Investing in Mega Trends with Ben Fraser

george grombacher 0:01
Ben Fraser is the chief investment officer of aspen funds. He’s the co host of the invest like a billionaire podcast, he is an alternative investment thought leader. Welcome to the show, Ben.

Ben Fraser 0:12
Hey, thanks, George. Looking forward to chatting,

george grombacher 0:14
I’m excited to have you on, tell us a little about your personal life more about your work and why you do what you do.

Ben Fraser 0:21
Yeah, we were just talking before we hit Record button, I got four girls 10 and under and crazy life. But there are a big reason of what I do what I do. And you know, the business side of things. So I’m the CIO of aspirin funds. And we are a private alternative fund manager. And so we invest in private alternatives, mostly in real estate, but also the oil and gas variety, different strategies. And my journey into that is a little bit unique, I didn’t actually start real estate is actually a commercial banker, that was an underwriter for several years. And one of the cool things of doing that was getting to look under the hood of these very successful high net worth borrowers of this bank, it’s kind of a boutique bank, you know, led to a lot of high net worth businesses and individuals. And so got to kind of see their personal financial statements, their tax returns as part of the underwriting process. And as I started doing that, over several years really got to see this common thread. across some of the most successful borrowers of the bank, and the studs are generally they were business owners, and they were real estate investors and had heavy allocations in both of those areas. And so it really kind of was eye opening to me and really start us started the journey of wanting to get into one of the entrepreneurship side of things, but also the investing side outside of the public markets. And so we talk a little bit about that if you want, but it’s really kind of started this journey. But our whole podcast is about invest, like a billionaire is actually, you know, using a lot of the strategies and techniques and, you know, allocations that the ultra wealthy are using, and applying those at a smaller scale, kind of our individual portfolios, which generally include heavy investment into alternative investments. So that’s kind of the short story of how we got to where we are. But it’s, I love what I do. And so it’s it’s every day is new and exciting and different and have an amazing team that’s been really fun to build. Nice.

george grombacher 2:25
How much longer we’re going to call what you do alternative investing, why isn’t it just regular investing?

Ben Fraser 2:31
Yeah, you know, it’s funny, because if you look at how much capital is deployed into these kind of private equity investments, right, it’s common to Loreen title, but it kind of encompasses anything outside of the public markets, right. So we have public and private, I forget what the number was last year, I think there’s been like $3 trillion, were invested in the private markets, you know, in real estate and private equity. And so, it’s a massive, massive place where capital is placed, the ultra wealthy endowments the institutional investors have been investing in this, really, since the night team, you know, 60s 70s, they started making some pretty big allocations here. And, you know, Yale endowment was one of the pioneers from the downwind side to, to kind of askew the normal, traditional approach of just investing mostly in, you know, public equities, and did a lot of things in the private markets because assign efficiencies and generally have inefficiencies. And you know, in efficient markets, you can produce, you know, outsized returns. And so that’s what they were able to do the outperform their benchmarks for forget how many decades, so kind of kind of mainstream at the higher institutional level, but never really caught at the retail level. And I think part of it is, you know, not that I’m a conspiracy theorist at all, but the kind of main street, you know, financial advising system, if you want to call it that, it’s set up where it’s, it’s pretty dialed in, it’s pretty simple. You can buy the s&p and get exposure to that pretty quickly. And there’s a lot of advantages to it, and a lot of financial advisors, they’re just paid and incentivized on asset gathering, not thinking outside the box, not thinking creatively. It’s just how much AUM Can I gather, there’s nothing wrong with that, you know, inherently But inevitably, if everyone’s doing the same thing, you know, you’re probably leaving something on the table when you when you’re, you know, not zigging and zagging. And so I think it’s kind of opened up a whole new world because in 2012, the Jobs Act actually created some new regulations that allowed a lot of these investments to be open to a much wider audience, you know, through accredited investors. And so that’s, that’s really made this huge shift. We continue to see, you know, a lot of data we talked about in our podcasts that’s capital continues to flow and greater and greater measures toward the kind of private markets because we’re seeing a lot of advantages, you know, know from the public markets not to throw all your eggs in that basket, because there still is wisdom and balance, right, and exposure to multiple asset classes and public and private. But there’s definitely some advantages to the private market investments.

george grombacher 5:17
So, the Yale endowment has been doing it for a long time and has been getting these outsized returns for a long time. And there’s $3 trillion in the space. So the advantages are, yeah,

