The Exchanges

Q So the first piece is this expanding equity. And then the second you said, is this outside in with emerging managers? How have you approached that?

A We worked with a firm called Progress Capital, and we started hiring diverse-owned firms about 10 years ago. The idea was to bring in these diverse-owned firms that are emerging. We're taking the risk of newer starting up firms. We were using track records from prior mandates. The real goal of this was, again, for investment performance, to identify that next great manager. We have identified three managers with four mandates that we were able to bring into full-blown allocations, and the program went pretty well. Progress recently closed in June, so we're in the process of rethinking this now. The one thing that we have to really be careful of is some people see this as kind of the kids' table, and that's not obviously our goal, but that's one of the downsides of this type of a program. It's a very tricky area, but it's something we wanted to experiment with.

AI assessment note: “We worked with a firm called Progress Capital, and we started hiring diverse-owned firms”

Q So that study, that's indicating the leadership ranks are more diverse. Is there anything about the firms as a whole?

A So there's another one, a Harvard Business Review study that showed That diverse companies experience increased innovation, and it results in 19% higher revenue, 2.3 times cash flow per employee more. So the facts are there about this. It's pretty clear that diversity drives financial performance as well as just better behaviors. One of the things that's crucial, and the reason I think that these really successful firms have gotten on board is as they look out to their futures, they look out to the sustainability of their firms, they see that Our country is going to be more than 50% diverse in 2050. Our workforce in 20 50 will be more than 50% diverse. If you're not addressing these things today, if you're just a bunch of white men, that firm ain't gonna make it to 20 50. You're creating a headwind that just has to be dealt with, and it takes the really the best firms out there to get to that.

AI assessment note: “a Harvard Business Review study that showed That diverse companies experience increased innovation”

Q So is there a good example of one of those impact investments?

A Yeah, so there's the Impact America Fund. It's led by Keisha Cash, and Impact America invests in large, underserved markets, and they're trying to expand opportunities in communities of color where entrepreneurs have been overlooked and undervalued by traditional investors. So the firms and founders with who they're investing with are creating products for those specific communities Where the alternative investors really weren't serving them and they didn't exist at all. So because of this, Impact America is really increasing market transparencies and efficiencies. They're lowering costs for consumers, helping to increase incomes in those communities and mobility for those workers. 95% of their investments are with companies that have a woman or a person of color at the helm. So that's one of our better examples.

AI assessment note: “Yeah, so there's the Impact America Fund. It's led by Keisha Cash”

Q So when you put it in the portfolio, was it part of a biotech strategy or did it become your biotech investment?

A It's part of the biotech strategy. The strategy we went into was, is lockup fund. We were looking at both the lockup as well as the hedge fund, but the lockup fund was pre IPO companies and his knowledge of Making that connection. From an investment in a pre-IPO and then going to the IPO, his knowledge of understanding a public equity stock was what we felt was really the value add there, and so that's why we were excited about that. It was our first time investing with him, so we put it into an allocation for a fund as a first time investment, but that was why we went with that strategy in particular, although he was a finalist in both strategies.

AI assessment note: “It's part of the biotech strategy.”

Q Are there other small actionable examples as well of some of that unconscious bias?

A There's the hiring process. If I, as a white man, am going into an interview, and I'm interviewing with Generally a bunch of white men, maybe a white woman occasionally. My thought process is, am I part of this team? How do I contribute to the team? How do I see myself fitting into the team? A person of color going into that same interview is wondering, am I being judged on information that is not correct? Will I be excluded? All those things that I interviewing people don't think of, but the interview process has to be inclusive as well. So as I brought in people to the foundation to interview, I made sure that they were also interviewing with people of color at the foundation, people who could help them understand what it's like to work at the Kellogg Foundation. And to be honest with you, the hiring is of diverse people becomes very easy when they see their path to success. And that they see it in the long term. Those are the types of things we had to identify.

AI assessment note: “There's the hiring process. If I, as a white man, am going into”

Q So Joel, in the process of putting this together, How did you come up with the action steps to take to promote this sort of diversity inclusion in the organization?

