Free Money Podcast S02E06 Transcript

Featuring Ambassador Ertharin Cousin, former Executive Director of the World Food Program

This AI-generated transcript has been lightly edited and condensed for formatting, but is no substitute for the actual recording. Click here to listen to the whole thing.


Speaker 1 (00:00):

Yeah,

Sloane Ortel (00:10):

Welcome to the free money podcast. This is where we take a look at what's holding the world back from investing in progress and crack a couple jokes along the way.

Ashby Monk (00:19):

That's what we do.

Sloane Ortel (00:21):

Yep. Yeah. And yeah. And you know, honestly guys, the payoff for probably one of the longest running jokes on this podcast has finally come.

Ashby Monk (00:30):

it's happening. Portable Alpha. Yeah.

Sloane Ortel (00:34):

From now through what is it? July 5th, the day after the 4th of July, you can get 20% off your very own portable, alpha water bottle, a coffee mug or tote bag. So we have illiquid and liquid portable alpha strategies for you.

Ashby Monk (00:52):

Very good. Yeah, absolutely. You have to be able to take your portable alpha with you wherever you go. Yup. Movie theaters, actually, we don't go to actually, we don't go anywhere.

Sloane Ortel (01:08):

That's a good point. Maybe, maybe like the portable alpha that people actually pay lots of money for, our portable alpha is a prestige product.

Ashby Monk (01:18):

I think it's just as good. You want to have your portable alpha water bottle behind you when you're on the zooms? Yes. Yeah.

Sloane Ortel (01:28):

I've also got my my very own free money branded snapback that just came in and we have top quintile, top quintile. Yeah. So you can you know, proclaim your the persistence of your returns and there's some special underwear and tee shirts on the site too.

Ashby Monk (01:49):

And in case you think we are actually not serious, we are serious. This is how we're funding the free money podcast. Yup. What is the address of our store?

Sloane Ortel (02:02):

It's free money atelier. There's a link... i'm such a tool.

Visit the Free Money Atelier

Ashby Monk (02:11):

No, you're not. Dear listeners. Please visit our free money atelier. The best free money goods. That money can buy, if that makes sense.

Sloane Ortel (02:21):

There'll be a link in the description while you're at it. Why not write a review for the podcast as well?

Ashby Monk (02:26):

Do it. Just do it. If you made it this far, you should give us a five star. If you made it through the opening intro, what are we talking about?

Sloane Ortel (02:37):

We're talking about what the hell is the department of labor doing?

Ashby Monk (02:41):

Oh gosh, good reminder. The department, people on the listen to this show that might not know the ins and outs of pension regulation. The regulator did some pretty annoying stuff this week. Well, interesting stuff. Annoyance is a function of your maybe political position and where you come down on the value of ESG data environment, social governments data, because the department of labor has come out with new guidance to say, retirement plans are not vehicles for furthering social goals or policy objectives. Just to be clear. Retirement plans, are vehicles for furthering social goals. It's called retirement security, but that's okay. It's okay. Department of labor. I understand where you're taking this. You're saying the investment strategies should not themselves choose social goals. As an objective, you have to remind yourself that the objective is a very specific social goal and that is paying the pensions of the members for which you're deploying the capital. I was trying to be like, how do I explain this to the lay audience? Like how bizarre this is. It's like reminding people not to drink the water when a tidal wave is coming because the water in the tidal wave is salt water, and you shouldn't drink salt water.

Ashby Monk (04:18):

It's like, yeah, dude, understood. We're not drinking the water tidal wave coming. And should we be talking about that? I mean, here, here are the, the ESG world is getting ready to go mainstream among these pension funds, sovereign funds, endowments foundations, all of these fiduciary bound investors, by the way, most don't fit under the department of labor, which is why the department of labor in this case, it's talking directly to the corporate pension plans under ERISA (1976). And so sure all of these fiduciary bound investors or getting kind of a warning shot that like you better not be using ESG to pursue social goals. And the tidal wave in this case is the fact that ESG is really going mainstream. We had the pandemics, we got all this stuff going on in 2020. It's been a heck of a year. And what that has done just to normalize the abnormal. It's normalized things that are abnormal.

