Episode 113 - Finding Returns In Africa with Richard Okello
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Richard is a co-Founder and partner at Sango Capital. Sango is the preferred partner for global institutional investors looking for attractive, risk-adjusted and high impact returns in Africa.Previously, Richard was a partner at Bridgewater Associates, a US$150 billion global hedge fund. He shares his story and provides insights about the investment landscape and rising opportunities in Africa.
All opinions expressed on this podcast, including the team and guests, are solely their opinions. Host and guests may maintain positions in the companies and securities discussed. This podcast is for informational purposes only and should not be relied upon as specific investment advice for any individual or organization.
Episode Transcript
Transcription is done by an AI software. While technology is an incredible tool to automate this process, there will be misspellings and typos that might accompany it. Please keep that in mind as you work through it.
Rusty Rueff: That's right, everyone. You're right where you should be. Here on the Faith Driven Investor podcast. Thanks for joining us once again. Our guest today is Richard Okello. Richard is a co-founder and partner at Sango Capital. Sango is a premier partner for global institutional investors looking for attractive, risk adjusted and impactful returns in Africa. Prior to that, he was a principal at Makena Capital, a large private endowment which invested over $15 billion into over 300 funds. Richard also worked with Ray Dalio as a partner at Bridgewater Associates. That's a $150 billion global hedge fund. Today, he's joining us to share his story and his insights about the investment landscape and the rising opportunities in Africa. Let's join in.
Henry Kaestner: Welcome back to the Faith Driven Investor podcast. This is an episode that I've been really looking forward to recording for a long time. God has done something that in my heart, as I looked to steward the capital He has entrusted me with in Africa. Some of you may know part of my story, and that after an entrepreneurial background we started Sovereign's Capital and we did not start investing in Africa. We invested in the United States and then Southeast Asia. We have an office in Jakarta and through the grace of God, that's worked out really well. But I guess it was probably three years ago that I went on a trip that was half adventure, half safaris, and then half service with my family and another family. And it had been since 1985, since I've been East Africa and Nairobi had completely changed. You know, I was astounded by the extent and the scope of economic progress in that time. And I looked all around me and it was business. And there's the marketplace, you know, it's booming. And yes, there are food stalls and some of the things that you might see in developing economies. But there are some big high rises and there are lots of people dressed up as if they just came out of Wall Street. And I was like, oh, my goodness, here's an economic powerhouse and somehow I've missed it. I wonder what the Faith Driven Entrepreneur scene is like here. I wonder what the Faith Driven Investor scene is like here. And so I got a great opportunity to go back a couple of times. We did a couple of Faith Driven Entrepreneur events and then a great trip to Nairobi to talk to local Faith Driven Investor to talk about what they are seeing and what they're investing in. And that began this quest of mine to figure out how to deploy capital there and how to do it well. And what does it look like to be invited in and who is doing it? Who is doing it? Well, that question for me, that theme, that concept was furthered last year during the Faith Driven Investor conference when we had Finny Kuruvilla talk. And what I thought may have been there's so many great talks in last year's conference, but Finny's talk about Christopher Columbus really, really resonated with me, and I'm going to paraphrase it a bit here. And he said effectively, you got to know that Columbus was an Italian. And when he went to get venture capital for his endeavors, he went first Italy and it didn't work out. And then he went to Portugal also didn't work out. He went to Spain. It did. That's why they speak Spanish and Ecuador and Chile and Peru and all over Latin America. And then he went on to say, Do you know that in Africa, over the next 20 years, there will be more entrance into the job marketplace in sub-Saharan Africa than either India or China? It's a young population. It is one with a lot of economic vibrancy. And Finny effectively posed this question to us What language are they going to be speaking in Africa? Are they going to be speaking the language of looking at bring God's glory through all that they do, through the restoration and redemption of the price and services they make through the way that they love their neighbor, are they going to be doing excellence in bearing witness to God, or are they just going to be worshiping Mammon? And that was a great question. I think there's so much of any type of market development comes from who the investors are. And we've seen that over and over again in society. And we've seen one Christians step up, as the Moravians did in Suriname and so many others did in Africa in the 1800s. And we have this opportunity to do the same now in Africa. Now, I don't know what kind of image is conjured up. When I talk about Africa. You might be thinking of a safari trip in the snows of Mount Kilimanjaro. You might be thinking of starving folks in Ethiopia. I don't know what that looks like, but I'll tell you that my picture was completely redefined through the trip that I took three years ago. And why I'm really excited about a trip that we are having to Nairobi and to South Africa coming up this fall. But my hope is that during this time, in this next 30 minutes or so with an interview with Richard Okello at Sango Capital, that you will have a more nuanced, a more textured, a more up to date, a more real vision of Africa and its potential and its impact and potential for societal change and what that means to you as an investor. So without further ado, I want to welcome Richard Okello to the podcast. Richard's become our friend and somebody who's been a great encouragement to me as I've been able to track with Sango Capital now. Over more than a year. Richard, thank you for being with us.
Richard Okello: Thank you for having me. Very excited to be here.
