The Exchanges

Q I, uh, I hopefully also just ask, say, honest questions. Like, when you see that, you know, 80, 90% down, you know, Kelly, you're a lovely person. Like, online it's not very nice. I get a lot of hate. I hope I'm, like, do you doubt yourself when you see down 80 to 90%? What do you tell yourself when you see the red, and you're like, oh my gosh.

A So we are very data-driven, very research-driven, and so many people ask me, Uh, where, where, where am I? Why I have such strong conviction? How could I have such strong conviction when these stocks are down that much? And it, it is, it, it comes directly from our research. And if you don't think we are, um, uh, you know, double checking and triple checking our research and our assumptions, uh, going into the research and basically our clients and The social world is helping us, uh, battle test those assumptions. Uh, what we see as our stocks go down 80 to 90%, if we're right, uh, we're seeing the total rate of return expectation increase for the next five years. So we keep our eye on that prize, and if the world, and if our research is correct, and the world has not changed, we've just moved into a risk off period, With inflation and interest rates, uh, the, the reason, and this move toward back towards benchmark stocks, the reason our stocks are going to be dumped, we wouldn't be selling our stocks. We'd be picking them up, and that's what we do. We average down during risk off periods, and we also concentrate our portfolios towards our highest conviction names. So we've moved our flagship portfolio Uh, ARKK, uh, from 58 names down to 32, 33 names, uh, and, uh, we're, we're further consolidating in this risk-off period, but we tend to bottom out in that low thirties range.

AI assessment note: “How could I have such strong conviction when these stocks are down that much?”

Q but when everyone else disagrees, you have to be okay being alone. So I do totally get you. The trouble with being alone, um, uh, is that, you know, in, in your world, not in mine, in venture, like pure venture, old school venture, like there are outflows in your world, Given performance and people generally being less comfortable with uncertainty, why do you think ARK hasn't had more outflows?

A Yes, we've been really gratified by our asset retention. And I think, uh, the traditional asset management industry is astonished by it. Um, there are a few reasons, uh, we believe, uh, one is we give our research away and we are on social media, uh, giving it away, not when it's finished, but as it's evolving. So those who are following us on social media or those who get our newsletters or our blogs, they, they sign up for various levels of information, um, they, they are taking the journey with us. They understand what we're doing, why we're doing it, and they also understand, uh, because we say this all the time, we have a five-year investment time horizon. This is for the public, uh, world. We have a five-year investment time horizon, and if you don't have a five-year investment time horizon, maybe we're not right for you, uh, because we are a very volatile strategy. So last year, our net flows, now they were front end loaded to be sure, uh, they were seventeen billion dollars. Uh, that's net. There, there were redemptions, but we kept seventeen billion of the flows last year. This year, we haven't even outflowed one billion, you know, out of that seventeen billion. And I think the reason is we give our research away. And I, another really important reason is investors know that we are providing them with something they're not going to get anywhere else. And that we are a …

AI assessment note: “there are a few reasons, uh, we believe, uh, one is we give our research away”

Q So I, I love that as a starting point. I always believe that we're this kind of function of our histories, and so with that as a starting point, everyone's running from something, and everyone's running towards something. You know, I've spent thousands of pounds in therapy to figure mine out. Um, uh, what are you running from, Cathy, and what are you running towards?

A Well, I've been very clear that one of the things that I've been running from in the traditional asset management world is indexed-based investing. Uh, so benchmarks you've heard S&P, 500, NASDAQ, uh, Russell, uh, MSCI. And, uh, and I've watched our industry, um, go through an arc, actually. A-R-C, not A-R-K. Uh, and in the early eighties, when I, when I re moved to New York, um, indexing and benchmarks weren't a thing. Uh, we were all investing in the future, trying to figure out how the world was going to work. Uh, and the eighties and nineties were very much like that. And then we got the tech and telecom bubble and bust. And that was the first, oh my gosh. And then, oh, eight, oh, nine. And what happened during the last 20 years is we've had a move towards benchmark sensitivity or passive investing outright. Just let me invest with the benchmarks. That's safety. And, uh, we actually think that is becoming a very dangerous way to invest because if we're right about the amount of innovation that is evolving today, so we've, we've centered our research and investing around Five innovation platforms, uh, genomic sequencing, uh, robotics, energy storage, artificial intelligence, and blockchain technology, uh, and, and those are all converging. So it's becoming very disruptive to the traditional world order. And I think even though, uh, the onus, uh, or the burden of proof is on …

AI assessment note: “one of the things that I've been running from in the traditional asset management world is indexed-based investing”

Q a time to sell, and you know, when we look at the last decade, it's kind of been categorized by this, like, never sell, always hold on to your winners in this boom market zero interest rate. My question is, when you're managing a public book, how do you think about when's the right time to sell, and how to manage liquidity in that way? Because there is a time.

