat them that way. They’re kind of some nostalgic thing we put on the side, and I consider myself very fortunate that our own rituals put us in this context of the biblical scriptures every week. And so when I sat down to do was to look at how you apply scripture to an active, technologically advanced economy, what are the foundational principles of the text itself? Reread There was a commentary in the Middle Ages because there was Rabbi Samuel, the son of Moses, who was a grandson of the famous Jewish [….] named Rashi. Rabbi Solomon Isaac or a son of Isaac who said that there’s something called the Scriptures that are reinterpreted in every time. What does that mean? If we think they’re eternal, it means that they have meanings that we can then infuse with what’s going on today and then try to apply them as faithfully as possible to the problems we have today. And my own view is that the Hebrew Bible and this may be controversial. My own view is that the Hebrew Bible in particular is not just a set of metaphors and. It’s not just a set of precepts. It’s actually a blueprint for life and society. And if you take that seriously, then one should attempt to apply it to a modern life in society. And I take that seriously. By the way, I think the founding fathers of America thought the same thing. You know, if you believe in the Declaration of Independence as a foundational document, they were talking about people created in the image of God in that way. And they kind of had a blueprint for a very tolerant America, tolerant of religious freedom. But at the same time, much of Christian society in large ways. I know that’s not politically correct to say today, but I think it’s what the founders had in mind. And so they attempted to apply in the separation of powers. I think the same biblical text where the Hebrew Bible had a king, a prophet and judges. Right. And you had, you know, during the time of Ezra, the scribe, who is mentioned in the Book of Ezra, which is an Old Testament book in the Scriptures. He had a council of elders, which I think is the way to think about the US Senate. And so I think they took this really, really seriously. I mean, I think we need to as well at a societal level.

John Coleman: Wow, I absolutely love that. That’s really interesting. And it is interesting if you date back to the beginning, you know, in some respects, not completely, but in some respects, the American founding was the story of religious refugees generally. And there is evidence, at least in many parts of the country, and especially amongst the founders, that Jewish people were part of that They were welcomed with open arms, at least in many circles. And that is hopefully a credit to the country at that time. You know, as you think about the project that you’ve taken up, and maybe this helps us reflect as well in a way that Christians can help to understand the Jewish scriptures more. Talk to us about this book series that you’re publishing that began with the Tree of Life and Prosperity. I think the next book title from Remembering Properly is Everyone Can Be Moses, which is being translated and then the Land of Milk, Honey and Uncertainty, which is coming out. And you’re kind of marching through books to the Bible, talking about really interesting, counterintuitive scriptural lessons. Talk to us about what’s there, what’s that evolving into. And also just how the Jewish scriptures are unique from what we would consider the Christian scriptures, where the difference is there as well as the similarities.

MIchael Eisenberg: How many hours do we have?

John Coleman: As many as you want, Michael. I know I ask a lot of questions, all bundled up in one there.

MIchael Eisenberg: So like I said, I’m for books in on the biblical series. I also have a book I wrote years ago on the Book of Esther, which is about Jewish identity, by the way. Funny story. And the one I wrote on the Book of Esther, I got a call from a Catholic friend of mine in Los Angeles who called me up saying, You know, you could have written that book about Catholics as well, and not just about Jews. So I told him I would, but I didn’t have the same experience. So he was free to take it and adapt it as he saw fit in the biblical series of the five books of Moses. So I’ve done The Tree of Life, of Prosperity and Genesis. Everyone can be Moses on Exodus, what I call Roaring Tribe on Leviticus. I’ll spend more time with that in a second. And the most recent one is Milk, Honey and Uncertainty on the Book of Numbers. And the Book of Deuteronomy, which I’m working on now in Hebrew, doesn’t have a name yet. So Genesis, I’ll start there, takes a look at the stories of the forefathers in the context of, Hey, this is real life. And so, for example, if you look at the story of the Garden of Eden, I view that as a situation of universal basic income. Adam and Eve were fed, you know, Christian doctrine is to look at it as original sin. In Judaism, there’s two schools of thought on that, whether it was a sin or just call it, you know, growing out of adolescence. But, you know, the Bible chooses to tell us the story of somebody in an idyllic society where all his needs are provided for by God and he either sins or grows out of it or definitely does something inappropriate, and then he’s expelled. And as he begins to sweat and work by the sweat of his brow and harvest, he for the first time has children. And I think what it tells us, there aren’t any children in the Garden of Eden. Right. And I think because man and woman, by the way, man doesn’t even talk to woman there. Adam does not talk to Eve. They don’t have a joint project and everything to work on. They have no future look forward to. Everything’s provided for them. They become indolent. And you know, the scholars, the sages say that indolence leads to boredom. And boredom leads to sin. And, you know, I think that happens when we have our basic needs provided for. And man was actually destined to work. I used to joke about a rabbi of mine that he was the first Orthodox Jewish Protestant, you know, Calvinist in that way. And I believe in the value work. And I think the Bible believes in the value of work and in being productive. And so I looked at universal basic income, you know, for something that’s very relevant to today, the story of Noah. You know, if I asked you who was Noah, your obvious answer. That’s the average person on the street, Jew or Christian, by the way. Who is Noah? Well, he built the ark, but we can actually prove through the scripture. Itself. And the rabbis tell us this also that Noah invented the plow. Noah didn’t only invent the plow. Noah invented chemistry because it says he planted a vineyard and grew wine. And when you think about that and you think about our modern challenges of, you know, AI it’s all over the place now in the world. AI is destructive. AI is the best thing that ever happened to man. And yet there is technology, like the invention of the mechanical plow, like the invention of chemistry is a tool. And if we don’t put an Abrahamic ethical framework around it, it’s going to run awry and it’s going to corrupt society. Exactly what happened to Noah and why we had the flood. Exactly what happened to Noah in his tent after he drank too much wine and was castrated or abused by his son. And so every technology is dual use, so to speak. It can be used for good and used for bad. And so I spent most of Genesis working through story after story about what the core values are economically that the Bible is trying to impart to us. And then I spent Exodus and everyone can be Moses looking for the leadership and societal lessons called The Adventures of Moses or the Society as described in the Ten Commandments there and the building at the Tabernacle. Just one example is they went to Michael Dell, who’s the CEO of Dell Computing, and asked him what was the most important trait for a leader in the 21st century? And he said, curiosity. Well, good for him. He learned it from Moses. How do I know? Because we can ask a simple question Why did God choose Moses? And you think about Moses by the ways we don’t appreciate this, but the guy walks into the most powerful ruler in the world and says, Let my people go. So we talk about God sending a message to a lot of people who think that God maybe spoke to them, but they don’t have the […..] to stand up to the most powerful ruler in the world and say something to them. And I think Moses, when he kind of is drifting in the wilderness and he sees the burning bush that will not be consumed, he goes to explore it. And the verse literally says, and God saw that he strayed from his path to observe and behold, the burning bush would not be consume. And God calls out to him, Moses, Moses. And he says, I am here, God. Right. So what God saw was that Moses strayed from his path. Curiously, out of curiosity, to see why this book should not be consumed, even though it was burning. And so Moses teaching as the curiosity is the key trait for a leader who wants to make change. And I think, by the way, that’s been true throughout history. And I spent a fair amount of time, you know, for example, on what is the modern application of do not covet the 10th of the commandments of the Ten Commandments and do not covet like a zero sum thing, right? Do not covet your fellow’s wife. Do not covet is donkey or his farm animal. And the reason is, by the way, those are both the means of production. The farm animals. That’s a factory, right? And his wife is what turns him into someone who protects his home and he can’t be there for be an economic character. But in the digital age, these are not zero sum games. And so empowering people to be successful in the digital age by sharing knowledge is actually economically increasing. It increases GDP, it increases economic output because this kind of interaction between different kinds of knowledge helps us out. I’ll move quickly to Leviticus, which is called the Roaring Tribe. I what I described there, you know, we’re all suffering right now across the world from tribalism. This is great new book by Tim Urban. I don’t know if you’ve read it. I think it’s called What’s Our Story. You know, he describes the increasing tribalism right in blue in America. It’s true everywhere. He has his own prescription. Mine in the book says that Leviticus is about a tribe called the tribe of Levi, which has the priests in it. And an increasing outward spiral where it’s attempting to do is to create a covenant, an economic covenant among the people, to empower others to be successful, to take responsibility for your fellow, for your brother there. But it also creates some bridges to other tribes. You asked before about Christians and Jews. And so if the Jewish people is a covenant, there are other people who have covenant. And our job is and this is why it’s called the roaring tribe, what we’re after in society is what I call respectful tribalism. Sebastian Junger has a great book called Tribe. We all want to be part of a tribe. It could be a religious tribe, it can be a political tribe, etc. That’s great because it gives us safety, security, you know, a capitalist network, etc.. But if we’re not respectful of other tribes, we’re going to end up in where we are right now, which is a disaster. The last book is called Milk and Honey Uncertainty in the Book of Numbers, where I chart through that this 40 year sojourn through the wilderness is basically to teach the Jewish people to deal with uncertainty. How you deal with leadership challenges in uncertainty, how you deal with changing economic circumstances, uncertainty how you deal with shortages, water shortages and food shortages that they encounter and that create uncertainty. And what are the lessons from that, both for investors, for businesspeople and for society at large? And just to finish out the thought, one of the things that I think we get wrong a lot is the difference between risk management and uncertainty. Somebody who manages a hedge fund is a risk manager, is looking for the number of standard deviations from the norm. Guys in the venture capital business like myself are investing into uncertainty and trying to benefit and leverage uncertainty. And that’s a whole different set of skills and. I think tells us a lot about where we are at society today.

John Coleman: Now, that’s awesome. Michael and I honestly can’t wait for the translations. I think I knocked out the Tree of Life and Prosperity in about 48 hours, and I think one of the things that I really appreciated for my own faith is just how diligently people like yourself and so many in Judaism reflect on the scriptures, dig deeply into them. I remember coming across your analysis of Noah, which you talked about with all of this great rich scriptural interpretation of the Noah story about him as an innovator and an inventor. I had no idea about the plow, about the vineyards, and it was just shocking how much more depth there was to the scriptures than I had taken from them. And I think a thinker like you who’s not afraid to be counterintuitive, he’s not afraid to to kind of dig deeply into areas that others haven’t interpreted and only enlivens that in the spirit of getting to this idea of faith driven investing. I wanted to dive right in to getting your insights on what faith driven investing looks like in Judaism. You know it sovereign’s capital and faith driven investor. We often talk about this idea that all investing is impact investing, that basically since the dawn of humanity, people have tried to align their financial lives with their most deeply held values. And certainly I think the scriptures, the Jewish scriptures, were one of the first places in which that manifests. As you reflect on what faith driven investing means in the Jewish context. Michael, what are some of the key tenets of that, both historically and that you see manifesting today?

MIchael Eisenberg: So I have been talking about a term more recently which has come out of a lot of the speeches I gave around the book. And after kind of reflecting on this, I think what the Bible advocates is what I call now covenantal capitalism. And it has two points to it. Capitalism says I have private property. Capitalism says that the profit motive is good, much like Adam Smith did in the brewer and the baker. Doing their job should increase all of our welfare and output. What I think people miss, and I think by the way, your podcast, your movement has done a great job of driving home to people is capitalism works. When there is an underlying covenant. There is a great writer. His name is Barbara Allen. She wrote on de Tocqueville, who points out that the Protestant covenant underlies the foundation of capitalism in America. And so what happens when the covenant is frayed is capitalism comes unmoored. But if the community or the covenant, as I prefer to call it, takes care of its members, empowers its members, asks about what are my responsibilities to the other members and not just what are my rights as an individual? Then capitalism thrives. And so the problem you ever saw about the problem of capitalism, there’s nothing wrong with capitalism. The problem is with we, you know, an individualistic society frays the kind of underlying fabric that is needed for capitalism. And that’s what we need to fix. And so I think the notion of scripture, which talks about brother and fellow didn’t think about sisters back then as much, but brother and fellow and the transparency that covenant and community deliver so that they don’t screw or take advantage of my neighbor or my fellow is foundational to the future of capitalism. And so one of the very important elements of the Jewish faith and by the way, this was a challenge between Jews and Christians in the Middle Ages that thankfully we’ve gotten past is lending with interest is a big challenge in Judaism, by the way, in Islam as well, in Shariah law as well. And so why is that? We need to ask, why is that? And the answer is that in the Book of Proverbs, it tells us that the borrower is enslaved to the lender. By the way, if that sounds like a lot of people underwater on their houses right now, it’s not an accident. And when we are in debt, we develop a scarcity mentality. There’s a professor at Princeton. His name is Arnon Shafir, who spends a lot of time talking about what happens when people are in scarcity mentality. They turn on their survival instincts and make terrible decisions about their own finances. And so the Bible is trying to create an air of abundance in the economy, number one, and number two, to make sure that we are not enslaved to the people we borrow money from and hence interest rates, which tend to compound and be variable, as the case may be today, are a very challenging mechanism for that. But we need to separate that, by the way, from business credit, because business credit’s like an investment. There’s no personal liability if you’ve got a corporate veil. And so you don’t become enslaved to it. But we need to be very, very careful about consumer credit. And so, you know, I backed a company here called Rise Up, which is taking on the consumer credit narrative. I mean, you watch television today, which I try not to do, and all they’re doing is pushing consumer credit at you. It’s a disaster. We are enslaving people to their credit cards and we need to be careful with that.

John Coleman: Yeah Michael. I’d love a couple of the comments you’re making there. You know, one of my mentors in college was actually a Catholic scholar named Peter Lawlor, who was one of the great Tocqueville scholars and wrote a book called Self-interest Rightly Understood, which effectively argued that Tocqueville, in self-interest, the way that the United States was founded, was actually very different than the kind of isolationist, individualistic self-interest that many people consider it today, that it actually was underpinned by a communal instinct, by commitment to community institutions and by faith. And when I was in business school, I had this reiterated I don’t know if you’re familiar with that business scholar named Clay Christiansen. He passed away just a few years ago, a faithful Mormon believer. And he actually has a great video up on the connection between religion and capitalism. And he had had a dialog with a Chinese scholar who had pushed the idea to Clay that capitalism couldn’t work in a society like modern China had been eroded of its religious foundations or of any religious foundations, because capitalism only worked in a society of mutual trust, of values that allowed people to work together constructively, that you effectively couldn’t build the compliance into capitalism to control its worst instincts, that that had to be underpinned by a moral foundation. And what you’re describing, I think, is the way that most religious traditions historically, at least have thought about capitalism and free enterprise is is it’s got enormous power. Societies have been structured around this for some time. However, that power has to be countered by a shared set of values. I love the concept of tribalism that you had a constructive tribalism and that those values have to be moral. They have to be deeply held so that they can guide those instincts of capitalism, which is what I think you’re describing. And I do think that is the underpinning of all types of faith driven investing now.

MIchael Eisenberg: Yeah. So, you know, I think there’s a lot of truth to this notion that in atheists societies it is more difficult. Doesn’t mean it’s impossible, but it’s more difficult to create the level of trust that capitalism requires because it’s impossible to regulate for every scenario, just impossible. And so we need to assume a basic level of trust. There are proxies for it other than faith. But, you know, you use Plato’s rings of guidance. There are certain things that religion causes us to be fearful of, including do not covet things. You just wouldn’t do that other people, in the absence of faith, would think differently about That doesn’t mean all of them. There are plenty of moral and ethical people who are invested in community who aren’t like that. But I think if you have a large society of people where there’s a complete absence of faith, you could end up in a difficult spot for capitalism over time.

John Coleman: Yeah, I think that’s exactly right. Yeah, that’s not to discount that as certain people without religious faith can’t be moral, can’t be great people. Like you said, in a large society, the absence of their shared values I think is quite challenging. You describe this kind of covenantal capitalism, which I love. I love that term honestly, And how that impacts the way that people do business as you look at modern Judaism and the way that faith manifests in investing principles. Do you see a faith driven investing ecosystem now around Judaism and do you see firms that are trying to operate specifically by Jewish faith, either through negative screening or positive screening or different business practices, or what does that ecosystem look like right now in Judaism?

MIchael Eisenberg: I think the first thing is, is that there are a lot of communities and the Jewish community writ large. We’re helping other people get started in business. And patronizing those businesses helps people get their businesses started. And so I think that’s kind of the first level of it. I think there are a number of people who practice what I talked about before, which is providing interest free loans. There is this amazing for profit almost organization in Israel called Ogen, which provides interest free loans to people. How is for profit? I spent in a different time when I have time for that that enables people to get their small businesses started. And so that’s a real implementation of this, what I call a biblical setup that says be someone’s partner and not their creditor. And I think, by the way, the whole biblical system I cover this in the book Roaring Tribe is set up so that we should become partners and not creditors. And that’s why the system has prohibitions on taking interest, and that’s why the system has mechanisms for dealing with price gouging of your fellow or your brother. There are less what I would call kind of investment funds that specifically talk about this. But I think there are a lot of what I would call a Jewish values based investing principles that manifest himself and many Israeli companies I’ve talked about this in the context of, you know, a company called Empathy that we’re invested in, which is helping next of kin after a loved one passes away. And they’re kind of a very empathetic and empowering way that helping them interact with their life insurance companies rise up, which is a company I mentioned earlier, which is getting people out of debt and making them investors and has kind of issued this kind of conspicuous consumption or credit card consumption approach to life so people don’t fall into debt. And we’ve made a bunch of investments around these themes. And it’s not only religious in nature. I think there’s something about community and DNA. DNA. I don’t mean genes, by the way. I mean a cultural DNA that causes one to do this. And by the way, if you go to a synagogue or a church that becomes your social network and going back to de Tocqueville, I think that’s what he saw in many Christian communities around the United States, is the church was your support community, your business community. People could lean on. And that was incredibly valuable financially and economically for these communities and for capitalism.