Henry Kaestner: It's awesome to have you on the program. It's awesome to be a financial partner with you, which I should probably mention in full disclosure, our family office has invested in Richard, and you need to know that. But we will be featuring many as we have before. We'll be featuring many other guests. And not all of them will be ones that we invest in, but all of them will be ones. They'll give you a sense as to what's going on and what God is doing in the marketplace there. Richard, as we get started, can you tell us a bit about your background, who you are, where you come from? One of the things, of course, that's made such an impact on me is to see this heart that you have for Africa and then also some very real investment experience information in the United States as well. Bring us through who you are and how you've gotten to where you are now.
Richard Okello: Thank you, Henry. So my story could be very long and I get very passionate about it. But if I was to summarize it in four words, I would say it is the providence of God, literally. It is the providence of God. And so I'm going, run it through some of the snippets and you start to draw a thread. So I grew up in Uganda at a very interesting time in Uganda's history. I was born halfway through Idi Amin's reign. Idi Amin was sort of the worst president that Uganda had. Most people would sort of agree with that. Most people know who he was. And then I lived through the early parts of seeing the country transition to some of its best times. I went to school there. I was fortunate to get a scholarship to complete high school in Wales, in the U.K. and then I got another scholarship to go to Swarthmore College in the US. That scholarship happened at the time. I thought it was very accidental, but as you'll see, it wasn't because the then dean of admissions of Swarthmore just so happened to visit Wales that year. He has just so happened to come to that school for the first time. I just so happened to run into him in the hallways thinking he was lost. We had a great conversation and he said to me, You got to apply to Swarthmore. And I applied Swarthmore, I got in, could not get enough financial aid, could not afford to go. That was just about to decide to go elsewhere. And then I got a call from Swarthmore saying, hey, we're sorry to let you know that Dean of admissions had a heart attack and passed away while he was hiking. This was a 40 some old years old guy. Right? So now I thought to myself, well, now I got to go to Swarthmore. I got to figure out a way to go Swarthmore. So anyway, eventually made it to Swarthmore, completed Swarthmore in three years, and the year that I graduated was the first year that Bridgewater Associates decided to recruit from Swarthmore in five years. Okay, so I interviewed Bridgewater. Don't get an offer. Two days before I'm due to take another offer. Bridgewater calls me and says, Hey, we'd like you to come in, meet the team, want to make an offer? And I almost say no. Right. Because it's, you know, two days before my other offer. Right. So anyway, get down to Bridgewater to meet Ray Dalio for the first time. What a phenomenal meeting. Get sold on Bridgewater, decide to join. And then of course, part of the rest of that is history. You know, the farm grows incredibly quickly, doubled every year that I was there. I was fortunate enough to become a partner there five years in. And as you can see at this point, I've used the term fortunate enough, fortunate enough enough that you start to see that this is really not just being fortunate. Right? This is about the guided providence of God at each time along the way. So anyways, so fast forward nine years at Bridgewater went to work for a new farm because at the time I felt a nudge that that was the time to leave and go over from the public side of investing to the private side of investing. So Bridgewater was all public markets, equities, bonds, currencies, etc. went over to Makena Capital, which was just getting started. Lots of people at Bridgewater thought that was crazy to do, did not make sense to them. Lots of things we do well, guided by the providence of God actually do seem crazy at the inception. Right. But we went anyway and Makena was a great story. Five and a half years, that tremendous experience investing in private equity, real estate, other just other investments. And that is where the seed of Sango capital, which is my current venture, started, we started investing in Africa. Well, we're there and eventually felt the nudge again to leave Makena and come set up Sango. So that was about 8 to 9 years ago. And here we are. We've been investing here for quite a while now. We're up to about half a billion dollars in assets. We've attracted some really interesting investors who who had never been to Africa physically or invested in Africa. And again, to sum that up, that is in four words the providence of God.
Henry Kaestner: So when you talk about investing in Africa, you are in Africa now. So at some point in time you said, in order for me to be a really good investor in Africa, of course I need to be there and on the ground. And so you did not move back to Uganda. You're in South Africa, correct?
Richard Okello: Yeah.
Henry Kaestner: Tell us about that transition. I'm just you're at the top of your game and you're Wall Street. And for those of you don't know Ray Dalio, Ray Dalio is like the investment guru, for lack of a better word, been remarkably successful. Bridgewater one of the most successful firms in the history of Wall Street. And you're there during those formative days, and there must have been some real temptations or draws to keep you there when you are at a successful financial firm like that and you're in on the Wall Street crowd, and there is you have the house in the Hamptons, you have the ski house in southern Vermont. And the trappings there are pretty significant. It's not often that somebody will break out of that environment and then go and set up shop for a new fund in Africa. Tell us about what that look like.