A Oh, absolutely. Uh, in fact, as we were reaching the peak in 2021, many of our, uh, our stocks were beginning to fall below our minimum hurdle rate of return over a five year period. That number is 15% for the public portfolios. And as they were falling below that 15% mark, we were not raising the earnings or the valuations. We were selling the stock. And the stocks, uh, so that, and a very good example is Nvidia, for example. Um, it is one of the most important, uh, artificial intelligence chip companies in the world. Uh, and, uh, we've owned it since, uh, since we started Arc. But we sold out of it because, uh, everybody in the public market needed an AI Chip company or an artificial company so that they could check the box for their clients. Nvidia was in the index. It was therefore much more of a safe stock than some of the other stocks, and they took the valuation up to crazy levels. So we were selling as we were, especially as we were concentrating our portfolio towards our highest conviction names, we ended up selling out of Nvidia and only recently since it has had Uh, a tumble. Have we re-initiated our position? So we're quite disciplined, and I think one of the, one of the reasons we are is because of this concentration strategy. To go from 58 names to 32 or 33 names means we have to sell, you know, twenty-some-odd names. Uh, so we definitely have a sell discipline, a…

AI assessment note: “falling below our minimum hurdle rate of return over a five year period”

Q but when everyone else disagrees, you have to be okay being alone. So I do totally get you. The trouble with being alone, um, uh, is that, you know, in, in your world, not in mine, in venture, like pure venture, old school venture, like there are outflows in your world, Given performance and people generally being less comfortable with uncertainty, why do you think ARK hasn't had more outflows?

A Yes, we've been really gratified by our asset retention. And I think, uh, the traditional asset management industry is astonished by it. Um, there are a few reasons, uh, we believe, uh, one is we give our research away and we are on social media, uh, giving it away, not when it's finished, but as it's evolving. So those who are following us on social media or those who get our newsletters or our blogs, they, they sign up for various levels of information, um, they, they are taking the journey with us. They understand what we're doing, why we're doing it, and they also understand, uh, because we say this all the time, we have a five-year investment time horizon. This is for the public, uh, world. We have a five-year investment time horizon, and if you don't have a five-year investment time horizon, maybe we're not right for you, uh, because we are a very volatile strategy. So last year, our net flows, now they were front end loaded to be sure, uh, they were seventeen billion dollars. Uh, that's net. There, there were redemptions, but we kept seventeen billion of the flows last year. This year, we haven't even outflowed one billion, you know, out of that seventeen billion. And I think the reason is we give our research away. And I, another really important reason is investors know that we are providing them with something they're not going to get anywhere else. And that we are a …

AI assessment note: “there are a few reasons, uh, we believe, uh, one is we give our research away”

Q I, uh, I hopefully also just ask, say, honest questions. Like, when you see that, you know, 80, 90% down, you know, Kelly, you're a lovely person. Like, online it's not very nice. I get a lot of hate. I hope I'm, like, do you doubt yourself when you see down 80 to 90%? What do you tell yourself when you see the red, and you're like, oh my gosh.

A So we are very data-driven, very research-driven, and so many people ask me, Uh, where, where, where am I? Why I have such strong conviction? How could I have such strong conviction when these stocks are down that much? And it, it is, it, it comes directly from our research. And if you don't think we are, um, uh, you know, double checking and triple checking our research and our assumptions, uh, going into the research and basically our clients and The social world is helping us, uh, battle test those assumptions. Uh, what we see as our stocks go down 80 to 90%, if we're right, uh, we're seeing the total rate of return expectation increase for the next five years. So we keep our eye on that prize, and if the world, and if our research is correct, and the world has not changed, we've just moved into a risk off period, With inflation and interest rates, uh, the, the reason, and this move toward back towards benchmark stocks, the reason our stocks are going to be dumped, we wouldn't be selling our stocks. We'd be picking them up, and that's what we do. We average down during risk off periods, and we also concentrate our portfolios towards our highest conviction names. So we've moved our flagship portfolio Uh, ARKK, uh, from 58 names down to 32, 33 names, uh, and, uh, we're, we're further consolidating in this risk-off period, but we tend to bottom out in that low thirties range.

AI assessment note: “if we're right, uh, we're seeing the total rate of return expectation increase”

Q totally. I, I do want to touch on, kind of, well, not touch on, discuss, bluntly, the venture fund, which is, you know, I am glad moving into a world where I actually understand things. Um, that was helpful. Um, but, you know, you obviously decided to launch the new venture fund within ARK as a new product. Why did you decide to launch a new venture fund for retail?

