Episode #159: Ashby Monk, “The Fee And Cost Issue Is Important Because It Is A Catalyst For Innovation”

Episode #159: Ashby Monk, “The Fee And Cost Issue Is Important Because It Is A Catalyst For Innovation”

 

 

 

 

 

 

Guest: Dr. Ashby Monk is the Executive and Research Director of the Stanford Global Projects Center. He has a strong track record of academic and industry publications. He was named by CIO Magazine as one of the most influential academics in the institutional investing world. His research and writing has been featured in The Economist, New York Times, Wall Street Journal, Financial Times, Institutional Investor, Reuters, Forbes, and on National Public Radio among a variety of other media. His current research focus is on the design and governance of institutional investors, with particular specialization on pension and sovereign wealth funds. Outside of Stanford, he is the co-founder and Chairman of Long Game Savings.

Date Recorded: 5/28/19

Run-Time: 1:06:42

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Summary: In episode 159, we welcome our guest, Ashby Monk. The episode kicks off with a discussion about the concept of saving planet earth and the important role that asset owner investors, the largest institutions in the world such as sovereign wealth funds that total approximately $100 trillion, now have.

Meb then asks Ashby to get into the models behind large institutional investors. Ashby discusses some history, and boils it down to what he thinks are the three functions that drive success: people, process, and information.

The conversation then gets into Ashby’s thoughts about insourcing vs. outsourcing. Ashby explains that both paths are viable, and the importance of starting with a rigorous understanding of what it costs to run investments internally vs. externally. Ashby notes that he thinks the institutions pursuing the highest quality inputs in terms of people, process, and information should receive recognition, independent of the model they’re running.

Meb asks about trends in the industry. On the good side, Ashby discusses the push on fees and costs, and the positive effect it has on institutional investors as a catalyst for innovation. Ashby then talks about how being green and good stewards of the environment has delivered outperformance.

The conversation then shifts into Long Term Stock Exchange (LTSE) and its mission.

As the chat winds down, Meb and Ashby discuss the app he co-founded, Long Game, and the mission to engage people in their financial decisions in an entirely different way.

All this and more, including what Ashby is particularly excited about and his most memorable investment in episode 159.

Links from the Episode:

 

Transcript of Episode 159:

Welcome Message: Welcome to the “Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser, better investing starts here.

Disclaimer: Meb Faber, is the co-founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb: Welcome podcast listeners. We’ve got an awesome show for you today. Our guest is the executive and research director of the Stanford Global Project Center. He has numerous academic industry publications and books to his name, was named by CIO magazine, as one of the most influential people in the institutional investing world. He’s also the co-founder of Long Game, saving app designed to make smart financial decisions fun rewarding, which will get to closer to the end, so make sure to stick around. Welcome to the show, Ashby Monk.

Ashby: Hey, thanks for having me. Excited to be here.

Meb: I assume you’re up in NorCal right now. Where in the world are you?

Ashby: I’m sitting at Stanford for this podcast. Sitting in the engineering school at Stanford University.

Meb: Well tell you what, so I was an engineer once upon a time, not anymore. You seem like a nice guest. So I figured we’d start really simple. And I’ll give you a softball. Were in one of your recent tweets this year, can’t be that recent, you talked about how we’re gonna save planet Earth. Like me, you’re a tweet stormer, so. But no, let’s talk about this general concept. You talk a lot and spend a lot of time in the real money world. So you talk about the giants and we say real money, we’re talking hundred trillion across the globe. Why don’t we start there as a good jumping off point? We can talk about the big dudes first and how they manage their money. And what’s the status of the real money these days?

Ashby: Yeah, happy to. So obviously, thanks for having me. It’s fun to be on. And I really do believe that if we’re gonna save Earth from all these existential crises that seem to be looming, whether it’s climate change, or water scarcity, or any of the other projects that kind of demand huge amounts of capital. We’re gonna need this community of asset owner-investors, pension funds, sovereign wealth funds, foundations, endowments, and so on. And we’re gonna need them to do more than just make money. But I think for the last 30 years, the job of these funds has been hard.

They’ve had to hit this high expected return target and kind of deliver on the promise of the pension funds, the original plan sponsors that set these up with a promise to pay some future benefit. They’ve had to deliver on that, and they’ve had to reduce the cost of that by generating high returns. But they’re gonna have to do more, because they’ve become the base of our capitalist system, with 100 trillion dollars, as you said, and that number obviously moves and shifts, depending on what you add to that. But if you add up all the asset owner-investors in the world, it’s something around 100 trillion. And we’re gonna need 3 trillion a year for infrastructure, another 3 trillion a year for climate change, we’re gonna need inordinate amounts of capital.

And the government’s are cash strapped and kind of unwilling to tax more and spend more. And the banks are being regulated out of a lot of the infrastructure spaces and creative and innovative markets. And so we’re left with the long term investors that kind of function there at the base and are the source of risk capital flowing out into the private equity funds, the hedge funds, the venture capital funds. Those are the people that my students think of as the base of capitalism, but they’re not, they’re intermediaries. And so if we’re gonna fix a lot of these problems, we need to figure out what’s going on with these asset allocators. And just as a follow on, it’s also important to note that they may be the base of capitalism, but they also tend to be the bulwark protecting social welfare.

So there’s this weird marriage here between the left-leaning kind of people who wanna reinforce the welfare state, and kind of right-leaning folks that are gonna deliver the investment performance to do that. And it all kind of flows through these pension funds, and oftentimes can be boiled down to the expected return target we impose on them. And there are huge consequences of that expected return target, and the flow of capital globally.

Meb: You’ve touched on a few important things that I wanna talk about. The first is the general model for a lot of these funds. And you would think with these funds being as large as they are, I think I saw you mentioned at one point that some of the sovereign wealth funds was actually invented in the U.S., which I didn’t know if true. But you would think for being over 100 plus years of these institutions existing, it would be a pretty basic model that everyone would have adopted. But you’ve come to see that it’s become a very broad spectrum of some of these funds, the way they manage these pool of assets versus the others. Could you talk a little bit about what’s the status of how do these funds operate? What do they do with their money, anything that particularly is thorn in your side of either really bad behaviour or really good models?

Ashby: It’s the ultimate question, how do these organizations actually invest? That’s the kind of project of my life, which is can we boil down what they do to something that is coherent and generalizable? And then can we improve it? First, I’d just say that we did here in the U.S. invent that kind of notion of sovereign funds, we call them permanent funds. I think the first one was the Texas Permanent School Fund back in the 1850s. And from there, we’ve got, obviously, the one in Alaska, New Mexico, Wyoming, they’re popping up in a bunch of different places where there was some soil assets, really, and where the notion was, we needed to preserve intergenerational equity, rather than just taking the assets out of the ground and spending it.