Richard Okello: So I think it was it could have been a lot tougher, frankly. And if I hadn't had the history that I had, if I had just sort of grown up in a fairly well-to-do family and let's say my parents had paid for me to go to school in the US, I'd gone into Bridgewater. I think I might have relied a lot more on the trappings of the position around me than I did on oh what did God think about this. What was the nudge? What was the calling? Why was I here? What was I doing right? And I think often times we struggle with those two pieces, right? So, you know, we pray and we ask God to help us do certain things and we try to walk by faith. And He puts us in this incredibly privileged position. And it is very, very difficult to not forget it is easy to forget once you're in those positions, how you got there, why you're there and not appreciate the fact that you're only there for a season, you're there to steward set in things, to accomplish certain things. And only in looking back do you realize that if you keep with those seasons, you will do some phenomenal things. And if you overstay your season in a particular places, it's not like you'll kind of fall off a cliff or anything, but you'll miss out on a bunch of really cool stuff. And when I start to talk about some of the things we're doing in Africa, I mean, they are phenomenal things. You know, I've gone from trying to be a good investor, trying to run a good business and be respected in a certain space to affecting millions of people. With our investments, literally seeing millions of people's lives changed. I'll talk about examples. So I think what helped me during those times Henry, I look back on the journey and I realized that this journey had very little to do with me and my abilities and everything to do with being guided and being nudged in a particular direction. So when the nudge came. I realized it was time to leave. And so then putting the trappings within that context made it easier than it otherwise would have been, I think, to walk away. Just to give you a practical sense of that. I mean, when I decided to go out for my Makena, I had a 15 minute conversation with Ray Dalio. I basically called him and I said, Hey, I want to talk about something. And Ray Dalio and I, which was fortunate for me, had built both a professional relationship and a personal relationship over time. And so when I sat down with him, I said, I have this great opportunity to be one of a handful of people that have worked here and can go work for a large global endowment, investing lots of money in all kinds of things, getting great experience. His first reaction was not a typical hedge fund owner, a typical hedge fund, which kind of gets called security. How can you do this to us? We did all these things for you that sort of need the office, right? He said to me, let's talk about this opportunity. What do you like about it do you know these people? Do you trust them? What do you want to do? And then he said, Look, if I was your age and this came along, I would absolutely do it. Now, the question is, how are we going to transition out? You're the first person in your position that is leaving. That's not being fired. I'm not retiring. And we essentially had a handshake because I said to him, I will leave when we're all good here. That's basically the deal. Like nothing written on. I'll just leave when everyone's happy. Right? And that's what I did. And to this day, we've maintained that personal relationship. But I think that all comes back to, again, in my view, the providence of God, the hand of God, the unseen hand of God, guiding, helping, you know, nudging, taking you out of harm's way. Right? Sending people your way that are helpful at the right time and so on.
Henry Kaestner: So you talk about the opportunity to go and do a bunch of cool things, and I have a sense of that because I've seen some of that on the ground and I'm encouraged by it. Help us understand what some of those cool things have been since you've returned to Africa. What are the projects that you're involved in? And see if you can just kind of paint this picture at the outset. In the introduction, I mentioned the fact that there's this all this opportunity. Help listeners to this podcast, understand what you saw as you move back to Africa and what you continue to see.
Richard Okello: Okay. So having grown up in Africa, I think my lens, I went back every single year since I had left to go to high school. Every single year I went back for good chunks of time to visit family and so on. So I was able to maintain a thread running thread of observation, you know, not with standing the fact that I was mostly out of the country most of the time. And I think the first thing that I noted was that it seemed to me that for the first time in Africa's history, the people that stood to gain more from instability than what they lost had diminished relative to those who stood to lose more from instability. So what had happened? People's incomes had risen. People have gone from you know, when I grew up in Uganda, when I was five or six or seven. My primary focus was safety. It's Idi Amin, it's volatile. It's chaotic. It's all about safety. Forget electricity. No one is talking about having your vitamins. Right. Like that's just a non-issue, right? You're just trying to be safe and alive. And I started to realize that that had changed as people's incomes rose. You know, they sent their kids to better schools. They wanted to keep their kids in those schools. They started to become more focused on their health care and on the things that lots of people in this call now focus on started to become much more important. And for those things to continue, stability was very important. And that became a broad based theme across most countries that I went to. And that, to me, was the first real sign that the tide had turned permanently in this geography. Right. Like once that happens and people take that into their own hands, then they'll do they'll do everything to protect that situation. So that was the first observation. I think the second observation was that I was mostly operating in a world where private investments were all about squeezing out the last bit of efficiency.
Henry Kaestner: Richard, that's fascinating. When you talk about this framework and I just hope that you can repeat it, because I think that there's something really there that is going to help a lot of people to think about emerging markets, because there is a group of people that want things to stay the same. And then there's a group of people that want to see change.
Richard Okello: Yes.
Henry Kaestner: And what you want to do as an investor in any type of emerging market and not all emerging markets are create equally. But you want to go in and you want to look for certain things. And what you had said was, I saw where for the first time the number of people and the power of people that wanted to see something new and see new opportunity eclipsed that of those who had a vested interest in seeing things stay the same.
Richard Okello: Yes.
Henry Kaestner: When you saw that dynamic shift, you said that's where I need to enter. And so if we're thinking about things right now and we think about emerging markets, and maybe there are 100 countries or 150 countries that might make that up. That's a great frame. I'm thinking about investing in Venezuela. Okay. Are there more people there with power that have a vested interest in keeping things the same?
Richard Okello: Absolutely.
