Transcript 0:00 The world, it breaks into two. There's what you do by day, and then you can philanthropically give money to the things you care about. Kind of felt very discordant, right? Sort of like- Mm... Al Capone. 0:12 He created widows and orphans by day, and at night he might go to a black tie event in his honor. And so I thought, "No, there has to be some way to harmonize that in real time." 0:22 So don't at me, like this isn't like a faddish, the moment thing. It's kind of where investing is going. 0:29 Welcome to the Purpose Driven Capital Podcast, where we help you align your money with your mission and maximize your impact. Here's your host, Matt Johns. 0:38 You may have heard of impact investing, but what does that actually mean? Today's guest is one of the world's foremost experts, and his perspective comes from his own personal transformation. 0:51 Peter Lupoff went from managing billions of dollars on Wall Street as an internationally recognized hedge fund manager to helping others direct their capital toward purpose through impact investing. 1:02 In our discussion, he distinguishes between two different worlds, doing well versus doing good. 1:08 And in his hedge fund career, he did very well, learning from the world's most renowned investors before building and exiting his own hedge fund. But then he made a shift. 1:18 He moved his focus to doing good, building his own family office with 100% impact mandate. Now, at Beatrice Advisors, he's helping families and institutions do both. 1:30 So what does impact investing really look like in practice? Well, I'll let Peter's incredible depth and enthusiasm speak for itself. Welcome to my conversation with Peter Lupoff. 1:42 You started out in the hedge fund world, and you did a whole bunch. You really cut your teeth, and now here you've moved into impact investing and, and, and all that. 1:49 So at some point, though, you made that transition mentally. 1:52 You said that, "This is where I was, this is what I was doing, but now I think there's something more that I could be doing, and I wanna move entirely that direction," which it seems like you've come pretty close to moving entirely that direction. 2:04 So what, what was that like for you going from hedge fund world to now impact investing and seeing money moving toward impact? It, it... 2:12 There's been a series of reinventions, and some of those reinventions have been a part of the magnitude of the opportunity. Like, 2:21 I loved my time as a traditional investor working for hedge funds or running my own hedge fund where putting up, you know, I hate to taunt the money gods, so I knock wood, putting up good returns. Really loved the work. 2:35 I f- I feel like it's challenging. It is the most competitive thing that you can be involved in because- Mm-hmm... 2:41 you're not only competing to keep capital invested for clients and keep that money, uh, from redeeming you and performing well against markets and your peers, but the market is punishing. 2:55 Things occur that are unpredictable, and you're learning from those. So I always loved that work, but I had an aha moment somewhere around 2015. 3:06 I was drawn into paying a little closer attention when my wife Kelly said, you know, "We need to demonstrate to our son, Max," like, w- what signals do we wanna send him about what it means to be a decent human being and working not just for yourself, but for the benefits of people and planet? 3:27 And so the initial reaction, the reaction of many people of my generation or people kind of that are in the investment markets is, oh, you know, the world, it breaks into two. 3:36 There's what you do by day, and then you can philanthropically give money to the things you care about. But it struck me, like... It k- kind of felt very discordant, right? You know, sort of like- Mm... Al Capone. 3:50 He created widows and orphans by day, and at night he might go to a black tie event in his honor, you know? It- Yes... because he was giving money to the Widows and Orphans Fund of Chicago. 4:02 And, you know, what he hoped was that his psychic ledger would match when he met his maker. And so I thought, "No, there has to be some way to harmonize that in real time," right? 4:12 And so Kelly first said, "Well, why don't we find some difficult charities that are not like the easy ones to say yes to?" And she got on the board of a group in New York called The Door that deals with at-risk children. 4:23 I worked with a, a, a nonprofit called Divide Ventures that dealt with previously incarcerated and helped them pivot that hustle to think about entrepreneurship. 4:35 And in that work I was like, well, you know, maybe rather than giving the previously incarcerated grants, 4:44 we should buy businesses and create something like a private equity fund, and then, you know, fund it and inevitably, like, give our graduates the ability to accrete equity ownership in it and own those businesses, and that is a way of creating intergenerational wealth. 5:02 And I was like, this can't be a new idea. 5:05 And the more I did some research on it, I was like, oh, there's something called impact investing, and that is actually kinda different than investing in public securities through ESG screens, which are, you know, picking top companies from an environmental, social, and governance lens. 5:20 This is different than that. It, it, it's- Mm-hmm... creating more measurable impacts. 5:26 So, you know, I, I began to realize that, you know, the more work I did around it, that there's this enormous intergenerational wealth transfer that we're going through right now. 5:37 So, like, close to $90 trillion chan- transfers intergenerationally, first to women and then to next gen, and they're predisposed to care how money is made. So don't at me. Like, this isn't like a faddish, 5:51 of-the-moment thing. It's- Mm-hmm... it, it's kind of where investing is going. And so for me in my career, I've had a couple of moments that were in more traditional markets that changed everything for me. 6:04 And, and rarefied things for me that made for successes in being a hedge fund manager, for example. Mm-hmm. Yep. This was a m- yet another thing. 