Yeah, so we set that up. And the idea, probably useful to say was in all these funds, whether it was a pension fund or a sovereign fund, there was some long term objective. And the means by which they were gonna achieve that objective was realized through financial markets. So, the public pension plan, if we wanna take that to start, they wanted to make a long term credible commitment to future generations of retirees. In order to keep the cost of that pension benefit down, they needed to invest more aggressively in financial markets. Obviously, higher returns means lower contributions and/or higher benefits. Those are really the only three leavers, we can pull contributions, returns, and benefits, in terms of pension security.

Plan sponsors said, “I’ve got a university, I’ve got a foundation, I’ve got some objectives. And in order to meet that objective, I’m gonna rely on global financial markets.” So that was the basis. When most of these organizations were set up, they were very simple. We didn’t have the complexity that we do today. And so you could have representative boards of directors overseeing the capital, and by representative I mean, people who stood to benefit from the success of the fund policemen, firemen, teachers, sheiks in the Middle East, union workers and Australia, teachers and Ontario, municipal employees, and so on and so forth. These are the people that often sat on these boards, and kind of governed how these investment organizations sought to run money, bring money in, run it through the production function. Ideally, on the end of that production function, you’ve got more money. I mean, that’s the fun thing about the investment business, your input is basically the same as your output, it’s money. Obviously, we can talk about risk-adjusted returns, and alpha and all these different things.

And so when we’re trying to understand, are they being successful in their pursuit of these objectives, I think it really helps to kind of boil down that production function to its key inputs. And that is you take capital and obviously it run through production function, you have more capital, but what are those inputs? And based on the work we’ve done here, we’ve tried to boil it down to three inputs. And that is people, process, and information. So those inputs can be combined, internally.

So if you’re a Canadian pension plan, and you have incredibly strong governance, thanks to the crown corporation model, and you can pay salaries out of the asset base, you’ll cultivate your people internally, you’ll build an organization that has a global footprint with global offices, you’ll use managers less, and you’ll pay people internally more, more than peers around the world.

If you’re a U.S. endowment, you might combine those people process and information differently, you might pull information out of your alumni network, you might seek to identify external people that are incredibly talented. And then you might use a process in order to facilitate maximum alignment with those people that are external.

I mean, that’s really at the core what I believe the endowment model was about and sometimes we think of it as alternative assets. But it was really about funding incredibly talented people, and pushing them to do things in niche and creative areas, but maximizing the alignment of interest with them. And so that model, that endowment model was designed to do that. But the key inputs were always the same. It’s capital, people, process, and information.

Then the question is, well, how do we improve these organizations if we wanna improve these organizations? And the question then becomes and should become always, should we continue to source our people on the market of financial services, or should we cultivate them internally? How do we change our people? How do we change our process? Are we a bureaucratic organization? And so we’re stuck relying on external managers? Or can we cut through the bureaucracy and improve our process? Where should we get our information? Should we rely on a custodian State Street to deliver the GX process? Should we rely on a fixed income asset manager to deliver Aladdin or should we partner with Google or Facebook or any of the other peer tech companies that could deliver information to investors that tend not to.

And so what we found is there’s three environmental enablers that investors use to change their inputs, and they are governance, culture, and technology. So you can change the people through governance, you can set compensation differently, you can empower those people to have much different delegations of authority. That’s governance. Technology, we can automate processes, we can get data into the hands of people differently, we can do a bunch of stuff. And in the era of AI, and inference, the possibilities are endless. And then culture is what most of the pension funds and sovereign funds have kind of over-indexed on over the last 30 years.

They rely on culture to recruit great people. They rely on culture to take a long term perspective. You’re working for the state of California, you’re working for Stanford University, you’re taking this kind of deeper view of the ecosystem. And that’s how they retain/recruit great people. But culture is hard to change. And so that’s why a lot of the work that I’ve been doing has been focused on governance and technology. And we’re trying to figure out how we can improve those so that we can improve the production function. Sorry, that was long-winded.

Meb: No, it’s perfect. I mean, you touched on and one of the biggest and most difficult questions. We, on this podcast and elsewhere spend so much time talking about just the investments, how much did you have an X, which is you put it in Y? Should you invest in this asset class or strategy? And one of the biggest challenges a lot of these institutions face and a very simple example would be kind of what’s been going on with pretty famous Harvard and Yale. Harvard, and just all of the challenges of having different culture and different people, and various interests, whether its alumni or students, or faculty, or anyone that’s involved in the process, having different levels of understanding, different goals. And Harvard, in many ways has been kind of a mess. For all of these challenges, it’s so hard. Talk to us a little bit about… you spend a lot of time talking about this concept of insourcing versus outsourcing the asset management decision at any of these sort of firms or funds, as well as this concept of who do you pay and how much?

Ashby: Yeah, well, the insourcing versus outsourcing question is kind of fundamental to the work that I’ve been doing, not because I’m actually endorsing either path, I’m endorsing that the investment community recognize that both paths are viable. So what do I mean by that? Well, I guess what I mean is too often we kind of look at pension funds, and we think, “Oh, they could never do this.” Or we look at the Canadians and think that they’ve managed to build this incredible organizational structure, and that that is never replicable. It is, in the right circumstances. So that’s the first point. That with the right circumstances, and frankly, the right burning platform to force change on organizations that often struggle to innovate, we can do a whole lot of things. And a lot of my life over the last five years has been trying to identify those burning platforms to force innovation, or at least force boards of directors of these plans to ask a very simple question. And that is, is there another way to generate the returns we need to meet our obligation? Because too often it’s like, well, insourcing versus outsourcing, it’s actually a question of just should we do it internally or should we do it externally?

And so the first point is like, in order to do that, you need a very rigorous understanding of what it costs to do it externally and what it costs to do it internally. And way too few organizations actually spend the time to do that. Many organizations are happy to obscure and hide the fees and costs that they’re paying external managers. And I think that kind of neuters a really powerful conversation. And that powerful conversation is, “Look, this is what it would cost us to run internally. This is what it’s costing us to run externally. Obviously, the external market has benefits, we can hire and fire, we can flexibly move in and out of different asset classes. And if we start building it internally, maybe these are really difficult teams to unwind. But we have the benefit of this costing 10 basis points, and that costing 100 basis points.”

Like those are healthy conversations that I’m describing. Not many people have those healthy conversations today, whether it’s Harvard or Yale, or it’s a county pension plan here in California. Oftentimes, the decisions we make about internal and external, are related to governance and politics, and career risk, rather than how should we make our money. That’s kind of the areas that I tend to be focused on, and why spend so much time talking about fees and costs.