Ashby Monk (05:26):

And what does that do? It brings the techniques and methodologies for predicting and managing abnormal risk into the mainstream. And so what you're now seeing are the world's biggest fiduciary bounded investors, re-thinking the very methodology upon which they invest, they're getting ready to fully adopt. E, S, and G. And what's hard about this moment. It's like the department of labor realized this wave was coming and that the investors that literally put capital in capitalism, the a hundred trillion that we talk about are about to change their methodology and use ESG. It's gonna create some winners and losers. And I imagine that, you know, certain folks in the financial services industry could be a loser. But the reality is, instead of telling us not to drink the water in the tidal wave, which is like saying, don't use ESG as a goal, they're saying you have to use ESG only when it has a financial consequence, but it's obvious that it does

Sloane Ortel (06:37):

As a mechanical matter. There are all these ESG strategies that seek to like take oil out of the S and P 500, right. But deliver the equivalent return. You know, sometimes there's a small cost associated that are with some tracking error. So does this mean that like, if I implement one of these strategies and like, if, if this guidance has passed, if I implement such a strategy in my corporate plan and lag the index by 30 basis points, I would be in abrogation of my fiduciary duty.

Ashby Monk (07:05):

That's the, that's the warning shot they're sending. But the problem with their logic is like I say, but it's like, don't drink the saltwater and the tidal wave. They don't actually tell you how to deal with the wave of ESG that's coming. This is, we've talked about this with Jean Rogers, where we're like, look, this is a pathway to resilience. That's how you use it. I call this the last mile problem of ESG, where like, we get all this ESG data, it comes right up to the door, but we don't know how to bring it into the organization. And so if there's a positive thing from this announcement, it will force us all in the space to say, okay,

Ashby Monk (07:42):

Here's the ESG data on climate change. Here's how you use it. In a financial context, you can use climate hazards to predict damages to property. You can predict cost of insurance changing. You can predict defaults on mortgages near, I dunno, flood zones. There's all kinds of lights, smart predictions we can do using ESG data. And what this will catalyze is a bunch of people to figure out that last mile problem: how we use it. The fear I have is it scares people away from using the ESG data, which will help them kind of better understand these abnormal risks, which have been normalized lately in their portfolios. And so that's not good. I don't think that's good for the world, for the investors. It's not better outcomes.

Sloane Ortel (08:31):

It seems like it like reinforces like a myopic short term view, right. Where you can be penalized for a quarters of performance when you're responding to like a 30 year trend. I mean, like, you know, we were talking on email about like about, yeah. Basic stuff like food, you know? I mean like where like actual biblical stuff has happened. Like in East Africa they have COVID-19, locusts, and heavy rains now.

Ashby Monk (08:55):

It's nuts. Yeah. But so to your point, it's like ESG factors help to reroute these pension funds in the real world. It's like, Oh wait, we are the capital in capitalism. We should probably think about how our capital connects into communities, cities and you mentioned food, how, how we can like help supply a healthier ecosystem of food because the pot, there's so many positive externalities from the food and the good food, the healthy food. So the health care system for all the different pieces. And it does actually flow back to these long-term investors and how they think about their investing. And so the department of labor saying, don't think about any of that. It's super frustrating.

Ashby Monk (09:53):

We're trying to free money from the bounds of short-termism. And the department of labor is like, let's create more bounds of short termism.

Sloane Ortel (09:59):

Yeah. They're like, no, no, no, no, no, no, no. We're just going to, like, there's only one thing that is good. There's only one good kind of investment. And it's the one that performs the best in this quarter.

Ashby Monk (10:14):

They probably listened to our podcast and they, you know, and so they needed to put out a new piece of regulation, the tens of people that are getting scared. Yeah.

Sloane Ortel (10:30):

I think like, let's see if we can get a picture on like the actual real world. Right. Cause I mean, we're talking about pretty abstract stuff.

Ashby Monk (10:39):

Let's call my friend, Ertharin Cousin -- Ambassador Cousin -- I promise you Sloane, Ertharin Cousin will influence your thinking. And I know that because Time Magazine said she was one of the 100 most influential people in the world.

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Sloane Ortel (10:55):

I've heard of that.

Ashby Monk (10:57):

Yeah. And she was executive director of the world food program for a long time.

Sloane Ortel (11:01):

I think that's the largest philanthropic organization on earth.

Ashby Monk (11:05):

Is it? I guess we'll, hopefully she'll pick up and we'll talk to her about it.