6:13 And so when I have those aha moments related to markets, I go all in on them. 6:18 It really had less to do with sort of seeing impact as it, it was o- not only that we wanted to signal to our son that you can, you can use money as a force for good, and that you can influence things for people and planet for their betterment. 6:33 But it's also, like, an intellectual thing. Like, this is where things are going. I don't wanna be old, archaic, and driving a car looking in a rear view mirror at what was. 6:44 Th- if this is where things are going, I need to be the frontier- Mm-hmm... of where markets are. Despite the momentary blips that happen because of political issues or whatever, 6:55 this is an inexorable move in this direction as 87 odd trillion dollars changes hands intergenerationally, as those demographics of women and next gen care and are predisposed to care about it. 7:08 And as we are educating students, they're not thinking about traditional investing versus impact. They're thinking it as one and the same. It's just a question- Mm-hmm... of like, are you dial... 7:20 Where you're dialing it up, up and down, and whether you're care for, you know, market returns, or you're thinking more about deeper impact. 7:29 And you, you have a unique understanding of markets coming from your, your hedge fund background. I, I don't know how many years it was before this. 7:36 I mean, it was at least 15, 20 years that you were engaged in measuring every bit of the markets and seeing where these possible opportunities were to seize on, on different things. 7:46 So do you feel like you were able to take some of those experiences, some of those lessons that you learned back then to suddenly see it in an impact manner? Yeah. 7:55 I think in the earlier day of, days of this work for me, 2015, '16, '17, I was really kind of an oddity in the impact space. And, and I will say that felt like earlier days in the... 8:09 Th- there were people that say, "You're just, you're still a kid. This dates way, way back." But it, it is really kind of not that long and storied sector of investing. It, it really isn't. 8:23 And in 2015 to '17, in those times, the idea that I would be bringing methodologies to how I determine what's cheap or rich on an intrinsic basis, and how I think about that today, that's unchanged. 8:36 The rigor for does this make sense as an investment, that hasn't changed. 8:41 The idea that we can seek measurable social or environmental impacts along with financial returns is just adding an additional lens or series of questions and measurement along with the way you already think about investing. 8:57 So in those days, I would say the industry was populated, the leaders were, they really came from, you know, there were two worlds. There was the do good world and the do well world. Mm-hmm. 9:08 I came out of the do well world. Let's, you know, invest money, make money. And, you know, impacts were kind of not part of the mandate per se. 9:17 And then there was the, the do good world where most of the people that were creating impact funds came out of nonprofits where they were extremely zealous around the, around the issues that they cared about, that were values that mattered very much to them, whether it was social or climate related or any other kinds of i- impacts. 9:36 And so they just had this aha moment that money could make a difference around impact, and it didn't have to be philanthropic dollars. 9:43 It might be that you get a chance to generate returns along with it and have the, the opportunity to address those issues with revenue that comes back and do it in a recurring way. 9:55 Where I think we are today, as, as mentioned, like educating students today do not distinguish between those two, and come, and we're developing students that come with a temperament and skill sets of evaluating cheap and rich on an intrinsic basis, understand all the asset allocation tools in the toolkit, 10:15 but then are also- Mm-hmm... steeped in the environmental or, or social issues that might matter to them, and then working through the vexing issues of measurement. 10:24 Because it's still largely anecdotal storytelling around that. 10:28 But can you find like high market returns related investments that match indices around private equity or venture capital or in public markets for equity or fixed income? Absolutely you can. 10:44 And then it's a question whether or not those managers have the skill sets also deliver on the measurable impacts and then give you the reporting on it. 10:52 But I do think we're at this place where it's gone from people out of the do well world or that, like me, that migrated to understand doing good with money, or that came out of the do good world and needed to backfill the skill sets around investing. 11:08 We're now at a place where they're kind of one and the same, and, and, and I think the, the space is now in a good place as a function of that. Mm-hmm. Now take me back to your do well days. 11:21 A- as you're thinking about the hedge funds, thinking about these opportunities, what were you thinking about from a day-to-day basis as far as finding these opportunities? 11:28 Oh, I was completely and utterly a- alive and living markets and, and trade ideas. I mean, it was first with, you know, I worked with two very storied legendary investors. 11:43 I started my career with Marty Whitman of Third Avenue Value Funds, passed away a couple of years ago, sort of a legendary deep value figure, wrote a number of books on the topic. Yes. 11:53 Taught at Yale School of Management. So he's an academic at heart that, through his fund, saw that his practitionership, it made sense. Like, he had huge outperformance for many years. 12:05 He is a deep value investor's insider, you know? He's the sort of person Warren Buffett... talks about and knows about. Marty Whitman is his name for any listener who wanted to look him up. Mm-hmm. 12:17 So f- working with Marty, I learned deep value and valuation. That was a really integral thing for me. 12:23 And joining him in 1990, uh, it was just before the first, uh, junk bond crisis where Drexel Burnham got seized, where, where their junk bond market fell apart, and there was no liquidity in that market. 