John Coleman: Yeah. And that concept of self-interest, rightly understood is the individual centered in community rather than the individual as as a pure entity or as it is a solely individualistic entity.

MIchael Eisenberg: Yeah. By the way, you know, we only get to impact investing because we have individualism. If the system works based on community, you can make as much money as you want because ultimately you were supporting your community. I don’t mean charitable, by the way, but enabling other people to become wealthy as well as successful. And so I’d argue impact investing is a response to, you know, individualism, which is kind of capitalism unmoored rather than a return to the roots of let’s create the community first and then capitalism will be just fine if we kind of reinvest in covenant and empowering our businesses, our local businesses, our communities, the people we connect with and be empathetic towards them and empowering, we don’t need to get to impact investing. We should all make as much money as we can.

John Coleman: Yeah, and what’s been shown very clearly, I think, over the last 30 or 40 years is that capitalism is the greatest enemy of poverty. And stagnation in history, right? I mean, it’s been a tool that’s lifted billions and billions of people out of poverty, out of destitution, out of hunger. It’s unleashed this remarkable human potential. Right. And it is I think there are distinctively, at least in our faith tradition, Christian elements to that. Right. I wouldn’t argue that capitalism and Christianity are exactly the same thing. And I think there are some errors to correct for in unbridled capitalism, but it’s actually the foundation of capitalism and free enterprise that allows individuals to flourish with all the creativity that they possess. So I couldn’t agree more about its power to really empower a community and to do good for people. And it’s done more arguably for people than charitable enterprises have over the last 40 or 50 years in a lot of respects. Digging into the way that you run Aleph. Michael, you’ve talked about this a little bit. It seems like you’re investing in companies that also have a deep missional impact, or at least that’s my reflection on some of those that you’re describing. How does your faith influence the way that you run Aleph as a venture capital firm?

MIchael Eisenberg: You know, it’s important for me to point out that my partners are not necessarily people of faith. I love them dearly. They’re my brothers and we have a wonderful partnership, marriage. And so, you know, we run Aleph as an equal partnership and we each have equal say. I have a view that businesses that do good by their customers rather than abuse them, end up being just better businesses. And so like I often use Lemonade, which is an insurance company as an example, where, you know, if you think about a traditional insurance company, State Farm, Allstate, whoever it is, their business model is they make money by making you miserable. What does that mean? They make more profit when they deny your claim, You know, lemonade or I’m an investor, a public company now, you know, set up its business so it’s not conflicted with its customers. They take a flat fee to run the pool. That in my view, and by the way, they give the leftover premiums to charity of the consumer’s choice. I think that’s a much more aligned business model that wants to make a lot of money to do that. And that’s a reflection of what you call values. I think just good investing right now. I think this is exactly what people want. We are all longing for a time where we are aligned, where we have a covenant and a community. I told the story in the article I wrote for Fortune on Covenantal Capitalism about speaking to a group of Harvard students. There was a young woman there was from New Zealand, and I asked her if she had a local bakery and she said yes. She said, What happened during COVID? She said it went out of business. I said, Why is it what people didn’t patronize in the supply chain and this, that and the other? I said, You miss? And she said, Yes. I said, Well, in our community in Jerusalem, we had a similar problem. The difference is that the people in the community got together, advanced their money, meaning they bought things on account for, you know, a year forward so that they would have enough cash flow to get through COVID. And now we’re so happy because the people in our community, we had a so unbelievable bakery. They’re a staple in the community. And now, by the way, they turn up at our family events and they’re part of the community. And I think that’s kind of a hallmark of covenantal capitalism. They’re making good money now. They’re doing good, but, you know, get people through tough times so that they can be economically empowered. And I think that kind of alignment and covenant matters a lot.

John Coleman: You know, we talk a lot about love of neighbor and the Christian tradition and that love of neighbor that you’re talking about, just how effortless that is and the ability to lean into others and support one another. And you’re right, still using the profit motive. Hopefully everybody ends up doing well for themselves, but it just shows a real empathy and care for others.

MIchael Eisenberg: I’ll say, show me controversial. Can I say some controversial?

John Coleman: Yes.

MIchael Eisenberg: I think we can sometimes fool ourselves and say love, our neighbor is actually love. But the question is, what are you willing to sacrifice for it? And I think, you know, when you part with money, not just in a charitable way, but, you know, you may even hurt for the short term, that shows on some level an even deeper love or covenant that drives that love. And I think that’s important to force people out of their comfort zone to feel a little bit of sacrifice, you know, to show that love.

John Coleman: Yeah. You’re a father of eight. I’m a father of four. I think we both know that love always involves sacrifice. What a great point. But, you know, that does involve giving something real of yourself. And I think what you’re describing is exactly that. You live in this world of venture capital. Now you’ve got a view of investing broadly. Compare and contrast, if you would, kind of the dominant ESG approach to investing or social responsibility that you see out there right now with what you’re describing, because obviously I don’t know how it is in Israel at the moment in the United States, ESG has exploded, but recently it’s also become a bit controversial in terms of some of the ideas that it’s forwarding. And so we often get the question, you know, what’s the difference between faith driven investing and ESG? And in this case, you know, this covenantal capitalism that you’re describing, What are the differences and similarities with ESG as you see it?

MIchael Eisenberg: Oh, man, I think ESG is a grift. And it was a way for asset managers to aggregate asset and deliver subpar returns and not be criticized for it.

John Coleman: Tell us. How you really feel, Michael.

MIchael Eisenberg: Yeah, I think I argue this in the book. I can’t remember in which one of them. I think the first one, the one you have to life and prosperity. So, you know, these are all sorts of big words, ESG, everyone measures them differently. It’s not clear how they either impact the bottom line or actually impact society or create a better society. I laughed. You know, lemonade, which I think is not a pretty aligned business model, was rated lower than I think like Exxon. I’m a fan. Exxon do not missunderstand me and it’s like it’s a very poorly defined, even more poorly measured investment principle with no teeth other than making people feel good and no real underlying values other than kind of the new new thing of whatever somebody’s dreamed up is called environmental or social or governance. And I think we’d all agree that we all have different views of many of these social values. And so, you know, I’m personally a big fan of transparency rather than any of these other things. tell me, what you really think? Yeah, I’ll say something complex. You know, Ben Jerry’s I think it’s a very good ESG rating. I think they’ve been terribly anti-Semitic. I was happy to find that out so I don’t have to buy their products. And, you know, Unilever got hurt by it and they obviously somehow the s got okay there, even there. I thought they were terribly anti-Semitic know. I know it’s run by two Jewish guys. And so I don’t know what to make of ESG. I really think it’s just an unbelievable way for asset managers to collect assets and deliver subpar returns. Great marketing, by the way. Amazing. Brilliant marketing. There’s no covenants in it, though. In a covenant, they would have made sure that their investors made a lot more money, not less.

John Coleman: And I think, look, I saw a ton of elements of what you’re describing in my time in asset management where, you know, I think there are people who went into it on a mission. Some of those people I would disagree with the mission that they were on, but went into it with a mission and they’re still the true believers. But so much of this has turned into a commercial activity [….], as you described it, in the sense that once it became better to have the rating than not, once it became kind of a part of doing business to get the rating, people began to manipulate the ratings. The whole system kind of grew up to manipulate it. There was a great tweet by the ever controversial Elon Musk, like a year ago, a year or two ago, where he pointed out the same thing you did with eliminate, where Tesla was rated lower than some of the big oil and gas companies on the E part of ESG. And he said, you know, what kind of rating system could possibly come up with this if it were legitimately about what’s transforming the environment? And that was true, right? I love the oil and gas companies. I think oil and gas has a bright future. I think it’s been incredibly important for unleashing human potential. But hard to argue, you know, that Exxon would be better environmentally than Lemonade or Tesla, for example. I want to switch to what we call lightning Round in a moment, just to get to a few quick questions with you, Michael. But one thing I wanted to end on was also just to ask you a broad question. As you study the Hebrew Bible and you’ve got many close associates who are Christians, what are parts of the Hebrew Bible that you think Christians don’t dig deeply into and not for what’s a part of the Hebrew Bible that you would encourage all Christians to study more carefully.

MIchael Eisenberg: I want to make a meta comment first, if I can, which is and as I told you, I maybe I’ll give you a surprise. I have this idea that I think we need to do like a covenantal conference in Jerusalem about the future of capitalism. And yes, it should involve Jews and Christians and Muslims to think about, you know, what are the covenant of the future that will undergird our economic growth as peoples for the future. And I think the kind of meta comment is there is a lot of work to be done right now across different faith backgrounds, people of different faith backgrounds, to kind of reinvest in this covenant so that capitalism can kind of keep growing and as you said before, be the greatest engine of prosperity and of human advance that we know. And I think there’s a benefit to diversity of different religious experiences in creating that, you know, foundation for the future. And so the first thing I would actually say to what you call a Christian audience is that both the old and the New Testament, by the way, which I’ve read, I don’t study nearly as much as I do the Hebrew Bible, but I have read it. And you need to invest in Scripture to the extent we really believe that these are foundational principles, they should be read and reread and internalized over time. That’s kind of point 1 in the Hebrew Bible. I think one of the core elements that we need to kind of dig into is this notion of empowering our brothers and sisters through the economy. And I think that’s more present in the Hebrew Bible. Than it is in the New Testament, particularly in the Book of Leviticus and the Book of Deuteronomy, and then in some levels in the book of Jeremiah and Isaiah. And so I think that’s super important and I would dig into that. The last piece is we need to ask ourselves is people of faith in a modern world. Where are the areas that we think there are changes and where are the areas that we need to be steadfast? And I think one of the interesting things about the Hebrew biblical experience, which I believe is different from the Christian biblical experience, is the way the rabbis interpreted and reinterpreted. We have this notion of oral law, of essentially an evolving set of laws and applications for how we apply scripture through the generations as they become more modern and they change. And I think that’s actually something, although it’s not in the Hebrew Bible, it’s more in the Talmudic realm that is valuable for a Christian audience as well.

John Coleman: Well, Michael, this has been an extraordinarily helpful discussion. I love this idea of a covenantal conference, and so I hope you’ll count us in as partners on that if if you’re serious about it and if we want it.

MIchael Eisenberg: I’m very serious about it. I’m talking to someone. We both know about it. We’ll see if we get there.

John Coleman: Yeah. I would love to dig into this more with you offline before we close out today and maybe a more personal question, we ask everyone at the end of the Faith driven Ambassador podcast what God is teaching them right now through Scripture. So just kind of in your personal studies of Scripture, is there something that God’s teaching you right now in any realm that you’d want to share with others?

MIchael Eisenberg: So I have. Don’t take this the wrong way. I’m never sure what God is telling me or teaching me. What I can say is that the Bible and the thousands of years it’s been around teaches us to have a long term view. And I think in the social media era, most people have a, you know, 24 hour or ten second view. And I think the perspective given by biblical scripture tells us processes take time and we need to take a longer view of what’s going on in the world right now than what’s maybe under our nose are disappearing in a tweet from 10 minutes ago.

John Coleman: I love that. Michael Eisenberg, we’re very excited to see your new books coming out. We’re very excited about the investing that you’re doing through Aleph, which I’ve been mispronouncing for most of the podcast. I apologize.

MIchael Eisenberg: That’s okay.

John Coleman: We’re very excited to see the follow up on this covenantal conference and the development of this idea of covenant capitalism, and just so grateful to you for your willingness to share with us and for the positive difference you’re making in the world through your work in writing. So thank you so much for being on the Faith Driven Investor podcast today.

MIchael Eisenberg: Thank you, John. I want to commend you. I think it’s not obvious that you’ve reached out to people of other faiths, and I value our friendship and our meeting. And I hope, like I said, I’ll see you, your wife and your kids again in Israel soon or in the U.S. And I think, you know, the work you’re doing is special and important, and I commend you for it. It’s not trivial. So thank you. Thank you for the hard work you’re doing.

John Coleman: Thank you, Michael. And see you soon.

John Coleman: Welcome back to the Faith Driven Investor podcast. This is our monthly Mark’s on the Market podcast. I’m John Coleman, one of the managing partners at Sovereigns Capital and a host of the Faith Driven Investor podcast. And today we have a very interesting marks on the market focus on real estate, which has become a boogeyman in the markets right now, whether that be soaring mortgage rates, falling home sales, vacancies in office. There are so many things to talk about right now and also a lot of innovations happening in the way that faith driven investing happens in real estate. Led by two of the gentlemen we have on the podcast today. Our first guest everyone is familiar with, Ben Erskine was the founder of Callus Capital. After a lengthy career in real estate. He launched a fund one a few years ago and is now leading the real estate function with sovereign’s capital. And then alongside Ben, we have Tom Hahn. Tom Hahn founded a real estate firm called Prudent Growth in 2015. He’s now the president of that organization, which invests across the real estate markets, but with some interest, particularly in places like retail. And these two gentlemen have deep expertise in the real estate market. So we’re very happy to welcome you on. Tom and Ben, thanks so much for coming.

Ben Erskine: Glad to be here.

Tom Hahn: Thank you for having us

John Coleman: So I want to start at a very high level. You know, marks on the market is about just taking the temperature of an asset class or of markets. Right now. We’re filming this right at the beginning of July. This will air on July 10th. What in your mind is top of mind in real estate markets right now? Obviously, there are a lot of dynamics, but what are the headlines that you’re paying attention to right now? And Tom, we may just start with you, if you don’t mind.

Tom Hahn: Sure. Absolutely. So thanks for having me. You know, and we’ve primarily focus on neighborhood retail and smaller bay Industrial Flex and multifamily in the Southeast and the southern Midwest. So in our area, what we’re primarily talking about and what we’re seeing in the markets are obviously higher borrowing costs, which are having some, you know, pretty significant impact on the ability of buyers to get into a deal at the same kind of valuations they were achieving, say, 12 months ago. I think that we’re certainly seeing a lot of talk in the retail and industrial space around more of a bullish side around just very low vacancy rates. We’ve had very strong leasing activity and new construction certainly in retail, new construction is at like two decade lows. So you sort of have low vacancy, very little new construction. I think you’re going to have even less new construction with these higher borrowing costs, which are really hampering the ability of developers to get projects started. So we’re sort of cautiously optimistic. I think it’s a good time to buy. We like to say that if we can make a deal work at today’s borrowing costs, you know, we’re like six, six and a quarter percent on a lot of our debt. We’re really going to like the deal in two or three years when rates are moderating again. You know, we look at the yield curve every day. We look at the interest rates every day. And you can certainly see the pricing of the two years and the one year notes versus the five years. You know, you’re going to probably have a 200 basis point cut in rates in the next 24 months or so. You know, certainly that’s what’s priced into the market. So we think it’s a great time to buy and kind of get out in front of that and, you know, take advantage of some slightly higher cap rates.

John Coleman: Super interesting, Tom. And I know we’re going to circle back and focus on retail in a moment, because I do think the dynamics are fascinating there, especially given I remember four or five years ago retail was actually the big question mark in real estate from my experience. But before we dive in, Ben, what’s top of mind for you? What are you focused on at the moment?

Ben Erskine: Yeah, I mean, I’d echo a lot of what Tom said. Certainly the interest rate environment has done a lot to slow down transaction volume. We see volumes down, you know, 40, 50, 60% depending on the asset class, depending on the part of the country. So higher borrowing costs and just a little bit of dislocation or a bid ask spread is slowing down volumes and it is very much a kind of sector by sector analysis. You know, the kind of big, ugly gorilla in the room is office. That’s where fundamentally there’s been such a loss or uncertainty around where is demand really going in that asset class, what is the need? But in other areas, there’s plenty of brightness and hope around demand. I mean, we still think that fundamentally there’s a lot of support for the housing sector. You’ve got to be really thoughtful about how you buy. But we think that the housing sector still has fundamental support. And, you know, I think Tom will talk more about retail in particular. So, you know, it’s a tale of several cities now.