A What is one of the biggest questions, most frequent questions, uh, we have received over the nearly nine years since ARC has been in existence? Retail investors saying to us, and they're usually young people, they're usually saying, why is it, uh, that just because we don't meet an income or asset threshold, um, we can't be accredited, And we can't participate in, participate in these huge growth opportunities. When we probably know more about those opportunities than the people who are investing them in the institutional world. And I will tell you from what, just what I've seen in the public world, if, if we were to use knowledge as the, uh, metric for accreditation, uh, the accredited investors for ARC Would be those retail investors. They have, they, they are passionate about innovation, and they know so much about it, and many of them are working in the industry or in the various communities. So, you know, we've talked to Hester Peirce at the SEC who really believes that we have to, we have to modify or revolutionize this accreditation process Because it's not American. It's, it's truly not American to use income and asset thresholds when knowledge could be an accreditation, ah, measure or metric.

AI assessment note: “Retail investors saying to us... why is it... we can't participate in these huge growth opportunities”

Q the, the booms, the bust, oh, eight, oh, nine. I, I obviously did the research and I read about Tupelo, a firm you co-founded, um, and, you know, funny, the lesson there and, you know, going from 1.2 billion to two hundred million. I always find that we learn a lot from hard times. Um, what, how did that impact your mindset going through that bust and seeing that happen?

A Well, I wasn't there for most of that. Uh, so, uh, I was there for three years, uh, when we built the firm from the, this was a, a family office effectively from, uh, two hundred and fifty million of the family's wealth. Uh, we built it at our peak. We were in somewhere. I don't remember the 1.2 billion. I more remember, uh, 800 to a billion somewhere in there. And we did that with very little in the way of flows. So that was 250. That was, ah, a triple to a quadruple over two years. Now consider the years. It was 98 and 99. And then in year three, ah, 2000, when I was there, we were down 20%. So, ah, by my calculations, We were up, uh, from the beginning to, uh, two to three fold, even after that 20% correction. And the reason I left is, uh, the, my co-founder, uh, who really, this was her family's money, and I reached, uh, a bit of an impasse in terms of our investment strategy. Um, as we had moved into 1991, We knew that too much capital was chasing too few opportunities, um, too early. Many of the technologies were not even ready, the ones we were talking about. And so we were buying puts, uh, to serve as protection, uh, throughout actually, uh, late 99, throughout the, the 2000 period as the market, um, as As investors were buying the dips, uh, we were buying puts. And, uh, in January of 2001, it was very early. It was probably the first week. Um, uh, we had, we agreed, we…

AI assessment note: “Well, I wasn't there for most of that.”

Q a time to sell, and you know, when we look at the last decade, it's kind of been categorized by this, like, never sell, always hold on to your winners in this boom market zero interest rate. My question is, when you're managing a public book, how do you think about when's the right time to sell, and how to manage liquidity in that way? Because there is a time.

A Oh, absolutely. Uh, in fact, as we were reaching the peak in 2021, many of our, uh, our stocks were beginning to fall below our minimum hurdle rate of return over a five year period. That number is 15% for the public portfolios. And as they were falling below that 15% mark, we were not raising the earnings or the valuations. We were selling the stock. And the stocks, uh, so that, and a very good example is Nvidia, for example. Um, it is one of the most important, uh, artificial intelligence chip companies in the world. Uh, and, uh, we've owned it since, uh, since we started Arc. But we sold out of it because, uh, everybody in the public market needed an AI Chip company or an artificial company so that they could check the box for their clients. Nvidia was in the index. It was therefore much more of a safe stock than some of the other stocks, and they took the valuation up to crazy levels. So we were selling as we were, especially as we were concentrating our portfolio towards our highest conviction names, we ended up selling out of Nvidia and only recently since it has had Uh, a tumble. Have we re-initiated our position? So we're quite disciplined, and I think one of the, one of the reasons we are is because of this concentration strategy. To go from 58 names to 32 or 33 names means we have to sell, you know, twenty-some-odd names. Uh, so we definitely have a sell discipline, a…

AI assessment note: “falling below our minimum hurdle rate of return over a five year period.”

Q know, 500 bucks to, I don't know, 50,000 dollars in your fund, it seems like a bit of a headache. Like, it's much nicer to have an endowment fund in for a hundred million and have one relationship. Is it not a fundamental nightmare in terms of LP management and fund management to have this fundamentally, maybe not new structure, but kind of innovative structure with this diversification of LPs?

A Sure. Well, we're, we're going after the endowment market as well in different structures, but the structure you're referring to here, uh, is the interval fund. This, this structure is a retail, um, in investment wrapper that was devised and approved by the FCC in 1993 for this purpose to give retail investors A shot at some of these great growth opportunities, right? Um, but because of the tax advantages that private equity and, and venture capital specifically have in this case, um, the, the, the, the, uh, businesses chose to focus on private equity. Um, we have chosen to focus on retail in this way with a partner. Titan is our partner, our distribution partner. It is an app, Andreessen Horowitz funded app, and we are the first outside equity fund that they are putting on this platform, and they are going to help us help our retail investors get to know our companies, With interviews, interviewing the CEOs, uh, and, uh, with our own analysis, we'll be featuring our analysis and sharing our research as we do anyway, but we'll do it specifically through Titan, uh, to focus on these private companies and the public companies. So they're really going to do a lot of the legwork that you're describing.