12:39 And because of that, there were no liquidity in, in loans which were senior and secured to those bonds. And working for Marty as a deep value guy, now why would we, why would we invest in equities? 12:54 Again, this is sort of I learned this flexibility to go where the, the opportunity set is. 13:00 It means that you don't-- you care less about where you are in the capital structure of a company and more where the opportunity is. 13:07 So from a very early age, working with him became conversant in owning and valuing the entire capitalization of companies from the bottom, from equity to its fixed income, to bank debt at the senior-most parts of the cap structure. 13:25 And ultimately took that and developed strategies that I am- created a methodology around that had an acronym called BRACE. Those five letters stand for s- each of s-so-something. And eventually 13:40 began to invest for events as catalysts because I, what I liked about Marty and deep value was you're buying things right, but as a deep, as many deep value investors would have it, you know, you hope that the market eventually figures out that you're right. 13:58 And he would come into the trading room sometimes and say that, that the market will eventually figure out we're right. 14:04 He'd leave the room, and as a younger man at, in, in those days, I would say to my colleagues under my breath, "I only hope it happens in our lifetime." 14:11 [chuckles] And the beauty of, like, value with catalyst was that you might point to something that would unlock that value in the nearer term. 14:19 And I thought, "Okay, well, this is actually a, it's event-driven strategies." 14:23 So around event-driven strategies, I developed a methodo- methodology that where the deep value I learned from underpinning, I learned from Marty Whitman, but the rest of it I built out myself around a methodology. 14:36 Ultimately ran my own portfolio at a firm- Mm-hmm... 14:39 RobecoWise Peck & Greer, and then I and my team got lifted out to join Izzy Englander's Millennium, where we ran a large allocation around event-driven, long or short, anywhere in a company's capital structure predicated upon what- And how big was that allocation in Millennium? 14:56 It was, you know what? I guess a number of years passed, I could probably say it was close to 700 million. Uh- Yeah... 15:02 although I never drew down that much of it because we also were investing going into the great financial crisis. Mm-hmm. And, uh, so we kept the book. You know, one of the things I learned, 15:16 one of the things I learned working for, for Izzy Englander that differs from Marty Whitman, Marty Whitman used to say that diversification is a crude substitute for, uh, investment knowledge. 15:30 And so that was his argument for why we're right and the market's wrong. 15:34 When I worked for Izzy Englander, particularly going into the financial crisis, he actually said to me, "We're not in the investment business, we're in the money management business. Those are two different things." 15:46 And so what I took- Mm-hmm... from that is like, you know, pay attention to market, pay attention to risk, live to fight other days. 15:55 And so our portfolio was in line with Millennium, which was only down 3% through the financial crisis. 16:02 So when people say, "Well, that performance was awesome," th- I, I give all the credit to moderating the risk to working for Izzy Englander, paying attention to what risk management there was thinking about with the overall firm. 16:17 I left Millennium to form my own firm, which was called Tybron Capital. Mm-hmm. 16:24 And it was through Tybron Capital that I eventually sold Tybron Capital, became the CIO of the acquirer, and it was in that time that my wife Kelly challenged me to think about impact. 16:35 I'd also say that as the CIO of this pension consultant, we had a billion five under management of our own assets, but we advised on close to 16 billion of pension assets. Mm-hmm. We were routinely being asked about the 16:53 ESG movement in Europe. This is circa 2012, 2013. Yeah, so very early on with ESG. I mean, particularly here in the States it was very early on. Yes. 17:02 It was more developed in Europe, and we were being asked, like, "What do you think of that?" Like, "Should we be doing that?" 17:08 We were being asked like, you know, "How do we invest in Black, Brown, or female managers in the States?" You know, "How do we build more impact into the kinds of investments we do?" 17:19 And this was completely new to me, so I was going to school on that around the same time that, as mentioned earlier, I had that moment where I thought, "Oh, well, this can't be new." Mm-hmm. 17:31 And eventually started to see, okay, well, if I could make the same returns investing in public markets but avoid industries that I couldn't buy, abide by in a portfolio, or if I could invest privately and get more measurable impacts, why would I not do that to have what I would call free options on doing right by people and planet? 17:54 Why would I not do that? And so that got to a place- Mm-hmm... where I realized, okay, well, money is like a tool. I use this in, in class. 18:02 I talk to, when I talk to my students about it, I always put up a screen that shows a picture of a pool of money, a shovel, and a spatula, and I ask students, "What do the three have in common?" 18:15 Do you have a point of view? [laughs] Now, now I could, could do this like a classroom experience. Are you asking me right now? I'm asking you right... What do you think of- No, I have no idea. I have no idea. 18:24 That's- All three are tools, right? They're all tools. Mm. Right? Now, the thing is, we both know what you could do with a spatula in the kitchen. You wanna flip an egg or a hamburger. Mm. Easy. 18:37 You know what to do with a shovel in the yard. Why are we- Absolutely... okay with your pool of money, it's your money, why are we abdicating that to others that will say, and you're... 18:48 I hear you about investing for impact. You know, you, you're gonna sacrifice returns, or I hear you about- Mm-hmm... you know, investing through these kinds of screens or avoiding these industries. 