John Coleman: Well, I want to start where you ended then, because real estate is such a fascinating segment of the market and that it’s one of the few that touches everyone very personally. And I know neither of you is a residential housing investor necessarily. You’re not rolling up residential, single family homes, etc.. But I do think it’s relevant to the audience now to start there because it’s such a big segment of the economy. I read an article just this morning that referred to the real estate market for single family homes in the US as stagflation. Right now, you know, mortgage rates have risen. Folks are not selling their homes. There’s really a dearth of availability of existing homes in the market. We’ve seen new housing starts tick up. I think it was like 12% in the last month, just as developers are starting to build new housing. But we haven’t seen pricing coming down and we’re not seeing a lot of sales because mortgages are so high. Can you give us some insight into what you’re seeing in the residential housing market and what you think the next 12 or 24 months might look like? And then maybe since you brought it up, we’ll just start with you.

Ben Erskine: Yeah, I mean, gosh, single family home ownership affordability is so dramatically different today than it was, you know, a year ago when mortgage rates go from 3% to six and a half percent. That just changes things dramatically in home price appreciation. As you alluded to, home prices haven’t really adjusted and it’s largely driven by a lack of inventory. So it’s this funny thing going on in the market right now. You know, construction costs are still pretty high. Certainly financing costs are high, yet a lot of developers are pretty active because there’s such a shortfall of supply of inventory to buy that there’s room for new construction. It’s a funny dynamic, but all of that to say, you know, we’re more active in the multifamily space. We typically think that demand rises and falls for housing, driven by things like household formation, whether rental or ownership. But those two things really move in concert for the most part. But right now, you know, given just how difficult it is for new home ownership, we actually think it’s a support for rental housing, at least in the near term. So it’s a part of our thesis around multifamily housing investing right now.

John Coleman: Tom, are you seeing anything different there?

Tom Hahn: No, I would chime in and say 100% agree with Ben on that. I mean, a lot still depends on where you are in the country. But if you’re in, you know, the southeast, maybe the southern Midwest, some of the states that, you know, are business friendly, there’s strong household formation and strong migration patterns into those states or still a shortage of housing. And I think one of the challenges for the Fed is, you know, the occupancy costs, rent or mortgage are about 40% of the CPI. So it’s like every time they raise interest rates, they actually are then, you know, making it more expensive for people to buy homes, which means people tend to stay in rentals longer, which means there’s even fewer available rental apartments or homes to look at. And then that drives occupancy costs even higher. So it’s a bit of a vicious cycle that they’re in, and I think it takes a lot of time for that to work through the system. But we’re certainly seeing the same thing. I mean, we do have 11 or 1200 units of multifamily. We’ve been in and out of thousands in the past. But, you know, we’re certainly seeing rental increases that we can pass along that are, you know, quite a bit higher than where they used to be, especially when you’re in the Class B and C space where all of the new availability, all the new construction is obviously Class A, And so when you’re in small town America and you’ve got a suburban garden style apartment, there’s just a severe lack of that product, period, and nobody’s really making that anymore. So it’s an issue. It’s a tough one for people that have to live in more like workforce housing, kind of, you know, that lower income bracket. And they’re unfortunately really getting hit hard right now with rising rates and prices.

Ben Erskine: Just an interesting statistic, too, John. I think that I read it yesterday that more than two thirds of current homeowners have mortgage rates of less than 4%. Right. So you think about how far they have to come in before it makes sense to sell and relocate. That’s what’s tying up the inventory right now.

John Coleman: Well, what’s scary about that is it’s so far below the structural average. Over time, you know, 4% would be well below the average for mortgage rates if you look over a 40 or 50 year period. And so the question is really, do we actually get back to that level or does this just have to shake out where people normalize and a new set of rates?

Tom Hahn: And I’ll say to a lot of parts of the country, particularly in the southeast, in towns like Nashville or Raleigh or and Austin or Atlanta, you know, ten years ago you had a lot of just natural movement around jobs and like, hey, I need to spend more time now in Texas or California. I’m going to move, relocate. And with the hybrid work environment, the ability for people to work from home more easily, I think you’re definitely seeing I haven’t seen a lot of statistics on this, but just anecdotally, you don’t really have to move as frequently now, even if your job or maybe your manager you’re reporting to is bouncing around the different cities in the country. So I think it’s just a really interesting dynamic. And I mean, I don’t see any short term change to that.

John Coleman: Well, and I think we could see regional differences shake out. The other stat I saw yesterday that I thought was absolutely fascinating was for the first time in history, the. GDP of the Southeast. So kind of Texas over to North Carolina, down to Florida outpaced the GDP of the Acela corridor. So kind of D.C. up to New York, Boston, you know, forever. That’s been kind of the leading GDP area of the country. And now the southeast is actually greater in terms of GDP. There was $100 billion switch during COVID with people migrating. And so, especially in the Southeast, it’s just been this boom. And so I could definitely see a situation in which the segments of the U.S. just diverge in terms of the dynamics that we’ve been talking about. One thing I’ll touch on briefly, just because I know, again, it might be relevant to some of the folks listening, even though it’s not quite a focus for you all. I find it fascinating. You know, during COVID and shortly thereafter, there was a boom in the sale of second homes. People who lived in New York or who lived in Atlanta went and bought homes in rural areas or in New Hampshire. You know, all these places. And there was a boom in Airbnb, right? Because over the last five or six years, VRBO, Airbnb became so easy that there was this huge cottage industry in that. And Ben, you and I both saw yesterday Airbnb released results for I think their revenue is down 50% or something of that nature. You know, as we think about housing supply and what might happening with dynamics, obviously with those collapsing, you could potentially see a scenario where these Airbnb VRBO owners begin to sell or try and get out of properties because they can’t make the mortgage payments anymore or people just abandon the second home idea. You know, they thought, I’m going to go live in Vermont instead of staying in New York or staying in D.C.. And maybe that reality is not quite what they thought it was. And so I didn’t know if you guys had any perspective on whether you think that might be taking place. And if so, does that have a meaningful impact on the market or do you think that’s pretty marginal?

Ben Erskine: Yeah, I’m happy to jump in for a second, Tom. I know that’s not where either of us spend most of our time, but I did read a lot about that same stuff and have been over the past month or two. I think the article yesterday suggested that some of the worst hit markets have seen 50% declines in revenue. Not necessarily sweeping. Yeah, but still significant. Yeah, and plenty of markets that were, you know, 25, 30, 40% down. And I think that it could be interesting. I think it’d be easy to conclude that, hey, there’s going to be this glut of inventory that comes back on the market because the model doesn’t work anymore to hold it as a rental. The last number I saw was that I think there’s about a million and a half units of those kinds of rentals around the country. So even if ten, 20, 30% of those come back online, I don’t think it’s a major flood of inventory in the market, but it will be interesting to see. And then, you know, the reading that we’ve done and the research that we’ve done into the short term rental space, fundamentally in the right markets, it is a really attractive option in particular for families or groups that are traveling economically. They can usually just a short term rental or an Airbnb or their competitors can offer a home or three rooms or five rooms for a much lesser cost than you could get in a traditional hotel. And so I do think that there is a segment of that demand that’s not going anywhere. But it was certainly on fire through COVID for obvious reasons. And maybe the second and third home rentals will temper.

Tom Hahn: Yeah, I was just there real quick. I’d jump in and agree with that. I do think to me, that’s the canary in the coal mine that I kind of like to watch is at what point do people start to say, I’m so financially stressed that I love having the beach house and mountain house, but let’s just see if we can dump it. And we do talk to we have a decent network of some of these brokers. And, you know, I look at people that list houses up in coastal Maine and down in Florida and in the coastal areas of Carolina. And it is still interesting and the demand is still really good. I mean, houses are hitting the market and they’re getting viewings and they’re selling. But yeah, you do wonder how long will that persist if rates stay this high? It is a very expensive luxury. Good, you know, for sure.

John Coleman: Yeah. I will say just this for you then. This is not a promotion of any stock or anything, but I’ve got a family of. I’ve got four kids, basically. So we’re a traveling army whenever we go anywhere, and they’re often in-laws staying with us. And I don’t think we’ve stayed as a family in a hotel in probably five or six years for exactly what you said, because we don’t want the kids down the hall. They’re young, you know, we want them kind of in a contained space. So that innovation in the market has been really positive for us. But I can also see how it’s kind of probably gone a bit overboard over the course of the last couple of years. I want us to now dig into a couple of topics that I think are much more central to the models of prudent growth and of your strategy. Then want to start with multifamily housing. You guys have both touched on this right now. I know it’s something you both pay close attention to. You know, there are competing dynamics here with rising rates, with rising rents, but also with this structural housing shortage. What do you think is the. Near-term outlook for multifamily housing and what are the risks and opportunities that you’re paying attention to right now?

Tom Hahn: Well, I’ll jump in first, and I know Ben’s going to have some additional perspective on this. I mean, big picture, kind of the two city kind of theme or the best of times. Worst of times. There’s a huge difference in my mind between urban and rural, no matter what the product type is. We’re talking about kind of urban. Suburban, I guess, is a better way to say. I think that there’s a big difference in apartments between class-A new construction, which tends to be the highest price point. Right. And more existing Class B B minor stuff. And what we talked about like a Class B picture, like the suburban apartment building that was probably built in the nineties, maybe the early 2000 is the way, say, apartments used to look before now. And everybody can picture this, you know, their four stories, flat roof kind of modern looking that might have retail on the ground floor and apartments up top and and a parking garage you know kind of built into the structure. So you’re seeing these pop up all over the southeast, whether it’s Austin, Atlanta, Raleigh, Charlotte. You know, I think the risk is a lot of these developers and a lot of these guys that were buying maybe early 2000 vintage deals and pumping tons of money into them to improve them, or in the case of developer to complete the construction, they utilize bridge financing. Right. So you would typically get a three year loan with a couple of one year extensions and bridge was ridiculously inexpensive. The 12 to 18 months ago, you know, you could borrow at three and a half or 4%, maybe a couple hundred points over LIBOR and lock that in for three years by an interest rate cap. And you know, on a $30 million project, your cap would be a few hundred thousand dollars. And as that debt is now starting to come due, if you have not executed very quickly on, let’s say it’s a value add deal, if you haven’t gotten in there and really significantly invested in the asset boosted rents turned over units, your interest rate costs are skyrocketing. Those same caps that you could buy for two or $300,000 are now, you know, 2 to $3 million. And your monthly debt service is really going to be strong. So, you know, I don’t think we’ve seen the full impact of that yet. But I do think you’re going to start to see guys having to get out. There was the big story in Texas, right, The 3200 units that kind of got given back. I think that operator had some significant issues beyond just, you know, the interest rate environment. But, you know, he bought a ton of property for absurdly low rates and did not do any real value add. And as the rates were getting ready to reset, I mean, you know, it just didn’t work. So you’re going to see good operators separated from bad operators, guys that were able to get in there and improve and drive rents higher and OI higher. You know, I think they’re going to be okay. But yeah, I don’t think we’ve seen the full impact yet of these higher rates. But I mean, I think that what’s happening now is the cap rates on the new stuff, particularly in some of the cities where there’s a little bit of oversupply, they’re starting to widen out. Right. So, guys, if you got to get out of a property, you’re going to sell to a five or five and a half cap. The stuff that was trading at a 4% cap rate, which for your listeners is simply the net operating income divided by the purchase price. And now that’s going to ripple into the suburban market. So you’re going to say, well, if I can buy downtown Charlotte at a five cap, do I want to buy a suburb of Charlotte like, you know, 30 minutes outside of town at a five cap? I think I want to get a six cap for that or a six and a half cap for that. You know, so we’ve certainly started to see pricing improve. But an old friend of mine told me one time, if you’re going to catch a falling knife, you really need to grab it by the handle. And I don’t know if we’re quite there yet on a lot of the suburban stuff, so we’re sort of taking more of a wait and see approach. On acquiring more multifamily. I think next year is going to be a really good year to be a buyer.

Ben Erskine: Yeah, I mean, I won’t add a whole lot to that. I think that Tom speaks to it well. We’ve been really, really patient, really slow to deploy over the past, you know, really 15, 18 months now, you know, kind of reading the writing on the wall early last year and then certainly have felt like there would be an opportunity on the back end of everything that’s happening. And it’s maybe been a little slower than we thought it would be to kind of be realized. I do think that there’s patience. There has been some patience on the part of lenders, Right. A lot of lenders have said, hey, fundamentally, we do see the support here. We do see the [….] growth. We understand that debt service is going to eat into a lot of that. But if we can kind of get through the woods, we’d rather not take possession of the asset. Right. There’s been some patience. How long that will last, I don’t know. But I think, you know, putting it simply, there will be a separation of good operators from some operators that have just hopped into a market that was benefiting from constantly compressing cap rates for a decade where, you know, you could kind of limp through a business plan and make it work. That’s not really the case anymore. So we do think that there will be really good opportunity probably in 24 a lot of it in 24 maybe. And in the 25 as well.

John Coleman: Hey, Ben, before we leave that topic, I know that this is the faith driven investor podcast. And I know that one of the things you’ve been so great about doing and perhaps you as well, Tom, is pioneering this spiritual integration within multifamily area. Could you talk to us, apart from the financial dynamics of multifamily right now, what are some of the opportunities for faith driven investors for spiritual integration in multifamily that you’re seeing emerge?

Ben Erskine: Yeah, I mean, there are groups that have been doing great work for a long time. I think we’ve discussed groups like Apartment Life in the past, which is a not for profit that partners with the owners of apartment buildings and is really tasked with developing community right point into the fabric of community, ultimately using that to develop relationships and just have an onsite presence that’s pretty distinct relative to a lot of property owners. And ultimately that accrues to the business plan because you know better community translates to better retention, often better attraction of tenants. They’ve got some incredible statistics. You know, a tenant with deep relationships in their apartment building is between 30 and 60% more likely to renew their lease. And reducing turnover is such a driver of margins in apartment investing. So that kind of stuff has been happening. I mean, things that get us really excited are starting to see creative applications in other corners of the housing market. You know, senior living is an example. How is that market of tenants and community members different and what would loving on those folks look like? How could you be kind of curate a plan around an assisted living in a memory care community that looks different than an apartment community? And on the other end of the spectrum, what about student housing? Right. There are some really cool opportunities in student housing. On campus, Off campus. Pouring into the lives of those students with the same heart right. And it can all accrue to the benefit of a really excellent business plan. Those two things can can work together.

Tom Hahn: Yeah, and I’ll chime in and 100% agree. I think what we’ve tried to do is so we recently expanded our staff and brought on several people that are really tasked with community engagement events across all of our holdings. And you know, on the multifamily, we tend to own more of these kind of B, B minus properties. So we call that like workforce housing. It’s not really affordable like, you know, voucher or section eight, the older models like that. But you know, you have a lot of families, have a lot of people that tend to stay in place for a while. It’s difficult to attract like an apartment life model works a little bit better in newer products. That tends to be where their teams would prefer to live, you know, But we’ll go down and do food trucks, we’ll do backpack. We partnered with the local school district down in Tupelo, Mississippi, on a project we have there and gave out a lot of backpacks. And it was really cool, you know, And this little girl comes up to Jason Autrey, who runs like an engagement and said, why is this backpack so heavy? And said, oh, you need to open it up and look inside and there’s notebooks and stuff. And she was just blown away. And, you know, we’ve had residents come up and pray with us and just talk about how the other owners have never done this before. A lot of it is just how you do your business, you know, just taking care of things the right way. It’s very easy to slap a band aid on a problem or take a shortcut. And a lot of these operators just want to get in, improve and get out, and then they leave behind a lot of, you know, half fixed things. And residents that have just been residents have come to expect that their stuff’s not going to get fixed. And when we can come in and do it the right way the first time, which I think is our call to do as part of loving the poor and working for justice, you know, it leaves a big impact. We’ve had residents reach out to us even while we’re raising rents and say, I’m proud to live here now, and they don’t want to move because they’re worried they’re going to go down the street and, you know, try to save 30 bucks a month on their rent. But going to be back in a situation where stuff’s not fixed. So, you know, it’s a real holistic approach.

John Coleman: That’s awesome. And producer Joey has reminded me that we should engage in some shameless self-promotion here and that the faith driven investor website has a redemptive real estate series live on video in the library right now with the stories of places like Launch Capital, Walden Fields in the Marsh Collective. And so if you’re interested in this topic, apart from the expertise of these two fine gentlemen here, there is an entire video series where you can delve into this more deeply, Ben, I think you want to do jump in with the closing work.

Ben Erskine: Yeah, you know, I was just going to chime in and brag on Tom and PDP Prudent growth for a second because he won’t, you know, the work that they have done. He and he mentioned Jason Autry is really innovative and exciting in terms of how they’re viewing retail real estate in a way that has really been pioneered already in multifamily. Right. So what does community investment look like in a retail center? It looks different than it does in an apartment building, But when you’ve got, you know, the nail salon and the coffee shop and. A local restaurant and the Taekwondo studio, and you’ve got people coming in. Can you hold an event there? Can you invite residents and community members in? Can you love on them in a distinctly Christian way? It’s really exciting to just think about the way that they are pouring into the lives of these people, investing socially and spiritually in retail, real estate. They’re leaders in the space.