Ben Fraser 5:31
you know, it’s, it’s interesting, it’s pretty simple. Honestly, there’s a survey done of financial advisors, actually. So people that generally aren’t super incentivized to allocate capital here, because when you got to think about, they get paid a percentage of their total assets under management, well, when you go and invest in private market investments, private alternatives, is generally not considered under your management, so you can’t collect your fees on it. So there actually, is some of the conflict of interest there. But there are advisors that are starting to change how they’re structuring their fees, and they actually are trying to get a more holistic approach. And these advisors, they’re there the survey that was done recently, there’s two key things. One, is better diversification when you invest across private markets, and to better returns. I mean, those are the two simple reasons why people do it. And the simple answer of why those are the case, the public markets over the past several decades have become more and more highly correlated, right. So the traditional 6040 portfolio, you know, used to have some nice balance, you know, as if the equities are doing good bonds aren’t as good and vice versa, and maybe add some REITs in there for some exposure to real estate, maybe you add some commodities, other things, but the problems are as as the economy and really, the the large, NASDAQ, s&p, these big indexes have become so kind of, they’re made up mostly of a very few small number of companies, from a market cap standpoint, the correlations between those assets have gotten a lot closer, meaning if the public equities are down, tech, tech is down, most of the markets are down, right, and vice versa, if they’re up, most artists are up. And we actually saw I think last year, the 6040 portfolio had the worst performance that it’s had in over 100 years. And part of that is because of correlations. And so if you think about true diversification, you’re not getting the same diversification used to have in your head stocks, bonds, REITs, and commodities as you used to. So you have to go outside of the public markets to get other diversification that is going to create more balance your portfolio. So that’s really one of the main reasons right as true diversification, which is a way to preserve wealth. It’s one of the, you know, I think it was Charlie Munger said there’s, there’s no such thing as a free lunch, except diversification is about as free as you can get, because you are creating, you know, wealth preservation by doing that. And the other is better risk adjusted returns, when you go private. You can usually find and invest in niches that have, you know, inefficient markets and wherever there’s inefficient markets, that’s where you can kind of capture a premium on your returns. And so those are the kind of the two the two big drivers. Nice.

george grombacher 8:25
I appreciate that. So how are you different than the REITs? Or the the real estate mutual fund that shows up in somebody’s 401k?

Ben Fraser 8:39
Yeah, great, great question. Because most people would think, Oh, I’m invested in real estate, I have some REIT holdings and been invested in REITs. And not to say that you’re not, but they’re very, very different. And what a lot of people don’t, don’t understand when you invest in a REIT, you’re actually investing in a stock that owns a company that owns some real estate, right? And you’re not necessarily investing directly in the real estate. And there are some key advantages to investing directly in the real estate, which we’ll touch on in a minute. But the other thing that people don’t realize is the liquidity premium that you’re paying for these publicly traded REITs, in my opinion, is way too expensive. And so what do I mean by that? The liquidity premium is I’m willing to pay a little bit more to be able to buy and sell my shares in this REIT whenever I want, right, so that’s liquidity that the big downside of private markets is illiquidity. Generally, you can’t just sell whenever you want. You’re usually in these investments for many years usually. But when you invest if you go look at what’s called the price to book ratio, right, this is similar to a price to earnings ratio. People are probably familiar with the P E ratio price to book is great for asset based businesses or investments because the book is the the the value of the assets on the balance sheet. Right? So for real estate, that’s what’s the value of the current value of the assets that you own. So the price to book is the multiple above that, that that that stock is trading at. So if you look and you look at the price to book of the top REITs, generally, there’s gonna be a range of anywhere from from three to 10x. Right? So that means 10x, for example, on the high end is, for every dollar that you invest in, that read only 10 cents of that is actually going into the real estate. So what’s the other other 90 cents? Well, it’s, it’s that premium, you’re paying for it. So I would argue, it’s probably not worth paying that premium on the real estate, just to have the ability to sell it. Now. That’s why our portfolio allocation management is important here. So you have, you know, some cash, you have some public equities, so you can have access, if you need to do then you can generally get higher returns through the liquidity, right, which is kind of a mystery, or people aren’t, does it make sense a lot of people, but if you can actually invest in something that you can’t touch, when it’s a bad time to sell, which, as most investors, we generally tend to do that sometimes, it actually can be a buffer against bad decision making, right, and so can actually help you write out some of those, those bumps. So that’s the biggest difference when you invest directly into real estate. Usually, my price to book is pretty close to one, right, there’s probably a little bit of fees on the front end, but pretty much 95% of your dollars going into real estate. And then when you directly on the real estate, you get a lot of tax advantages. So you get depreciation that gets passed through. And you can take that against other passive games, when you have passive losses. And so you can really get really tax efficient when you are investing directly into real assets. And so there’s a lot of lot of advantages and a lot of kind of, you know, Bunny trails that go down on that. But at a high level, those are the big differences. Yeah, I

george grombacher 11:59
appreciate that. That’s a great way to put it, that liquidity premium that makes a lot of sense. As a Chief Investment Officer, what how do you how do you section out your time? What is it typical day look like?