AI assessment note: “Titan is our partner... they're really going to do a lot of the legwork”

Q You mentioned the word risk there, and Cathy, I'm a Brit. I get very uncomfortable asking, you know, difficult questions. You mentioned the word risk. Um, people suggest that you have zero risk management. Why do you think they do? And why are they wrong?

A Well, I think the reason they say that is there are so many generalist, uh, strategies out there. We are not a generalist strategy. Uh, we know who we are. We're focused exclusively on a slice of the market. And it is up to asset allocators, not us. We're not an asset allocator. We're giving asset allocators an opportunity to make up for the massive short that we believe they have in their portfolios. Uh, and that short is truly disruptive innovation. That's all we do. So, uh, those who are saying this, and I've seen some wire houses, uh, Uh, saying this, but if you go to their due diligence departments, their due diligence departments understand what we are. We are a slice of an equity portfolio, and it is up to advisors or asset allocators, other asset allocators to determine how big, uh, a slice of the pie Our strategy should represent. That's not our decision. Advisors know their clients better, right, than we do.

AI assessment note: “I think the reason they say that is there are so many generalist”

Q How do you evaluate Facebook's current state? I read Brad Gersten's letter recently.

A I think that Mark Zuckerberg, uh, is probably investing in an idea before its time, really. When I think about metaverse, I think about Zoom. We're already in the metaverse, in Zoom, and, you know, who knows where Zoom's going to take that? So, um, so a little bit before its time. However, just in looking at their last quarterly results, I am shocked at their engagement still. Uh, this is becoming a value stock. We're not value investors. It's not what we do. But if I were in the public markets as a value investor, I might take a look at this because it's engagement. So, uh, daily average users over monthly average users, 67% hasn't changed. Has three billion plus users. It's pretty astonishing what they've done. I think they're going to have to pivot away from this, uh, or pivot and maybe have a more graceful entry into the metaverse instead of brute force.

AI assessment note: “I think that Mark Zuckerberg, uh, is probably investing in an idea before its time”

Q totally. I, I do want to touch on, kind of, well, not touch on, discuss, bluntly, the venture fund, which is, you know, I am glad moving into a world where I actually understand things. Um, that was helpful. Um, but, you know, you obviously decided to launch the new venture fund within ARK as a new product. Why did you decide to launch a new venture fund for retail?

A What is one of the biggest questions, most frequent questions, uh, we have received over the nearly nine years since ARC has been in existence? Retail investors saying to us, and they're usually young people, they're usually saying, why is it, uh, that just because we don't meet an income or asset threshold, um, we can't be accredited, And we can't participate in, participate in these huge growth opportunities. When we probably know more about those opportunities than the people who are investing them in the institutional world. And I will tell you from what, just what I've seen in the public world, if, if we were to use knowledge as the, uh, metric for accreditation, uh, the accredited investors for ARC Would be those retail investors. They have, they, they are passionate about innovation, and they know so much about it, and many of them are working in the industry or in the various communities. So, you know, we've talked to Hester Peirce at the SEC who really believes that we have to, we have to modify or revolutionize this accreditation process Because it's not American. It's, it's truly not American to use income and asset thresholds when knowledge could be an accreditation, ah, measure or metric.

AI assessment note: “Retail investors saying to us, why is it that we can't participate”

Q I think TikTok's the two trillion dollar power, of course, um, to be honest, um, uh, tell me, uh, Elon and Twitter, what do we think of what's happened there?

A You know, I am pretty excited about this. Um, you know, we, our best social network to getting the word out, engaging with people is Twitter. It truly is the global public town square. And I find, you know, that there, there are a lot of ways he could go with this. He's talking about subscription along with advertising and Most people don't think that will work, but I'm an old newspaper analyst, and that worked really well back then. So I think he's going to try and iterate and test Vine. I remember my son using Vine. That was TikTok. I watched my son. He was six years old at the time or whatever, um, but he loved it, and it was just a little before its time. Hey, you never know. And I also think, now this is the wild card answer. Elon is a big fan of vertical integration, right? And when you think of Tesla, what is Tesla? It's the internet on wheels, right? It's a computer on wheels. Um, okay, he's got that vertical integration, right? Well, a lot of people are getting annoyed at Apple for its, uh, walled garden. I wouldn't be surprised if, uh, somehow Uh, Elon figured out a way to disrupt Apple. I don't know. There's, there's, you've got the, the car is the ultimate mobile device, but it does equip him in some sense, uh, to understand what it takes, uh, to deliver a mobile device and an everything app. And, you know, we have, uh, looked at WeChat Pay and, You know, the, the o…

AI assessment note: “I am pretty excited about this.”

Q In terms of the social media side, you know, I mean, for venture, it's, it's kind of common for, for public markets, it's not common at all. I, I read one journalist say it's like playing poker with your cards turned up. Why is that wrong? I thought that was an interesting analogy.