Henry Kaestner: Or are there more people now that are in the marketplace have a vested interest in seeing progression? That's really interesting. Okay. Continue on, please.
Richard Okello: So, look, that was the first thing I observed. The second was that the lens that I had as an African on opportunity and risk needed to be adjusted. And that's me as an African who grew up there, who has family. Who has a network there who has invested personally there. Right. So never mind. Listeners, on this podcast, who isn't in African? Never invested there, never been. And so the lens really has to shift. How did it have to shift? I had grown up primarily investing in developed markets to a lesser extent emerging markets in Asia, but, you know, developed markets in much, much markets in Asia. And those markets were larger, more efficient, much more organized. And the types of opportunities and the types of risks you have in those markets are very different. So the types of opportunities you have are can you find someone who has a highly specialized skill, who can take a business and make him go a certain direction to squeeze out certain efficiencies? And maybe that gets you a great return and has some impact on the people that that business such. And if. I was to take that mindset into Africa. It would be a disaster because where Africa was was not there, where Africa was, was. Whereas a middle market business, for example, in the US might be growing at eight or ten or 12% a year. Businesses in Africa are generally growing at 20, 30, 40, 50, 100% a year. And when a business is growing that quickly, first of all, it's generally a simple business. There is demand. You know, I remember going to Ethiopia and there was a water beverage business selling bottled water, and there are trucks going out the back and the guy was rationing the bottled water. You know, people would come up and he'd say, I'll give you ten cartons or I'll give you three. That's right. I'll give you 15 30. This is just water in a plastic bottle. Right. And it's not like something you and I don't think about when we go to a grocery store. Right. So those types of businesses, what they needed was capital, good governance. Right. So it's probably run by someone and his wife or his cousin, you know, good governance, board structure and so on. Probably help expanding a factory or help defining the route to market or trying to get them out of things they shouldn't be doing right that they've had to do in order to get off the ground and so on. And the impact on returns that you could generate and the impact on the people that it touched was just unprecedented. But I hadn't seen anything like this, meaning you could go into markets and deliver very interesting returns and you could impact millions of people at the same time without a tradeoff between the two. So that to me was particularly attractive because from where I sat, the trade off was acute and you generated lots of returns and it wasn't clear if you had any positive impact on anyone. Right, or you had impact, but it was basically a charitable phenomenon. Right? Right. I think that was the second thing that was really attractive. I think the third thing was realizing just how much skill had gone back into Africa. So as I was growing up, lots of people like me would have left, gone to school abroad, walked abroad and so on. And as global crisis started to happen. So, for example, when the global financial crisis happened, lots of people moved back, people lost their jobs where they were in New York. They moved back and then they realized, gosh, the opportunity is actually quite significant. So the aggregation of skill sets had risen much faster than I anticipated, again, as an African. Never mind, if I wasn't in African. Right? They pull those things together and you've got a shifting mindset, you've got a differentiated opportunity set and you've got skillsets that are on the ground. And you can do that in a way that delivers returns that has impact, I don't know where else in the world at scale where you can do that. So that for me was the attractive point.
Henry Kaestner: You mentioned something in there that's incredibly important and that's governance. And governance is going to be a novel concept in some of the markets in which you've invested. Talk us through a little bit about that because I think it's probably twofold, right? It's setting up the right governance on the ground and then having some sort of rule of law and court system that can uphold that type of governance. Where are you seeing that happen and where are you finding the type of countries that you have confidence in investing less? There be a problem and there's some amount of rule of law there on force, the contracts that you put in place.
Richard Okello: So in Africa, you essentially have three legal systems. There's an English or Anglophone legal system that was driven by the English colonialists wherever they were. There's a French system written by the French colonialists, and then there's a Portuguese system, legal system. What we found in general is that the strength of those systems goes English, French, Portuguese. That's the starting point. So if you are operating in a country that had a huge English influence, colonial, otherwise the law is generally strong, pretty strong. It is very commercial in intent, it is less personable. It's just, you know, a deal is a deal and it's kind of that's the law. Yes. People want to connect personally, but the law is the anchor. And the law has been well-tested for decades. Yes. So people have started. Businesses lost them, bought, sold, sued the government, the government sued the people. All of that's just established. So you're not establishing precedence at all. All you're doing is stepping into an environment where people know and I used to what kind of what you're trying to do right now. There's a handful of countries that, you know, if you're in West Africa, for example, in Ghana and Nigeria, that that is the case. You know, if you're in southern Africa, in Zambia, that's the case in South Africa. Obviously, that's the case in East Africa. In Kenya, that's generally the case. So there is a bunch of countries where that's the case. I think the French law is I would put, you know, not far off from the British law in that sense, which is where you've had a long history of the French. So Francophone, West Africa, Cote d'Ivoire, Senegal, pretty well established law, well established law firms, judges, the court system, the precedents of legal interpretation and so on and so forth. I think the Portuguese is generally where we would have struggled and we've generally stayed away from those countries. Angola is still challenging. Mozambique is still challenging. You could do a lot of really good things to impact people there, but the legal system is quite challenging and so you have to tread carefully. So that's the legal system. But I think the notion of governance to me is the legal system is important within that context. But what's much more important is the who do you do business with? Because as we've seen in many countries, whether investing in Brazil or in Russia and China, people can figure out ways to get you tied up in the legal system. So the legal system by itself is not sufficient. I mean, you know, the places in the U.S. where you do business and you might just be stuck in court for two years to give up the legal system doesn't break, but you break before it breaks, right? Mm hmm. And what's important I find in Africa, but in generally emerging markets, is really understanding your counterpart. Are you doing business with people who are just honest, honest before you ever met them? They have a track record of being honest. They pursue honesty. Honesty is part of who they are viewed as. They will operate with you in a transparent fashion even after you're gone.