Meb: I love your concept where you’re talking about the examples of using college football coaches, and the challenge of insourcing where people were a couple years ago, we wrote a few articles about this, when the students/faculty were going crazy at Harvard about how much money these people were making. And then on the flip side, they’re like, but also we need to be making 10%, returns, whatever it was, we’re underperforming. It was like this impossible situation.

Ashby: I hate to cut you off, but I think it’s a subsidy of the asset management industry. You have politicians saying, “I’m not gonna pay you CIO of the pension plan, more than $95,000 a year.” And I can literally think of instances today, where people are making less than $100,000 and sitting on top of 10s upon 10s of billions. And their expected return target is seven plus. Well, like in my mind, that is a pure subsidy of the asset management industry. You’re saying you have to go make this performance, I’m not gonna compensate you internally, I’m not gonna resource you, I’m not gonna get you the data you need. I’m gonna run an incredibly efficient organization internally, which is antithetical to innovation, efficiency and innovation don’t go together, which feeds this belief that pension funds can’t innovate, because we’ve designed them that way. And so we’re gonna push these CIOs into the hands of the welcoming hedge fund private equity, venture capital, active managers, who are gonna charge high fees, and for the most part, are only gonna barely deliver on what they’ve promised, especially public markets, obviously, private markets have different dynamics. But how is that different than subsidizing a corn farm? You’re making policy that limits the ability of certain parts of the sector to compete and it’s benefiting other sectors.

Meb: As you look around the landscape, and I was just recalling in my head, by the way, I think Nick Saban makes 8 million a year, as you’re looking around the landscape, and you spend so much time with these funds, I know you say it’s neither here nor there on which model you choose, we’ve written a couple articles meant to just be kind of provocative called, “Should Harvard and CalPERS Be Managed By a Robot?” Meaning should they just put all their money’s in a bunch of ETFs and be done with it? But as you look around to these institutions around the world, are there any, in particular that you see as shining examples of,”Hey, they’ve got this right. They’ve done a really good job of building out the infrastructure and fulfilling their mission. ” Is there any ones that you think are particularly good examples of that?

Ashby: Yeah, I mean, I think people that are pursuing the highest quality inputs, people process and information, independent of the model they’re running, whether it’s Canadian or endowment, deserve recognition. And I mean, interestingly, like, whether it’s Stanford or Yale, the kind of Swenson model, I think they’re running a really cool model, which is all about reducing the number of managers, at least here at Stanford, reducing the number of managers you’re holding in order to increase the understanding of those managers, in order to increase the alignment of interest with those managers, and maximize the potential to generate outperformance by being willing to double down on managers who happened to be out of favor, but who haven’t done anything necessarily that deviates from our expectations of them. And so like, in that case, I think that notion that the true endowment model is a handful of managers doing really complex things, which only we can understand to the extent that we do.

If you’ve got 300 managers in your endowment fund, you’re not really running that kind of core endowment portfolio anymore, you’re running something that’s different. It’s a tilt alternatives and privates. I think it’s not gonna come as a shock. But I think the people that are running that kind of pure focus of the endowment fund deserve credit for doing something really interesting. It doesn’t scale. It’s really hard to scale that, once you’ve crossed 30, 35, 40 billion, good luck running that kind of a portfolio, unless you’re willing to seed funds and put them in business, because the great funds just simply don’t have capacity.

And so then that takes me into well, who’s seeding funds? Who are doing this well? Railpen in the UK, Alaska in Juneau, Wafra in New York, they’re seeding. They’re looking to put asset managers in business. State of Wisconsin, I don’t know where they are on this. But I remember hearing stories about them trying to own some of the factors of production by putting people in business and participating it. And these are highly performing funds that are doing really innovative things.

You’d be remiss not to talk about the work of the Canadians, but the Canadian model in my mind will fall down if they can’t build innovation into the day-to-day functioning of these organizations. So running the Canadian model well, is not innovative. It’s efficiently running the Canadian model that’s efficiency. What comes after the Canadian model? What happened…

Meb: To interrupt.

Ashby: Yeah.

Meb: You mentioned we actually had Claude Lamoureux on the podcast back from, used to run Ontario.

Ashby: Teachers.

Meb: Yeah. But for those who are listening, who don’t know what the Canadian model is, quick summary.

Ashby: Yeah. So the Canadian model is really a governance model more than anything, which says, we’re gonna create a crown corporation, which is an arm’s length entity from the government. We’re gonna create nomination procedures for the board of directors that prioritizes knowledge of investing and business acumen. And then we’re gonna empower those boards of directors to set strategy, and resource that strategy in accordance with achieving objectives. I know that all sounds very basic and obvious. But in the pension world, that’s astounding. The frequency with which I see organizations doing things that they would not otherwise do, would they have had a freer, more flexible governance framework is not just daily, hourly.

These organizations are fundamentally constrained, which is why I made the provocative statement that we’re subsidizing the asset management industry, because you have these governments saying, “Go make 8%. And oh, by the way, I’m gonna pay you 90 grand a year, and you’re unionized. And you’ve got no delegations of authority. And you have to walk your managers back here to the board directors, because I like meeting the managers, it’s fun to shake their hands.” Like these are the types of things you see typically.

And so when you talk about the Canadian pension industry, and what Claude really led, was this notion that we can run pension funds professionally. And the kind of rule of thumb that they were using in those early days, which I think has played out, at least it had when I was last working with some of the funds five years ago, was that it’s 10x cheaper to run these strategies internally, infrastructure, real estate, fixed income. You can make lower gross returns and still achieve significantly higher net returns. And that’s ultimately the Canadian model. They’re compensating their people well, they’re empowering them to go and do deals. And from the 90s-2000s, and to now, they’ve done really well at it.

Now, that doesn’t tell me exactly whether or not they’re gonna be able to pivot into this next era of investing, which I call the technologized era, which will see alternative data, artificial intelligence, Internet of Things, new factors, all these things coming together and really upending the kind of models of investing. If you think back to our people process and information, technology is gonna fundamentally transform every one of those inputs. And so will they be ready with their kind of people-centric approach to transition from the model that they’ve built into something that’s highly technological? I think that will be the big test in the coming 10 years.

Meb: So as we look around all these different models and kind of what’s the status of these big money institutions, is there any major trends that you see? One that comes to mind certainly is this sort of stampede into private equity in the hopes that it will be the saviour of the 8% return. But is there any trends you see either positive sort of golf clap in the community or on the negative side that you see, as you just shake your head and say, “Oh, my God, I cannot believe these people are doing this, or these structures are being built, or this is a really just awful trend I’m seeing.” Anything comes to mind.