Sloane Ortel (11:08):

I mean, according to some kind of website yeah.

Ertharin Cousin (11:18):

Hey!

Ashby Monk (11:18):

Ambassador Cousin, We should probably call you.

Ertharin Cousin (11:33):

No, Ertharin works fine for me. But if it will give me more gravitas in this conversation, Ambassador Cousin it is.

Ashby Monk (11:33):

Well, we've already been talking about your profile as the time magazine 100 most influential people and the endless honors that you've had, including running the world food program, being ambassador. So the gravitas is definitely there pumped to have you on and want to talk to you and start getting you talking about all this stuff you're working on.

Sloane Ortel (11:58):

We were just sort of talking about how you know, the us department of labor kind of has you should this kind of broad shot. That's trying to redirect investor's attention away from yeah. Kind of environmental, social and governance issues. Right. And, you know, so we were kind of thinking we might refocus on a really basic one, like food security, which, you know, kind of was already in a pretty precarious state in some countries and you got to imagine COVID-19 hasn't really helped like what sort of effects of as the virus had and sort of where are we in general?

Ertharin Cousin (12:31):

Wow. that could take up our entire conversation, but let me, let me give you some top line thoughts that I've been sharing with the world and that, and then the part of conversations where leaders around the world are, are looking at the, the challenges that's COVID has laid bare around our global food system. COVID confirmed what we always knew was true. The interdependency of countries on a global food system. And that requires open transport, protection of workers. And the vulnerability. Every nation is potentially impacted by disruptions in that system. No country goes unscathed. We see we've seen it in our pork industry, in the United States as well as in the movement of rice from India, when there was slow downs at the ports before, before port workers were considered essential. So we, we, we know that these challenges affect farmers most directly. Here in the United States. We have a food system that is basically two dual food chains, one that supports institutions and the other that supports retail and that with, with the shelter in place orders, the institutional food chain was shut down overnight. And what that meant then was that you had the pictures that were

Ertharin Cousin (14:27):

Broadcast on so many television stations during the early days of the crisis of Dairymen pouring milk down drains that of farmers plowing produce under at the same time that you were, you were witnessing an increase in the number of people going hungry in the United States because it identified for us how many people in our own country live from paycheck to paycheck, as we've seen the escalation and unemployment climb to over 40 million people. And those people being forced to many of them for the first time two to seek assitance to feed their families because the while, our system, those two food chains are quite efficient. They were not, and are not agile. And so we are now having discussions about, should we have more diversity in our food chains, more regional and local storage, distribution and processing. And those are conversations that would not have occurred because it was deemed too hard to deal with the system too efficient to require the discussion before COVID-19,

Sloane Ortel (15:53):

That's fascinating. I, you know, I wonder too, how, how this has played out sort of in the global South, right. Where a lot of development economists will talk about things like microcredit as a means of you know, providing some stability to small farmers, but, you know, one tends to think that if there's a risk or an instability leverage, doesn't tend to make that easier to deal with.

Ertharin Cousin (16:17):

Yeah. You're, you're, you're, you're absolutely right in the, in the global South, we witnessed this. I'll give you an example in a Rwanda, you have a nascent commercial egg industry that supports not just the hotels and restaurants, because eggs are not a traditional commodity consumed by the Rwandans particularly the low income population in Rwanda. And so the egg industry provides support to hotels, restaurants, institutions, across borders to Congo, to the UN troops through, and, and to Uganda for consumption in their institutions as well. With COVID, when the institutions shut down and borders closed, what you saw was inventory without market. And so merely providing the provision of microcredit to those markets, to those individuals, They will be forced to slaughter their slaughter, their birds, because they couldn't afford feed, but giving them microcredit without giving them access to market means they don't have the ability to repay.

Ertharin Cousin (17:55):

And so, with what you saw was development actors coming in to provide business continuity support by purchasing from those small holders, for distribution to those in urban areas who do not have sufficient access to animal protein. Households with children under five or pregnant breastfeeding women, where you could provide them with then this additional protein when they were sheltering in place, while also providing business continuity to the, to the egg producers, the small and micro enterprise and producers that would not create the additional debt of a microloan and the additional stress of a micro loan, but would ensure the business continuity and the opportunity for business recovery once the, once the shelter and place orders were lifted.