Ben Fraser 12:11
Yeah, yeah, I have four, four departments that report to me. So we have kind of our underwriting and deal flow, we’re always looking at new deals, trying to evaluate what kind of deals we want to look at when we’re going to be the standards that we expect them to meet before we invest in a deal. And then we have the asset management. So these are deals that we’ve, you know, already purchased and are managing through the business plan that we’ve established for them and helping them hit their targets. And then our marketing team and our Investor Relations team are also important to me. So it’s trying to shift my brain last replaces throughout throughout the day in the week, but that’s part of the fun of my job, too. Yeah,

george grombacher 12:49
I appreciate that. So how many funds do y’all have?

Ben Fraser 12:55
We have, I’d probably say 12 to 15. Funds are active right now. And a lot of our are not open for new investment. These are kind of legacy funds that we continue to operate. But we usually do a couple of year and so yeah, we’re kind of always kind of rolling out new funds.

george grombacher 13:12
And what are some of those criteria? You say? Okay, it’s we’re coming up on 2024, you’ve probably have your plans made, but just down down the road? 2025? How do you decide, Okay, do we go regional? Do we go? Like number of doors walk me through that whole process?

Ben Fraser 13:30
Yeah, so our investment thesis is a little bit different than a lot of operators. And the way that we kind of create the directional kind of focus of our investments is through what we call investable megatrends. And so we’re very, very focused on the economic trends, we do a lot of research internally on kind of where we think the economy is going and where different asset classes are going. And so the cool thing for us is, we’re not a hammer, everything’s a nail, right? We’re not just in one asset class, and we have to make this work, regardless of the economic or asset class cycle that it’s in, we can really shift and be agile to where we think the opportunities are. And so we kind of do our State of the Union kind of analysis on multiple asset classes. And then we kind of decide where we think the best risk adjusted opportunities are going to be. And then we kind of use that to dictate the strategies that we’re going to go after. And we usually like these things to be driven by what we call, you know, megatrends. So they’re not just these kind of short kind of parts of the cycle, you can type of cycle really well. We want to invest in long term fundamental drivers of growth in a variety of different asset classes. So for example, one of our kind of key asset classes in the 2024 is industrial real estate. It’s been a great, great run for a long time. We actually think we’re about to hit a phase two boom in industrial in the first phase was caused largely by E commerce, which continues to grow It is starting to plateau, right ecommerce sales as a percent of total retail sales has started to kind of plateau. So we still think there’s growth there. But what’s really driving this next wave of growth is really a second boom in manufacturing, in reshoring, inventory, kind of in this post COVID world, and so they’re already kind of his indications before COVID Have, we almost over globalized in a sense to where we’d shipped out so many jobs shipped out, you know, all these parts of the supply chain. And we started creating external risks that we didn’t really understand until COVID exposed them, all right, we all remember the days of trying to go buy something at Lowe’s, or wherever it was, and we have supply chain problems, right, that kind of became a funny meme, because everything was stuck on supply chain somewhere, well, it’s really caused a lot of companies to shift how they are rethinking the supply chain, you know, critical components in the manufacturing process are being brought back to the US. And it’s kind of the other side of this, too, is the, the outsourcing of jobs has really become less and less economical over time. You know, China, for example, the wages to average Labor’s have increased 15 fold in just the past two decades. And so the cost to manufacture, bring it back to the US actually isn’t as expensive as it used to be relative to other places. And so that’s what’s really driving a lot of this kind of next boom, we’re seeing this a lot. So that’s that’s kind of how we think, again, you know, example of how we think about the investment themes we go after, and we’re positioning as investors,

george grombacher 16:40
which from a common sense, perspective makes a lot of sense that you’d want to pursue these mega trends versus Oh, this quarter, interest rates are gonna go up a little bit, but we don’t know what’s gonna happen next quarter, that seems like a bad idea to be pursuing short term things. Yeah,

Ben Fraser 16:57
yeah, we kind of like it, we use the economic tides versus the economic waves, right? And so much of the public markets kind of just go up and down based on these waves, what’s what’s the Fed meeting gonna say? What’s the Fed gonna say, with interest rates, right in the whole markets, just holding on to try and pull out a few words of what Jerome Powell says and try to interpret, you know, his decision making? Well, we don’t know necessarily what’s going to happen, his rates over the next couple of months or next couple quarters, but we know probably over the next couple of years, the direction that those are going to go, they’re probably gonna go down at some point, right. And so if we know kind of long term, directional information, we can make positions and strategies that can benefit from those kind of directions. And they don’t have to be they don’t succumb to the ups and downs of the short term decision making cycle, because that usually, you know, it changes so much. And it’s a lot of times the markets are irrational. And, you know, so we want to buy into something and build into something that is going to have a long term thesis behind it. So that regardless of what the timing is, in the short term, we have a long term that that that strategy is going to win out and then we can, you know, exit and you know, usually sell these properties when

george grombacher 18:09
it makes the most sense. Love it. Well, Ben, thank you so much for coming on. Where can people learn more about you? Somebody was so inclined, how do they invest with Aspen funds?