Ashby: Oh, man. Let me start with the good. And then we can talk about the bad. But the good news is, this like, push on fees and costs, which kind of probably began 15 years ago and really kind of has hit full force over the last five years, is having an effect. And that effect, I think, is very positive for the community of institutional investors. I think first and foremost, I don’t focus on the fee and cost issue because of the simple reason that I’m trying to like hammer the asset management industry and hand the money back to the pension funds. I mean, that’s I guess part of it. But the focus on fees and costs, which has really become mainstream is much kind of more complicated than that. The fee and cost issue is important because it is a catalyst for innovation. And I haven’t found any other catalyst for innovation as powerful as fees and costs in the context of pension funds, sovereign funds. Endowments are still managing to hide everything, as are most of the foundations. The public pension fund community, in particular, has been affected by fees and costs, because it creates a crisis of legitimacy. And that crisis of legitimacy, once the public has realized how much is being spent on these external service providers, that then creates a fear of death, for lack of a better term.

Look, most of the innovation that takes place in the commercial sector is based on fear of exit. Unless you have a monopoly or you’re 100% convinced you’re gonna exist for all time, you change, you innovate, because you don’t wanna die. And that’s a very powerful motivator. And people in organizations, even politicized organizations will often at least get on the same page when it comes to doing something innovative to preserve the organization that employs them. Well, now you look at a pension fund and you say, “Wait, this pension fund will exist for all time, the people there may change but the pension plan itself will go on. CalSTRS, CalPERS, NICERs Mass PRIM, these are organizations that will be there for 50 years

The people will change, but those organizations will be there. And that creates weird incentives inside those organizations. The only way you get fired is if you do something innovative. And I can think of three examples in the last few years where people have been fired or were almost fired in pension funds for trying new things. And that’s in part because we have these prudent person rules, which pushes people to kind of follow each other around. We’ve got very strict interpretations of fiduciary duty. To this day, we see pension fund CIOs asking, “Should we be thinking about climate change in our portfolios?”

These are funds that have multi-decade time horizons. And even if you are militant about the fact that climate change doesn’t exist, I wager, even those crazy people that believe climate change doesn’t exist and rejects all of the science of NASA and elsewhere, I bet you could say to them, “Are you 100% certain of that position?” And they would say, “No, I’m 99% certain.” Well, even in that case, you should be managing that risk. Because a 1% certainty, or lack of certainty suggests to me that as a risk manager, you should be contemplating this in your investment decision making. And yet, we still see many plans trying to figure out how to marry climate change into their investment strategy, investment process, their risk management.

And so all of this is to say this fee and cost issue, this is why when you ask me how fees and costs affects mankind or whatever the tweet I put out there, look, it’s gonna force these organizations to begin thinking creatively. Because when you’re a pension plan, and you admit that you’ve just spent $3 billion or $4 billion on private equity carry, the natural reaction is, shouldn’t we be doing something differently? Are we looking at all the options? Have we thought about seeding managers? No, we haven’t. Actually, we have a policy, which is often the case that we don’t do first-time managers, we don’t even do second-time managers. You need a track record. Which means that we are as pension funds, often reinforcing the hegemony of the top managers and giving them greater pricing power rather than unlocking new managers through seeding programs.

It’s what I call individually rational but collectively crazy behaviour, we’re rife with it. Even the consulting business is. They would much rather sell you a report on a big private equity fund, then go write some bespoke project on a new asset manager, because one of them they can sell 150 times and the other one they’ll sell once. They’re all good capitalists, they’re all doing their best to build a successful businesses. But it seems to me the entire industry is tilted towards conservatism, and reinforcing the power of the intermediary. And the fee and cost issue, which has taken hold, and it’s now I’m seeing front page of the New York Times talking about the fees paid by New York’s pension. And you obviously saw the whole thing with CalPERS and the private equity portfolio and the realization of what the carry truly was. But those are the burning platforms that are forcing the board of directors, the management teams, the staff to think about what is the next platform. Because finally, there’s a crisis of legitimacy. And people are asking, rightfully, is that money worth it? Is there another way.

And so I think that’s an incredibly positive development over the last four years, five years, that gives me confidence that we’ll get enough innovation in the sector to create role models. So once we get a little bit of innovation flowing into the pension space, then we can do a judo move on the pension fund industries foibles. So they follow the leader, they herd, all these things. If we can show them that there are viable alternatives, and that it is their fiduciary obligation to seed managers or take climate change into consideration, then all of a sudden, they all have to do it. That’s the wild thing about this sector. If we can take the money away from the hedge fund community and redeploy it into climate infrastructure, and show that that makes sense in 1% of the assets, well then, we have a chance of pushing 10%, 15%, 20% of the assets as everybody else follows the leader.

Meb: That’s a good example, while we’re on the topic. You mentioned in the beginning, ESG, there’s a paper is being green rewarded by the market and empirical investigation of decarbonisation and stock returns, want to give us quick summary?

Ashby: Rolls off the tongue, doesn’t it?

Meb: Right.

Ashby: Yeah, so that was using this carbon intensity data from True Cost, which looked at primary, secondary and tertiary impacts of production, in terms of carbon and carbon intensity of that production function. And we showed that for those companies that are midsize and large, didn’t matter which industry you are on, but the high performers, the sort of good stewards of the environment, outperformed in terms of investment returns. And so that paper right now is under review at a top journal, and the feedback looks good. But as a working paper, we showed that being green in terms of the companies that are managing the carbon intensity, and their production function, delivers higher returns. We managed to isolate that and control for manager quality and all these different factors. So the hope is, with projects like that, that you show, the pension community that taking this seriously delivers outperformance. And then again, it’s the judo move, we show them not only does climate not take away from returns, which many of these people even today believe. They think ESG is the stuff of hippies here in California. But rather it’s the icy veined capitalist approach to making money.

We’re trying to use that fiduciary duty to push them to do the right thing. It’s funny, just as like an aside, it kind of reminds me that like, on that topic of ESG I don’t know if you’ve experienced this Meb, but like you go talk to some CIO and a pension plan or sovereign fund and you start talking about ESG and you sense the eyes are glazing kind of reviewing of the to-do’s of the day, and that email that’s sitting in the inbox that needs to go out, and then maybe you have that conversation with somebody else and you start talking about alternative data. And all of a sudden the eyebrows go up and there’s a crispness to the talking. And there’s a thought that alternative data is a path to outperformance and it’s sexy. And then you want to remind everybody that in many cases it’s the exact same data, ESG and alternative.

Meb: All about the framing of it. It sounds like a good ETF idea. I’ll see if the ticker symbol MONK is available?

