Innovation in Asset Management | Luke Roush

Luke: Tim. Appreciate it. A long time admirer, first time guest in Columbia, Missouri, but it's good to be here. What I wanted to share just for a couple of minutes on to kick this session off is a couple of things.

1st, I want us all to recognize that many things in the capital markets, particularly in asset management, are broken. Second, I think it's really important that we understand, not just that they're broken, but some aspect of why they're broken, because that's an important part of us being able to think differently about the way we allocate capital and the way we collectively build companies. And then the third piece of that, and this is the good news, is that it doesn't have to be that way. There are ways to reimagine, the way we allocate assets and the way we participate and cocreate with founders and business leaders that we back, and so it's exciting for us to each be a part of that. I want to start off with just a few truths that we all know.

So these are things that we know to be true, and yet it's amazing how we struggle with them. The first is that, there are no shortcuts. It takes time to build meaningful things in the market, and for all the successes that we'll no doubt hear about today, tomorrow, the reality is that behind those success stories is many years, oftentimes of toiling and darkness. And so there are no shortcuts, it takes time to build good things. 2nd is that, cultures that are built within companies, carefully curated, and really a function of the people that are drawn into these companies, it is a very, very important part of what makes companies go.

There are companies that don't rely on people that are built largely on intellectual property or endowed assets or, you know, if you own all the cobalt mines in Africa, right, like you've got something that is unique and differentiated, and it's not about people. But the reality is that most businesses, certainly businesses on Main Street, require people to actually go and thrive. And then the last thing that I just wanna point out is that, new things come with risk, and so one of the things that is profoundly broken in venture capital and private equity and in many public equity funds is that there's a propensity on the part of investors to wanna cycle in and cycle out, and there's a reason for that, some of it's rational. When you first acquire a company, when we first acquire a company as a partner, there are some low hanging fruits that can be picked relatively quickly, and if we get focused on internal rate of return rather than a multiple on invested capital or co creating new things with the partners that we have, we can get focused on just kind of selling that business and getting into the next thing.

The reality is that we as an investor and most investors underestimate the risk that's involved with endeavoring to do new things, and as a function of that, we end up cycling in and out way more times than we need to in life. And it's true not just in business, but it's true in other things and what we do in this world. So despite knowing these things, we tend to measure results on a monthly, quarterly, annual basis. This is the tyranny of being a publicly traded company. I've been on the board of one of those for a few years, and it's amazing how focused the management team can get on achieving quarterly expectations, and whatever analysts on Wall Street expect.

Second thing is that most managers, most asset managers aren't actively diligent in culture, even though we know that's really important. We ask questions about everything but culture in the process of getting to know, a company. The third is that we know that it's really all about people, but we wanna keep talking about technology moats. Don't get me wrong, technology moats matter, but ultimately, we also need to ask an equivalent number of questions and equivalent number of focus, or equivalent amount of time on focusing for, what are the people all about? And then we talked about kind of cycling in and out the dangers of that.

So why do we think this way? Part of it is because we're hoppers. Right? If we don't like the community that we live in, we hop to the next one. If we don't like the church that we go to, we hop to the next one.

If our kids are having a tough time in school, we kinda hop along and get them into a different situation. It's not that we don't need to change our environment sometimes, that's a necessary part. But I think from an attention span perspective, we have lost the ability to focus and bear down, and persevere when things get hard. And that's true, not just in our personal lives, but it's true professionally as well, and it's absolutely true in the context of asset management. We also, and this is where I want to kind of permit me a couple of slides of just kind of diversion from what you probably thought I was going to talk about, But I think it's important to understand, why do we do these things?

And a big part of how we behave, what we want to aspire to, is driven by what we see in other people. So, you know, what's old is new again, we'll go all the way back to Aristotle on a quote that he had some 25 100 years ago, on the instinct of man, and our desire to mimic what we see in others. And there was some really fundamental research that was done on this in 1977 in the publication Science by Meltzoff and Moore, where they looked at infants. And so, for those of you that have had children, I've had 3, you notice one of the first ways that you interact with your child is you make faces, and they will make those faces back to you. And it's not just something that happens in infants, it happens in early childhood development.

It happens when you see 2 kids playing on the playground, there's 2 identical plates, 1 is blue and one is green, and then one child decides, I really want that green plate. And it's amazing how every other child now wants that green plate. You see it in dating relationships in high school, and you most certainly see it in adulthood, right? And so we've got Kylie sporting her Yeezy Boosts, but whether it's sneakers, or whether it's bitcoin, or whether it's you know, the current craze around artificial intelligence, in reality, we're a venture capitalist. As a firm, one out of a 100 companies that claims to be doing artificial intelligence is actually doing artificial intelligence, but everybody's realized that this is one of those buzzwords, this is one of those concepts that everybody wants to be a part of, and now it becomes part of the lexicon and becomes this mimetic contagion that builds over time, where the people look to others for what should I desire, they then want the same things, and we end up in increasing competition for the same stuff.

Oftentimes, in nonsensical ways. And so, there was a philosopher that picked up on the work that, Meltzer and Moore did, is a guy named Rene Girard. Anybody knows Rene Girard in the audience? We've got a couple. So Rene Girard wrote a number of books, I'll just read this quote, because I think it's important in terms of framing why we behave the way we behave.