Ashby Monk (19:01):

That's fascinating. Hearing you talk through that challenge. I hear you using words like rural to urban markets distribution. And so given that, you know, my project at Stanford has often been about how do we, how do we build new infrastructure? I feel obligated to sort of first figure out how much of an issue of food security is it an infrastructure problem? Mmm. Do we need more roads, rail, et cetera, or do we need more food is kind of the question I'm trying to get to?

Ertharin Cousin (19:36):

Well, it depends on context. You will often hear food security advocates, or even the critics of the work in this area say that we produce enough food for everyone in the world. And so no one should go hungry or malnourished, but the reality of it is that food production and what foods are produced, depends upon location. Much of our food is grown and transported through long value chains cross border from one country to another, or from one region to another. And again, the challenges of those long food chains have, have then observed and recognized as a result COVID. And what it has is raised is then the question of the questions of infrastructure. It's raised questions about the adequacy of storage, which has become very clear in, in particularly in Subsaharan Africa, we don't have access to enough storage to support food availability and to ensure the agility that is necessary in a food system when there is a disruption, nor do we have the roads, the road systems that support the access that small holders need to access storage facilities, if they were in existence to access the markets in other, in urban areas where, when they need additional seeds and tools.

Ertharin Cousin (21:48):

And so roads is a big part of ensuring that we limit disruption in the food system. Storage is a significant part of that. But also, we know that processing facilities and where they are located should be considered when we talk about logistics of the food system because we have seen the consolidation of processing have a detrimental impact on the availability of food. When healthcare, when food processing workers can't get access to those processing facilities, because they're in shelter, in place in other areas that don't allow them to travel to one place to another. So those are all factors, both distribution and food availability has significant, we've witnessed significant challenges on both sides as a result of the COVID-19 issues and how they have evolved over, over the globe, because we saw different issues raised as the pandemic began to affect different countries.

Ertharin Cousin (23:19):

And what I mean by that, for example, is that when borders were shut down between or transport was shut down between the U S and China and trade was shut down between US and China, you saw the impact that had on the, the transport of pork particularly into the, into the processing systems in the United States that were incapable of taking all of the, all of the stock that was available for processing. And you saw that we saw the same kinds of challenges in countries as far away as Nigeria and Kenya, when farmers struggled to move from rural areas into urban areas where they were required to identify new methods for distribution and sale of their products. When they lacked access to markets, when there was no refrigeration or storage available that resulted in the spoilage of product, we saw it in, again, back to India and China, where China was able to process a significant amount of the perishables that were not used in the, in the system that, that supported their institutions. But India does not have that same processing capacity. So almost 70% of their perishables were lost because of the shutdown of the institutional supply chains that support hotels, and, and universities and, and, and other institutional buyers.

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Ashby Monk (25:29):

Okay. So that rich complexity, which is just hearing you talk, I feel like you could probably talk for 40 hours and continue to blow our minds, but, but I guess the reason I asked you that was it, I wanted, so, so we started off this little podcast by talking about ESG and how ESG offers a very rich understanding of investment opportunities. And what, when I asked you, is this an infrastructure problem or a food problem? You're jumping into the complexity that is food security, the links to economic growth, the challenges that our infrastructure it's an incredibly complex space, but it strikes me that in hearing you talk about it, I was making little notes. I heard like more than 10, Truly commercial investment opportunities that exist. And, and I guess that was part of the reason we wanted you to come on today was ultimately we wanted to talk about food and food security, but we also wanted to talk about it as an investment opportunity. And so without leading you anymore down this, you know, as the witness here, I'm curious, where do you see investors having an opportunity and in investing in food security? I mean, I know you've mentioned many already, but just maybe run us through the investible opportunity.

Ertharin Cousin (26:52):

You guys are about the business, so let's look at it from an economic standpoint. FAO estimates that the gross value of agricultural production is over $5 trillion. The World Bank says it's closer to $3.2 trillion. Whichever number, it's a big number. And the world bank also suggests that the system generates two to five times as much value off-farm between farm and consumer as it does on-farm. And so we know that, in the United States for every dollar spent on food by the U S consumer 11 cents, is accounted for in farm activity. And what goes to the farm and all of the other value is in the middle. And so the estimated value of the global food system post farm to consumer is about $8 trillion or 10% of the $80 trillion global economy.

