Endgame with Gita Wirjawan - Ashby Monk: Indonesia’s Big Bet? An SWF Expert Breaks Down Danantara

Episode Date: July 27, 2025

Ashby H. B. Monk talks about how global capital can be better directed toward solving long-term problems. Drawing from a background as a rower-turned-economist, Ashby reflects on how we must rethink investment philosophies in uncertain times. From the origins of sovereign wealth funds to the irony of having trillions in capital but no real education system for investing, this conversation dives deep into the heart of global finance and development.#Endgame #GitaWirjawan #AshbyMonkAbout the Luminary: Ashby Monk is a Senior Research Engineer at Stanford University and the Executive & Research Director of the Stanford Research Initiative on Long-Term Investing. With over 20 years of experience advising global investment institutions, he co-founded several fintech ventures and serves on the CFA Institute’s Future of Finance Council. He holds degrees from Princeton, the Sorbonne, and Oxford, where he earned his doctorate in economic geography.About the host: Gita is an Indonesian entrepreneur and educator. He is the founding partner of Ikhlas Capital and the chairman of Ancora Group. Currently, he is teaching at Stanford as a visiting scholar with Stanford's Precourt Institute for Energy; and a fellow at the Harvard Kennedy School's Belfer Center for Science and International Affairs.------------------------ Berminat menjadi pemimpin visioner berikutnya? Hubungi SGPP Indonesia di:⁠⁠https://admissions.sgpp.ac.id⁠⁠⁠⁠https://wa.me/628111522504⁠⁠Playlist episode "Endgame" lainnya:⁠⁠Technology vs Humanity⁠⁠⁠⁠The Take⁠⁠⁠⁠Wandering Scientists⁠⁠Kunjungi dan subscribe:⁠⁠SGPP Indonesia⁠⁠⁠⁠Visinema Pictures⁠

What do you think is going to stop the calipers of the world, the Mubadalas of the world, from wanting to collaborate with Donantara? They need to feel that Donantara's incentive structures align with their goals. That's a very powerful message. Investors want risk. That's what they get paid to manage. They hate uncertainty. That's the oxygen in financial markets. Risk. Hi, friends. Today, we're happy to be great. by Ashby Monk, who is the executive and research director at the Stanford initiative for

long-term investing. Ashby, thank you so much for increasing our show. I'm excited to be here. You know, you were a rower. I was a rower. How did you end up being or becoming an economist and doing great stuff for many, countries around? Yeah.

Yeah, the rowing part, I often joke with people. that my undergraduate degree was in rowing. Because I think rowing is this great educator. You have to be a great teammate. You have to be reliable. You have to show up every morning every afternoon. And you have to put in the work to be fast, to win. And as a student athlete,

I found balancing the commitment to the team and the commitment to the studies profoundly challenging as a 19 year old. And so looking back on my time in university, I think it was the rowing part that actually set me up for success. And I've actually pushed my kids to do these sports, what I call pain sports, where basically what you're learning is how to suffer. Life is hard, Gita. That's my experience. Life is filled with a lot of suffering. And if you can put your head down and get through it with a good attitude and with teammates with collaborators with partners um there's something very special in that that i'm i admit i'm continuing to try to search for

that feeling i had when i was 19 20 21 there's something very special about working towards an athletic championship of so i'm a lot about discipline yeah and i know that you were you were very Inspirationaly when I was a Badminton was it? Well, yeah, I did a few other sports, but you know, my, I had injuries and all that. Me too. Yeah.

You saw that movie about the rowing team for the University of Washington? Boys in the boat. Yeah. It's awesome. It's a great movie. Yeah. That was a little bit of a different era

where the universities represented the countries at the Olympics. Now the American rowing teams are sort of like the training programs for the world's Olympic teams. So if you're a scholar from Australia, you still come and try to go to Yale or Princeton or Harvard or Stanford. And so the national championships in rowing looks and feels like a world championships, albeit the younger people that compete, because obviously there's an age cap.