Henry Kaestner: That that's I mean, everybody can gather that, of course, you know, can you trust the person or not? But you have to be able to diligence that. What does that look like for you when you're investing? You've got an entrepreneur, a business leader. It looks, you know, a great opportunity and yet you've got to trust them. How do you figure out whether it's somebody you can trust?
Richard Okello: It is lots of hours talking to people in your network locally. It's lots of hours talking to people in person about someone else, watching their body language when they respond. There are certain countries, for example, where people just don't like to talk about bad things culturally. And so if you called them on a Zoom call, you might not unless you can really read their body language well in the zoom call, you might not get the sense that you might think what they're saying is actually true, which is true. But they're just kind of they're just nervous about the situation now with some other person. And so I think we do a lot of kind of 360 degree cross-referencing. You know, it's not just talking to the people you're trying to do business with. It's talking to their competitors. It's talking to people they've done business with in the regulatory authorities, in government. It's talking to lawyers who do business in those countries. It's talking to auditors and accountants. But it's also I mean, we've done things like several years ago with diligence to fund that had a lot of self-professed Christians in it. So I flew out to this country and I went to two of their churches. Unannounced. I just attended the church and asked about them, you know this person, right? Yeah. And they were shocked that I was there. I mean, like they figured out I was in the church right when I was in the church, like all of a sudden. So you can't really defend against the persons that are attending a test service. There's nothing wrong with that. But I got a much better sense talking to different people, just getting a sense for who the person is than I would have, just getting someone drawing a kind of back office due diligence operation in the background. And so that really needs you to either be local or have a very strong, trusted local partner. There's just no way around that. Yeah.
Henry Kaestner: You know, I've heard of a new initiative that's going on in Kenya that's really encouraging, I think. And it's effectively a group of business leaders and political leaders that are all part of a group where somebody is thinking about doing a deal with somebody and they email the group with the person's name and it comes back red light, yellow light, green light, and that's it. So you don't have to go ahead. And it's anonymous. Yeah. And it's done through a central administrator. So you go ahead and said, you know, this is coming in from one of our members, John Jones. Red light, yellow light, green light. They answer red light, yellow green light goes back to John Jones. And then he keeps that confidential. And then he says, okay, well, again, 87% green, this percent yellow, this percent red. Couple of people said volunteer. I've got some more color on this. You can give me a call. And I thought that was really an interesting thing. You know, I've been fascinated for years about microfinance and the power of social collateral that results in much higher repayment rates than you might expect 98, 99% all throughout Africa through microfinance. And it's the power of social collateral and the power of relationship and and wanting to avoid shame. It seems that that might even apply in the business world as well. Do you see that type of system as being something that gives you promise and hope amidst this reputation of some level of corruption?
Richard Okello: So I think that. Anything like that is an improvement. But there is a challenge which is a very nuanced challenge. The challenge is the following. Most countries that you would want to do business in in Africa. Are very siloed into either tribal groupings or set in groupings of clusters. So, for example, if you in Nigeria, you are Yoruba, you are Igbo, you are this, you are that, and the trust circles within those units are very strong. and the understanding of what someone says within that unit and the interpretation of it is not. Linear English interpretation, right? It is a cultural context around them. And if you're in Nairobi, you've got different clusters. You've got, for example, within the Indian business community, there are several clusters. And the way in which you would interpret what they say about someone in that community is not the same. And so you obviously haven't progressed to a point where that interpretation kind of through AI makes sense, right? And so it is critically important to be able to say, okay, when, when someone in Ghana hesitates to talk about something, something bad is going on because culturally that's how people are trained. They just hesitate to talk about bad things. They will delay and they will soften the blow and all that. Right. But in Nigeria, they will tell you that to your face immediately. Right. Right next door. And so so I think that's important. Now, I do think, though, that if you are doing you I mean, we've we've done this now for close to the decade. We haven't had problems like this. Now, portfolio companies, we have tons. We have over 100 portfolio companies. We invest through funds and we invest directly. So it's not just because we have a direct investment, a portfolio company, it's we invest through funds who are investing in companies as well. Right. And so how is it that that's the case? I think it's because we spend a tremendous amount of time making sure that the people we partner with and the people they partner with are high integrity people. And if you do that, I think you make a lot of headway.
Henry Kaestner: Okay. I want to ask you another question that I think a lot of people are wondering in the back of their mind and that is currency. And so I get the macro picture about why to invest in Africa. I understand how to go about doing it. I understand more about governance and rule of law, how you go about trusting, establishing trust. What does it look like if you make an investment and you've got currency devaluation? How do you think about that? How do your Western investors think about that?