Ashby: Yeah, let’s do that together.

Meb: That’s my favourite thing to do is reserve ticker symbols. We got some good ones coming down.

Ashby: Do you really? That’s great. That’s great.

Meb: It’s more important. You see this day and age other than the Vanguard being the giant amoeba that’s eating everything on the low fees, you see an interesting development where some of these funds kind of create their own brand. ETFs ticker is certainly an important one. So my favourite example was back when Bill Gross launched his bond ETF eventually became one of the most successful active bond ETFs in existence. It’s not the biggest, it had some terrible ticker in the beginning. It was like TRXZ or something. And then magically, the ticker BOND came available, somehow. Anyway, off topic.

So one more topic on pensions and all this sort of big money. We could talk about this for hours. But there’s kind of a couple other things I want to talk about. The big topic lately this year, a lot of this, of course, has to do with many of these unicorns, big massive $10 billion, $50 billion tech companies coming private that are a little bit older. We had Professor Dema Darren, come on and talk about Uber and Lyft and everything else ride sharing. But this concept of private companies and public equity markets and the way they’ve existed for decades and the changes, would love to hear your thoughts on that. And then as a part two or answer it together. I know you’ve been involved in creation, or sorry, I think you’re on the board…I don’t know, however you wanna say it, involved with the long term stock exchange. [crosstalk 00:34:04] Would love to hear a little bit of what that’s all about, what’s going on there? All those ideas.

Ashby: Well I’m happy to opine on a bunch of those. You know, it’s funny that you asked me and I dodged the question, probably because I don’t wanna step on everybody’s toes. But you asked me a question before this, which was like what grates on you in terms of the trends. And I’ll admit the trend toward illiquid asset grates on me. I’ve literally built a brand in terms of writing seven books and 80 plus academic papers on like trying to help investors understand how they should do private markets better. And yet, this push to private markets, grates on me. Because in part, the reason I’m so focused on this problem is because I realize markets are inefficient when they’re private. Information isn’t regulated, it’s hard to get. And I’m not saying that public markets are perfect. But I am saying that public markets offer a cheaper path for investors to understand the companies they want to invest in them and then deploy capital into them. They come with tons of problems, which I’m sure we’re gonna talk about in a minute when it comes to the long term stock exchange and other initiatives. But we’ve gone gosh, in the 90s to most of the pension plans having single digit exposures to illiquids to pension funds coming out and saying they’re pursuing 50 plus per cent exposure to liquids.

I think it was the China Investment Corporation that said end of last year that they’re calling for more than 50% of their assets under management into a illiquid assets. And I get it, public markets are painful for companies, companies are staying private because they are sick and tired of activist investors sending investigators to watch them at their house. And they’re sick of not knowing who their shareholders are, which is an astounding reality in many public companies. But going staying private and increasing your allocations to private markets, is a band-aid to a much deeper problem in capital markets.

And so look, I’m a practical person, I sit in engineering school, we literally have a solution mandate, as in as academics, we don’t have the luxury of just describing the world, we need to take a step beyond that, and begin to think about how we solve the problems we uncover in our academic research. And that’s both annoying and amazingly empowering. We don’t get great kudos for just describing the world, which is annoying, because sometimes the description itself is incredibly powerful. But we also then get to say normative things and be a little bit contentious by saying, “Look, this is how we should solve this problem, or here’s a path.”

And so I study alignment of interests, I wrote a book about the collaborative model of institutional investment, which says pension funds should partner together to do innovative things in private markets, in order to reduce the fees and costs they are paying to external managers and maximize return. But even still, the greatest beneficiaries of this move to private markets isn’t just companies or pension funds that are getting higher returns, it’s the asset management industry. The pain of the public markets is shifted from companies to investors, when we go from public to private. Now, the investors would say, “No, but we can create comparative advantages for ourselves, we can find managers that consistently outperform. We can deliver the alpha by a private equity, venture capital, real estate, infrastructure, agriculture, and all of the little hybrid funds that sit between those spaces that I see week in and week out.” But the difference is, you’re paying 2 and 20 instead of paying 20 pips, or five pips for the exposure, or zero pips in this era.

And so I think that really grates on me and think in the one part, the work I do has been trying to make the illiquid markets function in a way that works for the asset owner community. And the companies, frankly, because many of the companies want long term capital. And then on the flip side of that, trying to find ways to empower the public markets to reverse that tide of companies staying private longer.

You mentioned the podcast, and you guys talked a lot about this in that podcast about Uber and all the big giant staying private. But we went from 8000-ish companies in public markets to three and a half thousand-ish companies in public markets. Well, the opportunity set is shrinking. And they’re going public later, which means that the real value creation is being captured in private markets. And we have to find a way if we’re gonna kind of continue to have a capitalist system that delivers for everybody to make those public markets, which are the most efficient means of deploying capital today, more efficient, more founder friendly, where entrepreneurs are looking at their kind of path to scale. And they’re saying, “We don’t need dual class. We don’t need to stay private. We can go public this way. And it seems to me that until Eric Race, kind of wrote his book, “The Lean Startup,” and in the last chapter, he talked about the need for an exchange to codify this notion of long-termism and bring investors and entrepreneurs together into a kind of a new compact, we thought that this was ordained, that this short-termism and this path into illiquid markets was inevitable. And obviously, it’s not. There’s performativity in this market in the sense that we can affect the market with our actions.

And so amazing job by Eric to go into the pain cave of regulation and policy and come out the other side with an SEC medallion to run a public market exchange. And my hope is that in the coming months and years that offers a path for companies to finally go public at a valuation of 800 million, of 500 million, rather than waiting until you’re 50 billion or higher. And then share that value with all of the people that have defined contribution funds. All the pension funds that don’t wanna pay 2 and 20 or are forbidden from paying 2 and 20 to private equity funds because of the governance challenges.

The funny thing is like we have pushed personal accountability on to all these people. And the defined contribution pension is the pension of the future. The defined benefit pension is the pension of the past. And yet those defined contribution pensions 99% of the time more, they don’t have access to any of that illiquid, call it product, for lack of a better term. They’re stuck in those public markets. And so they’re missing it. So we gotta fix it.

Meb: Not always the public markets half the time, it’s high fee, mutual funds and annuities. There was some great articles about that in the last week on some of the teacher options, it’s depressing.

All right, so what’s the structure? How does the long term stock exchange work? What’s the difference? Why can’t we just use an IC?