You studied economics, right? I did. Tell us how your parents played a role in shaping your thinking and your pursuit of whatever fields you decided to pursue. Yeah. So I had very different parents in the sense that they were Canadians that moved to California to pursue the tech dream. My dad has the claim to fame of selling the first supercomputer in Canada. He was working for IBM. And he sold it, I think it was to the University of Alberta and Edmonton.

But he was also doing a PhD in physics. And at the time, my mom was a fine artist, so oil painter. And I, it's funny, going back to my childhood, I grew up kind of as a foreigner in America. but I also grew up with parents that were doing things that I didn't necessarily want to do. I didn't want to be a physicist, and I wasn't talented enough to be a fine artist. And so kind of found my way into economics just because of the practical utility. Now, I do have a history where my great-grandfather was a development banker before that title existed. He worked for the Bank of Canada, and his obituary talked about how he took the boats and the trains from Ottawa all the way to Winnipeg to Canora, Manitoba, and opened a bank there to fund development in the prairies of Canada.

And literally, Ida, he had a vest where he hid currency in the vest and took the trains. And we still have the vest as a family where you could slit the vest and open it up. And that was the currency he used to start the bank. And he funded the railroad. He funded a pulp and paper mill. And so my parents were always talking about how constructive finance and even banking could be. So I was this naive kid graduating Princeton. I literally thought that going off to Wall Street was something that was good for the world.

Can you imagine? So did I. I was like, I'm going to go help the world by doing investment banking. Well, you know, it was like the ice bucket over the head pretty quickly. It didn't feel quite as constructive and positive for humanity when I landed in Wall Street. I also landed on Wall Street in 99 when we were very much. valuing companies based on eyeballs and clicks and all this crazy internet stuff. But my parents really, going back to why I got excited about economics and finance,

my parents would talk about my great-grandfather in these amazing terms where he was revered. And his obituary called him a pioneer banker. And I admit that like that, if my obituary said, pioneer banker or something that cool, That would be... That resonates. You know? Yeah. That's impact, man.

Yeah. Pioneer banker. I can't think of somebody that I would label that today. You know, maybe the development funds in places like Indonesia. We might talk about Donatara later on. You got out brought justice. Yes. That'll be a cool obituary.

Exactly. Then you went to France. Then you went to the UK. I did. And then you did your thesis on... economic geography. I did. Explain it. So pure economics at Princeton, then Wall Street, I did that for four years. Then I got the urge to compete again, and I went and tried to race bikes semi-professionally in Europe. Now, it was an era when we now know everybody was on drugs.

Lance Armstrong was on drugs, everybody. And so I tell myself that that's why I wasn't that good, because I didn't take any drugs, performance-enhancing drugs. I was about 4,000. It's amazing how long it took for everybody to find out what he was doing. Or it's amazing that everybody was doing it. I go back and look at the Tour de France

winners from that era. Like the person who got 12th is the winner now because everybody's been banned for life. You could have been 11th. I could have been 11th than one, technically. So I was there in France cycling and I was 4,000th in the world, which is obviously not close enough to take a run at it. And that's when I came back to academia, hence the digression. I'm coming to the economic geography.

But when I was in France, I passed all the exams to enter the Sorbonne, which is the oldest university in Europe, right? Great university. And it was funny because in France, they much prefer their Grande de Col, which is their They're kind of special professional schools. And they see these ancient universities as kind of like state universities here. It's not the Ivy League, right? The Ivy League or the Grande Col. And so I was in this program, 800 students, and my wife and I were literally the two people from North America.

But I just fell back in love with academia. And this theme is going to come up time and time again over the podcast for me, where I'm constantly bouncing between academia and academia and. industry through my life. And I'm still doing it today. After doing the master's degree at the Sorbonne, my wife and I then went off to Oxford. She went directly into a master's program, which is why we moved there. And I worked at a place called Oxford Analytica for a year as the international economy editor. And it was then that I did a big project on CalPERS, which led me to my doctorate at Oxford.