19:01 The point being, if it's your money, you should probably tell your pr- your, your professionals you want this done, and if they won't do it, you will find people that will, right? And so- Mm... 19:12 the, I think that kind of takes me to the point where how we think about our money as a single family, the Pop Stevens Family Office, and how we think about that here at the multifamily office that we folded into called Beatrice Advisors, that each of the families, we have 18 families and three foundations that we work for as an outsourced CIO. 19:34 Of those 18 families, four of us are here, right, as part- Mm-hmm... doing our own cooking. So, like, why would we not want to build for individual families and ask them, "What are the values that matter to you?" 19:47 It could be faith-based. It could be about narrowing racial wealth gap. It could be about, you know, investing in women in the workplace. 19:58 There could be any number of ways that we can construct portfolios that achieve the financial goals that, that families want, but also achieve some of the underlying, uh, impacts that they care about. 20:11 And maybe perhaps they too, like we, Kelly and me, like we wanna signal to our children, my son now being- Mm-hmm... about to be 20, much more engaged in what we're doing. 20:26 Maybe, you know, families should be thinking about intergenerational transfer themselves and whether or not they'll be proud about the things that mom and dad are saying to children that they did with money. Yeah. 20:38 Now, if, if I remember correctly, you, when you started your family office, you made it 100% impact investment from the beginning. Is that right? Yes, which was, uh, not as easy, right? I mean, it's easy to say that, 20:53 right? [laughs] It's true. What, what made it hard? What made it difficult? Well, first of all, I didn't know that much about what I was doing and, you know, it- [laughs] I don't believe that... 21:02 it helped, like, I, you know, it, I realized very quickly that what I needed to do when I said that about the do good world and the do well world, like I understood how markets worked. And so, what I- Mm-hmm... 21:13 what I needed to backfill in a hurry were the issues. And I was teaching on the side, I was teaching hedge fund strategies at Yale School of Management, 21:22 and I convinced them to let me do a workshop on Fridays for any students interested in impact investing. Oh, interesting. Yeah. And you know, 21:32 we put together a class of about 20 students, and, you know, at the time, that would've been probably 2016 or 2017. I was going to school on the side to learn while I was doing it or planning to do it- Huh... 21:48 for our family office in 2017, and I was quickly backfilling on that. 21:53 You know, I might have market knowledge and history over those students, but they were really steeped in the issues, and it took a lot of work to prepare for those classes to be effective in those classes. 22:06 And, you know, my, my son at the time, th- this generation of kids being precocious, he probably was, what was he? He was 10 or 11. He's like, "Dad, you're like two weeks ahead of your students." [laughs] He was right. 22:21 I was maybe two weeks ahead of my students. Uh, they... No, I had that much. I could get away with some things, but here we are, fast-forward. 22:29 We're 10 years later, I've learned e- enough so that I can be teaching these classes for real- Mm-hmm... and have been living it. So I was a quick read on that. 22:37 But early on, I realized, well, I thought of impact in the portfolio as like a pop-up book. Like, you know, managers need to be social justice or climate. 22:48 And like when I ha- I remember having a conversation with a particular manager who runs an AgTech fund. 22:58 She's a woman of color as the PM of a fund, i- you know, that, that is in AgTech, VC in AgTech, and I told her I didn't think it matched up with what we're trying to do. 23:11 I gave her our investment policy statement to look at that. I think that's a good roadmap for families- Mm-hmm... to have to think about what they're trying to accomplish. 23:19 And she's like, "Well, you know, first of all, if you're investing in us, you're an early stage capital," it was a fun one, "You're an early stage capital provider to a woman of color in the venture space. 23:32 Do you know how many dollars get to women of color in the venture space? The statistics are staggeringly poor." So it's like- Mm... you're picking up impact just by being a capital provider. 23:43 You're picking up social justice and racial equity impacts and, and, and, and generative impact issues, impact just by being a capital- Sure... provider. Then secondly, climate impacts food as well. 23:57 Arable land moves north as like fertile land doesn't. There's regenerative ag proc- processes. Food and agriculture is, you know, get to buy relative to fossil fuels. 24:11 It's actually one of the greatest contributor to cl- to, to climate change i- is the agricultural industry. So the idea of moving towards regenerative agricultural... 24:21 processes is a valuable thing to keeping, you know, the soil fertile and rich and, and providing food security. So there's any number of reasons. I, like, went to school and was like, "Okay, you convinced me." 24:35 And I realized, like, a lot of my assumptions around these things, they're just too simplistic. Mm-hmm. They're like first grade pop-up books, right? Like, this is how things work. They're much more nuanced. 24:47 The analogy I use in classrooms all the time is that many people looking at the impact investing space or the sustainable investing space, how- however euphemism you might wanna use, 25:00 it, it's like they see there's this platter of beautiful food that comes out. Usually I use sausage making as this because it's such an ugly word. It's an apt description, yeah. 25:12 [laughs] Yeah, like beautiful sausage that comes out on the plate with your breakfast, whatever, and if it was like if they made their own sausages, that's really freaking ugly work that's done. I've made sausages. 