John Coleman: Let’s stay on this topic for a minute on retail, because I remember pre-COVID in my old firm when we were talking about real estate. The most frightening area of real estate was retail, right? The big trend or one of the big trends everyone was talking about was the collapse of retail. People don’t go to malls anymore. They don’t go, you know, they don’t go shopping in physical stores. There was the rise of Amazon, etc., and all the skepticism about retail. Let’s stay on that topic, because, Tom, I know you’re deeply now, what does that look like now? Is that still the case or have those dynamics shifted? And then I would love to hear more of your insights on what Ben just mentioned, how retail can actually serve a redemptive purpose in development.

Tom Hahn: Yeah, no, thank you. You know, retail has been I’ve invested in retail for 20 plus years, both personally and with prudent growth since 15. And you always feel like you’re the underdog trying to convince people that, hey, we can actually do this and do this profitably. So, you know, you don’t get the respect right that the multifamily and the industrial guys get. But it’s been very interesting. I mean, I think that going back over 20 years leading up to the great financial crisis of 08 to 10, we were building in this country a little over 200 million square feet of retail every single year. I mean, it was I think we had a huge amount of oversupply. Everybody was building strip shopping centers, grocery anchored centers, and in 08 that really fell off the cliff. Right. And I think we dropped like 40 million square feet and 50 million square feet a year. We kind of recovered, got close to a hundred, but we’re back down now. Last year, according to Costar, we delivered the least amount of new constructed retail space in over 20 years. And I think what’s happened is household formation. You know, people continue to move to the suburbs and we’re that supply demand imbalance has really started to correct. So we now have the lowest vacancy rate that we’ve had in 20 years. COVID, we like to think about the fact that we’re buying a shopping center in small town America in a secondary tertiary market. You’re really buying the community where people go. So if there’s a Walmart and you’re buying the Wallmart […….] center, which is, you know, typically in the parking lot of a Walmart, there’s a shopping center, right, with like a great club and a pizza place and so on and so forth. You think about small town America, particularly in the Southeast. I mean, that’s where you go to get your kid’s first haircut. That’s where you’re going to grab and get lunch. You’re going to stop by the bank. You’re going to you know, you see your neighbors. You know, it’s a that is an activity that people will continue to do with or without Amazon. And during COVID, obviously, COVID was scary at first with this is it, you know, it’s over. And I’ll say real quick, the crazy thing about COVID was leading up to COVID. We all wanted to buy stuff that was Amazon proof, right? There was Internet resistance. So that meant what? Gyms, restaurants, service based stuff as opposed to people selling things like a clothing store and then boom, all that stuff got shot down during COVID. There was a little tough sledding there for, you know, 4 to 6 months. But coming out of that, what all of a sudden happened was everybody stayed home. So suddenly, suburban retail has real and there’s lots of articles on this. The Wall Street Journal had some great reporting on just the return of the open air shopping center, the neighborhood strip centers. So lots of different names for them in the suburbs. Right. And there’s a real disconnect now between urban core downtown where, you know, you still have 25, 30% vacancy and the offices. And it’s a big difference. You don’t want to own a sandwich shop in the lobby of a 40 storey building in San Francisco. But you’re quite happy to own a sandwich shop in a suburb of Charlotte, let’s say. So we’ve seen really strong foot traffic. I’d say our leasing activity has never been stronger. We have about 45 retail shopping centers in ten or 11 states right now. When you say 600 or so tenants and our vacancy rate is less than 5% and some of it’s planned vacancy because maybe you had to carve out a space to put a tenant in and you have this straggling 500 square feet that’s never really worth finishing out. So our true vacancy is very, very low. So we like the dynamic. And getting back to the spiritual integration model, like Ben said, we love knowing that if we’re going to own a shopping center in a community, we want to try to bless that community right on back to like Jeremiah, working for the good of the city. It’s like, Hey, I own this thing. How do you do that? And we found it’s a combination of reaching out to tenants. A lot of our centers, we might have a church, we might have a, I don’t know, a consignment shop that’s linked with a Christian ministry or just a general secular ministry. You know, if there’s an entry point like that, we’ll try to springboard off of that. Say, Hey, do you guys want to help, too? We want to help to underwrite and host a community day. Bring people out or a sidewalk sale or We have like a youth theater. It’s run by a Christian family moving into a center that we own outside of Hilton Head. And we’re going to be grand opening down there for them. Like roll out the red carpet, welcome them. The other tenants are excited about it, you know, so they’ll participate. And there’s lots of interesting conversations that come up when you start to do that. So the tenants love it, the community loves it. We make great relationships with important people in the community, right? Whether it’s a planning board or we’ve even had lenders come to us. This was kind of blew me away when you thought about this. But we do borrow from banks and some of the local banks. They like that publicity, right? So they’ve come and offered to underwrite the cost of the event. We got financing on a property outside of Virginia Beach terms that were probably 50 basis points lower than market because it was a credit union and they saw what we were doing to some of the brothers centers and they said, We want to lend to you guys. So anyway, it’s a virtuous cycle, which is what you would expect if you’re doing the right thing. You know, it kind of comes back around. So, yeah, that’s our feeling.

John Coleman: That’s an awesome overview, Tom, and a very rosy picture in the spirit of going now apocalyptic. Let’s bring up the elephant in the room, guys, which I think everybody’s concerned about, which is office. You know, gosh, between the interest rate environment and the fundamental dynamics of rising remote work, hybrid work, you know, people borrowing at very low rates, which are now resetting even as vacancies rise. I have seen some absolutely terrifying predictions about the office market. Then maybe to start with you, what is your outlook for office? And are things quite as bad as people are characterizing them or is there some hope on the horizon?

Ben Erskine: Well, first, I just want to say thank you for letting Tom talk about wonderful things in retail and spiritual integration. And I get to talk about the apocalypse in office. This is fun. Yeah. You know, we’re not active office investors at this point anyway. I’ve spent a lot of time in the office sector in my previous career, and I think it is it’s going to get a lot worse before it gets better. I think Tom mentioned on the front end that, you know, vacancy rates right now across the country are north of 20%. And that’s what I’ve been reading as well. The way that most office leases work, at least the big chunky ones for corporates, is there long dated write these are five, ten, sometimes 15 or longer year leases. And so, you know, when a big corporate user has a lease expiration in 2027 and realizes that they only need about half their space, they might just punt that problem to the lease expiration. And so there are big chunks of underutilized office space that will hit the market in the coming years based on those long dated leases. There’s a lot of pain yet to be felt. Fundamentally, I don’t know how this corrects. It’s very difficult to redevelop most office space to other uses. You know, a lot of people think, well, just convert it to housing, right. And kind of hand it from the left hand of the right hand. But the reality of those floor plates, the reality of that construction and the support systems for the building, it’s just very, very difficult in nine out of ten instances to convert. So I don’t know exactly where that is going. There are bright spots, right? Not totally dissimilar from what Tom talked about in retail. You know, you get into some secondary markets and smaller office buildings and there’s tightness, right? Small users that are now obviously in close to home. There are some bright spots. But by and large, you know, I think that the 20% number across the country is going to continue to go up for a little while. I think that urban cores like, you know, downtown San Francisco, downtown Chicago are going to be in a tough spot for a while. I mean, it’s hard to understand exactly how that corrects. Valuations are down dramatically.

John Coleman: When it does feel like they’re going to be massive winners and losers. To your point, and I’ll invite Tom into this. But, you know, you think about tech oriented cities like San Francisco that also have major city problems right now where people are moving out where there’s crime. It’s tough to understand who’s going to occupy all that office space in downtown San Francisco right now. And even in Atlanta. My observation would be, you know, Atlanta is a pretty booming market. There actually is a little bit more return to work than in some major metropolitan areas because Atlanta was shut down for less time than a lot of major cities. And there weren’t commute problems as there were in some of the big metro markets like New York. But there are winners and losers. When we were looking for office space, I go to some complexes that were 96% occupied and it was very vibrant and everybody wanted to get in. And then I’d go into some buildings where they would tell me their occupancy was 50%, you know, because that’s what the leases covered. But there was no one in the building. It was a ghost town. I would have guessed maybe 5% of people were actually. In the building. It was almost haunting to walk through to see how empty they were.

Ben Erskine: And there was a pre-COVID trend right there, kind of the arms race, the amenities race. Hey, tenants want to be in the new class a building with the sweetheart amenities and the gym and the, you know, the conference center and kind of a concierge service. I mean, there was an arms race of the best amenities. And I think that continues post-COVID. If you look at where net absorption is, again, broad strokes around the country, there’s actually been positive net absorption in class, A space like the tranche of buildings that were built after 2015 has had something like 100 million square feet of net absorption. But everything that’s dated earlier than that has had hundreds of million square feet of negative net absorption. So it’s there is kind of a traunching of quality and a flight to quality.

Tom Hahn: Yeah. And I’ll chime in. It’s a bit like once again, the suburban versus the urban, what we’ve found because we just got some new office space in Charlotte. We have seven people staffed out of there now. And you know, it sounds a little bit, John, like your experience. I mean, we were looking for space. When you look at a smaller space, you want to be walkable and kind of a nice part of town and you want to have inexpensive parking. Those spaces are still pretty much leased up. You know, there’s not a lot of that type of product out there. When you think 20,000 square feet of space in a 40 storey building in downtown, there’s going to be more of that. And I think workers want to live. They want to work near where they live. They want an easy commute, they want easy parking. Anyone can walk outside. So these cities, these downtown districts have the crime problems. They’ve started to lose some of their businesses. And then that’s another headwind now that they’re facing, like who wants to work downtown if like half the restaurants aren’t really open and it’s not like a cool, fine hip place, whereas like the south end of Charlotte, like booming, you know, Buckhead and areas like that in Atlanta are booming. So it’ll be interesting to see how it works out. And I agree, Ben, you’re right. I mean, the repositioning, you know, prewar buildings, I think one of the big things is do the windows open or not? You can’t really make an apartment if you don’t have it’s code violations. So prewar stuff, Yeah, you might be able to renovate that into, like lifestyle housing or apartments or hotel use. But all the new stuff with the fixed glass sides, there’s really not much else you can do with that. So it’ll be interesting.

John Coleman: Well, I know we’re coming up on the end of our time here, so we’re going to do two more questions We always end with what are the two of you learning through scripture that you’d want to share with folks before we do that, maybe a concluding question. We haven’t touched on industrial, we haven’t touched on a couple of other areas. Anything else that you’d highlight right now is an interesting dynamic in real estate broadly or potentially an interesting opportunity for those listening. And Tom, maybe just start with you briefly.

Tom Hahn: Yeah, I’ll say real quick, because I tend to be a glass half full kind of guy, but if I had to be, you know, just fair to the other side, I still think that we don’t know if we’ve seen the end of the banking crisis and the impact on lending. We’ve been a little bit saved in our space by non-bank lenders like insurance companies. Life goes are very active lenders on the kind of thing that we’re purchasing. But it would be I think your downside scenario would be there’s continued stress in the non systemically important banking sector which could really ripple through a lot of small town America and secondary markets. And I think that if you see a continued I mean banks are starting to lend again, but their rates are not very attractive and they want to see you put substantial deposits into their bank in order to get a loan. So, you know, most people are bypassing that because there’s still other avenues for borrowing. But, you know, that’s a potential risk is something we think about. Industrial real quick. Just we love industrial. We do prefer smaller pay multitenant kind of stuff as opposed to like, you know, 120,000 square foot single tenant warehouse. But there’s still pretty good demand. But even that is starting to soften just a little bit. It’ll be interesting to see. A lot of people have been building that for a long time and we might need a year or two to absorb the stuff that’s been built. But I still do believe that, particularly with the smaller base stuff, contractor stone and tile guys, carpet guys, they need the showroom or their offices in the front and the warehouse in the back, and we don’t really see a significant letup in that type of product right now.

Ben Erskine: Yes, built on that. I’d just say two things. One, kind of thinking about industrial, I think there’s six or 700 million square feet of industrial space under construction right now. So the supply keeps coming. To Tom’s point, the bulk of that is big. BLOCK industrial, right? These are quarter million, half million square foot developments that were supporting some of the major logistical needs around the country. That’s a very different part of the market than is small bay kind of flex industrial space, which as we have seen, continue to stay pretty strong even in the face of some softening kind of broad based industrial demand. And then the other thing I would highlight, I alluded to it earlier is just senior living. We think that when you look at the demographics go forward, you know, the population group over the age of 85 is going to double yet again. By 2040, it doubled from 2000 to 2020, it’s going to double again. And so we think that senior living is going to be well positioned in the decades to come, in particular, assisted living and memory care. It got hit hard during COVID and is still digging out of that hole a little bit. But we think that there’s some opportunity there.

John Coleman: Well, guys, this has been a fascinating discussion of real estate dynamics. I think real estate is one of the most interesting assets in the world right now because of all the dynamics we’ve talked about with interest rates, with the COVID fallout, with a number of other things, structural housing shortages in the U.S.. To conclude, The faith driven Investor podcast, maybe just a circle to spiritual matters, which we always like to do. We like to ask you just if there’s anything you’re learning from Scripture right now, even apart from real estate, that you’d want to share with our listeners. And Tom, maybe we’ll start with you, but is there anything on your heart right now that you’re learning you want to share?

Tom Hahn: I think I’ve been doing a deep dive over the last year or so into kind of anxiety and stress, and how do you manage that? Curtis Chang has a great new book. For those of you familiar with his work over at Good Faith podcast on Anxiety from a spiritual perspective. And you know, when you’re an entrepreneur, when you run a real estate, there’s always something to be anxious about, right? I mean, are the rents getting collected? Is this problem getting fixed? Like, what am I doing? What I like to do is read through the Psalms and really try to zero in. I recently read and really meditated on Psalm 91, for example. And when you see these great Psalms of David and references like Psalm 91, verse four, he will cover you with his feathers and under his wings you will find refuge. His faithfulness will be your shield and rampart. You know, one thing I’ll try to do when I’m mentoring and talking to young entrepreneurs is say, like, you need to learn to personify those types of writings, right? And reflect on the market forces are the, you know, the things that are coming up against you and how are you going to respond to that? And just like in the Old Testament times returning to Jehovah, you know, the Lord, your God will be your refuge and your strength. And so I often think about that and pray about that when we’re dealing with difficult issues and difficult stressors that come up. And I find that it really helps to alleviate some of the anxiety and the stress and kind of re ground you and remind you why you’re doing what you’re doing and that, you know, this too shall pass and we just try to do the right thing and push through.

Ben Erskine: Yeah. There’s a book I read about a decade ago called Anxious for Nothing by Max Lucado. It’s pretty good in that direction. And I’ve been reading through First Kings, and it’s bigger than just real estate. But there’s a passage where Solomon is just praying for wisdom and discernment, and that’s a prayer that is not unfamiliar to me. But it hit home when I was reading that this week. If there’s one thing that’s helpful in real estate in life, it’s wisdom. And so just pursuing kind of faithful, godly wisdom consistently is something I’ve been thinking about a lot now.

Tom Hahn: And John, I just want to give a shout out to Ben. He gave a nice shout out to me. But I will say that Ben, the work of the faith driven investor movement in particular and sovereigns capital, and there’s a lot of overlap there to encourage us. You know, Henry and I have talked about this for years, about how do you think about a spiritual impact around a nonresidential investment. And, you know, when we brought on Jason and the work that we were doing, I mean, Ben’s team was encouraging and really was a great resource for us to start to think about how do we do this, how do we do this well, how do you kind of measure things? So, yeah, we’re very, very happy that you guys encouraged us to take some more significant steps in that direction. So thank you.

John Coleman: Ben Erskine’s a pretty good guy. I would agree with you to say, well, listen, Tom Hahn Prudent Growth, Ben Erskine Sovereign capital. We are so grateful to you guys for coming on and sharing today and hopefully we’ll get you back in a rosier time. On Mark’s in the market in six months or so, we’ll all be able to talk about how there are better times ahead. But thank you very much for coming on today and for speaking with our listeners.

Tom Hahn: Thank you.

Ben Erskine: Thank you so much.

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman and this is our monthly marks on the Market series where we talk to experts in investing. Coming from a Christian perspective who can comment on current events in markets today, we have a very, very special episode and a very special guest. Finny Kuruvilla is with us today. Finny is the co chief investment officer and founding member of Eventide Asset Management with a couple of partners with whom he founded the firm. Eventide is a long standing member of the faith driven investing community, although they do a variety of different investments in both private and public markets, Finny has more degrees than I could possibly capture here, including MDs, PhDs and master’s degrees from a variety of awesome institutions like Harvard Medical School, Harvard University, MIT and Caltech. And he’s a leader in health care investing as well as broader investing. Finny, thanks so much for being on today.

Finny Kuruvilla: Great to be with you, John.

John Coleman: Well, I want to leap right in. We’ll get a chance to dig into more of your background later. But everybody’s been kind of whipsawed by markets over the last year. It’s been a pretty volatile time in markets, and I don’t think that health care investing has been any different. What is the latest? What’s the current state of the markets in health care investing now?