Ertharin Cousin (28:09):

And so we know that there are any number of investments in ag tech, food tech, innovation from the farm to the consumer, as well as new tools, new investible assets coming online to support to support waste reduction and waste elimination, post consumer purchase or after the disposal of food at the institutional level, but the reality is that the investors are not seizing upon these opportunities today. And what we are witnessing is that there are increased investments and across the ag tech, food tech, innovation from agriculture to consumer distribution, to new plant based products, etc. The investment required in 2018 was at about $320 billion. But less than one percent of that demand for investment was actually met in deals. And even where there was investment, there were in 2018, about 209 ag related or ag tech, food tech related deals. Those deals did not go to underserved or low income or developing communities. Less than 0.1% went to any of those communities. And so there's a significant opportunity for the investor community to embrace the potential if they are willing to accept some risks, as well as to recognize that there's a longer return time for agricultural investments than there are for the more attractive investments assets managers tend to gravitate towards.

Ashby Monk (31:02):

So, so that's a really important thing. So just, just to clarify my world, the pension funds, the sovereign funds, we take risks. That's the whole point of what we do is we take risks to generate return. In fact, we have to take risks to generate sufficient return. What were terrible, sorry, guys is innovation. We are really bad at being first. We want to see a track record and then the capital crowds in, and there's too many of us, you know, the fee structures go through the roof. But so like in this case, we would usually get people over that innovation by doing demonstration cases of how they can invest in food security and how they can make money. I probably can't think of 10 big pensions or, or sovereign funds in the world that are really active in agriculture. They just, it just doesn't seem to be an area they're focused on. So what are the entry points here kind of push them towards to explore?

Ertharin Cousin (32:02):

Well, there, we've talked about all of them. We've talked about from production transformation to on farm activities, from a new digitization of tools at farm level, IOT tools at farm level, that will impact the productivity of farms, as well as creating more sustainability in agricultural production, distribution and logistics. The investments are skewed towards larger companies. We need investors that are willing to invest in smaller companies trying to address that nutrition challenges as well as the logistics challenges. They, the last mile delivery system that we, we know that in many low income communities, the access to food through internet access that we, many of us take for granted today is not being extended into those communities. And here in the United States, for example, we know that there are 23 million people who live more than a mile away from a supermarket.

Ertharin Cousin (33:35):

And many of those are the same consumers that do not have access to internet Purchasing for food. And so new tools are coming online to address the necessity for investing in those companies that will help us reach those consumers. We also know that we need investment in more foods that will meet cultural demand, but also healthier outcomes for populations. And there we have seen how how plant based proteins coming online have brought in additional have brought in significant revenue to those asset managers who have invested in that space. But those, those products are not coming online in support of the consumers that we are most concerned about who are most detrimentally impacted by the food system today. During my research at Stanford I explored the landscape around the issues that we're talking about today and last at the end of last year, with the support of, our friend here Dr. Ashby Monk set up a new, enterprise called food systems for the future where we are working to do exactly what you just described, identifying those assets that we can, that we can Mmm. Invest in that we'll address impacts the nutrition challenges of these targeted communities while also providing a commercial return and looking at the U S and Rwanda as our first markets for entry to develop exactly what you said that case study, that proof of concept that you can invest in the agricultural space, beyond the elite and affluent farmers and consumers and deliver a financial return, as well as the deliver the impact that is necessary to address the food security and nutrition challenges that we've been discussing.

Sloane Ortel (36:32):

But those are just fascinating, like macro level opportunities. I think, you know, as, as you're talking, I, you know, I wonder too about like, I mean, obviously we try to influence the behavior of pension funds and investors around the world, but, you know, as sort of a conscientious, pseudo hippie, right? Well, what kind of actions are, can one take productively just as an individual? Like, I mean, through quarantine, I've seen how hard it is to grow a single tomato. But like what, what, what is a good thing for an individual to do it to work on the problems of food security?

Ertharin Cousin (37:08):

Well, you know, many of your listeners are high net worth individuals, we need their support to invest in organizations like FSF, like Root Capital and Acumen and others who are working to address these challenges with new market based tool that will deliver evidence that is required to grow the agricultural productivity of our food system in a manner that is sustainable. And as I said, not just for the affluent, but for everyone.