So if individuals are naturally inclined to desire what their neighbors possess, or to desire what their neighbors even simply desire, this means that rivalry exists at the very heart of human social relations. If not thwarted, this permanently endangers of harmony and even the survival of all human communities. And so, what I want us to focus on, and what I want to communicate is just, as soon as you unveil what is shaping our desires, is it truly who we are uniquely, as created by our creator, or whatever world view that you come from? Or is it actually what's mostly shaping what we want and what we pursue, is actually what are other people pursuing? And when you start to come to grips with that aspect of your own journey, as I'm continuing to do even now, it's it's startling how much of what we want is actually shaped by others.

And so the work that we do is a fun, I'm gonna kind of pivot out of, kind of, why are things broken, why do we see this mimetic contagion, into kind of how we try to view things as a firm. We do it imperfectly, and we're still kind of very much on this journey. But the first is that, we really focus on cultures that are focused on loving their neighbor. So how do you express care for your employees? How do you engage with your community?

How do you engage with your customers, and vendors, and partners? And if you're intentional about how you build culture, that leads to the ability to attract, retain, and develop talent. And if you attract, retain, and develop better people than your peer group, then you're generally able to recruit, retain, grow your customer base. And if you recruit, retain, and grow your customer base more effectively than your peer group, then that actually extends out into the core metrics that most financial wonks care about, like lower customer acquisition cost, higher lifetime value, quicker break even point, and then better dollar based net revenue retention year over year. And so what's interesting in the work that we've done is that we started 2012 really focused on early stage venture capitals.

We did seed series a, we made about 75 investments over the last 11 years in a series of 4 funds. And, about 2015, a couple of our limited partners came and said, you know, we think that the same way that you're focused on the cultural ethos that drives a company, we really think that's relevant in private equity, in family owned businesses, in public equities, in real estate, and other asset classes. And so over the last 6 years, we've hired or acquired teams that have done the same work, same philosophy in private equity, in public equity, in real estate, and then in fund of funds, which is really about how do we funnel capital into other asset managers, other general partners that are approaching the world in a similar way of how do we use the companies that we partner with, how do we collaborate with them and co create with them to shape things that are not playing into this mimetic contagion that is so commonplace in the world, is actually trying to call people into a different life, in a better existence with each other. So, this is a bit about kind of where we've been, this is a little bit dated, but we've got about 700,000,000 in assets.

As secular asset managers go, we'd be quite small in the context of kind of faith oriented, values oriented investing, we're meaningfully sized. And what's so curious is that as we've gone from asset class to asset class, the work that we that we do, the experience that we see, the patterns that we identify in the behavior of founders, and the teams that they recruit to be able to do the work that they do, it's remarkably similar from private equity to public equity. So how do we move beyond this? Recognizing that we don't just want to memetically pursue the same things that our peers want, how do we change the way we view the world? The first is we've got to avoid group think.

Part of this is who you surround yourself with. So if you surround yourself with people who tell you what you want to hear, if you surround yourself with people who are wrapped up in what the world is pursuing day to day, not thinking differently, not thinking in a main street way, you know, you're not going to get a lot of, independent thought in Silicon Valley. So I lived there with my family for 4 years, and there's some wonderful things about living out there, but one of the things that you identify pretty quickly is that, most venture capital firms are looking to what their peer group are looking to, and then pursuing the same things, independent of real original thought. So I think an important part of the antidote of groupthink and mimesis is actually surrounding yourself with people who can help you discern the times and the environment that you're living in. Second thing is I think it's really important to speak truth.

You know, the more successful you are, there's a lot of successful people in the room, the harder it is to actually get a true read on things that you're pursuing or things that you say. Right? You create echo chamber. We create. I do it to myself sometimes.

We create echo chambers for ourselves where we hear what we want to hear. Part of what continuing to sharpen the saw looks like as entrepreneurs, as business leaders, as investors, is surrounding ourselves with people who can, speak truth to us, and in turn, we need to be able to speak truth to them, and we need to be able to speak truth to CEOs that we partner with, even when it's hard. Then the last thing is, you know, and I I actually changed this last bullet, because I didn't like the way it read before, I think it's really important to understand that much of what we do as business creators, particularly in a mainstream context, is done in anonymity. The most successful business leaders, most successful CEOs that we've partnered with over the last 11 years that have created thousands and thousands of jobs, usually, there's a part of their story that is, toiling in obscurity for years. They're not the one that's on stage.

They're not the one that is asked to, you know, be on 15 podcasts. Right? It's people who are doing their work quietly, but in a faithful way that really honors and respects other people. And the other thing that I just is really, really important and what I love about main street businesses, it's the reason why we've put more money into Main Street Businesses than we have in any other asset class over the last 6 years, is that these are businesses that have a focus. They're not trying to be all things to all people, and, they're not looking to their neighbor to decide what they should do.

They know what they're good at, and they double down into that area of strength. So I really appreciate the opportunity to share, and, it's great to be here in Columbia.

This transcript was generated with Transistor AI