Ashby: Ah, I think part of it is the founder and the approach to building technology. As I’ve understood LTSE, and as I told you before, I’m under probably enough NDAs, to way down a tablecloth on a busy day, on a windy day, I should say. So I have to be careful what I say. But the idea here is it’s a software company. Go to the website, and you’ll see there’s something called LTSE tools. And those tools have incredible penetration already into the world of startups. And so the amount of startups that are already today, using LTSE tools to manage the tap table hiring, all these kinds of things, are astounding. And there’s plans afoot, I believe, to build more tools based on the fact that since I’ve been involved, I’ve seen more tools arrive on the website. So one would be able to suggest that there’s probably lots more tools in development. And so it’s not just a single exchange, it’s an ecosystem of companies, of investors. And the role that I’ve played has been to try to bring this community of long term investors into this ecosystem, which will benefit them. And it’s not always straightforward, because there are corporate governance issues that seem to be fervently held by the long term investor community.

But just as when we look at the pension funds, we say, “How do we bring innovation to these organizations?” I look at it, this exchange is an opportunity to codify that innovation, and get it in place. And it’s not gonna be perfect for everybody, there’s gonna have to be, I’m gonna give and you’re gonna take, and then you’re gonna take and I’m gonna give, and here we are gonna come up with a new agreement that is gonna govern public markets. And we’re gonna try to be innovative and do what’s right, to build value for investors and companies. And that’s the mission. And so that’s a lot of soft, fluffy things, in terms of describing what the heck we’re gonna actually do. But in terms of like getting down to the brass tacks, the medallion now exists, the form one was approved. And there’s now the opportunity to begin to submit listing standards to the SEC. And I expect in the coming months and years, those listing standards will be used for companies to go public. And that will create a new dynamic among those companies and the investors that back them. And I think that golden handshake through this platform will lead to higher performance, more sustainable performance. And I’m excited to see it happen.

Meb: We spend a lot of time on here brainstorming and moaning and talking about kind of trying to find the best structures to align investor goals and actual implementation. We see kind of the bad behaviour on all sides, not just individuals, but also institutions, often saying they have 5, 10, 20, 50, 100 year time horizon and trading based on weeks and months. And it’s hard, it’s good to see people working on it. Which leads me to your next venture, which you’re much more involved with, which I love the idea. So I’m gonna preface this by saying that when I was tweeting about it a few years ago, I got a lot of crickets. I think Americans, in general, are not familiar with this topic. So let’s hear a little bit about Long Game and this whole concept Prize-Linked Savings.

Ashby: Yeah, that’s awesome. I tweet about it too, and get crickets sometimes. So look, you’re not alone. The reality is, many people’s financial lives are painful. Okay?. And so the original idea of Long Game was, can we take this incredibly painful reality for 60% to 70% of Americans, and turn it into something that is borderline fun. And I know that’s, whoa managing debt. and student loans, and mortgages, and thinking about retirement, and rainy day funds and credit cards, like how do we turn that into something fun. And I agree, look, that’s incredibly difficult. But the flip side is, we don’t really have a choice.

So we’ve taken this model at Long Game that we are going to engage Millennials and Centennials in their financial lives. That’s the mission. We’re gonna get them through about their financial lives with the idea that once they’re engaged, and they have a sense of ownership over this life of theirs that is finance, that they will start to make better decisions, or at the very least begin to learn, because the literature on financial literacy is pretty clear, it doesn’t work unless you have a stake in the game. And oftentimes, where it did work, you have to go back and retrain them as time goes by.

So we can try all we want to push financial literacy on people. And I’m all for the mission of financial literacy, I just think the way in which we deliver it needs to be done through experience via engagement and fun, rather than traditional reading and teaching, and things like that.

The other thing is that the behavioural finance people were brilliant, and kind of unlocking personal savings for retirement via autoenrollment mechanisms. And the whole notion of Nudge, which came from Thaler and others, and that’s really powerful. I think we believe a lot of that. But again, the Millennials and Centennial, for the most part, don’t have access to a workplace pension plan to be nudged into, or to be auto-enrolled into. And so there again, we’re kind of falling down. And then you can say, well, maybe we could do the Australian model. And what we’ll do is we’ll just mandate that everybody has to take a certain percentage of their income and drop it into a super style fund. And the super funds will have professional management and the professional managers will sort of deliver to all these people retirement security, when they kind of go to retire. And again, I don’t see in this country an appetite to force a contribution mandate in a way that they did. And so we’re probably not gonna get the Australian model here. It’s really the future in Australia. It’s a defined contribution plan with a mandate. And it’s managed by a variety of different funds, industry funds for a lot of places, but bunch of different types of funds.

And then the other thing we see and kind of FinTech ecosystem is kind of a trust us mentality. So, look, we’ll run an algorithm in your checking account, when we see a good moment, we’ll move a little bit of money in your savings account, or every time we swipe, a credit card or a debit card will allow you to invest that money in the stock market. You know, all these things when you combine them become powerful, but on their own, they don’t quite deliver on solving the challenge. And the challenge is that 63% of Americans don’t have $400, or the one I saw this month was 70% of Americans can’t come up with 1000 bucks in a month. And so like that’s profoundly scary. Not only because people don’t have money, and we’re gonna have elderly homeless people, but because we’ve lost the American dream.

There is no American Dream without the ability to invest in yourself. And yes, you can say, well, we can go finance that with more and more debt and do this and that. But that’s not empowering. That’s almost disempowering to a certain extent. The reason people go off and take these jobs at all, all these kind of high paying, but like less kind of civic-minded organizations, because they have student loans. I’m taking this job just for a little while until I pay off my student loans is something I hear as an academic all the time.

And so with Long Game, we wanted to take that financial experience, make it fun. We started with this notion of Prize-Linked Savings, which you refer to. It’s not new, it existed 300 plus years ago, when the Brits were looking to wage war on France. And so they needed to raise money. And so they had prize bonds, where they could pay a low-interest rate, but give you the potential to win heaps of money. And those have since been called Premium Bonds. And so here in the U.S. in 2014, there was a piece of legislation that kind of put forward this notion of PLS nationally, and it was the American Savings and Promotion Act, and it was the kind of wind in the sales of the PLS movement. And at Long Game, we sought to become the first mobile application that could deliver Prize-Linked Savings accounts into the pocket of every single American. And the more money you save in Long Game, the more chances we give you to win real prizes, cash prizes. We have a weekly drawing for a million bucks, and we ensure that prize, which means we’re rooting for you to win. So it’s a platform that seeks to kind of change the way you think about your finance.

One other data point, we saw this statistic where the Millennials were talking about the things they were most afraid of in their day-to-day lives. And it included things like crime, terrorism, and 63% of the Millennials said personal finance. Well, that’s unacceptable. How are we gonna get these young people to open their app and look at their account statements? How are we gonna get them to pay their credit cards on time, when they just want to put their head in the sand, because it’s the single scariest thing they’re doing.