25:23 That's ugly work done in kitchen. [laughs] Have you really? Yeah, and you don't, you know, you don't seek that, right? And so the building of portfolios with measurable impact, building of portfolios- Mm-hmm... generally 25:37 are much more in the reeds and difficult than the simplistic things that, that many people think, or even, like, that many individual investors believe something, they like something. 25:50 There's almost a, a casino-like aspect to it that I, I'm a believer in this industry, I'm gonna buy this ETF. I'm not gonna say that's a bad idea, like, to... 26:01 Because it's fun, but as a professional money manager for our 18 families and for our three foundations right now, 26:10 we go down very, very deep into the due diligence ranking managers, and the, the level of, or, and amount of work we do to suss out both the financial returns, the probability of them recurring, and the changes that occur- occurring in the industries that suggest 26:30 where and how best to create both the best returns and the highest impacts of that would, is what you're trying to accomplish- Mm-hmm... is work that we do daily for our families and for our foundations. 26:43 Now, are you saying that it, it's a casino-like atmosphere for, for investing in these impact funds? No. I'm saying that individuals without a... Particularly around impact. 26:56 If it's new to them and people care about it, there's no reason not to get started. You can go to Robinhood and buy ETFs or mutual funds that will make statements about the things they do for impact. 27:09 If you want greater assurances that they're, those impacts are more measurable or that they're, you know, you've reduced correlations between those ETFs that you're invested in because, you know, I, I put this up on a screen actually two weeks ago in a class that I teach for UC Berkeley on impact investing. 27:30 I put up a chart showing three ETFs that had very different names that in the ETFs would suggest different kinds of impacts were achieved. Now ETFs- Mm... 27:41 are just a wrapper where you own a lot of different equity securities that are liquid and, you know, three ETFs, very different impacts as by the name, but the returns look very close to each other and to the S&P when I showed how they graphed- Mm-hmm... 27:59 next to each other. And then I showed the top five holdings of those three ETFs and seven companies. 28:07 There were just seven companies among the top three holdings of three ETFs that purport to be very different in terms of their impacts, and they're mostly the Mag Seven because there's a little bit of greenwash in the portfo- I don't mean that those firms are doing that, but the people that are buying it are avoiding companies. 28:25 And the way when you're avoiding companies, particularly where the S&P is 35% or 33% the Mag Seven, you're gonna pick up tech and finance, and so there's five correlations. 28:39 So my point being when I say casino-like, is that when you were s- sports betting or predictions markets, they're very seductive because you can execute quickly. Mm-hmm. Buy and sell quickly. 28:55 And I, I, I think that's an interesting thing to do. With my son, a year ago he said, "Dad, I wanna get started on this. How do I get started?" It's like, open a Schwab account with some amount of money. 29:06 You know, we can, you and me, we can talk about what is a good, like, what's portfolio look like? What kind of exposures should you have across industries, across asset classes, across geographies? 29:20 How do you build portfolios that make sense? And some of it you just, you, you need to learn by doing. It's the best tool. Mm. 29:27 Like I said, if money is a tool and it's yours, just like the spatula and the shovel, then you should use that to kinda gain some perspective. 29:35 But, like, I'm very, very happy to help advise my students, frankly anyone, even anyone that's listening to this, if they were interested in just having a conversation, I, I like being a zealot for the individual- [laughs] 29:50 Good... to be empowered, right? Like, um- Yeah... but I do think, like, to extent that you wanna go a little deeper down that rabbit hole, 29:58 if you have the right professionals giving you the right advice, if you're not coming out of traditional investing to do things like run screens to show correlations between investments, then having people that are at least predisposed to think that way 30:14 are gonna help you build portfolios that can weather changes that occur in markets. 30:20 You know, we're in a highly volatile times where geopolitics impact We're thinking all the time about the way in which that impacts our portfolio and ways that we would be creating long-term 30:35 return characteristics that can, can s- can solve for the mar- market tone length that occurs, because there are things that are occurring in markets we can't predict. 30:46 As your, your families are coming to you and, and you're helping them invest and make these decisions, I, I'm curious about your diligence process. 30:53 How are you approaching these, not just from a diligence perspective, but you have to... With impact, you have to look at the outcomes and, and measurable outcomes. You've, you've been very clear about that. 31:02 In fact, you went so far as to say something about, uh, ESG is differentiated from impact because so many people think they're one and the same. 31:08 But you, you do make that clear distinction that impact is something very unique to the individual, to the family, who they are, and there has to be a measurable way to know what kind of impact is being sought or, or produced- There are... 31:19 as a result of that investment. 31:21 So I'd love to hear a little bit more about your, your diligence process and, and especially the metrics, because I, I feel like the metrics are one of the areas where we're lacking the most in impact investing. 31:30 Well, first it starts with what does the family want? 31:35 And, and we get to that by crafting a detailed investment policy statement with them that goes to the, the things they're trying to accomplish, including the very meat and potato things. 