Richard Okello: First of all, I think our Western investors don't really have clarity on that necessarily before we have the conversation, because most private equity investors don't have clarity on that, going to buy a good business with a good management team and growth sales and hope the team kind of fixes the currency problem if it does occur. What we say to investors is we're in an emerging market, sometimes frontier markets. You should expect that they will be volatility, currency or otherwise. Like the very notion that an economy grows at ten or 16% a year implies volatility has to, right. Like, you know, other economies are growing up 1% a year. Right. So what you have to do is you have to expect it. You have to do your best to underwrite it into what you're doing. You have to try to buy businesses that are resilient to it and build portfolios that are resilient to it. So we walk in eyes wide open and we say we just assume they will be currency depreciation across all the countries we operated, all currency volatility. When we underwrite to fund team or deal on investment, we basically say, okay, this is a South African investment. What's going on in South Africa's currency the last thirty years? Here is what? What what's happening? What are the pressures now? So having a macro view of the country you are in is actually much more important than it is in a developed market. In a developed market, you have a macro ecosystem that's fairly established that does some of that work for emerging markets. You do have to have a macro view that says, I want to be in South Africa. I've thought about that, and then I'm going to go look for businesses of funds that operate that. Okay. What we've seen is if you take, for example, our first fund, we started investing that fund at the beginning of what was the third most aggressive period of US dollar strength in the last 50 years. And my context on this is, you know, when I was at Makena, I ran a big currency book for Makena. So I've been in and around currencies like a good chunk of my life. Bridgewater's kind and so I'm so we watched our portfolio respond to this theoretical construct that if you went in expecting volatility, you underwrote it and you built a portfolio that had some resilience that you're going to be okay, and it has turned out okay. So what's happened is the companies that are growing at 40% a year, probably in local currency, probably ended up growing at 25% a year because 15% was currency taken out. Well, if they grow at 25% a year for five or six years, they'll give you a 3 - 3.5 x on just growth alone without any other bells and whistles. Right. And so what that's done for us and what I would say to the investors that are on the call, let's say, think about emerging markets in general and think about the currency question is buy growth because growth will make up for a lot of errors, currency or otherwise. My really good management teams that have lived through real challenges because they know how to you know, if you talk to companies that were operating during the Arab Spring in Egypt, they figured out how to pay their people when it was unsafe, how to manage around currency situations, how to manage their safety issues. So all day long, we want to buck people like that because they will improvise where no solution exists ahead of time. And I think if you do that and you build a diversified portfolio, which is a side piece of this, then you're okay.
Henry Kaestner: I also think it's worth mentioning that even in a country like South Africa, you look at the Rand, it's been relatively flat. There's been some volatility against the US dollar, but we're not talking about massive depreciation. So it's a very, very rare event when you see something in Zimbabwe or Venezuela. So I want to make sure that we don't overstate that, and I think you've answered it really well. I want to shift back to the fund a little bit, and I want to ask well, I really would love to get a story about a company that you've invested in that you're most excited about. But before we do that, I actually want to shift into the theme. Of course, that's always pervasive in our segments, which is faith. And you talked a bit about the beginning about how faith and God's plan have made such an impact in your life. But I know about your partner. I know about how you think about things, share how your faith impacts how you invest.
Richard Okello: So I think I mean, we were believers in Jesus before wherever business partners or frankly, employees, right? So we were fortunate in that sense that we did not have to fix a bunch of errors before that happened. So some people do the second thing and then they got to do the first thing and they have to pull back and kind of fix a bunch of errors. So we're fortunate in that regard. I think the way in which we view this is we feel called to do what we've been called to do. Which is a to be really good stewards of the capital that's been entrusted to us by investors who are most of the time never been to this geography. And are are called, that sort of the respect, the walk, the focus that it requires. And I can come back to that. But we also feel that we have been called to steward other things that are much softer. So we're both family people. I've got wife of 19 years, two boys. My partner's got a wife for kind of similar 20 years, 21 years now with three kids. So what we do as husbands and what we do as fathers is going to be far more important to what we do as investors. Now, don't get me wrong, we have to do a phenomenal job as investors, but the bar is really, really high on the other stuff, right? Because yeah, when our kids go out in the world as, you know, like we hope we've done a good job when they go out in the world because then they can impact other people in a way that perhaps that we can't. We're also stewards of our employees. Right. Their families, how they see us operate, how they see God infused in our business.
Henry Kaestner: So give a little more color. This to your partner was a pastor, correct?
Richard Okello: He is an elder discharged. You know, he preaches a sermon, I'd say probably once or twice a month. And so we how God affects us can't just be a thing we talk about or a label. Right. Because there's so many of those labels, the things that people talk about that lead people in the wrong direction. I think people need to see how we operate, when we have to let someone go.
Henry Kaestner: Mm hmm.