Ashby Monk (37:53):

That's amazing. I, I've been really grateful to have the opportunity to work with you on this project or a friend I'm really pumped that you could come on and kind of help us unravel this complex issue. And I think it is an investible issue. And so I encourage everybody, you know, who's listening. If you want to sit down and have a chat with her for him, just send me a note and I'll connect you, but earthen, thank you so much for taking the time and this is really fascinating.

Ertharin Cousin (38:24):

I would ask that your listeners go to www.fsfinstitute.net and they can find out more about the issues that we've been discussing about the for investment opportunities tend to have potential to delivering financial return, as well as making an impact that gets us beyond the "oh isn't this bad" to the "let's make a difference."

Visit Food Systems for the Future

Ashby Monk (38:47):

I love that. And we'll put a link to the website, our in the notes for the show. So thank you again, really,

Ertharin Cousin (38:54):

Very much for the opportunity to participate.

Ashby Monk (38:57):

Aw, thank you.

Ashby Monk (38:58):

All right.

Sloane Ortel (39:02):

I like her.

Ashby Monk (39:03):

She's amazing. I mean, you know, like I mean, full disclosure since she outed me, I'm on her board, it's unpaid, just in case you think I was promoted by my own wealth here. I do it because she's, she's just out there on tipping point of the spear of trying to solve these problems and create some investible products that are going to solve the most important issues in food. And, and I think the reason know we wanted to talk about ESG. We wanted to talk about, you know, how you can use ESG to sort of cultivate new understandings. Like we talked to her for 20 minutes. Like if you aren't smarter on food, food security, the investible opportunities. I think like we missed the point because the point was to show how this lens can deliver such a rich and like detailed understanding of a place. And it started by the way with her wanting to solve a problem.

Sloane Ortel (40:05):

Yeah. And, you know, and I think too, like it's important to like, but you were talking about new perspectives that you gain a lot of the literature when you read about like how to invest in a frontier market, will stress that you want to invest in either existing, big companies with good with dominant market positions or banks. You know like, I mean, if you, if you look at, I mean, there's, you can usually compare a country ETF to a big local bank and get basically the same thing. So I think it's fascinating to take this view of, okay, how can we create an, you know, a better infrastructure for local food that generates a financial return that might be more secure than, you know, I mean, you've got like a, a double B credit rating on your financial infrastructure investments.

Ashby Monk (40:55):

And before you hit the tone before you hit that tune. To bring it back to the insane comments of the department of labor, I think what drives me so crazy is like, if you're using ESG and you're truly understanding the opportunity set with all the different factors, you almost end up just by a function of doing the work with a creative or innovative solution, by saying, you can't think about the E, S, and G you're going to be pushed towards these standard financial products, which are not solving these problems. You know, we need to innovate and we need to bring this capital into new places, which means we need new lenses of analysis, which means we need to help plans use ESG and not scare them into just reverting back to hedge funds and private equity funds that are charging fortunes. Yeah. That was my final thought. Yeah.

Sloane Ortel (41:54):

And, you know, in deep research lies, durable returns, right? I mean, that's like the the biggest Axiom of investing, but with that said, I got to hit the button.

Speaker 5 (42:06):

[Inaudible]

Sloane Ortel (42:06):

It's time for dear Ashby. This is the part of the show where we ask questions that listeners sent into the one and only dr. Ashby Monk. If you would like to ask a question, send us an email either if you have one of our emails, go ahead and use that or DMS on Twitter or send an email to freemoneypod@gmail.com spelled free, like free money, like money.

Ashby Monk (42:28):

Thank you for the clarification. And Pod with one D I guess.

Sloane Ortel (42:35):

So the first question is like from a, you know, kind of a local inside politics thing. So, you know, we have something called a comptroller in New York, which is amazing, right? Like, you know, I picture, you know, things are out of comptrol, but our, our comptroller Scott Stringer, who is incidentally running for mayor has been, I'm making sort of a big deal about how GM is not disclosing much about its lobbying practices. I mean, he's accused them of privately working against policies that they have publicly supported, which sounds evil as heck. And I'm having a hard time understanding if it's plausible or not.