Finny Kuruvilla: Yeah, you’re right, John. It has been very challenging for markets broadly and in general. One of the things we’ve seen is that more interest rate sensitive domains in the market have been especially hit hard. So that tends to be domains that have growth farther out. So more high innovation, high financing type industries have been punished. And so that definitely includes aspects of health care. So one set of health care companies that has been especially hit hard is biotechnology companies. So they tend to be long duration. So most of the value is and many years from now, they also have high capital needs in terms of financing. So they often have to go to the market to raise more money given that they’re usually not profitable. So those have been challenged. There have been some bright spots in the middle of all of the difficulties. So in general, one of the things that we’ve seen is that cash flow positive companies have done relatively well. And so, for example, a lot of small medtech companies have done exceptionally well. This has been a great year for M&A. We can talk more about that. So we’ve seen a lot of companies appreciate on the back of very robust M&A from the larger companies. And then we’ve also seen domains like cancer screening do really well, Alzheimer’s disease, which has been something that has become a passion project for us here, has been another area of significant growth. So there has been some bright spots in the midst of what’s been a challenging market. And overall, we think that the long term drivers are positioned really, really well for health care. And so we continue to be excited about the space.

John Coleman: When you mentioned the duration of biotech investments and especially innovative health care companies that require a lot of capital and how they’ve been sensitive to markets recently, particularly, I imagine, interest rates and just the M&A markets having previously dried up. I’m interested to get into that. If you were to take a look today, do you think the air has been let out of those markets so far from a macro perspective, or do you actually think the macro environment still has more room for these securities to decline?

Finny Kuruvilla: Yeah. So generally speaking, those companies have had the stuffing knocked out of them to the point where they’re priced at very low valuations. And the typical company and especially in the biotech side, has declined somewhere in the 50 to 80% range. So it’s taking a very significant hit and that began a little bit more than two years ago when we’ll talk about this probably later. But when some of the covid enthusiasm went away, there are a few areas where some companies still look a little expensive. But I would say, broadly speaking, the industry looks very cheap. And if you use long term measures of is the industry expensive or is it fairly valued? It certainly looks fairly valued. One of the things that’s challenging in our space is how do you value companies where you can’t use price to earnings or price to free cash flow or EBITDA, but are some of the more classic measures of valuation given that most of them are not profitable? And so you can use measures instead like enterprise value divided by cash on the books. So that’s a measure of roughly how much enthusiasm there is in the space. And of course, you have to look at burn rates as well to make sure that you’ve normalized there. But on those measures, for example, last summer was actually an all time low in the space in terms of valuation. It’s gotten a little bit better since last summer. But on the whole, I would say that the companies are valued quite inexpensively.

John Coleman: And you touched on this previously. Look, I think most of us have the perspective that health care has pretty good fundamentals. Right now, broadly speaking, in the sense that it’s a greater proportion of us spend, at least internationally. It is. If you think about biotech and if you think about some of the areas in health care in which you’re focused, obviously markets have disconnected, but have you seen any change in the fundamental forward outlook for the companies themselves or for the industry? Or is that still universally positive as health care continues to increase?

Finny Kuruvilla: Yeah, in general, it’s gotten quite a bit stronger for these companies. So I’ll give you a few examples of what are the leading indicators of health for these companies. So the first is the demographics of the population. So one of the things that I think most of us know is that as you get older, you tend to use a lot more health care and those last 1 to 2 decades of your life use a lot more health care than you’ve used in the earlier younger portions of your life. And I think as almost everyone is aware, the world is getting a lot older where a lot more of a gray haired society. Last year was the first year in history that China’s population actually declined. Even in Western Europe, Japan. We’re seeing tremendous shifts in demographic structure there. So that bodes very favorably for the industry and that is likely to continue for years, decades to come. That’s number one. Number two is there has been tremendous technology innovations that have occurred in the last few years. I was a practicing physician up until roughly 2006 or so. And I look back at how we were treating patients, particularly with some of the diseases that we used to see, and it almost looks primitive. Just 20 years ago, what we were doing compared to what’s happening today, I mean, if you had told me in 2023, these are some of the therapies and how they’re going to be used, I would have said, sounds a little sci fi to me, but it’s happened and the pace of technological improvement has been just astounding. So just to give you a little bit of a flavor for this, when the human genome was first sequenced in roughly the year 2001, it cost about $3 billion to sequence that first individual, and it took roughly 12 years. So $3 billion in 12 years. Today, you can do that for less than $1,000 and it takes less than a day. So the costs have shrunk from 3 billion to less than a thousand. And then what used to take 12 years. Now it takes less than a day. And that pace of innovation far surpasses even what, for example, we’ve seen with Moore’s Law and semiconductors and computers getting faster and being able to have more memory on board. And that kind of just incredible gain in technology and then knowledge in terms of what are the parts of our genome that are responsible for health or disease. We have grown literally exponentially in the last 20 years or so, and most of those discoveries have yet to make their way into medicine. So there’s a lag of at least ten years or so between when someone comes up with a good idea before when it’s actually used in human populations. And so this kind of technological improvement is just incredible. And we are we’re right on the cusp of what promises to be a very exciting century of innovation. I sometimes say that we humanity in the year 2100, so most of us sadly will be dead and gone. But our grandchildren in the year 2100 will look at us today in terms of our health care, similar to how we look at cavemen who are using leeches and spears to slash their bodies for health care. Right. That’s going to be the degree of of improvement that happens in this century because we still, you know, even very basic questions like, you know, how does memory get made and stored? What is really the sustenance and the genesis of cancer? How do we really understand autoimmune disease? You know, we still don’t really understand at a deep level what causes those disease. And so we’re in this place now of how can we take these little seeds of insight that we’re getting from these genome studies into being real actionable therapies that can be useful in human populations. And so it takes time to develop that. And that’s going to be what happens over the decades to come. And so that shift to these more high tech type therapies using some of these insights from the genome technologies is what’s to come. And that’s only going to be accelerated. By, for example, AI which if we have time, we can talk about some of that. But another tremendous tailwind that the space has is we have more and more economies coming online that have the ability to access modern health care. And so you look at India, for example, that is slowly but surely starting to become more of a modern economy with access to something like what we have in the US. I mean, we’re talking about, you know, 1.4 billion people coming online. This doesn’t even count. For example, countries like Africa, a lot of Latin America that still really doesn’t have access to the kind of health care that we do in North America. And so that’s another tailwind now where we’re talking about massive populations. They’re going to be coming online in future decades. And then you layer on the fact that the diseases of, let’s call them addiction. And so this includes obesity. So, so much of obesity is really an addiction related problem. Tobacco of mental health, which is often tied in to a lot of issues of technology, loneliness, social media. Yeah, very profound structural reasons for that. These are going to be the kinds of diseases that biotech can at least partially address, maybe not fully address, but at least partially address. So we have a lot of reasons to be optimistic about some of these tailwinds that we have going into the century.

John Coleman: Well, just a small caveat, and then I want to pick up maybe with some examples. Going back to the areas that you’re most excited about that are near commercialization, those that you’re actually keeping an eye on. But I’m not a physician, but one of my children has a rare genetic disorder that only about 1600 people in the world have her family of disorder that they’ve actually sorted out now, that they can study genes. And only two people that we’ve discovered have her exact gene disorder. And what’s amazing to me is both the progress we’ve made to be able to even diagnose a thing like that, which wasn’t possible a handful of years ago, but also the progress we need to make to understand how to treat it or how to deal with these different disorders that aren’t well studied or don’t have a clear path. And so it is that dichotomy of just remarkable progress. But 100 years from now, you have to think our current approaches are going to look pretty primitive to whomever is practicing at that time. So many great threads to pick up on. But you had mentioned Alzheimer’s and cancer, for example, in your initial comments. And one of your themes here was the advances that are coming that people don’t even know about or that have lagged behind the research and are just coming to market. What are three or four areas that you’re keeping an eye on that you think are actually near to coming to market that are most exciting?

Finny Kuruvilla: Yeah, I would certainly include Alzheimer’s in that. So that is one that is just now coming to market like this year. And so I’m right now in Boston, Massachusetts. So just across the river, there’s a company called Biogen that got FDA approval for just last month, in fact, for the very first disease modifying treatment of Alzheimer’s disease. And so while in general, one of the sad but true facts of medicine is that a lot of what medications are doing is they’re addressing symptoms or manifestations of disease rather than the root cause. The root cause is often very difficult to address and sometimes technologically impossible. But one of the things that we have now just in the last six or nine months made progress and as a society is the root cause of Alzheimer’s disease. And so the way to think about Alzheimer’s is that in your brain, in an Alzheimer’s patient, what happens is there are these what are called plaques that are forms that just like you get a plaque on your tooth, you get a plaque in your brain, it’s a three dimensional ball. And this ball ends up killing the neurons that it touches. And if you go in under a microscope and take out this little ball and ask what’s inside of it, there’s two main proteins, two main components inside of that ball, and one of them is called a beta. And we’ve known this for decades and decades. This has been widely known. But how in the world you cleanse the brain from this? Well, somebody had a very clever idea. Which is to use our immune system to clear out these plaques from our brain. So our immune system, of course, we use all the time to fight off infections or to fight off cancer. Not a lot of people appreciate that. That’s a different story. But here somebody figured out, well, hey, why don’t we take an antibody? So an antibody you can think of, it looks like a Y. And the top part of the Y binds to it sticks to something that is dangerous, say, a virus or a bacteria. And when the top of that Y sticks to its target, it sends off a signal to the immune system saying, Hey, there’s something bad here, come and kill it or can’t clear it. And so these cells come in and they eat what’s at the tip of that Y, and they end up degrading it and thus getting rid of the infection. Well, somebody said, well, why don’t we develop an antibody against this, a beta, this component of these plaques, the chief component of this plaque, and then we’ll administer it to patients, give it to them in their veins, let the antibodies swim through the veins, go into the blood, and let the immune system clear out. And then let’s measure what if we can clear it out so you can do what’s called PET scanning or PET imaging just to see if the plaque is still there. And then let’s also measure cognitive function. So looking at memory, for example, executive function, some of the things that we all value that you lose, unfortunately, with Alzheimer’s disease. And so these data were presented last year, and it was very exciting that they showed in these PET scans, if you administer this antibody, it’s called the cannon MAB that is just given IV. Like I said, that indeed you get very profound, in fact, almost complete clearance of these plaques within a few months. And then more importantly, if you measure the clinical function of the brain, the executive function, memory, etc., you see a 27% improvement cloud there, which is a big deal. And I have a father in law who recently passed away from Alzheimer’s disease. And it’s a absolutely awful way to die because you lose so many of the functions that really make us human. And so when this came out, I mean, I was jumping up and down with joy here because Alzheimer’s is a disease that we don’t need to suffer from if we can get at this root cause. So there’s now a second company, Eli Lilly, that is going to hopefully get FDA approval soon. And now that the industry has a foothold, one of the things that biotech is really good at is once it gets a foothold, then it can iterate and improve, right? But you need something solid to be able to grab a hold of. And so that’s definitely the first area that I’m watching very carefully. And if you look at Alzheimer’s, morbidity and mortality, in other words, deaths and suffering both from patients as well as family and caregivers, this could be a real game changer.

John Coleman: Well, an example, if any, just of what you described about the pace of technology. I’m reading a book called Outlive by a guy named Peter Attia. Right now. I don’t know if I’m pronouncing his last name properly. And I just finished a chapter on Alzheimer’s, which was honestly that the most hopeless of the diseases or disorders that he was discussing. Right. Because there was really no progress in preventing or treating it other than behavioral modifications, exercise, things like that. And what you’re describing seems to have manifested almost entirely since even that recent book came out. I mean, that’s a remarkable amount of progress against a disease that really had no, from what I understand, effective treatment until now other than preventative things like exercise and diet.

Finny Kuruvilla: That’s right. Yeah. And Peter Attia is someone who is a very smart physician and that book is not that old. It had just came out for this reason. Yeah. Yeah. And the fact that it’s already outdated, there is testament to how quickly the industry is changing. The other area that I am very excited about is cancer screening. So I think most people realize that if you can catch cancer early, then the probability that you can get it removed and live a long and normal life is much more viable. When people find cancer late at stage three or stage four, then that’s tend to be when you get the really bad outcomes. So this, for example, explains why pancreatic cancer or ovarian cancer, these are organs that are deep within your abdomen. They’re typically not caught until later on stage three or stage four. And so the mortality from those diseases is much higher than it is, for example, with diseases that it’s much more obvious, like, say, a basal cell carcinoma, something on a scan where you can just cut it out because you see it. And so early detection is half of the battle with cancer. And it will one day be the case that we’ll go in for our annual exam with our PCP and they’ll simply draw blood. And as it turns out, your cancer is shedding small amounts of DNA. Into your blood. It’s very, very trace amounts. But these small amounts of DNA have signatures of mutation on them that if you have the right technology, you can identify them and say, oh, you know what? This person who came into my office, they’ve got early stage prostate cancer or breast cancer or ovarian cancer and then go in and do scans and surgery to get rid of it much more early and getting ahead of the curve. So that’s really exciting. We’ve already made some headway in that. So one of the classic examples of a company that we’ve invested in now for a very long time is using stool to detect colon cancer. So the traditional way of looking for colon cancer is a colonoscopy, very unpleasant. I think most people know how you do that. You have to drink some very unpleasant solution that clears out your bowels and along to but the camera gets put up your rear end and you have to go under a form of anesthesia conscious sedation for that. Who wants that? I mean, that’s not very pleasant. But now that’s becoming much more standard of care is somebody mails a box to your home and you use the bathroom. You just take a piece of stool, fish it out of the toilet, put it in the box, mail the box back to the company. And what they will look for is in the stool a trace amount of this mutated cancer DNA and use that as an early warning system, so to speak. And we know that the sensitivity on detecting cancers there is greater than 90%. So it’s very good. And now it’s becoming standard of care that starting in age 45, you can do that instead of having to do a colonoscopy. Wow. So that’s pretty awesome for especially those of us who are in our forties or beyond that don’t necessarily want to do the whole colonoscopy ordeal. And so there are that company and then a couple of others that we’ve been investors in are looking at how can we make this purely blood based? Because even that’s got to deal with your own stool. That’s not the most pleasant. And why not have it be the case that when you go into your annual visit, just do the blood draw while you’re getting your cholesterol checked and your blood glucose and all that, that they’ll just additionally check for a panel of cancers. And so that’s very, very exciting. The blood based cancer screening is still yet at the experimental stage and it’s not yet prime time, but I think in the next 5 to 10 years it will be something that becomes much more routine. So I’m very, very excited about that as a way to address the second largest killer of people in America, which is cancer. Speaking of which, there’s so many other areas that I’m excited about, but I will say that cancer, for me is near and dear to my heart, primarily because when I was a physician, a lot of the patients that I saw had leukemia or lymphoma or one of these blood related malignancies. And I just think it is just awesome the kind of technology that we have enjoyed that is completely changing the way that the cancer is done. So let me illustrate here with an example of something that I think is very profound. So in general, with cancer, the most common cancer of childhood is leukemia. So a lot of us probably know individuals who had leukemia as a child or parents who have children who have had leukemia. It’s very common. And the way that leukemia therapy has progressed is astonishing. So in 1970, if you had a child with leukemia, he or she only had a 10% chance of making it to adulthood. So fairly bleak. Today, it’s somewhere around 85 to 90% chance of making adulthood so much, much better. Odds of survival there. And that’s on the back of a lot of great therapies that have been developed in the industry. And in particular, though, one of the things that we’ve known for a long time is that so much of what cancer therapy really is, is it’s giving basically poison to a person. And what you’re trying to do is you’re trying to poison the cancer faster than you’re poisoning the rest of their body. And there is a window that you can try to thread in order to make that happen. But it’s a narrow window. And it’s also why, for example, the side effects from chemotherapy are what they are. They will kill more rapidly dividing cells. So when you’re giving these poisons, the cells that are dividing the most quickly are going to be the ones that take the hit. So your hair will fall out. As it turns out, the hair cells are rapidly dividing your gut. Cells are turning over very rapidly. And so you’ll get nausea, vomiting, diarrhea, fatigue. A lot of these things are the consequence of these very crude. Let’s give them poisons. And in fact, a lot of chemotherapies are, in fact. Iterations of chemicals that were used in war in order to kill major populations. It’s kind of scary. So this is how a lot of chemotherapy is built on, is just let me give a fancy form of poison and try to thread that needle very carefully. Well, when I was a physician, as I said, that was the mainstay of what therapy would be is giving these glorified toxins or poisons. I’ll tell you a true story here of a little girl named Emily. She was diagnosed at five years old with this leukemia, the most common form of childhood cancer. 85% chance of cure. 85 to 90 parents were told, hey, if you’ve got to pick a cancer, this is the one to get. They’re all like, okay, let’s go through the therapy. She goes through the therapy and lo and behold, she relapses, and so does she’s in this 10 to 15% that aren’t likely to make it. And after this relapse, it comes back very aggressively. And as cancers often do, when they come back, you just feel really bad for the patient because you very quickly run out of other options. Parents are told she’s got weeks to live. They were told, just put her in hospice, make her comfortable. But unbeknownst to them, this was at CHOP at Children’s Hospital of Philadelphia. There was a brand new therapy that was being developed, and she was literally the very first patient to get it. So, wow, this therapy is so cool. Let me explain it to you. So I mentioned to you before that one of the jobs that our immune system has is to kill cancer. So a lot of us realize our immune system kills bugs, bacteria and viruses, but we don’t appreciate enough how our immune system is actually fighting cancer all the time. So as it turns out, every single one of us has some low grade cancer that’s brewing somewhere inside of us. But most of the time your immune system is scanning your whole body and it’s looking for something different than normal. And it’ll kill that cell because it recognizes it as foreign. And so that is something that we should wake up and thank God for every day, because our immune system is our number one anti-cancer prevention agent that we have. And this is the reason why, for example, HIV patients who’ve got weaker immune systems often die of cancer. Well, one of the things that somebody figured out to do is why not take someone’s own immune system and the T-cell in particular, and we’ll take it out of the body and we’re going to infect that T-cell with the virus. And what we’re going to do with this virus is it’s going to be a good virus, not a bad virus, but a good virus. And that virus is going to have a homing beacon on it that’s going to train that T-cell to go straight to the cancer and kill it. And so they did this with Emily. They just took out her blood, just a simple blood draw, isolated those T cells, treated them with this virus, and then re infused her own, now modified T cells back into her body. And guess what happened was that in 23 days, her leukemia was gone. And wow. Yeah, it’s amazing. And you could actually watch. And they did this. These scientists and physician did this. They would take regular blood draws and they would watch these modified T cells grow in terms of numbers in her blood as they were amplified and as they saw this cancer and they would go and kill the cancer. And so this particular therapy, it’s called CAR-T, is FDA approved now. And we will often see somewhere between 60 to 80% what’s called complete responses, meaning that the cancer is completely gone. So Emily, as I mentioned, was diagnosed at five years old. She’s in her twenties now. She’s very healthy, walking around, doing great. This is like awesome, right? Like we’re engineering our immune cells to do things that they otherwise wouldn’t do and train them to kill cancer. And so this whole frontier of using the immune system. Using things like CAR-T immuno oncology therapies to train it to get better at killing cancer in a more directed manner, as opposed to giving the simple and kind of toxic style chemotherapies is going to be the future. So that’s another area that I’m really excited about. So this will be three of my favorite areas Alzheimer’s disease, cancer screening, and then training the immune system to kill your cancer.