A So we started with our success at the Kellogg Foundation and our experience from 2007 to the current. And then we really broke it into 23 work streams that are areas that these firms can look at and use and identify which ones are the most important ones to them. And they fall within four categories. So the first one is what we call a track. This is attracting and hiring the new employees of color into the firm. The second one is belong. And this is setting up processes that ensure that all employees, regardless of their racial identity, feel respected and are able to be successful. And this is where our roles as white men comes into this. Then the third work stream is regarding promotions. And there, what we're focused on is ensuring that employees of color have the same opportunities for advancement as the white employees. And then last, the fourth work stream is influencing, catalyzing racial equity in the financial services ecosystem as a whole and being able to talk about it as part of it, but it's also these firms that are in expanding equity are keeping track of their progress on this, and they're going to be Turning in their statistics to the database over the years as they go forward to measure how well they're doing it. And so measurement is a key part of this for these firms. And again, the reason that this is so action oriented is because we got the top people in on…

AI assessment note: “we started with our success at the Kellogg Foundation and our experience”

Q How did your initial experiences in the bond market influence how you thought about that ground up development of the foundation?

A It's really important. Everything to me comes back to duration, and I can't calculate the duration of a stock, but what I know is that a, a growth stock has a very long duration, and so as we look at any asset at the foundation, any asset class, any Private equity fund. Any manager. My mind and now my team's mind goes to the duration of that. It creates some really interesting dynamics because on one hand, a VC investment is going to be our longest duration asset. But if you think about a, for example, a shorter duration asset, a distress bond fund allocation, your duration risk is a lot lower, your cash flow is a lot higher, and your return over the distress cycles, because you're going to go through many there, may end up being Similar or better than the return on the VC investment, and so you really have to focus on this aspect of duration. The convexity piece is really the key to it, though, when you combine them together, because what we look for in a private equity investment, for example, is really more on the growth side, is how do they get to a mid-teens type return? And where does that positive convexity come from to get to a higher return? More importantly, where does the negative convexity affect us? How do we know that we're managing the downside in this? And so it all comes back to a bond market mindset that really drives how I think about the entire balance sheet…

AI assessment note: “it all comes back to a bond market mindset that really drives how I think”

Q Why don't we circle to the original purpose of the foundation and where all this started?

A The Kellogg Foundation started in 1930. Mr. Kellogg created this incredible structure. So we have two structures. One is called the foundation where the philanthropy is done, and then we have the trust where the investments are done, and that allows each entity which has such a unique position to manage themselves specifically for that need. And the trust obviously Puts money into the foundation, and that's how we do our philanthropy. The foundation was created itself, like I said, in 1930 by the serial entrepreneur W.K. Kellogg, and for us in this business, we have to point out serials with a C here, and his focus right from day one was on children, and we know that children live in families, families live in communities, and so what we believe is that for our families and our children to thrive, they need to be in communities that provide for them Equitable places of opportunity for everybody, and obviously right now, as we've learned this year in particular, too many communities aren't providing those pathways, those pathways of opportunity for the families and our children, and so what we do is we're dedicated to changing that and building a great future for all children. The one thing that goes through everything we do is everything about our DNA is Racial equity. Diversity and inclusion. And that is a key part of who we are and what we do.

AI assessment note: “The Kellogg Foundation started in 1930... and his focus right from day one was on children”

Q What were the early insights that you got exposed to when you first arrived that you might not have been aware of before you were at the foundation?

A The racial equity work is really, really interesting. As a corporate executive at two companies, I really tried to make a workplace That was welcoming, that was comfortable for everybody, gender, race, and it was really a priority for me, and I had a fairly diverse group. The one thing I never did was had the conversation with those diverse employees of mine about Where they came from, about what their work career was like, about what their experiences were, and it's amazing to try to create a workspace where people will be successful, and you've never actually had that conversation with people about what they would like in that workplace. Never crossed my mind, and at Kellogg, it allowed me to have that conversation to talk to people that, not even just my team, but my peers and the people I was hiring, and what I hoped to create was a workplace where people are confident they will be given responsibilities and promoted based on their experience, based on their expertise, and not based on them coming in as a person of color, where they may have Prejudgment going on, and you can't really get to that mental thought until you've actually talked to the people about that. The conversations we have at Kellogg around race are incredible conversations. They're the most growth as a person you could ever have, and that's what allows you to create a diverse workforce.

AI assessment note: “at Kellogg, it allowed me to have that conversation to talk to people”

Q As you've been able to work in and foster this inclusive environment within Kellogg, you also have this pool of capital that has the potential to influence more than, you know, just the subset of the team you have in place. How did you think about the diversity and inclusion in your investing process?