Ashby Monk (43:16):

You know, it is totally plausible. We call it greenwashing. I mean, I don't know exactly what the, what the lobbying was about. I think I've read some of it. It was about fuel standards or something. And GM was taking a very public stance that they're for the standards, but then behind the scenes, they're against the standards. And, and it's, it's an epidemic. This is part of the challenge of alternative data and ESG data, but also it's great promise. So if you think about like the reporting that's done, that makes a company look green, you know, they're going out there saying, look at the community engagement, look at our public statements, sell this data to the investors that were well that's ESG/alternative data, right? It's not conventional. It's to give these organizations the perspective that they are doing good for the world, but on the flip side, if they're not, because there's really no standards around that reporting, usually there isn't, sometimes you can't tell lies. . It's pretty hard to get bottom of it without more alternative data. You know, like I can remember somebody telling me a couple of really interesting use cases for alternative data where it's actually used to hold companies accountable. Like if you're you pointing camera at an RV production facility, you can count the number of RVs coming off the line. If you're trying to track a construction company, building a building in China, you know, you can point the satellite imagery and check the, the shadow every day at the same time and watch the building get longer and longer as in taller and taller. And so you can monitor companies with this alternative data. And so this to me is like a reflection that like, we're still in this like immature phase where people who have the data can manipulate it and gain the system, but over time, we're going to end up you know, being able to hold those people accountable with the same tools that they're misusing today. I don't know if that makes sense.

Sloane Ortel (45:16):

That makes sense. Yeah. So that satisfies, I hope it satisfies our listener. You know, we'll probably get a mail. Well, we didn't make enough jokes about being out of comptrol which, you know, I'm sure that there's a you know, a good comptroller pun constituency out there. The next one is is you know, I think a, a really, you know, a recurring question how come alternatives to lagged private equity reporting have not been adopted. And, you know this one comes from, you know, just to outline why they're asking that, let's say, you know, the end of June is coming up, you know, if I'm a private equity fund what month's data might I be providing my investors like March performance or something like that, or January?

Ashby Monk (46:04):

Yeah. This this lagged private equity reporting, which is often referred to as "roll forward", where they just take an old, you know, an old nav and they roll it forward along with like the value of the company is taken and then they basically slapped some return onto that. And they literally just go forward a quarter and they'll say, look, we made another return this quarter. So it's not very good science in the age of, you know, private companies, delivering rockets, filled with people to space stations. Like this is, this is the opposite of that. And you know, it's it can be fixed and I'll come to that in a second, but in general, doing this well with the tools we have today means one, a GP like stipulating, some kind of a public market proxy in the agreement. And they don't like doing that. Cause they don't like being compared to things like the Russell 3000, you know, they can be wildly different. And so in terms of a benchmark, they don't want to kind of set that standard. And, and frankly, it could even open them up to some legal challenges if they get too far out there in terms of like deviating from a, from a benchmark. They also plain and simple, like the fact that they don't have the volatility in the performance numbers. And so, you know, they literally sell their products often as a lower volatility alternative. And so it's like in that we've talked to this on another episode, but it's in their economic interest not to have that volatility. And I mean, you would think that, like, the things that we would think that like the GPS who are managing the business should have a very good sense of fundamental value.

Ashby Monk (48:01):

And like they themselves could just clue us in and say, Hey, here's the value. They don't do it for whatever reason or I haven't seen it done. But, but the exciting thing, I think this is the long punchline to this joke is there are data science companies emerging that are doing ground up valuations, they're using fundamentals and methodologies that are pretty standard and applying it to the PE space. And if we're going to be in a position soon to provide these types of valuations in real time and we're going to have to, and the GPS are going to have to get on board with it because most of the pension capital is moving from defined benefit to defined contribution. And so you need these faster navs in order to get it right. And so, like the writing's on the wall, we're going there. I wrote a paper on this actually with this team at FEV analytics, which I'm happy to send anybody, there just aren't enough listeners for us to worried about people, inundating me with requests for this paper. So just email me if you are interested in how you do, how you do these types of analyses. I've actually spent way too much time thinking about it. So I'll leave it there.

Sloane Ortel (49:18):

Yeah. The the crowd clamors for detail on how to, how to value their private equity.

Ashby Monk (49:29):

I can see my inbox filling up with ones and twos of emails.