John Coleman: Finny Those are amazing examples. What a cool story about Emily as well. One thing you’re describing I’d love to dig into for investors is the life cycle of these medical innovations is quite long. Right. Starting with university research or basic research, culminating in commercialization through a pharmaceutical company, etc.. And across that spectrum, there are both private markets and public markets investors. Talk to us a little bit about the role that both private and public markets play in this space and also just any difference in the way markets are reacting in the current environment between those two. Like are you seeing as big a collapse in private markets as in public markets, for example, and valuations, or is that disconnected somewhat?

Finny Kuruvilla: Yeah. So there’s certainly a vital partnership that exists between the private and public markets. And so there’s this whole field of venture capital that goes and finds these promising ideas that incubates them from early stage all the way to a hand-off of an IPO into the public markets. And if it weren’t for America’s very vibrant venture capital industry, the world would be very impoverished. So some of those therapies that I just mentioned to you, like those CAR-T, those those trained immune cells came from venture backed companies and approaches. So this is an essential partnership. In general, public markets aren’t ready to receive these very early ideas yet until they have some validation. And so that validation takes place in the womb, if you will, of these private vehicles that are typically venture backed. And so in terms of where we are there, there’s this phenomenon that’s existed for many years where the public markets tend to lead the private markets. And so when there’s a lot of great opportunities for IPOs, then that tends to be a way that the private markets get their exits. You know this industry very well also, but the private markets need liquidity. They need some way to exit in order to raise more funds. And so when the public markets are open and the private companies can go IPO and eventually the private investors can generate a return on their capital. And so for that reason, there is this lead that the public markets have on the private markets. There’s certainly an interdependence there. But in general, that’s the relationship that we’ve seen right now. We’re in this place because of the public markets, as we talked about earlier, declining in their valuations. And in general, it’s harder to IPO when people are a little more fearful. That’s meant that private funding has also declined and there’s not nearly as much money that is going into Series A’s and B’s, as was the case a couple of years ago. And so that’ll change and things will eventually normalize and go back. But right now we’re on the private side. We’re about where we were in 2013. So we’ve actually taken quite a step back in terms of amount of funding there. So that’s quite unfortunate. But we’ve seen this happen before and in general, once we get a little more animal spirits, once we get more excitement in the public markets, then IPOs will open up and that will enable some of these private companies to IPO, which will then enable the private companies, the venture companies, to go and raise more capital. So that’s high level where we’re at right now.

John Coleman: Which is interesting because we’re closing in on highs again in public markets, but it still is lacking. I love the term animal spirits. It still is lacking animal spirits a little bit, right, Because we’re you know, the public equity markets have recovered, but you’re still not seeing an IPO market quite as active in an M&A market. There’s still a lot of caution, I think, right now.

Finny Kuruvilla: That’s right. And the reason that the public markets are doing well, especially the Nasdaq, but even the S&P 500 is because their market cap weighted and so or I think most people understand this, but in case someone doesn’t. If you look at the S&P 500 and that index, it’s not equally weighting across 500 companies. It’s overweighting on the companies that have a higher market cap. So Apple, Google, Amazon, Meta, those kinds of companies have a significantly larger weight in the index. And because there were such fears about recession really for the last year or so, what’s happened is that people have gone into these mega-cap names, especially mega-cap technology companies, and that has pushed up these indices. But where we’re at right now is the dispersion, meaning the spread and valuation between the largest cap companies and the smallest cap companies is actually two standard deviations wide of normal, meaning that that spread is very vast right now. So you’ve got really expensive companies on the high market cap side and then very inexpensive, very cheap companies on the small market cap side. And so it’s unusual that we have this kind of spread happen. In fact, often it’s the case that a lot of the big companies are regarded as sleepier companies that maybe don’t have as much growth ahead of them and the small companies, that’s where the action is because they’re going to grow and there’s a lot of excitement there. But right now, partly deserved the large cap companies have shown because of AI and some other reasons that there’s cause for excitement there. And in general, the very predictable defensive quality is that people now appreciate that Google and some of these other companies have they actually have done really well through even hard times where people have realized they’re not quite as cyclical as people once thought. So that’s the reason why we’ve seen some of this disparity in valuation.

John Coleman: So I want to hit a couple of other quick topics before we get to some of our concluding questions. One, I promised myself I was not going to ask because it felt like asking about Bitcoin like four years ago. But you mentioned artificial intelligence. So I am going to ask, where do you see the intersection of AI and health care right now? What are you most interested in at that intersection at the moment?

Finny Kuruvilla: Yeah, I recently did a call on this and AI in general and where it’s at. And one of the things that we need to differentiate is that AI is an umbrella term and there’s a lot of differing component technologies underneath it. The one right now that has everybody excited are the LAM, large language models. So ChatGPT is the most famous bard, which is Google’s version, is the second most well known. And these are not as sophisticated as a lot of people might think. They’re very impressive, no doubt. But basically what they’ve done is they’ve ingested huge amounts of text and they’re very good at predicting what will be the result of, say, an autocomplete. In a lot of ways they’re just glorified autocomplete functions. Certainly impressive, no doubt. And there’s good reason why there’s enthusiasm there. But in terms of really achieving the kind of. Judgment and rationale that humans have. They’re a long way away. Now, how can this breakthrough and LAM help the world of health care? It certainly can. And there’s a few dimensions of assistance that we can have. I mean, in general, I think these LAM will be a lift to most industries. Just because it’s I recently heard an analogy that it’s like you’ve got an assistant sitting next to you who’s passed the AP English test. Maybe their judgment isn’t that great yet. So maybe they’re like a high school student who’s just gotten a four or five on their AP English exam. That’s kind of what you have now as an assistant sitting next to you. And I use chat GPT for when I want to quickly get a digest of a lot of material because it is good at doing that, where I think it’s going to be helpful eventually and we’re going to need a few years of investment here. But besides that general uplift from having an assistant next to you, who is this AP English High School student who’s done well there, it’s going to be helpful for predicting things like what drugs will be especially effective to target certain medications and then what populations will be more precisely targeted from a particular therapy and receive greater benefit there. So for things like pattern detection, it’s going to be amazing. One of the areas that I think is one to watch and I’ve been saying this for like ten years, is if you take head to head a skilled physician and some kind of AI algorithm and you give it a bunch of patients who have a bunch of symptoms and you say who can predict what the patient really has, the handwriting is on the wall that AI is going to be the physician over time. And that’s something that is going to be very transformative to health care because computers are just way better than humans at doing pattern recognition much more rapidly. So you think about radiology looking for the spot on the lung as a cancer or not, or, as I said, kind of classic internal medicine diagnosing symptoms. And so what this means is that there’s going to be a replacement eventually, probably not that long from now, of a lot of traditional doctors who are basically doing pattern recognition with some of these AI engines that are going to completely trounce humans at that. And just like today in chess, we know the even the best chess players, Magnus Carlsen and Caruana and all these people, they can’t be the best chess algorithms. The best doctors will not be able to be these highly skilled and well trained AI algorithms. So look out for that and advise your children and those thinking about going into medicine to be cautious about how they choose their career and make sure that they’re choosing one that’s going to have some longevity.

John Coleman: That’s fantastic. Before we close with what you’re learning through Scripture, it’s kind of obvious the redemptive nature of the work you’re doing just from the stories that you’ve told so far. But maybe comment briefly on how you think redemptive investors or faith driven investors should think about participating in health care, because there obviously are some things like ethical quandaries that you encounter, etc.. But how do you think about your faith in the context of investing in this space?

Finny Kuruvilla: Yeah, there’s a lot to be said on this, and I know you’re also a deep thinker in this, but I would say that in general the world has gotten somewhat skeptical about progress. You know, if you go back and look in the early 20th century or mid 20th century, there was a lot of optimism about technology. And then eventually it turned, especially in the back half of the 20th century, to a lot of fear, you know, Terminator and things like that. And we have forgotten that the creation mandate that God gave to all humans starting in Genesis one, is something that we have yet to realize, and it is something that health care is probably, in my opinion, almost certainly the single greatest area of where technology and progress can manifest itself in positive ways. And so as investors, as we’re thinking about where to allocate our capital, this is an area that I think just screams out unmet need here. This is an area where we can feel really good about advancing the global common good. There are other areas where sometimes I look at and I think, wow, what is the true common good that this is promoting? How is human flourishing really going to come from this company? You know, not mentioning any specific companies here, but often it feels like people are simply chasing profits as opposed to thinking about how does God want us to be allocating capital to really meet the needs of humanity? And I think health care is a very special field and that if you have some basic screens in terms of, you know, for example, not promoting abortion and things like that, then I think we. Can feel really, really great about how we can better advance the lives of millions and millions of people all over the world.

John Coleman: Well, Finny, we want to conclude today with what we ask all our guests, which is just what you’re learning through scripture that you want to share. I know you’re a deep thinker on these topics, and you do have a very thoughtful spiritual life. So is there anything right now that you’re studying that you want to share with others?

Finny Kuruvilla: Yeah. So I recently have been doing a fairly deep dive as a family and a couple of Paul’s letters, namely his letters to the Thessalonians and then his letters to Timothy. And one of the concepts that I’ve been very captivated by and doing a lot of further biblical study on is a term that I got this from a commentary, but the term is mimetic discipleship. And so if you think about how Jesus did his discipleship, it was very much this process of following him. And then in the process of following him, we become transformed. And so you can summarize discipleship and the line from Jesus in Matthew 4 where it says Follow me and I will make you fishers of people or fishers of men, the older translation say, And so you follow. After Jesus, you imitate him. You have this. Essentially what the disciples had was a 24 seven school of imitating Jesus and following in his paths. And then there’s a promise attached to that following, which is, I will make you fishers of the people. And I think we’ve moved more into an informational based way of trying to do discipleship as opposed to a mimetic or following way of doing discipleship. And it’s in a sense like not surprising given how a lot of our education models are operating. But you give someone information via a sermon or a book or something like that which have their place. And I’m certainly a fan of good sermons and good books, but I think more often than not, we’re lacking that component of mimetic discipleship. And mimetic is, of course, the adjectival way of describing the word imitate. And here I would point to the example of the field of medicine. So can you imagine what medicine would be like if you just gave people some textbooks and you said, Go read these books and go be a doctor? Right. It would be like, I don’t want to be treated by someone who’s gone through that kind of training. Instead, what happens is your first two years of med school are the textbook years. The second two years you’re watching somebody else do something and you’re helping them. And then when you start internship and residency, they’re watching you. But you got somebody over your shoulder. And eventually, after four years of that, then they release you to be able to train somebody else in that process. And so it’s tilted much more at this aspect of mimetic training, you know, mimetic learning where you are. Yeah, you’ve got to know some information, of course, but you really don’t become a doctor until you’ve completed all of that. And I just think, how much of Christianity have we built on more of an information transfer type system as opposed to a mimetic system? And this came up because and especially first Thessalonians, it’s a dominant theme, which I had personally missed, of how Paul is describing how he establishes his church and in this case, Thessalonica. And it’s a great study to do to go through and trace out that theme of where is Paul appealing to this concept that really Jesus initiated what mimetic discipleship is all about. So yeah, I’m very excited about this and wanting to go deeper into this.

John Coleman: Finny Kuruvilla I wish we had 3 hours for today’s podcast instead of just this hour. I think you have left us with a lot to think about and a lot of positive hope for the future with innovations in health care. So we’re grateful to you for coming on the Faith Driven Investor podcast today and for all you’re doing it, Eventide and elsewhere. Thanks so much for being with us.

Finny Kuruvilla: Thanks, John. I appreciate being with you.

John Coleman: Welcome back to the Faith Driven Investor podcast. This is your host, John Coleman, and this is a belated monthly marks on the markets for September. Producer Joey has already disciplined me for this guy, so no one needs to write in. I know I’m a bit late on marks on the markets, but to make up for that, we have an extraordinary episode with two of my favorite people. Justin Speer is one of the leaders of our public equities complex at Sovereign’s Capital, and Phil Jung is one of the leading partners of our venture complex at Sovereign’s Capital. And today what we thought we would dig into is the current state of the markets broadly, but also what it’s looking like in public markets, what the economic outlook is, how we’re seeing the IPO market and also what late stage venture, an early stage venture are looking like along with how we’re coming alongside CEOs and other leaders in the midst of what continues to be a tumultuous environment. So, Justin, Phil, thank you so much for being here today.

Justin Speer: Thank you for having us.

Phil Jung: Glad to be on.

John Coleman: And Phil got in at 2 a.m. last night, so we’re expecting some really fun commentary out of him today.

Phil Jung: Yeah 3 cups of coffee so far. And yeah, it should be fun. Hopefully, hopefully this turns out okay.

John Coleman: Awesome. Well, I’m going to start with a little bit of a softball for both of you, and I’ll let Justin start so that Phil can drink a little more coffee. Just give us your current kind of 10,000 foot overview of markets. Justin, Obviously we want to get into both public and private. You’re a bit more public focused. Where do markets stand today in September 2023?

Justin Speer: All right. So we established a bear market trough in the third quarter of last year and have since had about a 25% recovery in the market, which is about the seventh worst, I guess, recovery from a bear market trough this far off the trough nearly a year actually was incredible. But positively, we’ve seen inflation, which was the number one problem for businesses and for all of us has really come off the boil in the last year. It’s actually it’s led into June, 12 consecutive months, so about 3%. And that’s where we’re hanging out from nine in terms of the headline inflation. And so that’s a good thing and that’s a function of what the Fed has been doing, aggressive, like the most aggressive tightening we’ve seen in at least 40 plus years with the Fed funds rate now at five and a quarter or five and a half. So we’ve had a monster move in interest rates and it’s really led to this. It’s an interesting backdrop. It’s a lot of just dichotomy. And what I’m saying, like in terms of big picture macro things that we’re seeing, we’re seeing consumer confidence has been pretty resilient, which is a function, I believe, of, again, excess stimulus that’s still in their pockets. We had $7 trillion of stimulus. It worked its way to the economy. We’re still working that down. And the other thing that’s really been surprising to me in the wake of the Fed’s tightening is the employment picture has been actually pretty solid. I would have expected and in fact, if you look at the yield curve and it was anticipating that we would see the unemployment rate move up, it really hasn’t moved up that much. And I think that’s really moved to the forefront of the challenges for business is just access to qualified labor. But on this front, I think that’s the balance Is the Fed, they’ve tightened. I don’t know how much more they need to go. I think the question is how long they need to hang out here. And we’ve seen a bifurcation in markets where housing activity has been pretty sluggish in general. Existing home sales, we’ve seen manufacturers struggling. If you look at the sentiment surveys for manufacturers, they’ve been subpar for a while, almost depressed. But on the other side of that, we’ve seen growth. Equities in particular have done really well. We’ve seen the emergence of generative AI, which has extended maybe some of the growth use or lifted the growth use for some large, large players in the market. So that’s supercharged some of this recovery. But it’s been a tale of really two different stories that I think the question is how this thing ends is can we get inflation down to 2% without breaking the economy? And I think if I look at valuations, for example, I’m getting two different rates. Large caps are actually kind of expensive. Large cap growth stocks are expensive value and small cap stocks are quite cheap. So the market seems to be saying two different things that the economy’s great for the large caps, but we may be entering a really potentially a pretty severe recession if I just look at the small cap valuation. So it’s one of the more complex backdrops that I’ve been a part of as an investor in the last 20 years.