Ben Fraser 18:19
Yeah, we have our podcast called invest like a billionaire. You can check that out. So we’re economic themes, and then our private equity firm is Aspen funds.us. You can go on there and check out current offerings.

george grombacher 18:31
Excellent. Well, if you enjoyed as much as I did, show up in your appreciation and share today show with a friend who also appreciates good ideas, check out the invest like a billionaire podcast wherever you listen to your podcasts, and go to Aspen funds.us and dig deeper into what Ben and I have been talking about today. Thanks. Good. Thanks, George. Till next time, remember, do your part by doing your best

george grombacher 16:00
So if I want my iPhone, and my Tesla and my Bitcoin to work, we need to get the metal out of the ground.

Pierre Leveille 16:07
Absolutely. Without it, we cannot do it.

george grombacher 16:13
Why? Why is there a Why has production been going down.

Pierre Leveille 16:21
Because the large mines that are producing most of the copper in the world, the grades are going down slowly they’re going there, they’re arriving near the end of life. So and of life of mines in general means less production. And in the past, at least 15 years, the exploration expenditure for copper were pretty low, because the price of copper was low. And when the price is low, companies are tending to not invest more so much in exploration, which is what we see today. It’s it’s, it’s not the way to look at it. Because nobody 15 years ago was able to predict that there would be a so massive shortage, or it’s so massive demand coming. But in the past five years, or let’s say since the since 10 years, we have seen that more and more coming. And then the by the time you react start exploring and there’s more money than then ever that is putting in put it in expression at the moment for copper at least. And what we see is that the it takes time, it could take up to 2025 years between the time you find a deposit that it gets in production. So but but the year the time is counted. So it’s it’s very important to so you will see company reopening old mines, what it will push also, which is not bad, it will force to two, it will force to find a it will force to find ways of recalibrating customer, you know the metals, that will be more and more important.

george grombacher 18:07
So finding, okay, so for lack of a better term recycling metals that are just sitting around somewhere extremely important. Yeah. And then going and going back to historic minds that maybe for lack of technology, or just lack of will or reasons, but maybe now because there’s such a demand, there’s an appetite to go back to those.

Pierre Leveille 18:33
Yes, but there will be a lot of failures into that for many reasons. But the ones that will be in that will resume mining it’s just going to be a short term temporary solution. No it’s it’s not going to be you need to find deposit that will that will operate 50 years you know at least it’s 25 to 50 years at least and an old mind that you do in production in general it’s less than 10 years.

george grombacher 19:03
Got it. Oh there we go. Up here. People are ready for your difference making tip What do you have for them

Pierre Leveille 19:14
You mean an investment or

george grombacher 19:17
whatever you’re into, you’ve got so much life experience with raising a family and doing business all over the world and having your kids go to school in Africa so a tip on copper or whatever you’re into.

Pierre Leveille 19:34
But there’s two things I like to see and I was telling my children many times and I always said you know don’t focus on what will bring you specifically money don’t think of Getting Rich. Think of doing what you what you like, what you feel your your your your your, you know you have been born to do so use your most you skills, do what you like, do what you wet well, and good things will happen to you. And I can see them grow in their life. And I can tell you that this is what happens. And sometimes you have setback like I had recently. But if we do things properly, if we do things that we like, and we liked that project, we were very passionate about that project, not only me, all my team, and if we do things properly, if we do things correctly, good things will happen. And we will probably get the project back had to go forward or we will find another big project that will be the launch of a new era. So that’s my most important tip in life. Do what you like, do it with your best scale and do it well and good things will happen.

george grombacher 20:49
Pierre Leveille 21:03
Thank you. I was happy to be with you to today.

george grombacher 21:06
Damn, tell us the websites and where where people can connect and find you.

Pierre Leveille 21:13
The it’s Deep South resources.com. So pretty simple.

george grombacher 21:18
Perfect. Well, if you enjoyed this as much as I did show up here your appreciation and share today’s show with a friend who also appreciate good ideas, go to deep south resources, calm and learn all about what they’re working on and track their progress.

Pierre Leveille 21:32
Thanks. Thanks, have a nice day.

george grombacher 21:36
And until next time, keep fighting the good fight. We’re all in this together.