Sloane Ortel (49:29):

I'm breaking into stress hives, thinking about it, email sucks. So last question is, is one that this one comes from me cause I have like thinking about a long read for the free money folks. And you know, I was just spending some time looking at people, forecasting, a quote, unquote pension time bomb. And this seems to be like some people's full time jobs. Like if you, if you Google them, it's like, you know, their, their whole thing is like the pension system is going to explode. The pension system is going to explode.

Ashby Monk (50:02):

They're called actuaries.

Sloane Ortel (50:07):

Ooh, shots fired.

Ashby Monk (50:08):

That's literally their job, they project liability. And they're like, if there's a time bomb. Yeah. So they're the ones that are like, Holy crap, you gotta make 8% in this pension fund to have any chance of meeting this future liability. I love this question, but I'm glad it was you. Cause I was like, this is a good one. It's kind of like the climate catastrophe. Okay. For the left wing, we're like really focused on the climate catastrophe as like, the issue because we're like these conservatives like wildly naive in terms of, or like purposefully ignoring facts. But the pension time bomb is like the equivalent for us where we're like, no, of course we can make 8% forever. And these promises are real, you know, like there, no problem. Don't look here. Like we should put our money on schools and potholes and not on trying to figure out how to pay for these, these pensions.

Ashby Monk (51:09):

And so there is a huge political part to the pension time bomb just as there is to the, the climate one. And like they're both rooted in some type of science. So, so on the pension time bomb, we'll leave the climate time bomb for another time. The pension time bomb is like, we're going to live way longer. Like, yeah, we're going to live longer. That's the good news. The not so great news is that your longevity is going to sew the seeds of this like global population castastrophe that could destroy social services and the foundations of our social welfare state. So if we believe that we're going to have like nanobots extending our lives out past a hundred years we're going to have to figure out who pays for that. And so embedded in those like time bomb pension nutjob blogs is a real question about, you know, if we're having teachers retiring on a full pension at 50, you know, I'm not saying I approve or disapprove, I'm just stating facts, firemen retiring on full pensions at 45, whatever Mmm. Those people could live until they're 110 and how are we going to pay for that? And who's going to pay for that. And is that fair? That because you, you know, you picked a unionized career with great benefits you get the benefit of that. But I don't, I'm on a defined contribution pension at Stanford.

Ashby Monk (52:42):

And so that's like in all of these things, like the pension time bomb is obviously like it's a polemical way of like getting everybody focused on the issue, but at the core is like some really hard challenges. So as a result, I don't know how we solve that.

Sloane Ortel (52:56):

So one of the things that I thought was really interesting and a lot of the conversations about it is people will use like a, you know, an assumed rate of return of like 3% you know, and then they can get the size of the time bomb to be like $90 trillion, you know?

Ashby Monk (53:12):

Exactly. No, but it's it's like the people who use climate models that are like, no human action will be taken in time to protect the worst catastrophe. So we're towards seven degrees in terms of, you know, and, and so, yeah, so, so like, I don't mean to be a juror, you know, in general, like I'm trying to solve climate change and I'm trying to help pensions survive. So like trying to be like middle of the road commentator here, but The thing is the 3% people are crazy. You know, it's, it's not fair to discount these liabilities at 3%. You know, the fair thing is probably somewhere, you know, around 5%, 6%, like look at Ontario teachers where they are, I think they're five and a quarter or something, you know? And so when you see that the Canadians who seem pretty sensible about their pensions are kind of split between the five and six in terms of the discount rate they use. And then you come South of the border and like we're split between six and eight. It's like what, what's the difference?

Sloane Ortel (54:20):

I think the average there's like publicplandata.org, I think their average on the, of those plans is like 7.2%. That's a lot.

Ashby Monk (54:28):

That means that like, we're, we're really confident that our under resourced pension plans are going to go out there and knock it out of the park. We're not resourcing them for that. You know, it's funny, like the Canadian pensions are resourced for that type of performance, and guess what, they're the ones at five and a quarter. Our pension funds or, you know, two guys and a dog getting paid 90 grand each. Mmm. And, you know, complete reliance on hedge funds. It's such a rigged system. Oh, this is not a way for me to go into the weekend,

Sloane Ortel (55:09):

We're taking the week off you know, we'll, we'll be back after the 4th of July, but please come back with us. You're less than we love you very much. And hope you have a wonderful, we long weekend.