Well, we need to change that relationship. This can’t be the relationship you have with your electricity provider, can’t be a commoditized relationship, has to be personal. And technology allows us to do that today. We can tailor experiences for people that delight them, that delight them, not delight everybody. And so with Long Game, we’ve got all kinds of new games coming through the system. And it’s all tied, all the incentives in the app. I mean, you don’t necessarily capture it all when you open it and see what we’ve built. But they’re all designed around personal financial success.

Meb: So there’s a lot you talked about, I think it’s really fascinating. And listeners, I mean, this concept that, as we mentioned, is actually been a pretty huge concept in the U.K. and other countries. And part of it, you avoided the term lottery, I think as much but I think if you look at how much Americans spend on the lottery in the U.S., I was listening to some very thoughtful conversations your partner Lindsay had, where she was like, “Look, the average American spends $600 a year and the heavy users it’s like $1500.” And that’s in a game where the expected value is literally you’ll lose half, which is just the most boneheaded possible personal finance move and all the personal finance and so this concept is saying, “Hey, look, tell you what, you can tickle your gambling, bone. But while doing it, you’ll actually save and on top of that, you’ll earn some money on it and have fun.” Like it’s such an obvious, I mean, I’m preaching to the choir here, but really just talking to the listeners of the podcast, it’s such an obvious solution and answer.

Talk to me a little bit about the progress of the company. One idea I had that I was curious about, have any states started to do this in the U.S.? Because it seems from a standpoint of being like a fiduciary and a decent government, the fact that the state’s I get why they do it, because that generates enormous amounts of revenue. But the fact they have all these terrible lotteries that penalize people, look, they do it of their own volition. So I get it. Like if I’m the state of California, or one of these states, why wouldn’t you offer things like this or partner with you guys and say, “Hey, let’s do something that at least gives the investor consumer a fighting chance.”

Ashby: It’s interesting, because when you talk to politicians about it, they all kind of acknowledge that like, God, they wish they could do something about this, but the entrenched interests of the state lottery are there. Like put into the Google machine, John Oliver, Lottery. And you’ll see like how tough the lottery is, in terms of creating great outcomes for the people who use it. The lottery is played by mid and lower income folks, who are rightfully wondering how they could possibly become millionaires.

Mathematicians often will be like, “Oh, it’s totally irrational, like the expected value of this lottery ticket doesn’t exceed the cost. So this is a tax on dumb people.” And that’s not it at all. This is not a tax on dumb people. This is a rational decision to pursue one of the few options available to Americans to become millionaires and kind of live that Instagram lifestyle that they see on their phones all the time from all these influencers.

If you ask people in those blue collar, working class jobs, picture yourself as a millionaire, and then say, how did you get there, they’re probably not gonna say that they saved their way there. They’re gonna say they won the lottery. And so it’s not irrational. But it doesn’t also…by saying it’s not irrational doesn’t mean I’m saying it’s a good thing. It’s still often attacks on the people who can least afford to pay it. These are the people swinging for the fences, stop by your liquor store nearby on a Friday afternoon, and see the number of people pouring out of pickup trucks paying cash for a lottery ticket and a six-pack of beer. And I won’t argue with the fact that that was part of the motivation for Lindsay and me. And Lindsay is my co-founder. She’s the CEO of Long Game. And she’s an incredible badass, who kind of had the vision for this and came to me with the vision.

And then I basically said, I wanted to help her build this company and went on leave from Stanford to do that, because I was so compelled with the vision, she kind of spun me. Which was look, we can repurpose that money that’s being dare I say wasted, although there is entertainment value that’s being captured by people in terms of dreaming of what they might have. But we could redirect that capital into personal savings accounts, never touch the principle in those accounts.

So 100% of the cost of those, in effect, tickets stays in the account. And we can use the interest and the difficulty that most people have in understanding odds, these are odds based prizes, and still, allow people to scratch their itch, and say, “Look, the more money you save, the more chances you get to win a million dollars. Yes, one in 200 million plus chances that you’re gonna win. But if you’re playing the Mega Millions, it’s one in 400 million or something like that.

So it’s not a lottery, which is why I didn’t say lottery. We specifically are trying to preserve the capital so that it isn’t lost, and that we can help people convert that $600 or $1,500 into anchor investments in their future. I don’t know if I answered your question or if I just ranted there?

Meb: No, you did. I mean, it’s interesting. And the concept of being it seems like it would be just such an obvious choice for people. Talk to us a little bit about kind of where the company is today. You guys do VC funding, you do just bootstrap it. And what’s the future look like?

Ashby: Again, not all of this is for like podcast listeners. Right? So VC funded, we’ve got a great syndicate of investors. And I guess we’ve been going over three years now. The first few months, gosh, call it a half a year was figuring out if we could even do it legally, and finding the path to markets and getting all the legal opinions required. And then it was building the team. And I think we launched our kind of MVP 18 months to 2 years ago, we’ve had multiple rounds of funding. I don’t think I would be annoying my co-founder, if I said we’ve got six digits of users. We define our users very conservatively. So we like to think of people who have linked an account, and gone through the KYC and AML process, which can be a bit painful. But again there, the power of gamification is we can reward people for actually setting the account up. And so we can get you through and on the platform, feeling like you have had fun rather than you’ve just kind of disclosed everything about yourself, and now you feel dirty. We really work hard at making people feel like we are trustworthy, legitimate and fun, and that we understand them.

And so the company is going great. I think last…we’ve got 20 plus employees now, and really are in the next, I call it, six months to a year will be kind of spinning up a whole series of savings products, financial products that are gonna kind of again, empower people to kind of live their best lives and take charge of their financial futures.

Meb: I love it. Well, good. Keep me in the loop next funding round you guys go through, definitely, love the idea. Couple more questions. These are quicker, just to kind of wind things down. As you mentioned, you putting out a ton of content, quickest question of the 80 odd papers that I was trying to wade through on SSRN, do you have a favourite?

Ashby: I think the one sadly, there’s one that I love that’s no longer on there. Because the journal it was published in told us some of these journals don’t let you have two locations for the paper. But it was alternative data, and the power and rise of alternative data and how it’s gonna help long term investors. And really was a roadmap for how long term investors should think about using alternative data.