Richard Okello: How we operate in crisis. When we got into COVID, how did we operate in COVID? So if we believe in this God that's supposed to be in charge of this situation that when no one seems to know what's going on, are we all panicked and have we lost track of what's going on? In which case then how we different than someone who doesn't? So I think like taking the notion of stewardship in a 360 degree fashion, you know, the people we partner with, the fund managers we partner with, the companies we partner with, how we view the way in which those funds or companies affect their communities. Right. All of that comes into this kind of single time of stewardship so I think to me, our work, what we try to do is as much as possible. Stay as close to God as we can. Without which we couldn't possibly be half decent stewards of all this stuff. And we feel like if we do that and we can be I won't even say phenomenal stewards, but just half decent stewards guided by him, then I think we'll be okay. So that's how we think about that.
Henry Kaestner: Okay, so that's the bigger picture and I love it first. I mean, is the ordinaces is so important Matthew 6: 33 Aim first for the Kingdom of God, righteousness and all these other things will be given to you as well. And so you're talking about ordinance, let's make sure we've got the right relationship with God. Let's make sure we focus on our family, provide the right culture for our employees. And so then that then continues. And what I'd love for you to do is, is we talk about an individual investment.
Richard Okello: Yeah.
Henry Kaestner: How does that faith actually manifest itself? Now, clearly, your faith provides a foundation that allows for all these things to happen. It allows for a culture of excellence within your staff and your analyst.
Richard Okello: Yep.
Henry Kaestner: It provides for a culture of excellence in how you think about diligence and discovery and showing up at people's churches and understand more about their character. What does it look like when it actually meets the ground in an investment? Maybe you've got a story or something like that. You can say, okay, this company did this and this is how our faith helped us make the decision or how we've managed the investment. Give us an example, please.
Richard Okello: Okay. So I'll give an example in the grocery retail space. So the first recorded organized grocery business in the US was, I think around 1915, a business called Piggly Wiggly in Tennessee, a tiny little business. At that point, the population of the US, about 100 million people, the largest US city, I think New York City was 5 million people. So let's fast forward to 2015. 1915, 200 years later. Okay. Hmm. Let's zoom in on Nigeria. 200 million people, twice the population of the US at the time. Okay. Largest city in Nigeria, Lagos. 20 million people, give or take, four times the size of the largest city in the US. Largest grocery store at the time in 2015. 15 stores. Wow. 15 stores. One five. So like anyone on this call that's in a developed market or, you know, bigger country, Brazil, Brazil in 2015, the largest store was 2200 stores. Brazil has 200 millions people just like Nigeria. So therein lay the opportunity and the challenge because the behavior of the people in this let say in Brazil as in Nigeria is not that different. They go to work they work hard and they have less and less time. They want to be able to go to grocery store that's organized, get what they want, find it at a good price, know that it's fresh and reliable, go home to their family. It's very simple request. It's not a very complicated request. Okay. So so in 2015, after doing a bunch of work, we decided that we wanted to do more in this sector. And we found an entrepreneur that had built a successful fast food business and who was building a closet grocery business, closet imports, because people are coming into this fast food restaurants at lunch time buying their food, their fast food, and then basically asking for milk, tomatoes. And they say you use this stuff anyway to do our food. Why don't you just sell it to us besides the refrigerator? And so he said to us, I got to tell you guys, this is a much bigger opportunity than the fast food. We were attracted to him because of the fast food. They said to us, no, forget the fast food restaurant. The grocery business is billions of dollars, lots of opportunity unmet. So, you know, we're skeptical. So for a period of two years, starting from about 2013 towards 2015, we spent time with this guy. Getting to know him, visiting his businesses, taking him to Kenya to show him how this is done in Kenya, to Uganda on our dime is like we say, Hey, why don't you come spend the weekend with us, we'll show you around, whatever. Bring him to South Africa where you have proper institutionalized grocery, you know, thousands and thousands of stores, people running back whole, you know, super efficient. Right. And kind of open his eyes, get to know him and so on. Now, eventually, we get to a point where he says, hey, we need to do something enough talking already. Let's do something. We say to him, okay, now this is a startup, and because there's a startup, we've got to get some sort of security to start up in Nigeria, essentially. Plus, they're going to move your crowd into a shop but it's a start up. So we say to him, we want to take a backing equity position in your fast food business. So if this thing doesn't pan out, we got to have some protection. That's the first real test of someone's conviction and their integrity. All of that in real time. Right. So he says, okay, I'll give you a backing position that will make you a 25% IRR in my existing business with 35 stores if this thing doesn't pan out. Then we get into the work. All the work you have to do around the new investments, all the legals and all the groundwork, all the market research and all the rest of it. We finally get to a position of decision and couple of things I think happened. One is we got to know that he I wouldn't describe him as a believer in Jesus necessarily, but he was a super high integrity person, much more high integrity and lots of believers actually that we knew in this space. But he was also a very tough he's had to be a tough person to build a business that he has, and you need someone like that in that industry. So we had to decide could we deal with his toughness? Knowing his integrity or not. Okay. So some of that for us really comes to, you know, we go back to our closets and we consult and we say, like, how do I feel about this? Do I have a nudge that's positive or negative? We've done all the work. The memo says we should do it. The teams agree we should do it. The demand is that people want it, people already buying stuff. That's all that now. But should we do it? This is the right thing. Okay, we both come out, Charles and I like, okay.