And I'm happy to pause there. I keep going and just tell you that project on CalPERS was really the flash of the power of these organizations globally. How big are they, you know? CalPERS is over $500 billion. And I know we're going to come to a lot of this in this, but I didn't really know what pension funds were until. somebody said to me, hey, we're going to work on a project for CalPERS. I was like, CalPERS. I'd grown up in

California. It was 26 years old. I didn't know what CalPers was. I had to Google. Well, there's no Google. I had to literally look it up, you know. And how did that that tie to the economic geography thesis? Yeah. So economic geography is, you could think of it as understanding context. So economics is about building top-down models that reflect the world. And we do that through regression analysis. Sometimes we do it through theoretical, you know, math. It's applied math. But economic geography takes a step back and says, look, there isn't always great data. And so we need a multi-method approach to understand economic activity. We need case study. We need surveys. We need qualitative of interviews. We need the classic regression analysis. And so I was attracted to economic geography

because it was multi-method and also allowed you to focus on the problem you were interested in, independent of whether or not you had data to study it. All of my friends, again, I was in my mid-20s, they were more interested in finding a data set than finding a really important problem they wanted to dedicate their life to. And at the time, my reason for doing the PhD was I thought I had a problem. And that was pension fund governance. How pension funds made decisions at the time didn't quite make sense to me, given the power they seemed to have in the world. you you made a a very interesting observation about the fact that the first sovereign wealth fund

was actually in Texas in the mid part of the 19th century that's right that was mind boggling mind blowing yeah all of it yeah yeah what was the thinking amongst the Texans at that time that might resonate to the current day-to-day sovereign world one while I'm thinking. Yeah. The Texas Permanent School Fund, and I thought at the time, I think it was just called the Texas School Fund or something like that. But the Texas Permanent School Fund, which exists to this day, was a way to convert the subsoil assets.

So we've heard of West Texas Intermediate as a form of crude oil that's coming out of the ground there. Texas's Constitution actually contemplated the creation of this vehicle to create intergenerational equity by valuing the subsoil assets and saying, look, what we need to do is plan for the future and take some of this oil wealth and just plow it into schools, which is a way to transmit value into the future. I know you're so passionate about education and as am I. And so it's really exciting when the first sovereign wealth fund was about taking the wealth underground and basically time machining it into the future in the form of education. Wow. Yeah. And that's kind of like what the guys in the Middle East are thinking right now, right?

Redistributing and in time machining it. Yeah. I mean, finance is the great time. future, but also for diversification purposes. So all of these pre-funded pools of capital in the world today, there's $140 trillion sitting in these pre-funded pools. For those that aren't tracking this space, we call them pension funds, we call them endowments, foundations, insurance companies, and sovereign wealth funds. And each of them are sort of sitting between, call it, $15 trillion and $80 trillion.

insurance companies could be as much as 40 trillion pensions are going to be 60 trillion. These are big categories. But underneath, you are always going to find a plan sponsor that chose to create this pension or sovereign fund that wanted to manage some future challenge. And that's why we talked about a time machine, which is to say, look, if you just wanted to spend the money, you'd spend it right now. No, you're trying to manage some distant challenge. You want to secure a pension paid to the elderly in your country. Or you're trying to manage development challenges over time. This is why you take the current savings or the current assets and you put it into a sovereign fund or a pension fund and you invest it because it allows you to share wealth intergenerational.

and it allows you to take advantage of the power of compounding return, which is magic. With out of those $140 trillion, how much would be within North America and their friends and allies? North America. Western European countries, Japan, South Korea, and some in the Middle East. Most. My gosh. Yeah. So that's a kind of.