So definitely not about alpha generation or trade ideas and much more about risk management, internal operational, alpha, things like that, where alternative data can be really powerful. And I think it is still free to download, you just have to go to the Journal of Financial Data Science, which is where it sits. So that’s one that I’m pretty proud of. And that was with Dr. Dane Rook and Marcel Prins, who’s the chief operating officer at APG. And then the one that I think is probably had the most effect, or impact, in 2012, I wrote a paper with Gordon Clark, which is still on there, it was called I think, “Principles and Policies for Internal Asset Management.” And it goes to that issue that we talked about at the beginning of the show here, around internal versus external. And the goal of that paper was almost to scare pension plans away from trying it, by showing all of the component parts that you should have in place before attempting and sourcing.

So in part of what we wanna do is empower those organizations to insource that could insource, but at the same time, provide such a candid description of how hard it is that we would scare the pretenders away. And so that’s a paper that I’ve seen used by a bunch of pension funds since then, to kind of build internal operating models, which is obviously like, pretty rewarding, and why we do what we do.

Meb: We’ll link to the ones we can on the website, I love it. You answered that, like a true parent would answer like, what’s their favourite child? You’re like, all right, here’s my favourite, and then proceed to list three. I love it. T

wo more questions. So you got a lot going on, you clearly have your toes dipped in all sorts of different areas. As you look to the horizon into the future. I mean, you’ve lived in Canada, Europe, Stanford area, what part of your work, and it could be anything we also didn’t talk about, anything got that you’re particularly excited in here in Summer of 2019 that you’re working on or thinking about or scratching your head about?

Ashby: Yeah. I mean, I think the exciting moment that’s coming to my world of finance. And so like, everything I do, the reason I can do all the things that I do is it kind of circulates around a common theme. And that is making financial services work for common people. Sometimes those common people are represented by public pension plans. And sometimes those common people are just people who need financial advice and products, and they need them to be delivered at low cost and to help them achieve success.

So the thing that has kind of got me most excited is kind of inevitability that many of the pension funds and sovereign funds have around technological change. So if you recall my model at the very beginning, where I was like, you’ve got people, process and information, and the only way you change those inputs for investing is governance, culture and technology. Culture is very slow to change, governance is almost impossible to change. I’ve left my imprint on a number of brick walls over the years trying to change pension fund governance. Technology feels inevitable to people.

So we can go to a pension fund board and say, “Gosh, this should be set up differently, should have these nomination procedures differently.” And people will say, “Why? No, it’s been working.” And then you go to them and you say, “Look, you need new tech. Look around you.” And they’re like, “I know.” And so similar with that fee and cost experiment that I’ve lived over the last six to seven years, where that was the catalyst for change. The new catalyst for change is driverless cars, drones, robots rolling around Mars. The pension fund CIOs are not immune to seeing how technology is transforming their day-to-day life and realize that in an industry that is utterly reliant on data, and personal networks, technology will have an important role to play. And frankly, up until now, technology and finance has been predominantly about speed faster to markets, faster to the answers we know we need, and not about inference.

We’ve had some inferential depth, and a lot of that inferential depth gets captured in hedge funds and hidden away in black boxes. But look, you could go all the way back to the Babylonians and the cuneiform tablets. And they’re putting the six commodity prices and correlating with those six commodity prices with the depth and flow the Euphrates River because it was an indicator of rain upstream. And then they could buy and sell the commodities, like that’s a spreadsheet. That’s state-of-the-art in pension funds today. Many of them. That’s 4000-year-old technology around inference.

It’s the speed that’s changed, but that all flips around now. Now, in the era of AI, after AlphaGo, after we saw a computer program beat the world’s best Go player with a move that was described as inhuman, because nobody had ever seen it before. In fact, everybody thought the move the computer played was wrong, it was a mistake, until they realized it was the winning move. Well, in an era where computers are coming up with inhuman insights to win games, speed will no longer be the comparative advantage. Inference will become the comparative advantage. And that’s where the power of long- termism begins to reemerge.

So these long term investors will begin to build strategies, they use inference rather than speed and that take time for those inferential predictions to materialize. And I think that’s what leaves me incredibly excited, that around me here at Stanford and Silicon Valley, and even around the world, we’re seeing technologies that use inference in order to deliver advantage. And that’s gonna help a whole series of investors do the right thing and manage climate change and invest in infrastructure, and frankly, make capitalism more sustainable.

Meb: I love it. Deep thoughts with Ashby Monk. Last question we ask everyone, look back on your career, all the different things you’ve been doing what’s been your most memorable investment, good, bad, both, profitable and profitable? But the one that pops into your mind, the one that you remember the most.

Ashby: The one that pops into mind is, I just gotten to Silicon Valley had a gig at Stanford and was introduced to Joe Lonsdale, who was a co-founder of Palantir and Addepar and countless other companies. And I invested in two of his companies very early on and got to know him. And it was kind of through those two companies that I invested in, which were both focused on technology to fix financial services, that I think I was kind of reawakened to how technology could improve the outcomes of the biggest investors on earth. Both the investments have done really well. Obviously, we’re all still illiquid, because companies stay private way too long. And it’s been a decade since I made those investments.

So maybe it’s time for some liquidity, my friends. But those investments, this is the problem with the big pension funds, by the way, it’s hard to explain to them the strategic value of investments. We talk about loss leaders and other industries. Well, like I made those investments and the relationships they delivered to me have been astounding for many aspects of my life, not just Joe, but the founders of the other companies and all the people who’ve spun out of those companies to start other companies. And the net present value of the investment I made wouldn’t matter. But the networks they opened up and the relationships they’ve created for me here in the Valley and around the world have been incredibly powerful.

Meb: That’s one of the key highlights on the private side on the illiquidity is this stuff where you make a private investment, I used to think it was a total negative. But for the people who truly are in it, it’s a pretty interesting positive as long as you eventually can get some liquidity so fingers crossed.

Ashby, this has been a ton of fun. Where in all these various places, best place for listeners to track what you’re writing about what you’re up to what’s going on in your brain?

Ashby: Probably SSRN these days. I’m in a whole series of book projects, as painful as that sounds, and it is painful. So not as many short articles going out on Institutional Investor or elsewhere. But soon SSRN I’m putting up a lot of academic papers, and there’s probably 60, 70, I don’t know, more than that up there now. And then I hate to say it but Twitter every once in a while I see something going on in my day-to-day that creates enough anger that I feel obligated to write something about it. That seems to be the place I go to.

Meb: And the Twitter handle is sovereign fund?

Ashby: Yeah, @sovereignfund.

Meb: Awesome. Well, Ashby, thanks for taking the time to join us today.

Ashby: Oh, thank you so much for having me. It’s been a lot of fun.

Meb: Podcast listeners, we’ll post links to everything we talked about today on the show notes, mebfaber.com/podcast. You can always leave us a review. Give us some feedback@themebfabershow.com. Thanks for listening friends, and good investing.