Henry Kaestner: When you say, hold on a second, when you say you go to your closet. Is that code for prayer?
Richard Okello: So I wouldn't call it code for prayer, but we pray and then we say, How do we feel about this? Is there a hesitancy? It's not like you hear a loud voice from somewhere that says, I absolutely do it right. This is not right. That's not how it works. But do we have a hesitancy? Do we have a check? Because in this particular case, we have a very strong personality. We're going to partner with one of the 5050 partners in a country that's not South Africa. We are not there physically every day. Should we do it? So at that point, we are always well-advised to check here and say, how do we feel about this? What's the gut? What's the nudge? What's the leading What we feel about it. We pray. What do we feel what do we feel back? And that's important. Now, that doesn't happen on every single transaction because asset and transaction where you have that sense right through the process as you go through it and you're fine and you just run through the person, you're done. In this case where, you know, I'm being annoying. And I remember one weekend having a conversation with Charles where we needed to make the call by Monday, and we're just like, Let's sleep on it. Let's see how we feel, let's pray, let's see how we feel. On Monday, all the backing information's there. Everything says we should do it, but let's just make sure. Okay, that was 2015. We are in the process of selling that business now. It'll be about somewhere between 17 and 20 stores this year. Mm hmm. What has happened in Nigeria during that time frame? The currency has lost. 60% of its value. There have been two elections. There's been one recession. That entire time. The business has been open. The stores have been open. They have put stuff on the shelves. You know, when COVID happened and the governors of the different states wanted to start shutting down public congregation points, the public got out to the store and they say to the governors, you cannot shut this store down. People just stood outside there like you have to keep it open. It is our lifeline right now commercially. We think this is a business that, based on the bids we're getting now, would make us five times money. Not withstanding all that noise in the currency. And that is another right now. But it's also a business that if you think carefully about what happens when people organize groceries retail, it starts to change their behavior. They can get home to their kids and help them with homework because they don't have to be stuck in traffic trying to go to market 2 hours away to get food just to get basic right.
Henry Kaestner: So it's an extension of what you see in agricultural communities where we're having to walk for an hour or two to get water. It's a challenge in the urban equivalent of that is having to go far to get food.
Richard Okello: To get food. And most people. Africa is urbanizing faster than any other geography today in the world and will be for the next 10 years. Right. So this problem and this opportunity will get more and more acute. So that's, I think, one example where how our faith weaves into business the type of what we do, a simple sector that people understand all the way through to exit and commercial return and also just sheer impact. You know, it employs hundreds of people. Right. It's a business that I've just done a five year plan to go from their current size to about 50 stores. You know, this could be 200 stores. Right? So hopefully that gives your listeners a sense for business where you can kind of do both and, you know, kind of deep in it.
Henry Kaestner: That very good. We'd like to end every podcast where the question we asked of all our guests, which is What are you hearing from God through His Word? And maybe it's something in the Bible that you read this morning that struck you, maybe something last week, maybe something in the season, but what's something that you're learning from his word?
Richard Okello: So I think for me right now, I would go back to John 15, where it says Abide in me and I in you know, you know, you read that portion in the Bible and it's such a simple thing, right? It's like not even ten once. Such a simple thing. So incredibly difficult to abide continuously right and I think what I'm realizing as I spend time around this, listen to other people talk about this and so on, is that a lot of the times we have taken this notion of God and made it this big thing God's out here, this big guy, you call him when you've got problems, you know, you treat him in a certain way. You kind of, you know, like, hey, just stay over there. Like when I need you, like, come help me. You're kind of like this. You're my problem. concierge, right? Whereas what that really speaks to, I think, is, is someone that's right here. It's almost like you've got a parrot, like a pet parrot that sits right here, that talks to you all the time, but listens to you all the time and you talk about stuff. So, you know, I got up this morning really tired, decided to go for a swim on the drive down to the pool. I started I was like, I'm really tired. I have this FDE thing I got to do later on today. I honestly don't know what you do to say, right? I don't know what you want me to say, but I need you to help me. I don't know if should. I swim. I don't know. I feel like I need to swim. Like that's the conversation in the car, right? And it's amazing to me. I'm discovering I've just started to discover how powerful and how different of a trajectory you can have when you operate that way, how your life just starts to change, how things change in real time. Right? So that for me is that's my current kind of focal point.
Henry Kaestner: So you're suggesting that you can abide in God while even under the water.
Richard Okello: You can abide in God on this call. Listening to this call, your kid runs in the room, throw something at the screen, you know, on and on and on. And he actually wants that. Yeah, that's the key, right? We're not forcing it. He actually wants that. We most of the time are keeping him away from that and ourselves from that, which is like what we should not be doing. Right.
Henry Kaestner: Amen. Amen. That's an awesome word to end on. I'm just very, very grateful for you, Richard. Thank you for your friendship, your partnership in the movement. May God bless you and your fund in your investments and very much looking forward to the next time. Thank you.
Richard Okello: Henry, thank you very much for having me. It's been fun. And look forward for the conference.