of liquidity that's staring at us. I almost think the magic to American capitalism over the last 50 years has been the accumulation of capital in these organizations. Obviously, Harvard's endowment goes back to the beginning of Harvard, so 1600s. Then you had the Texas Permanent School Fund in the 1850s. you had American Express creating the first private pension fund. Then you started to get pre-funded pensions happening post-World War II. And it was post-World War II. And actually, in 1976, we had something called ERISA,

the Employee Retirement Income Security Act, that forced corporations to pre-fund their pension promises. So you had university endowments building these pools of capital. Now you had corporations building these pools of capital. Government started copying that method of securing retirement pools. But what you had forming was huge pools of investable capital. And because of the way these organizations were set up, you know, the pension funds were saying, gosh, we want to go make five, six, seven percent return.

in order to meet our future pension promise. That's risk capital. And where are you going to invest it? You're going to invest it in domestic industries. You're going to invest it in venture capital and private equity. And so you started to see this compounding effect of what are in effect social welfare organizations, the base of our welfare state, pension funds, endowments, foundations, insurance companies, investing in our capitalist system.

and doing so in a way that drove growth. And the other places where you didn't have this capital being formed, you didn't see the type of private investment. And as banks have been regulated out of risk taking, it's actually put those places with big institutional investors in a stronger footing. If you've mentioned risks a few times, how do you think the definition of risk has shifted

ever since the Texas Permanent Fund was created until today. I mean, put that in a context of how the evolution of ecology, economics, geopolitics, technology has become much more exponential, right? How do you box in risk? This is the fun part for me because there's always more risks to take. I mean, literally now we're talking about... It's a growth industry. Yeah, we've got interstellar risk now, right?

Like, if you want to, I can introduce you... Stuff coming down from the top. Or going up? Yeah, we're going up. Hey, do you want to go do lunar mining of helium-3? Like, I can get you that risk, which you can take. You can price it. So, for the benefit of people who might not be fully sort of red into the world of investing,

investors want risk. That's what they get paid to manage. They hate uncertainty. They love risk. Uncertainty means you can't set... Wow, that's a very subtle. Yeah. Yeah, that's why I thought I'd just take a second to do that for the listeners to say.

Uncertainty is unable to put a probability against an outcome. Some people love to talk about the known unknowns and the known unknowns, and uncertainty is the unknown unknowns. risk is about setting probabilities. This is what actuaries do, by the way. Their whole job is to price risks through probabilistic modeling. You know, an actuary can tell us we're all going to pass away one day. Thus far, that's the history of mankind. We can look at mortality tables, but nobody's made it beyond, I think it's about 120. So we can say with very strong conviction that if you've got, you know, a death policy purchased through an insurance company,

one day that will pay out. But will your house burn down from a forest fire? Or will your lunar mining module be able to bring back the helium three that it has harvested off the moon? These are all different probabilities and different risks. But we in the investment community seek ways to set probabilities, and then to loan, invest, secure our capital against these projects and companies, and get paid for it. That's really what all these institutional investors are doing. They are finding projects that need capital. They're assessing the risks, and they're saying, I'll give you the capital to do that if you pay me this return. That's the oxygen in financial markets. risk. And so over the last 50 years, the risks have changed. Now, the geopolitics is still there,

but climate change is a new risk. People care about. Obviously, like, that comes with political undertones. But the risk that feels completely neutral from a politics perspective, I'll tell you, is AI. Everybody is wondering right now how AI will affect their portfolio. their company, their revenue streams, their profitability, the inputs into production functions. They are wondering how AI transforms this capitalist system. And so for the benefit of avoiding the political conversations, I often drag people into a conversation about AI because it doesn't feel like DEI or climate change or any of these things. But it's the same challenge. 20 years from now, we're pretty sure AI is going to be running a lot of

stuff, but what stuff? And that's where long-term investors should be thinking about their portfolio. Should they be tilting away from services businesses where AI is just going to provide the services through agentic solutions? Should they be investing in manufacturing or fleets of autonomous cars? This is the fun stuff that I think investors get to do right now. I'm going to come back to AI, but I want to pick up on. capital. Okay. There is a subtle difference between uncertainties and risk.