A You know, it's interesting. When I started in the business, which, as we discussed a little earlier, was quite a while ago. I'll give you the year. It was 1977, and I was in college. Um, there were no computers, there were no mobile phones, no mobile internet, nothing, nothing like that. Information was really scarce, and, and we had to pay a lot and spend a lot of time digging it up. And, and I mean, not just from companies, but even the government, Going to the government, calling the government, it was just a nightmare being transferred from one place to another to another as a researcher. So, uh, that was then, and here we are now. Information is ubiquitous. It's how you put it together. And I think it will be Considered a very provincial in let's say three to five years time, uh, to hear a firm saying, well, we don't share any of our research because it's our secret sauce. You know, we've all got all this information, all of these different points of view. They're all out there. Pick one. You know, we pick the one that, uh, that, um, fits in with our research and our research starts from the top down. We're sizing opportunities using Wright's law, a relative of Moore's law, to try and understand cost declines, and then we do our bottom-up analysis. We are as stock research driven as any other bottom-up team out there, and then we have a six-point overlay just for innovatio…

AI assessment note: “Information is ubiquitous. It's how you put it together.”

Q the, the booms, the bust, oh, eight, oh, nine. I, I obviously did the research and I read about Tupelo, a firm you co-founded, um, and, you know, funny, the lesson there and, you know, going from 1.2 billion to two hundred million. I always find that we learn a lot from hard times. Um, what, how did that impact your mindset going through that bust and seeing that happen?

A Well, I wasn't there for most of that. Uh, so, uh, I was there for three years, uh, when we built the firm from the, this was a, a family office effectively from, uh, two hundred and fifty million of the family's wealth. Uh, we built it at our peak. We were in somewhere. I don't remember the 1.2 billion. I more remember, uh, 800 to a billion somewhere in there. And we did that with very little in the way of flows. So that was 250. That was, ah, a triple to a quadruple over two years. Now consider the years. It was 98 and 99. And then in year three, ah, 2000, when I was there, we were down 20%. So, ah, by my calculations, We were up, uh, from the beginning to, uh, two to three fold, even after that 20% correction. And the reason I left is, uh, the, my co-founder, uh, who really, this was her family's money, and I reached, uh, a bit of an impasse in terms of our investment strategy. Um, as we had moved into 1991, We knew that too much capital was chasing too few opportunities, um, too early. Many of the technologies were not even ready, the ones we were talking about. And so we were buying puts, uh, to serve as protection, uh, throughout actually, uh, late 99, throughout the, the 2000 period as the market, um, as As investors were buying the dips, uh, we were buying puts. And, uh, in January of 2001, it was very early. It was probably the first week. Um, uh, we had, we agreed, we…

AI assessment note: “Well, I wasn't there for most of that.”

Q Final one. Ark, this is, this is your life's work. What do you want it to be in 2030 years time?

A Oh, I, I want it to be what it is now. I want it to be, uh, you know, known first and foremost for its deep research into technologically enabled innovation to, for a couple of reasons, not only to make sure That we are on the right side of change for, from an investment point of view, uh, meaning we are getting people away from those benchmarks, which are, we think going to fall into disfavor. And getting them onto the right side of change. They're short innovation. Now, uh, we'd like them to get long innovation, truly disruptive innovation, but I'd also like it to be a place where anyone can come parents, grandparents, professors, grade school teachers, and, um, and learn how the world's going to work. So that they can educate their children, their grandchildren, their students, you know, um, how the world's going to work and get them on the right side of change. Because let me tell you, there are so many amazing things happening now. So many opportunities opening up that, uh, those who do move on to the right side of change are going to have wonderful lives.

AI assessment note: “I want it to be what it is now. I want it to be”

Q You mentioned the word risk there, and Cathy, I'm a Brit. I get very uncomfortable asking, you know, difficult questions. You mentioned the word risk. Um, people suggest that you have zero risk management. Why do you think they do? And why are they wrong?

A Well, I think the reason they say that is there are so many generalist, uh, strategies out there. We are not a generalist strategy. Uh, we know who we are. We're focused exclusively on a slice of the market. And it is up to asset allocators, not us. We're not an asset allocator. We're giving asset allocators an opportunity to make up for the massive short that we believe they have in their portfolios. Uh, and that short is truly disruptive innovation. That's all we do. So, uh, those who are saying this, and I've seen some wire houses, uh, Uh, saying this, but if you go to their due diligence departments, their due diligence departments understand what we are. We are a slice of an equity portfolio, and it is up to advisors or asset allocators, other asset allocators to determine how big, uh, a slice of the pie Our strategy should represent. That's not our decision. Advisors know their clients better, right, than we do.