31:46 I want to achieve high risk-adjusted after-tax returns so that I can help my children afford education or buy homes or create intergenerational transfer of wealth. I mean, they're very... 32:00 There, there's almost no family that doesn't come with at least that. And then, like, getting a little, delving a little deeper, I care about faith-based initia- initiatives. I care very much about a livable planet. 32:11 It does-- These other things don't matter if my children can't live on a planet because it heats up too much or it's, there's extreme weather. Or I care very much because of the heritage of my family. 32:24 I care very much about social justice or racial equity or women in the workplace. Whatever it is that are the things that matter to them now become lenses that we're thinking about. 32:36 Assuming, let's just for the sake of this conversation, that we have a family that's given us their values, they're written into their investment policy statement. 32:45 They want highest risk-adjusted returns after tax they can get, but also want to invest for these measurable impacts. We build portfolios- Mm-hmm... 32:54 for them that include both public securities, both equities, fixed income in that portfolio, as well as we have, because of who, you know, the firm and the way we operate, we're very engaged in the private markets. 33:08 We have access to alternative investments. We have large opportunities across all sectors in private equity, venture capital, infrastructure, real estate, private credit. 33:20 We can invest across the landscape of alternative investments or hedge funds for those clients too, and we build a portfolio based on who they are and their needs, based on the balance sheet what, the, of that family and what they're trying to accomplish, which may also include retirement by a certain age and living to a certain standard. 33:40 Mm-hmm. So when you back into that money that's needed in the future, or the objectives that they are requiring, including the measurable impacts that they'd like, now we build that portfolio. 33:51 Now, let's say we build that portfolio, public securities, both equities and fixed income. 33:57 The measurability of impacts are not that great because basically investing in the high, the top quartile sustainable companies or avoiding industries that you can't abide by- Mm-hmm... 34:10 whatever those might be, and they could differ by families, right? Those are capital markets nudges at best. You're avoiding certain companies, and you're rewarding others by investing in them. 34:21 So in your public portfolio, you're not gonna have a lot of measurable impacts. If you want to, you can look at the sustainability reports of those companies, and they will talk about what they're accomplishing. 34:36 But what matters more for these families might be the more measurable impacts are gonna occur by investing in managers. There is a in- investing directly in green energy solutions that are- Mm-hmm... 34:48 the next generation of energy. You know, one of the things that kind of took my breath away, I heard JP Morgan has a climate scientist on staff. Hm. 35:00 Just as something that's hard to imagine, but at, at an event that I was at when asked her... when she was asked, "What do you think is the most undervalued investment 35:12 that you're, you're seeing JP Morgan making these days?" Like, it's investing for climate because there is an inevitability where eventually the entire world says, "Oh, crap, we need in a hurry to work on..." 35:26 E- even if it's just, like, electrification and AI demands for electricity, all the alternative energy products, despite what the politics around wokeness or anti-wokeness of products- Mm-hmm... 35:41 we need to green light every possible one of those products. So the idea that, like, a, a venture capital or private equity fund or an infrastructure fund is invested in a future 35:55 that is an inevitable future, you're at the frontier of that, and those are... You know, there's a, a, a writer from the UK, his name is John Elkington, who talks about green swans. 36:07 There's the, the idea of black swans, the unexpected things that are going to- Mm-hmm... completely crush you. And- Yes... he says, like, there's also a counter va- balance to that are the green swans. 36:17 There are these exponential, enormous opportunities are gonna come because of the opportunity set to transition For changing climate. 36:27 And, and I think that that is missed in all this debate about whether this, the science is real or this is... 36:34 Whatever you wanna talk about it, the, the more important thing is to talk about the magnitude of the idea, and right now, um, the magnitude of need for electrification is, is suggesting enormous opportunities there. 36:48 So I think there, like if you have a VC fund that is investing in green technologies or in, you know, s- whether it might be 36:58 wind, gas, or solar, or ch- charging stations, those venture capital funds are going to give you a sustainability report as part of it. You might get- Mm-hmm... 37:09 20, 25% economic returns, which might be in line with VC or private equity, but they're also giving you measurability in terms of, of, uh, an impact report. Now, to your point about measurement, 37:24 the hardest thing about real intentional measurement in venture capital and private equity, or in direct deals even, is- Mm-hmm... that's largely anecdotal storytelling. The, the, the- Yes... 37:39 you know, like you, how would you evaluate a, a program that changes out kerosene lamps in rural villages in, in Africa for solar lamps? 37:55 How would you evaluate the impact of that, say, versus in investing in, in carbon capture products in the United States, or investing in, you know, 38:10 transition of middle market companies to employee ownership as a way of narrowing wealth gaps for the working poor in America, like- Mm-hmm... y- you can't actually evaluate them side by side. 38:22 They're, like, so different. 