A We're focused on several different things there. We want to be a part of what the foundation's doing and a part of the mission, and so we were able to do that. There's three different ways we're doing this. So the first one is through a program that we call Expanding Equity that I'll describe. The second is we've got a fund of diverse emerging managers, and then thirdly is our impact investment portfolio. But Expanding Equity is really the interesting one. So let me kind of give the backstory to it. In 2007, the Kellogg Foundation made an announcement that we were going to be an anti-racist organization. Now, we had been in racial equity work going all the way back to the 19 forties. We made our first grants in the 19 forties that were made for the purpose of dismantling the crippling effects of racism. In the 19 nineties, we got to a spot where we said, okay, we're going to really focus in on this racial equity journey. And then in 2007, we made this bold announcement that we're going to review everything we do, grant making, hiring, promotion, investing, everything we do with a racial equity lens on it. In 2007, our staff was 24% racially and ethnically diverse. Today, we're 45% racially and ethnically diverse, and we're still growing. If you include gender, again, we're 70%. Now, we don't include gender when we talk about this, and obviously we are very pro-gender hiring, bu…

AI assessment note: “There's three different ways we're doing this. So the first one is through a program”

Q And so take a quick step back and talk about the foundation's assets. I know there's a fair amount of Kellogg stock sitting there. Broadly, what does the structure of the investing portfolio look like?

A So we actually look, if you take aside the Kellogg stock, the Kellogg stock is about half of our assets, a little bit over half right now. And if you put that to the side, we then have the diversified portfolio, which is the other half of the assets. So our portfolio really looks like a lot of our peers. The only difference is we do need a little bit more liquidity. And so we probably have a little bit less of private equity. What we're trying to achieve here, though, is growing that diversified portfolio and getting, you know, to diversify away through growth. That's really the goal, and that's what makes it different. So it's not a family office at all. There's no family involved with the foundation at all, but it's got that family office allocation because of the concentrated position. But at the end of the day, every peer of mine has a balance sheet issue, whether it's a university that may have cash flows coming in one day, not coming in the next day, commitments that they've made. I think everybody has to, we all have our own balance sheet we have to deal with.

AI assessment note: “the Kellogg stock is about half of our assets... diversified portfolio, which is the other half”

Q What did you find in those conversations that changed the way you went about building your team and working with the colleagues around you?

A We all have conscious, and more importantly, unconscious biases, and we're all products of how we grew up. We come from these backgrounds that have created who we are, and being aware of your unconscious biases, and you're never fully aware of them because they're unconscious, but being aware of your unconscious biases allows you to have the conversation. At Kellogg, again, I can have the conversation and ask people uncomfortable questions. And they know I'm coming from a good spot, and they will help me understand things. What's really interesting and makes it so incredible and fun about it is people can ask me questions. I'm Jewish, and there's a lot of questions that come at me about what I've had to deal with with antisemitism and where I come from, and that's that, that conversation. And when you understand those unconscious biases, when you understand what we call microaggressions, What is happening when you make a comment, when you make a statement, and somebody then calls you out on that, and says, you know, here's what I heard when you said that. That's that piece that helps, that got me to where I am.

AI assessment note: “being aware of your unconscious biases allows you to have the conversation.”

Q How do you think about scaling up the size of both the emerging manager bucket and the impact bucket over time?

A The impact side is where we will eventually go there. We're still learning our lessons, and the whole impact investment industry is learning its lessons. It's going to take time. It's not going to be quick. What we're seeing in impact investing Is that other impact investors aren't talking about their investment returns, which tells me that the investment returns have not been good. And so this industry in order to make it has got to start showing investment returns and it's doing what I believe we're doing well, which is having not just the focus on impact, but having that focus on the investment side as well. And it's a different investment due diligence process, but it's, you've got to get to that piece of it. So once that comes together, I think then you're going to really start to scale up and you're going to start to see some of the best managers coming towards that, but it's going to take time.

AI assessment note: “The impact side is where we will eventually go there. We're still learning our lessons”

Q And if you look down five or 10 years down the road, even within your organization and portfolio, where do you want to get that you're not yet to today?

A I would say we probably have one of the more diverse portfolios from the ownership of the companies and the management of the assets. We're certainly not where we want to be yet. I honestly believe that because diverse people, diverse investors Don't get hired. There's some really great investors out there who have that ability. I was speaking to somebody in San Francisco, and he was a forty-five-year-old guy working at Cisco, wanted to leave to work at a VC firm, but nobody wants to hire a forty-five-year-old guy. And so instead, he took his money and started investing in himself in VC, and it started identifying these VC opportunities that were diverse people. People that can't get funding from the traditional VC firms out in the Bay, and needless to say, he's an early investor, I think it was Zoom, one of those, Zoom or Slack, I can't remember, but By going with, and one of those entrepreneurs was a thirty-five-year-old person who couldn't get investors from the VC world. Another was a woman-owned firm that he's now invested in. There's this incredible opportunity, and we're trying to take advantage of that to drive returns and our racial equity work.

AI assessment note: “we're trying to take advantage of that to drive returns and our racial equity work.”