AI assessment note: “I think the reason they say that is there are so many generalist strategies”

Q fund, if I say it for me, it's that I can convert, you know, bluntly, a media company into a top tier investment firm. That is the risk. You buy it or you don't. Like, fair enough. Whatever, whatever way you want to go, I obviously buy it. Um, but, like, what's the risk that people are underwriting when they're evaluating do I invest or not into ARK's venture fund?

A Uh, well, they're taking the same risk that they're taking, uh, with our, we call ourselves, before we started the venture, we, we described so that people could really understand what we were doing in the public markets. We said, we are the closest you will find to a venture capital fund in the public equity markets, and you have to have a long-term investment time horizon in, or, and And, and the stomach to deal with the volatility if you are going, if you need to look at your portfolios every day, and they will be able to look at their portfolios here every day now, and because everything will be marked to market every day. Um, now, of course, there will be liquidity events will pop the, the, the venture just as a takeover would pop, uh, our public funds. But if you don't have that long-term investment time horizon and, and a real, and real conviction that the innovation that we're seeing today is going to create massive investment opportunities. Um, if you don't believe that as a starting point, then you shouldn't be involved. If you can't have a long-term time horizon, you probably shouldn't be involved or just with 500 dollars, maybe you can take that risk. Because that is our minimum.

AI assessment note: “they're taking the same risk that they're taking, uh, with our”

Q No, no, I love this. You mentioned in video that being kind of part of index and the benefits that come from it. The kind of question I have is that how much of the performance of large cap tech is tied to the growth of passive ETF index investing, do you think?

A I think a lot of it has been, you know, last year, uh, uh, the market reached all-time highs in twenty-twenty-one as we were selling off, and it was, it was the Fangs, it was Microsoft, it was Nvidia, and those, those, if you look at the Nasdaq 100, account for, account ed at that time, for nearly 50% of that index, and they also accounted for a very substantial, uh, A percentage of the S&P, uh, and the, uh, uh, MSCI. So yes, there was this crowding into indexes supported those stocks. And now look what's happened. We didn't own them. We, we thought the fangs, we saw TikTok coming, uh, and we did not own those stocks for different reasons. TikTok, when it came to Facebook and, and Netflix competing for Uh, time. Social commerce when it came to Amazon, uh, and, and also this cyclical concern about inventory building because of all the supply chain issues. So we've made some great calls, both macro and micro, and they are starting to pay off now, but we're still in a risk off market. And, uh, and I am seeing glimmers of hope. Our, our strategies are starting to outperform now on days When some of these big, uh, benchmarks don't, and that's what usually happens as we're coming towards the end of a bear market. At the end of the bear market, the saying goes, the new leadership shows itself. We're always the new leadership, and most of our stocks are not in those benchmarks. Uh, onl…

AI assessment note: “I think a lot of it has been... crowding into indexes supported those stocks.”

Q know, 500 bucks to, I don't know, 50,000 dollars in your fund, it seems like a bit of a headache. Like, it's much nicer to have an endowment fund in for a hundred million and have one relationship. Is it not a fundamental nightmare in terms of LP management and fund management to have this fundamentally, maybe not new structure, but kind of innovative structure with this diversification of LPs?

A Sure. Well, we're, we're going after the endowment market as well in different structures, but the structure you're referring to here, uh, is the interval fund. This, this structure is a retail, um, in investment wrapper that was devised and approved by the FCC in 1993 for this purpose to give retail investors A shot at some of these great growth opportunities, right? Um, but because of the tax advantages that private equity and, and venture capital specifically have in this case, um, the, the, the, the, uh, businesses chose to focus on private equity. Um, we have chosen to focus on retail in this way with a partner. Titan is our partner, our distribution partner. It is an app, Andreessen Horowitz funded app, and we are the first outside equity fund that they are putting on this platform, and they are going to help us help our retail investors get to know our companies, With interviews, interviewing the CEOs, uh, and, uh, with our own analysis, we'll be featuring our analysis and sharing our research as we do anyway, but we'll do it specifically through Titan, uh, to focus on these private companies and the public companies. So they're really going to do a lot of the legwork that you're describing.

AI assessment note: “they're really going to do a lot of the legwork that you're describing”

Q How would you describe your relationship to money, Cathy?

A My relationship to money? Well, I, I don't, Here's how I describe it. Where I have conviction, you know, I, and, and this is more on the investing side. I think advisors looking at how I have, uh, positioned my own portfolio are shocked at how much I'm all in to innovation. Between our funds, uh, crypto and, uh, private funds. So, um, I, I feel I'm very blessed to be able to take this risk, you know, so that I can just, you know, vote, uh, you know, with my conviction and I don't have to be as well diversified as others do. So I don't really think about it too much, uh, You know, I'm really focused, honestly, I'm focused on, on arc and making sure we're doing the right thing for our clients.