38:23 So there is eventually, I say this to students in class all the time, there is a cottage industry that will develop, that will figure out some solutions, some metrics that will help it, you know, measure side by side because they're so vastly different. 38:40 Mm-hmm. 38:40 So it's still largely anecdotal storytelling that, you know, we did this, you know, we did this regenerative farming on this land, and from 50,000 acres, we now have 100,000 acres of arable land that yielded this additional 2X kinds of product that is this kind of qualitatively better 39:03 food steps. So it's not really- Mm-hmm... 39:06 it's not like, you know, you can't look at that and say, "Well, but on the financial side, we generated 22.7% on a three times MOIC, and that compares to the VC index of 22 as, you know, quite favor-" Right, returns right back to financial metrics. 39:23 Yeah, like that's- Mm-hmm... easy to, like, that's, like, my old world, and that's still really easy to do. Uh, this, the- Mm-hmm... new measurement is still largely anecdotal storytelling. Yeah. 39:33 It, it's, it's really hard because finance is incredibly good at the finance metrics. We know that. We know what to follow, we know what to see. 39:39 But at the same time, nonprofits have kind of developed this great system for putting metrics on impact and things like that for, for decades now, since they've had to. 39:48 But [laughs] at the same time, there's no consistency. So one metric for one fund is one metric for one fund, and not necessarily across multiple different impact funds. 39:57 So it's, it's going to be, it's gonna take, I think, some generations of, of iterating this and figuring it out. 40:02 But, um, it's interesting to hear your perspective and understand that you're pursuing a goal that if I'm hearing it correctly, you're pursuing a goal, and working toward that goal in incremental steps insofar as possible based on that mission first, and the metrics are going to catch up. 40:18 The, the measurements of it are going to catch up. You know impact when you see it, right? So to the extent that, you know, we, we like this one fund that does private credit that finances middle market companies 40:34 where the matriarch or patriarch, the owner, are going through the graying of America, right? All these middle market companies, uh, eventually are for sale perhaps. Yes. Children don't want them. 40:45 They're perfectly good money generating, cash flow generating businesses that you could sell them to private equity, or you could sell them back to employees. Mm-hmm. 40:55 And so we have this one fund that lends the private credit to finance transition into ESOP so that the- Clever... yeah. So, you know, that's got bipartisan support. 41:09 Everyone can wrap their head around the idea that, you know, a wage earner earning 8, 10, $12 an hour is better if he's an owner, better off if he's an owner. And as a private credit note holder, I'd rather have owners 41:24 pay me back than, you know, people that are paying, getting paid paychecks to be in the C-suite that now have employees they can lay off to make payments. 41:35 It wins on all sorts of levels, and there's a lot of businesses coming up for sale. 41:40 And so from a, from an impact point of view, that's a significant impact with regard to workforce, value f- of the workforce, and narrowing wealth gaps for less affluent to, to hopefully create intergenerational wealth where, you know, we have had this huge disparity of wealth in America. 41:59 Yes. Let's, like, narrowing that. Mm-hmm. Those gaps are important to everybody on any side of an aisle. So that's not a, an incendiary question. 42:07 But then on the, on the financial side, to make 12 to 14% on private credit is in line with private credit, with the difference being that I would say that the borrowers, these middle market companies that are cash flowing where all the employees are owners- They wanna pay off that debt so that their equity is valuable. 42:29 Mm-hmm. Their equity is when the eq- when the private credit's paid off, they own the companies free and clear. 42:36 So it, it's a, it, it's a terrific product, and you know, like when you finance those, those are super impactful things, right? You want the metrics on that. 42:47 You know, if, if there's any one company that, you know, 600 employees went from being wage earners to being owners is a really great outcome. It is absolutely incredible. 42:57 So as you're looking back and you, you look back at your career, look back at who you were, what advice would you give to yourself back then, or what would you like to tell your younger self than what you know now? 43:09 Well, it would not have so much to do with impact. It would have more to do with the temperament of being the younger me back then. [laughs] Which is, is one to have like a, a, a longer term perspective on things. 43:27 Uh- Mm-hmm... you know, maybe not worry so much about short term. Now it could be that y- I needed to be who I was then to be who I am now. I don't know. 43:39 But I would, would probably urge me to have a longer term perspective and, and, and also in terms of the opportunity sets that I might have in front of me, not be so quick necessarily to jump to force issues. 43:57 Because, you know, when you see something and you say by dent of your own personality you can change culture in a place or you can, you know, I did this at this place, so I can influence this somewhere else. 44:10 You know, there, there's the old adage that man plans and God smiles. Like, that just is not necessarily the way it's gonna go down. 44:20 So to have humility to think that just because something worked out in one place that you can translate that everywhere. 44:26 So you need to have your, your hits and your losses, and I probably would've taken hits and losses easier as a younger person if I recognized that it, I wasn't a de Medici, that everything I touched was gonna go gold and that, you know, there was going to be reverses, that it was just an inevitability and that you come stronger from those things when they happen. 