Ashby Monk - The Fee And Cost Issue Is Important Because It Is A Catalyst For Innovation | #159

Episode Summary

Executive Summary: Ashby Monk argues that large asset owners—pension funds, sovereign wealth funds, endowments, and foundations—sit at the base of capitalism and must evolve from passive return seekers into active problem-solvers funding infrastructure, climate, and long-term social welfare. He explains how governance, culture, technology, and fees/costs shape whether these institutions insource, outsource, or innovate, and highlights long-term capital, public markets reform, and prize-linked savings as practical paths forward.

Main Topics: Asset owners as the base of capitalism (Priority: 5/5): Monk frames pension funds, sovereign wealth funds, endowments, and foundations as the true engine of global capital allocation, with responsibility not just to earn returns but to fund major societal needs like climate and infrastructure. People, process, and information as the investment 'production function' (Priority: 5/5): He reduces institutional investing to three core inputs—people, process, information—and says governance, culture, and technology are the main levers that change those inputs and improve results. Insourcing vs. outsourcing and the fee/cost debate (Priority: 5/5): The discussion centers on whether institutions should manage assets internally or externally, with Monk emphasizing that too few organizations rigorously compare true internal costs versus external fees and that hidden costs distort decisions. The Canadian model and pension governance (Priority: 4/5): Monk praises the Canadian Crown-corporation style governance model for enabling professional internal investment teams, strong compensation, and lower-cost management, while noting its future test will be adapting to technological change. Public vs. private markets and the long-term stock exchange (Priority: 5/5): He criticizes the rush into illiquid private assets as a band-aid for deeper capital-markets problems and explains LTSE as an ecosystem and exchange concept aimed at supporting long-term public listings and better founder-investor alignment. Long Game and prize-linked savings (Priority: 4/5): Monk describes Long Game’s mission to make saving engaging via prize-linked savings, arguing that many Americans are financially stressed and need a fun, behavioral-finance-based tool to build savings habits. Technology, alternative data, and the next era of investing (Priority: 5/5): He believes AI and alternative data will transform institutional investing from a speed-driven industry into one based on inference, enabling better risk management, climate analysis, and long-term decision-making.

Key Arguments: Large asset owners control roughly $100 trillion and therefore have outsized influence over climate, infrastructure, and the direction of capitalism. Pension funds and endowments should be judged by a 'production function' of capital in, capital out, but with attention to people, process, and information. Governance, culture, and technology are the main environmental enablers that can improve institutional investing; culture is hardest to change, technology is most immediately powerful. Internal management can be dramatically cheaper than outsourcing in some asset classes, with Monk citing a rule-of-thumb that internal management can be about 10x cheaper for areas like infrastructure, real estate, and fixed income. Public pension funds often hide external fees and internal cost comparisons, preventing boards from making rational decisions about insourcing. Current compensation and governance structures can effectively subsidize the asset management industry by forcing low-paid CIOs to oversee massive pools with high return targets and limited autonomy. The move toward private markets reflects pain in public markets, but it shifts power and fees toward intermediaries rather than solving the underlying capital-markets problem. LTSE is intended to create a more founder-friendly, long-term public market through tools, listing standards, and a broader ecosystem, not just a single exchange. Prize-linked savings captures lottery-like behavior but preserves principal, offering a more constructive alternative for financially stressed households. AI and alternative data will matter less for raw speed and more for inference, which may become the key comparative advantage for long-term investors. ESG and alternative data can be the same underlying information framed differently; the right framing can make sustainability and outperformance feel aligned rather than opposed.

Data Points: Global asset owner capital: ~$100 trillion - Monk’s estimate of the combined scale of pension funds, sovereign wealth funds, foundations, endowments, and similar asset owners. Annual infrastructure capital need: $3 trillion per year - Monk cites this as part of the global capital requirement that long-term investors may need to fund. Annual climate capital need: $3 trillion per year - Used to illustrate the enormous funding gap governments and banks are unlikely to meet alone. Public company count decline: 8,000-ish to 3,500-ish companies - Monk says the number of public companies has shrunk over time, reducing public-market opportunity set. Potential internal cost advantage: 10x cheaper - His rule-of-thumb for internal versus external management in certain asset classes, especially infrastructure, real estate, and fixed income. CIO compensation example: Less than $100,000 - Monk describes some public pension CIOs being paid under $100k while overseeing tens of billions and being asked to target 7%+ returns. Expected return target example: 7 plus - Referenced as a typical pension hurdle rate that pressures organizations into external management. Private market exposure trend: Single-digit to 50%+ illiquids - He notes the shift from low exposure to illiquid assets in the 1990s to some funds targeting more than half of AUM in illiquids. Financial fragility statistic: 63% of Americans don't have $400 - Used to motivate Long Game’s mission around savings and financial resilience. Financial fragility statistic: 70% of Americans can't come up with $1,000 in a month - Used to illustrate widespread liquidity stress among U.S. households. Millennial fear statistic: 63% - Monk cites a study where 63% of millennials said personal finance was one of their biggest fears. Lottery spending reference: $600/year average; $1,500/year heavy users - Used to show how much Americans spend on lottery tickets and why prize-linked savings may be more constructive. Long Game user scale: Six digits of users - Monk says the company has reached six-digit users, defined conservatively after account linking and KYC/AML completion. Company size: 20+ employees - Long Game’s staffing level at the time of the interview.

Pivotal Quotes: "If we're going to save Earth from all these existential crises that seem to be looming... we're going to need this community of asset owner investors." — Ashby Monk: He explains why pension funds, sovereign funds, foundations, and endowments matter beyond returns. "I think it really helps to kind of boil down that production function to its key inputs... people, process, and information." — Ashby Monk: He describes his framework for understanding how institutional investors operate and improve. "I think that's a pure subsidy of the asset management industry." — Ashby Monk: He criticizes low-paid, highly constrained public fund governance that funnels assets to external managers.

Implications: Institutional investors may need to rethink governance, fee structures, and internal capabilities to serve both beneficiaries and broader society. Public-market reform, climate capital allocation, and behaviorally designed savings tools could become major growth areas.