AI assessment note: “I don't really think about it too much, uh, You know, I'm really focused”

Q mentioned the excess supply of capital there, chasing too few deals with too much cash chasing them. Many investors in venture say that's where we are in the venture cycle today. I actually personally would agree with them. How do you feel about that? Obviously, you've just launched your, you know, venture, you know, platform and fund. Like, how do you feel about that in venture, and would you disagree?

A What I believe has happened here, if you look since February of 21, when our strategy peaked, And as you know, we're focused exclusively on disruptive innovation. So since 2021. Um, our strategy has been destroyed, and any innovation strategy, and now more growth strategies are being sucked into this, and venture as well, as well. We're seeing down rounds all over the place. I guess Instacart is maybe, uh, 30% of its peak, or, or, or roughly. So we're seeing the down rounds, and personally, I like starting businesses And portfolios during down times. We can, we are just, we're nascent. And so we can average into, uh, what I do believe, uh, could be a set of significant drawdowns in the private world that has already happened in the public world. Now, the fund that we have launched is a public private crossover fund. And sure at maturity, Uh, our, our desire is to get it close to 75% private and 25% public to allow more liquidity. Um, but, uh, right now, uh, we're not near that. So, um, we're, we're, we're getting close, um, but we will continue if we get flows in, uh, to use public, uh, Uh, stocks, uh, because we believe there is a bit of an arbitrage here, opportunity here. Um, and we are buying into down rounds in the, in the private markets at the same time. Uh, so, you know, I think we're at a, uh, I also think I want to make this clear that the private markets have innovat…

AI assessment note: “personally, I like starting businesses And portfolios during down times.”

Q Always wonderful when someone else does the legwork. Um, can I ask, I saw the terms of the fund and I was like, what? It's a zero percent carry fund, Cathy. Um, can you help me understand the incentive alignment between investor and you? When is the zero percent carry fund for you?

A Well, again, The, the, the fund. So we don't have a carry. If we did have a carry, then we could only accept accredited investors. So we said, okay, because interval funds can have a carry. So we said, okay, no carry. Um, now our, uh, our fee is our management fee is 2.75% compared to the two and 20. Now, if you compare If you compare a top quartile venture fund, and we hope we're in that category, um, to, uh, to this, uh, to, to this fee structure. So two and 20 versus 2.75, just for the, the management fee. Over the life of that mutual, I mean, that, uh, venture capital fund, uh, you're, you're probably going to be paying a nine percent fee on average per year when it's all said and done and tallied up. Uh, for us, it's 2.75%. Um, and if you.

AI assessment note: “If we did have a carry, then we could only accept accredited investors.”

Q closed end, four hundred million fund, you can say, okay, we're going to do 20, twenty million checks. That's diversified enough. We're going to lead series A's. What you can plan efficiently in open ended structures and evergreen structures where the capital is kind of varying. How do you think about planning? Do you want to lead? Do you have a check size desire? What does that construction look like?

A Well, we're, we're quite small now. We're, we're walk, certainly walking before we run. Um, but we have many, many more opportunities in terms of secondaries. I, I know a lot of VCs are limited to 20% secondaries. We're not limited. We don't face those limits. Um, we can use convertibles. We can get very creative with this fund, and we have a surprising, uh, degree of flexibility here, and we'll start from right now, series B, and as we scale, uh, we'll get bigger. We will not be leading deals right now. We're very grateful to the, for the introductions that these, um, these, uh, wonderful and top tier venture funds Are, uh, are giving us. So, um, we want to walk before we run. And I think the most important thing I'll say is most people, except for venture funds, most investors, most people in the world today do not understand how much innovation is on the way. And how much we'll be able to scale into this market. And just to give you some markers there, we believe today that truly disruptive Um, uh, technologically enabled innovation is priced in the global markets, public and private, at somewhere in the seven to eight trillion dollar range. So it's less than 10% of the global equity cap, public and private. Um, we believe that seven to eight trillion is going to 210 trillion in Uh, in the next eight to 10 years. So that's a thirty-fold increase. Uh, so we think there's goin…

AI assessment note: “We will not be leading deals right now.”

Q fund, if I say it for me, it's that I can convert, you know, bluntly, a media company into a top tier investment firm. That is the risk. You buy it or you don't. Like, fair enough. Whatever, whatever way you want to go, I obviously buy it. Um, but, like, what's the risk that people are underwriting when they're evaluating do I invest or not into ARK's venture fund?

A Uh, well, they're taking the same risk that they're taking, uh, with our, we call ourselves, before we started the venture, we, we described so that people could really understand what we were doing in the public markets. We said, we are the closest you will find to a venture capital fund in the public equity markets, and you have to have a long-term investment time horizon in, or, and And, and the stomach to deal with the volatility if you are going, if you need to look at your portfolios every day, and they will be able to look at their portfolios here every day now, and because everything will be marked to market every day. Um, now, of course, there will be liquidity events will pop the, the, the venture just as a takeover would pop, uh, our public funds. But if you don't have that long-term investment time horizon and, and a real, and real conviction that the innovation that we're seeing today is going to create massive investment opportunities. Um, if you don't believe that as a starting point, then you shouldn't be involved. If you can't have a long-term time horizon, you probably shouldn't be involved or just with 500 dollars, maybe you can take that risk. Because that is our minimum.