John Coleman: Men, I want to unpack that a little bit more. But before we move to Phil, I wanted to follow up with one quick question. I think it was two or three months ago, it was accurate to say that it was nine or ten stocks, the mega-cap stocks that had driven more than 100% of the return of the S&P at that time. Is that dynamic still that pronounced Justin or has that moderated such that other larger stocks are growing in line with those mega caps?

Justin Speer: Yes. A year today the market. And this is the S&P actually the Russell 3000 is up about 18% year to date. And what’s really leading that is tech and communication services, which is Facebook, but they’re up over 40%. The broad tech sector, which is a big chunk of the market, is up 45%. Most of the other sectors are low single digits. You do have consumer discretionary, which took it on the chin. Last year is up 30%. But most of the other sectors are, you know, flat that up mid-single digits with the worst performing utilities and health care is down 1%. And of course, the regional banks, because of the bank turmoil in March, April, down 17% year to date. But yes, tech is really leading this thing, very big tailwind to the broader market from tech and digital. And consumer discretionary has come along here in the last few months.

John Coleman: It’s great. So Phil, moving over to you, I mean, you offer a dominantly in the private markets right now, particularly with venture backed companies along their growth from kind of seed to pre-IPO stage. Tell us what you’re seeing in valuations right now and how the market’s reacting.

Phil Jung: Yeah, well, first off, the last 12 year and a half, 12 months, year and a half, it was a tough time for the private markets and especially in the software space for technology businesses. You just heard in the headlines every week of large companies and private companies doing layoffs, reductions in forces and people looking for opportunities. Their next gigs because they were laid off, functional areas and team leads, all were cutting their budgets as well. You know, oftentimes in an executive team meetings, CEOs were asking each of their functional needs to figure out how they can trim their spend or expenses by ten, 20, 30%. So a lot of that happened. Now, fast forward to where we are at this point in the year. You know, there are starting to be signs of life. You know, green shoots or whatnot. And what we’re seeing in the private markets, you hear less frequently of rifts and further layoffs. A lot of that has already happened. A lot of companies in their first and second round of layoffs. And at this point, people are planning ahead for next year, 2024. And budget reforecasts have pretty much halted at this point for the rest of this year, and they’re not thinking forward. And so we’re starting to see signs of life expansion in average contract values. We see this in our portfolio as well, as well as perspectives in terms of growth prospects for next year. Hiring plans is slowly starting to pick up again as we go into 2024 and especially this time of the year, post-Labor Day before the holidays. This is traditionally a very active time for the private markets to be deploying and investing capital. People are back from their summer vacations and investment committees can now gather again and folks are looking to do deals before the holidays slow down again. And especially if you raised a fund over the last two or three years. I mean, you’re sitting on cash. Well, not cash, exactly. You’re drawing capital from your employees with capital calls, but you have a fund available that you are looking to deploy capital into in promising opportunities. So this is these next few months here. It’s kind of a sprint in the venture market of activity. So, you know, all I’d say there’s a cautious recovery that seems to be happening. If you look at a lot of the data that’s put out by Carta, Pitchbook, etc., valuations early part of this quarter and Q3 seem to be picking back up again from some of the lows in Q1 and Q2 of this year. So there’s reason to be optimistic and at least in the private markets for sure.

John Coleman: I want to come back to this question of the real economy, which Justin started to touch on both in the U.S. and potentially abroad, if you feel comfortable talking about that. You know, we’ve talked about on this podcast before that the most recent financial crisis was one of the strangest in recent history, certainly more echoing what we saw back in the 1970s than almost any recent period where you had this combination of supply shocks due to COVID, due to the Russian invasion of Ukraine, due to limited supply chain, is a hangover from COVID. And those incidents we saw massive inflation kicking in and the Fed having to respond to that as just in their rising rates. We saw this regional banking crisis that erupted in the middle of that. And so there were all these complex factors playing in. Certainly some of those seem to have calmed, at least from my perspective. The supply chain shocks seem to be normalizing for the most part. As Justin mentioned, inflation is headed in the right direction, although only with continued rising rates. What are you guys seeing in the real economy right now? Where do we stand with regards to where we were in that crisis? What are you paying attention to? And particularly on this front of recession in interest rates? Do you have a perspective on where we might be heading? And maybe, Justin, if you don’t mind, open this up on that front.

Justin Speer: Right. I think a lot of the challenges were just due to just these imbalances, in part due to the supply chains, due to absenteeism and people just staying at home from work in the immediate aftermath. But then. You tack on that stimulus. And it’s just fascinating to see that you saw money supply just take off like over 25% expansion in the money supply. And then people now have money to spend, but they don’t spend it on hotels and restaurants. Immediately they go out and they spend it on goods for shoring up their home and improving their home. So you saw in some instances like retail sales, like gap up over 40% year over year, it was insane. You know, retail sales are up 5%. So you’re pulling ahead in some instances, demand like more than five years in a single year. And so it just leads to these massive supply chain imbalances. And then obviously, the tail result of that is inflation. And so what the Fed has been doing is really trying to reverse some of that through the tightening measures, including increasing the Fed funds rate, but also money supply. And I think this is something that I’ve done some work on money supply contracted for the first time in 60 years in December of last year, based on sort of a statistical work and regression analysis that we’ve done. Money supply will have an impact in about a 12 to 24 month lag. So we are still yet to feel the full, long and variable lag of some of these measures. And I think that’s where a lot of questions lie with regards to the macro. I think that you’re going to still see some headwinds in parts of the economy in particular as the full manifestation of these actions from regulators or policymakers are continue to pay through the pipe on their way through. We’re going to see, I think, more of that manifest itself into the first half of next year. And so I don’t think we’re done. And that’s where the Fed is going to look at the data. It’s data dependent. The big one, though, that I’m watching in terms of the imbalances and the employment picture and employment, the unemployment rate is really a lagging indicator. If you look at job openings, the job openings are still well above historical levels. And if I look at it, are a little under eight or a little over 8 million job openings versus historically close to 5 million. But that’s come down from over roughly 12 million back in 2022. So we’re starting to see that come off of oil. And that’s going to go a long way in easing the pressures on inflation from wage. If that can continue, and I think that’s what we’re going to keep our eyeball on is really that is the employment picture. And the real question is, is this tightening going to manifest itself in ultimately breaking down the economy into a recession? And right now, I think the broader view is that if we do have a landing, it’s going to be a soft landing, which would be really amazing considering all the moving parts. But if we land on a soft landing kind of outcome, that would be a really ideal outcome. I think that’s probably being priced in right now. And the bond and the equity markets.

Phil Jung: Soft landing is a similar kind of narrative that we’re hearing in the private markets. I unfortunately have not run any regression analysis, John, so I’m sorry, I don’t have the wisdom of Justin to back up my claims with any sort of data. However, just anecdotally, you know, in the private markets, it’s especially in investing where a lot of that does go into technology, at least for venture capital, it’s very different than the broader kind of macro real economy where unemployment is low. You know, today as a consumer, if you’re looking to hire a plumber or in fact a person or if you’re a daycare center looking to hire workers or even in education in schools, it is tough. It’s hard to find folks because unemployment is so low. But in the technology sector, it is really, really hard right now if you’re a tech worker because there just aren’t a lot of job openings and folks that are expanding, companies that are growing. So there is some narrative around a tale of two cities in that sense. But broadly speaking, there does seem to be a soft landing approach for next year that people are planning for. Next quarter should be better than last quarter. The next six months should be better than the last six months. And the next 12 months certainly should be better than the prior 12 months. Boards are planning to build in this type of growth for next year’s budgets, as opposed to this year when there are constant forecasts and ratcheting down what we were expecting to see and with the rise of interest rates. If you are a fund that does make for a difficult environment for fund raising, given that a lot of investors and LP’s, you know, they can invest risk free at a 5% return, whereas in the risky private markets where cash would be tied up, these are typically long hold periods for private investments and a lot of the uncertainty. So if you’re a fund actively out in market in the last year, this year, it was certainly a tougher environment to raise capital. But if you had raised your fund in 2020, 2021, cash was flowing and a lot of those funds are sitting on available liquidity to deploy capital into. And so in the early stage Market seed series A, startups were still raising capital, the ones that had a real differentiated product to value proposition customers and really strong growth in metrics seen in Series A round. We’re getting done now. They were taking a little bit longer, perhaps months instead of weeks, as opposed to a few years ago, but cash was flowing into those companies. We did see a slowdown in mid to growth stage companies that closely mirror more of what’s happening in the public markets where Justin spends all of his time. But again, 2024 should be much better than what we are seeing in 2023 in terms of activity of the private markets.

John Coleman: That is super helpful. And Phil, don’t worry about having not run a regression analysis even in our short time with the FDI podcast. Justin Speer is responsible for at least 80% of the regression analysis run for this podcast, and we’re very grateful for grateful for it. You know, one topic that’s coming up a lot right now that I’d love to just touch on briefly is the IPO markets obviously important for the work that both of you do? Day to day IPO markets have been pretty frozen the last couple of years. You know, and leading into that, we had this weird dynamic where there was almost like a twofold IPO market. One, there had been this irrational explosion of SPACs, which we could talk about just a bit and how those have ended up. Some of those have ended up continuing doing really well. There was a company I talked to recently called Public Square, for example, that went public through SPAC quite successfully from their perspective. And there are others I know that are soon to go public through SPAC, but that market has died down. You don’t hear people launching SPACs very much now and then. The conventional IPO market has also been frozen as I think later stage venture backed companies are waiting for more favorable valuations in markets. So I would love to get y’all’s perspective as valuations have started to creep up both in public and private markets. What are we seeing today? Where did the IPO market stand and what do we expect in the near future? And maybe, Phil, if you don’t mind, Well, we’ll start with you on that one.

Phil Jung: Yeah. Yeah. Happy to start because I’m very interested in kind of where Justin takes this from, from what I share onwards. You know, a lot of the mid and growth stage companies were just waiting for the right time to see when the IPO windows were starting to open. Now, in the meantime, so many of these technology companies were getting much more efficient with their burn ratios, with their targets on profitability in the rule of 40, for instance, is a metric that’s often referenced by high growth or late stage private companies. And so you have almost this sideline this backlog of folks on the sidelines waiting. And in recent weeks, we’ve heard of folks like Instacart and ALM and Klaviyo waiting to go public later this year. And so there’s been a lot of conversation about whether these early entrants are going to really blow open the doors for a strong Q4 going into 2024. And all of that trickles down eventually to the early stage side once the capital markets open up from an exit M&A IPO window that gives earlier stage investors and companies a lot more confidence that, hey, there is opportunity for continued growth and capital allocation for us. So that confidence will instill down and trickle down. So I’m curious, Justin, what you’re seeing, because that is the sentiment amongst, you know, growth stage investors of we think it’s right around the corner. There are companies that have really strengthened their performance and their efficiencies and there’s a huge backlog of companies now call it plus 200 million of RR, you know, Agusto, Stripe, Brex, Databricks, others that are just kind of waiting to see when the right timing is. I think the big question is valuation. You know, where are these multiples going to kind of play out? And they’re certainly not going to be what they were like a couple of years ago. But are they closer to long term averages, maybe something like ten x of, you know, revenue multiples of what the public markets will bear this time around in the next couple of quarters? I think that’s a big question mark that private investors are eager to see and watch.

Justin Speer: Yeah, it’s fascinating. You know, there’s always in my mind, a particularly in an environment where we are, where it’s a slow growth environment, there’s always appetite for growth. And I think growth becomes even more attractive in an environment like this. It’s interesting to note also that if you look at the broader market growth, equities have outperformed value equities by 25 percentage points thus far year to date, second best since 2000 performance. It’s incredible strength of growth equities, which I think is a nice that’s nice fuel for confidence for IPOs. So I would I wouldn’t be shocked with the strength of the market today to see more activity on that front.

John Coleman: That’s really interesting. And I’m for my part, I’m hearing the same, which is now that valuations are recovering in public markets. It’s much more attractive for these late stage companies. I mean, the other thing we got to think about is a lot of these later stage companies in private markets, the funds that are holding them are coming to the end of their lives, right? Phil? And so because there has not been a lot of liquidity generated over the last two years, a lot of investors are getting quite anxious. And they haven’t been able to get liquidity through the secondary markets because secondary discounts are extraordinary right now and you’re looking at 30 to 60% discounts to NAV on secondary transactions. And so I think people are very hopeful that the IPO route becomes available to those securities and that will have a trickle down effect, it seems like, to the rest of the early stage markets.

Phil Jung: John, if I may just double click on that for just a minute, especially for our listeners who may not be familiar with fund dynamics. You know, most private investment funds have certain windows. It’s a ten year fund. Maybe there’s a couple of one year extensions, but in the LPas, they’ll be agreements. There’s an end of life where LPs are expecting to receive capital back. Right. It’s not like most funds just can hold on to a position in perpetuity. And there are other vehicles for that. But that’s not how most funds are structured. And so if you’re a large fund with a significant or material ownership stake in a company, you may put pressure on a company to go public. Maybe you’ll be one of the first to potentially open up this IPO window later this year or next. Because you need liquidity, you’re obligated to provide liquidity back to your investors. So that’s something that maybe not all entrepreneurs think about when you’re taking outside capital. Understanding the dynamics of where a fund is in their lifecycle, are they early in their investment period? Are there late in their investment period? What is the fund lifecycle timeline of that particular fund? So that’s something to be mindful of. One other interesting piece about companies going public is, you know, another reason to do that might be from a company entrepreneur’s perspective is to almost reset the preference stack. So for a lot of these high growth companies that have raised tens or hundreds and hundreds of millions over the last several years, when capital is flowing, when investors invest capital, they oftentimes get preferred shares. That comes with a certain liquidation preference. That means in an exit scenario, these investors are paid back first before the leadership or employees in an option that have ownership through an employee stock option pool, see any types of proceeds. And so you stack on hundreds and hundreds of millions of dollars depending on what the exit price is. Unfortunately, most common shareholders in these types of scenarios may not see any sort of proceeds, but what happens when you go public is all of these preferred shares convert to common. So in some sense you’re almost starting over in terms of that preference stack. So that might be another reason that drives companies to seek to go public to help with that conversion. So a lot of that goes into it. And again, Justin is the expert here and what that looks like. Those are some of the dynamics that are less talked about in terms of companies going public.

John Coleman: Yeah, I completely agree. Maybe to follow up on a thread, but to switch topics a bit headed into the next section. Justin had begun to bring up earlier segments that the markets seem to be excited about. I think AI is what everyone’s talking about feels eerily similar to, you know, eight nft’s in 2020 and like blockchain in 2017 or something. But, you know, I think we’d all admit that generative AI is a transformational technology. There have been great leaps made, particularly on the natural language processing side of that or on the large language model side of that through Chat GPT and others. What are industries or segments that you’re most and least optimistic about right now? And so Justin, maybe we’ll start with you on this, but as you think about industries, you’re really fired up to be an investor in those that you’re really cautious about right now. What are those?

Justin Speer: Right. And I think that on the heels of COVID and what that’s done is it’s really, I think, accelerated this growing affinity for digital experiences. And so where we’re seeing some really rapid adoption, I think it’s a secular growth thesis is in the adoption of these technologies. But really the shift towards electronic payments is one that I’ve been focused on. You know, that’s not something new, but there are some really, really robust areas of opportunity for disruption in a host of different sectors with payments and electronic payments in particular taking over. And there’s some really great cultures out there, really great leaders out there, small cap companies that have just massive addressable market so they can grow into. So I think that’s an area where I think there’s an area for disruption, for growth. And in an age where growth is hard to come by and the shake up in the financials in particular, and particularly the denting evaluations for SPACs, some of these companies, you know, came out of SPACs. And so there’s some really interesting valuations that I think don’t reflect necessarily the longer term opportunity that some of these companies have. And I’m pretty excited about.