44:46 You learn from them and you become stronger for it. 44:49 So as you look, look at where you are now though at Be- Beatrice Advisors, as you look at the students that you're teaching right now, what do you think is the one thing that you hope will continue from you, your legacy, and what you're doing today that will last beyond you and beyond your life? 45:06 Well, I, I think, you know, it manifests in, in two places. Like, there's with what's happening with my family, there's what's happening with my work. 45:16 Um, I think that I'm proud of and think that my wife and I are raising a, a really good and decent young man, and I see him as a caring, moral, loyal person that really understands right and wrong, and I feel really good about that and I hope to see his continued journey for many years. 45:40 I hope to see that, but I know that I'm leaving him in a, he, him in a good place. 45:43 I think that that's one thing, and so the legacy through family is important, that I've done right by my friends and my family and I hope they recall those kinds of things. 45:53 The work I'm doing right now at Beatrice, I really believe in the work we're doing as an organization. We're a woman-run organization. My partner Christina Lewis is- A remarkable woman, yes... 46:05 she's the daughter of Reginald Lewis, who is a l- legendary financier. He was the first Black man on the Forbes 400 list. And her mom, Lloyda Lewis, is equally formidable. 46:20 Reginald Lewis passed away when Christina was young. Lloyda is alive and still active. 46:25 And Christina have built really meaningful things that are very meaningful for Black, brown, and female founders and entrepreneurs, and I think they're very inspirational in that regard. 46:38 I think we as a firm are a testament to that and what we're building out. I think some of it is that her experiences too as an early, uh, inheritor of wealth, she's been dealing with private wealth since the age of 12. 46:53 The idea that we want to give our, our families and the foundations that we work with confidence that they have the latitude to do with money as they see fit, 47:08 and then implement it on a very customized and bespoke way is really good work in a world where most private wealth managers are gatherers of assets. Mm-hmm. 47:20 And so I think that, like, we built something very customized, bespoke, boutique that is a precious gem, and to make sure that that gem remains polished, that, that the standard of care remains really high. 47:34 This is a really special team and a very super offering, and I think this is also a valuable thing. And then finally with teaching a next generation, my point there is like that is another kind of impact that 47:52 I and my-- I can give, which is if, if you can pass on to a next generation, you know, if you can, if you can narrow the gap between academics and practitionership 48:06 so that they be- are more formidable candidates for hire, which is good for them and their families. 48:13 And then it also narrows the timeline to them as change makers to be in positions of authority because they inherit a world with problems not of their creation, but they will need to solve those problems, and they have the energy. 48:28 And I, I hope that through the work that I do at, uh, at academia, that we're, we're, we're, we're narrowing that gap. 48:35 And that we're hastening that timeline for them to put them in places where they can influence outcomes. And I don't think students coming through the class getting three credits, getting a grade, that's not the win. 48:46 The win is then taking that and finding the seat that you want to do the work that you wanna do, and that's the big win. Mm. So I try to work closely with students to find them the places that can make... 49:00 where they can make a difference or get them on track for that. And, you know, I think that's super impactful. I feel really proud of that work, too. 49:09 So at this point in life, what I'm really happy about is that I'm finding ways to, like using my Al Capone analogy, that it isn't just like that you're, you're, you know, you create widows and orphans by day be- so that you can get feted by the Widows and Orphans Association at night. 49:26 Mm-hmm. We are all, like the first people on planet Earth right now alive, we may have the luxury to have the opportunity to harmonize 49:36 the work we do, how we consume, and how we invest to align that with our values, right? And that whatever they may be, we can align them with our values, and that creates great harmony versus the- Mm-hmm... 49:50 discord of I do what I do, and then I philanthropically give to, you know, balance that- Yes... when I meet my- Yes. Yes. No, very, very well said, Peter. And I... This has just been awesome. 50:03 I, I love talking to you about this stuff. 50:05 I don't want this to be the last time, because I think that what you're doing and what you're educating people on is so important, especially as we all figure out what this impact investing not only is, but can be in the future. 50:16 So thank you so much for taking the time with me today. You're welcome. And definitely looking forward to next time. Yeah, it's kind of you to say those things. I enjoyed the conversation, too. All right. 50:25 Thank you, Peter. We hope you enjoyed this episode of the Purpose Driven Capital podcast. If you found this valuable, be sure to like, subscribe and share. Are you ready to align your money with your mission? 50:37 Discover the Purpose Driven Capital framework, access practical tools, and build meaningful connections to grow your movement and multiply your impact at PurposeDrivenCapital.co. 50:47 The views and opinions expressed in this show are solely those of the individuals speaking and do not reflect the views or opinions of Honeyhive Capital, any broker-dealer, investment advisory firm, or its sponsors. 50:59 The content is for informational and entertainment purposes only. 51:02 Nothing in this content or any communications from it should be treated as constituting financial, investment, legal, tax or other advice of any kind, or as a recommendation to buy or sell an interest with respect to any investment. 51:14 We look forward to you joining us next time. [outro music]