AI assessment note: “stomach to deal with the volatility if you are going, if you need to”

Q closed end, four hundred million fund, you can say, okay, we're going to do 20, twenty million checks. That's diversified enough. We're going to lead series A's. What you can plan efficiently in open ended structures and evergreen structures where the capital is kind of varying. How do you think about planning? Do you want to lead? Do you have a check size desire? What does that construction look like?

A Well, we're, we're quite small now. We're, we're walk, certainly walking before we run. Um, but we have many, many more opportunities in terms of secondaries. I, I know a lot of VCs are limited to 20% secondaries. We're not limited. We don't face those limits. Um, we can use convertibles. We can get very creative with this fund, and we have a surprising, uh, degree of flexibility here, and we'll start from right now, series B, and as we scale, uh, we'll get bigger. We will not be leading deals right now. We're very grateful to the, for the introductions that these, um, these, uh, wonderful and top tier venture funds Are, uh, are giving us. So, um, we want to walk before we run. And I think the most important thing I'll say is most people, except for venture funds, most investors, most people in the world today do not understand how much innovation is on the way. And how much we'll be able to scale into this market. And just to give you some markers there, we believe today that truly disruptive Um, uh, technologically enabled innovation is priced in the global markets, public and private, at somewhere in the seven to eight trillion dollar range. So it's less than 10% of the global equity cap, public and private. Um, we believe that seven to eight trillion is going to 210 trillion in Uh, in the next eight to 10 years. So that's a thirty-fold increase. Uh, so we think there's goin…

AI assessment note: “We will not be leading deals right now.”

Q Always wonderful when someone else does the legwork. Um, can I ask, I saw the terms of the fund and I was like, what? It's a zero percent carry fund, Cathy. Um, can you help me understand the incentive alignment between investor and you? When is the zero percent carry fund for you?

A Well, again, The, the, the fund. So we don't have a carry. If we did have a carry, then we could only accept accredited investors. So we said, okay, because interval funds can have a carry. So we said, okay, no carry. Um, now our, uh, our fee is our management fee is 2.75% compared to the two and 20. Now, if you compare If you compare a top quartile venture fund, and we hope we're in that category, um, to, uh, to this, uh, to, to this fee structure. So two and 20 versus 2.75, just for the, the management fee. Over the life of that mutual, I mean, that, uh, venture capital fund, uh, you're, you're probably going to be paying a nine percent fee on average per year when it's all said and done and tallied up. Uh, for us, it's 2.75%. Um, and if you.

AI assessment note: “If we did have a carry, then we could only accept accredited investors.”

Q In terms of the social media side, you know, I mean, for venture, it's, it's kind of common for, for public markets, it's not common at all. I, I read one journalist say it's like playing poker with your cards turned up. Why is that wrong? I thought that was an interesting analogy.

A You know, it's interesting. When I started in the business, which, as we discussed a little earlier, was quite a while ago. I'll give you the year. It was 1977, and I was in college. Um, there were no computers, there were no mobile phones, no mobile internet, nothing, nothing like that. Information was really scarce, and, and we had to pay a lot and spend a lot of time digging it up. And, and I mean, not just from companies, but even the government, Going to the government, calling the government, it was just a nightmare being transferred from one place to another to another as a researcher. So, uh, that was then, and here we are now. Information is ubiquitous. It's how you put it together. And I think it will be Considered a very provincial in let's say three to five years time, uh, to hear a firm saying, well, we don't share any of our research because it's our secret sauce. You know, we've all got all this information, all of these different points of view. They're all out there. Pick one. You know, we pick the one that, uh, that, um, fits in with our research and our research starts from the top down. We're sizing opportunities using Wright's law, a relative of Moore's law, to try and understand cost declines, and then we do our bottom-up analysis. We are as stock research driven as any other bottom-up team out there, and then we have a six-point overlay just for innovatio…

AI assessment note: “Information is ubiquitous. It's how you put it together.”

Q How would you describe your relationship to money, Cathy?

A My relationship to money? Well, I, I don't, Here's how I describe it. Where I have conviction, you know, I, and, and this is more on the investing side. I think advisors looking at how I have, uh, positioned my own portfolio are shocked at how much I'm all in to innovation. Between our funds, uh, crypto and, uh, private funds. So, um, I, I feel I'm very blessed to be able to take this risk, you know, so that I can just, you know, vote, uh, you know, with my conviction and I don't have to be as well diversified as others do. So I don't really think about it too much, uh, You know, I'm really focused, honestly, I'm focused on, on arc and making sure we're doing the right thing for our clients.

AI assessment note: “I don't really think about it too much”