Phil Jung: Yeah, on my end, you know, I think we’re full in this generative AI hype cycle. This past week was the latest YC Demo day over two days and effectively all the. Nominees reference that they were or some sort of AI company or generative AI company. Now, I think there is a lot of excitement, especially earlier this year, about what was happening in the space. And already there seems to be some clear winners. The entropics, the hugging face, the chatGPT, open AI, folks of the world. But what we’re most excited about currently, as we think about how AI can be used, are very specific opportunities. I use cases, verticals where I can assist and augment kind of human analysis or insights that are being driven. So for instance, we recently looked at a company, we’re still looking at a company that supports providers as they interact with patients during a live interaction to help document through technology. So there’s no manual labor that now needs to be inputted in notes and also the associated billing, the CPT codes and the requirements to help Bill for that time, which decreases the burden on the provider to spend after each patient visit, to spend and typing up notes and submitting all the required documentation for that time. We think that’s a really elegant use of AI technology in a way that’s real. Where [….] can you see immediate benefit? We’re also, it really continue to be excited about software. I mean, you know, it’s been how many years, decades since the phrase, you know, software eating the world has really taken over. But we’re still seeing applications of instances where software can continue to automate and provide just more efficiency. We’re excited about a company currently that has developed software for autism care clinics that are spending time with patients and their families. And these are children who are dealing with serious, prolonged kind of cases of support and need where often providers are working 30 plus hours with them. And all of the documentation in that case as well in terms of care plans and pathways and next steps and follow ups and appointments. All of that is still done pen and paper in some clinics. And so a software platform that really is the operating model for that clinic on how they run their business. We think that’s another way that software instance can really change the trajectory of how care is delivered. And so software, you know, specific use cases of AI, you know, those are areas that we use feel very excited about. And, you know, oftentimes people ask us, well, we have this great company, it’s not a software company. Would you consider investing? You know, currently that’s outside of where I focus today. And part of that is because for software businesses, it’s very different from other industries in the sense that, you know, once a software platform is created to deliver that same value to that next customer, it doesn’t require much in terms of incremental costs are that R&D has been developed, you know, that new user or that clinic or a customer can log on through a SaaS portal. So that’s a high margin business. And what that affords the company is margin to invest in other areas of growth or operations. And it gives you a little bit more room for error as you continue to scale headcount or sales and marketing team R&D, etc.. So we like those high margin businesses that can be scalable and we’ll continue to see, I think, a lot of growth in those areas. You know, an industry that has really fallen out of favor in venture is actually consumer consumer focused businesses. You know, during COVID, we saw this boom in e-commerce and home delivery of food and whatnot, post-pandemic. A lot of those industries and companies that saw, you know, rocket ship growth have really fallen out of favor. And that’s partially because, you know, one end user consumer behaviors, fickle, you know, preferences change and to to acquire customers, it takes a lot of marketing spend to stay top of mind. It requires massive marketing and advertising budgets. The cost of customer acquisition is very high relative to these other kind of software businesses, for instance. So consumer focused kind of opportunities have seemed to fallen out of favor, at least for now, in the venture industry. A lot of the direct to consumer models that used to be very exciting just even three or four years ago.

Justin Speer: That’s interesting Terms of the categories are the sectors that have been under pressure. You know, those pandemic gaming categories early on, I think are facing this this this hangover effect. That’s something to be mindful of because I don’t know not to look at everything, but I don’t know if current expectations from the broader market really reflect that reality, particularly as stimulus savings wear off. And I mean, how many times can you paint your home? Right? I mean, it’s just one of those things where we’re going to see a little bit of a hangover. And I think that that can last a while. The other area for us where there’s a lot of pressures in the banking realm, you have pressures from I didn’t realize this until I did a lot work on about nearly 85% of banks funding come from deposits that are yelling, you know, deposit rates of like 40 basis points. When I go money market rates and Treasuries and CDs at five and a half by five and a half percent. So their funding vehicles are going to be. Really under a lot of pressure. At a minimum, their margins are probably going to be under pressure over time. And then on top of that, you’ve just got dislocation and some of these valuations for office multifamily from this moving rates that’s going to affect the asset ledger book. And so it’s something that obviously led to a little bit of rumbling earlier than we haven’t even gone into like an economic kind of stress yet. Really, it’s more just valuations moving. But at the end of the day, I think banks are going to be an area where we have to be really careful with.

John Coleman: You know, And what’s interesting to me Justin to pick up on that theme. And then one that Phil mentioned with banks, there’s been this realization that what people thought of as a very safe place for money maybe isn’t. Now, no one lost a dollar because of federal guarantees, but in fractional reserve banking systems, there’s always been this disconnect where you deposit money in a bank, you think it’s incredibly safe because you’re not earning anything on it, or maybe you’re getting a small savings rate and then the bank levers that up 90%. Basically, they loan out, you know, 80, 90% of the money that comes in and deposits into into riskier assets. And because that’s been guaranteed through the FDIC and through these implicit guarantees of the federal government, I think consumers have largely kind of been unaware of that. But with the regional banking crisis, people have started asking themselves, like, why am I sitting in a repository account with greater risk when I can go to a money market with a better interest rate and there’s no real leverage risk like there would be in a fractional reserve account. And it’s fascinating because that is if that continues to catch hold, that is incredibly corrosive of the profitability of the typical bank structure, right, Because that’s where they get their money on the loans that they’re doing, the deposits that empower that. And I think people are more aware of how fractional reserve banking works now than they were even six or eight months ago. Probably the second thing I’d bring up, which Phil touched on, is, you know, as we look at these run in technology stocks, I think the tech sector for the first time in its recent history was forced to demonstrate discipline. And they actually did that in a way that investors appreciated. You know, one of the questions was always when this massive 15 year bull run in technology or maybe even longer than that ends, right, since the late nineties, basically. How are Google and Facebook and Apple and Amazon going to deal with belt tightening? Are they going to be able to conduct layoffs or are they going to be able to sort out which parts of their business are profitable and not profitable? Are they going to be able to manage costs when they need to because they’ve never been forced to do that before? And I think, Phil, my impression, both in private companies as well as their larger technology counterparts, is that investors saw real constructive cost control in those companies and they demonstrated ability to manage through crises when they needed to cut costs. And I think that’s part of what gave people confidence to get back into these names, right, is the idea that they saw them manage themselves reasonably well through what could have been a downturn. And so my hypothesis is that that was approved point that people have been waiting for for 15 years and that the tech sector actually largely passed on that. Great.

Phil Jung: Yeah, that’s a really great point, John. And now I got to say, I think it took a little bit of time, several quarters for that to really hit home for a lot of entrepreneurs and maybe even, you know, 18 months or so. But it’s really interesting, you know, in today’s environment, even when we get pitched opportunities at the seed or series stage. So very, very early companies oftentimes, you know, call it a million or a couple of million in revenue. Even entrepreneurs are presenting investment opportunities into their company as almost a dual path. We can leverage this capital wisely. We know if we put in a dollar in marketing, it’ll spit out 110% in top line revenue growth, for instance. And so we can use that towards growth and dual tracking it with this capital, there’s a path towards profitability. Right? And so even at the earliest stages of company formation for entrepreneurs to be thinking about that profitability targets and efficiency ratios and that’s just not something we were seeing, you know, five plus years, you know, the whole bull cycle almost. Right? When capital was plentiful, entrepreneurs were just thinking about, well, if I hit my next top line goal, I’ll be able to raise more capital. And burn does not matter as much. And so it’s really interesting. It took some time, but we’re definitely seeing that in today’s market.

John Coleman: Guys. This is the Faith Driven Investor podcast. You guys are faith driven. Investors want to turn now a little bit from the kind of financial market dynamics to what you’re seeing on the faith front. Two topics come to mind, but I want to start with one first, which is each of you takes a different approach to what we termed spiritual integration in the companies that you serve as a capital partner and what that can look like. And in fact, when we say spiritual integration, we just mean how does the leader of a company live out their faith in the context of the way in which they manage that company or they lead that company. And how can we as capital partners, encourage them on that journey in a way that creates human flourishing and love of neighbor within those companies? Maybe to start with, you Phil in the venture markets. What is the latest in spiritual integration? How are you all coming alongside companies and what are you encouraging companies to do? This may be different than what you would have done a couple of years ago, or that’s beginning to be innovative.

Phil Jung: Yeah, well, maybe I’ll start with the trend that I’m seeing More and more common is, as a lot of companies are either kind of remote or in a hybrid scenario and you’re not seeing everybody in the office. I’m hearing more and more examples of companies that have dedicated channels, whether it’s a Slack channel or other forum where people can share highlights, encouragements and also prayer requests as well from those within their company to celebrate the highs and the lows in ways that we might encourage one another. You know, some have explicit prayer channels, even though these are not, quote unquote, Christian businesses. Right? These are secular businesses led by believers. But they feel in this day and age where we’re all looking for something bigger than just us, they’re looking to join a company that cares about an individual and their whole self. They’re promoting and encouraging those ways to communicate and bring your whole authentic self to work. So I’ve been really strengthened and encouraged by that. In this environment, it is really tough if you’re an entrepreneur in the early days of company building, oftentimes you don’t have a fully built out executive team. Maybe you’re solo founder. The highs are really, really high and the lows are really, really low. And so we see our role as capital partners, obviously, with supporting business related initiatives and budget reviews and go to markets and all of that. But just encouraging founders who are so often heads down into their business, which can get demoralizing at times. We act as a reminder of, hey, you know, in this market, if you’re only growing, you know, two X instead of the three or four X that you are aspiring to do this year, that’s actually really good in this market. You know, this is what we’re seeing amongst your peers. That has been a huge encouragement. We’ve gotten that direct feedback, I think, oh my goodness, we’re only growing two X this year. Last year we did four X and I thought we were just, you know, sucking completely missing it. And yet it’s really helpful to get a sense of what you’re seeing in the broader markets. You know, that’s been a very small thing that we’ve realized. You know, we’re seeing so many thousands of companies a year having 80 plus portfolio companies. That’s a small way that we can encourage founders of what’s happening in the broader macro. But most importantly, it’s reminding entrepreneurs that their identity is not in their business, it is not in their performance. Yes, of course, it’s great if your company is thriving and things are going well, but first and foremost, your identity is as a child of God. And whether your company’s success then becomes the next unicorn or it fizzles out next year. And that kind of fizzle rate is very high in venture, by the way, an early stage venture that your identity is not in your work, it is not in your performance of your company, but it is purely because you are a child of God and reminding them of that, praying with them, asking how their families are doing, how things at home are going, how their church life or their community is going, and just reminding folks that there is more to life than just their business. Although it is very important. Just to be clear, that has been a great reminder for us, even as capital partners, to double down on that effort, especially during this time when things are shaky and raising capital becomes harder and growth becomes harder than in prior years. So we’ve been trying to be very intentional about that, setting aside to pray with our founders, with them, and outside of time with them too, with amongst our teams, encouraging them of what’s happening in the broader environment so that they can kind of stay plugged in. And in the know, I think, for instance, after we record this, this might be a great resource that we share out in terms of how Justin and John are thinking about what the public markets and the broader kind of later stage environment is looking like, especially for those early stage founders. I think people would be encouraged by that.

John Coleman: Fantastic. Justin, what are you all seeing? I mean, public companies, CEOs and public companies are obviously in a somewhat different situation than our earlier stage companies. What are you all saying there?

Justin Speer: And so we are really blessed to be a part of the culture here at Sovereign that really is focused on spiritual integration and recognizing that culture is really, really important. And we’re navigating pretty complex times with, you know, some and I’ll just be open and honest. Some strange ideas coming in to the marketplace about what a strong culture is. And so, you know, our process is all about finding companies that have faith driven leaders that are doing incredible things for their people. Your servant leaders have golden rule oriented values. These are companies that have incredible benefits. They do some really wonderful things for their people, not just their employees, the families and the communities around them, and do so in a way that’s really God honoring. And one of the things that we do at sovereigns and one important area of impact that we have on the public equity side is that we’re hosting these roundtables for CEOs of public companies to come together. And it’s a small group which creates like a really great format environment for just openness from peers who are dealing with similar types of challenges as public company CEOs. So we’re bringing these leaders together and they’re learning from one another about best practices that each of them are deploying within the organizations to serve the people and to enable their people to flourish. So I think that’s a pretty unique thing that I’ve really never been a part of in my career until I came here. It’s one of the highlights of my career, really, is to be able to be a part of that and really blessed to be a part of that. But we are just delivering these companies, the opportunity and the CEOs of these companies, the opportunity to learn from one another? And each leader has a different they have different roads, different geographies, different industries. And so as our co-founder Luke Roush would say, our aim is it to be prescriptive on a set of tactics but rather descriptive on how leaders can maybe serve their employees, build on what they’re already doing within each of their companies? And hopefully these CEOs will be served with such great ideas from their peers that they act on them. And that will manifest itself in the many thousands of employees that are represented by those leaders in these rooms just to deliver incrementally exceptional culture. And so we actually just had our first roundtable in Dallas have nine companies in attendance, over 40,000 employees represented, 100,000 family members. And that’s, from our perspective, what it looks like to positively serve these public company CEOs, not asking for anything in return, just trying to help them and help their people flourish.

John Coleman: That is awesome, guys. Well, you know, we end all of these podcasts briefly by just asking folks what they’re learning from scripture right now that they might want to share with others. And so just in a couple of minutes, Phil, is there anything on your heart right now that you’re learning and scripture you want to share here with the audience?

Phil Jung: Yeah, maybe. You know, I’m taking my own medicine in terms of what I shared last of even as an investor, just not rooting my identity in fund performance, you know, fund size, the logos that we’re able to partner with in terms of portfolio companies, you know, all of that is in God’s hands. And so in John 15, where it reminds us that I’m the vine and you are the branches, that if you remain in me, that you will bear much fruit and that apart from me, that you can do nothing. I think that’s so humbling and yet so empowering that even, you know, I may think that if I just am able to crank out a couple more hours of work, then maybe, you know, this next company or this next partner of ours, you know, we can close that deal or that opportunity. Well, you know, just as much if I go to sleep and be energized for the next day, God is still working in my times of slumber. And so just that reminder that even as an investor, that there’s only so much that I can do that is ultimately in the Lord’s hands and in that I find security and comfort and peace that transcends this world. I mean, that that’s the message that I’m trying to share with our entrepreneurs that I’m preaching to myself at the same time. So especially in this very competitive industry where there headlines every single day of activities and exciting things that are happening, just knowing that, yes, that is good. But also, you know, God is better in terms of how he is moving and what he’s able to do beyond our imaginations.

John Coleman: It’s a good word, Phil. I will say I feel a little bit guilty that we asked you to prioritize this over sleep given the 2 a.m. arrival last night. So Phil did skip his nap for the Faith Driven Investor podcast, but hopefully that’s a ministry resource that it’s a good priority. Thank you. Phil. Justin, what’s on your mind right now?

Justin Speer: You know, just coming off of the fact that Phil got in at 2 a.m. and he’s doing this, he looks fresh. I think you’re you’re doing well. Phil. But in that vein, you know there’s a section of text and scripture. Mark Chapter six really in verse 48 is where I’m thinking about It’s on my heart after all of our discussions, but know the disciples of Christ. They’re in training, they’re in basic training, and they didn’t really know who He really is. They knew he was special. They do not really how special he is, but he just fed 5000 miraculously. And before that he gave them the power over unclean spirits and they’ve seen him calm storm before. And the people after he fed 5000 wanted to make him a king. And Jesus departed to a mountain and his disciples were left like, What in the world? And we’ve left everything for this man. And now we’re leaving him. We’re alone in a boat, rowing in verse 48. So Jesus saw them straining. Rowing for the wind was against them. Now, about the fourth watch of the night, he came to them walking on the sea and we’re pass them by. So these men were probably three, four or five in the morning. They had just pulled an all nighter. They’re exhausted and they’re rowing in this boat and they’re afraid. And then here comes Jesus walking on the water. And then you come to realize that they now realize that this is more than just the king. He’s the king of kings. This is God. No one can do what he can do unless God is with them. And more importantly, that He is God. And so sometimes, you know, you get in the boat. And I realize that these companies that were investing and I didn’t realize that one in four people are coming to work with either mental health or a substance abuse issue. People are dealing with a lot. And sometimes we’re all dealing with a lot. And we are rowing and we’re trying and we’re going against the wind and we’re exhausted. And I think we just need to remember just as what Phil is saying just to keep our eyes on Christ. And and they apparently were still a lot of learning to do because they were afraid they still had to build their faith. And it wouldn’t be ultimately until they saw him on the cross. And he resurrected three days later that they really had their faith and their hearts were melted and they did some amazing things in his name after that, in particular about let’s just keep our eyes on Christ and recognize that our labors not in vain. And he’s with us and he’s in control and he is the master of the universe. And I love God very much, and I love these stories. To help remind me.

John Coleman: Man, I feel like Justin just ran a regression on scripture, right?

Phil Jung: That was going to say the exact same thing. John That is the equivalent of a regression analysis, man. I’m glad. I’m glad I went first.

John Coleman: Justin Phil, you guys are awesome. Really appreciate you making the time today. I really appreciate your insights on markets and I hope you will consider doing this with us again. Thanks for joining the Faith Driven Investor podcast.

Justin Speer: Thank you John, thank you Phil.

Phil Jung: Thank you.

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

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

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

Dave Erickson: Thank you for having me.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dave Erickson: Thank you so much for having me.