And to the extent that you can't price uncertainties, capital doesn't go there. Unfortunately, in many parts of the world, call it the developing economies. The uncertainties can't be priced. Exactly. And this is the fundamental reason as to why capital is not being allocated or reallocated. right? The real mockery is that you've got $140 trillion worth of capital. Call that abundance. Yeah.

But this abundance does not get democratized to other parts of the world. Just because we can't price it. Yeah. So what's the message for somebody in a developing economy that's susceptible to all kinds of uncertainties so that he or she could help you in pricing the risk? so that there is a better reallocation of capital. I see why you're good at this podcast. You're picking up on my most nuanced arguments in the first 15 minutes.

So you're right. Capital flees uncertainty. And again, I like to keep this apolitical, but I'll just give you this example that's happening right now, which is we have a president who has decided to put tariffs. The choice of whether or not to implement those, tariffs or renegotiate those tariffs, that choice sits in a single person's brain. And it's really hard to set a probability against what President Trump might or might not

do. And that's why actually you've seen capital fleeing, because it's very difficult to know. Are we entering a world where the tariffs strike hard across everybody? Or is it a negotiating tactic? Well, similar things happen around the world. And so capital loves stability. it loves probabilities as in risk. It hates uncertainty.

It hates the idea that a government can unilaterally step in and change the rules. A lot of the work by the long-term investors in the domain of lobbying, they would never call it that. They would call it discussions with policymakers. But it feels like lobbying. It's about creating policy certainty for infrastructure investments, for cross-border capital flows, for tax policy. A lot of the work that long-term investors are doing is simply trying to establish the rules of the game. Get a new presidential administration in that immediately

out of the gate changes those rules. Doesn't define what the new rules are. Doesn't tell you over what time period those rules will hit. Capital flees. And you see markets dropping, you know, 10% in a single day. And then when, you know, he talks about removing the tariffs, they come back 10% in a single day. So that type of volatility is a sign of uncertainty. Now, let's take it out of the U.S. and talk about the developing world. This is where policymakers really have a role to play in creating a stable, certain environment where there's plenty of risk. That's fine. We want risk. Get compensated for taking risk. But that risk is known. So removing things like fraud, removing things like cronyism.

These are ways in which investors start to feel like, I don't think I know the rules. If you're asking me to pay a bribe, I don't think I understand those rules, like the big pension funds. So that is an area where oftentimes we talk to countries in emerging economies and say, create a very stable policy environment for investors to participate. And this could be a moment to build a development fund, where we establish a development fund that really understands the context of a domestic economy, the key players, the key rules, can avoid those traps that often catch out foreign investors, and then force that domestic investor, what we might call a development fund,

to have a commercial mandate and to say you can only invest if 51% of your capital comes from a foreign investor. This is my favorite trick because now your development fund has to go domestically to these companies and projects and say, I want to invest in you, but you need to create good governance. You need to follow the rules. You need to pay your taxes because I'm not going to convince Norway or Adia or Calpers to invest in you unless you do that. And then that development fund goes to Calpers and Norway and Adia and says, I've got these great projects. They're paying their taxes. They have good governance. They are compensating their people correctly. They've got, you know, all the standards that meet the SDGs. And you're going to generate 18% unlevered returns.

and that is the type of environment that I'm constantly working with developing economies to create and where sovereign funds can really play a role. I want to put this in a context of energy transition. Let's do it. Because there is a lot of money that's required, right? Just Southeast Asia and itself, if it needs to modernize, it needs to up the ante. In terms of its pre-existing electrification on a per capita basis, going up from, like in In Indonesia, it's at 1,300 kilowatt hour.

It needs to go up to 6,000 to be a modern nation. And if all the countries in Southeast Asia were to go up to 6,000, with the exception of Singapore and Brunea, which are modern already, we're going to have to build about a terawatt worth of power generation. That's about $2 to $3 trillion, right? That's a lot, yeah. I mean, it's a lot of donuts, right? So if you take a look at the FD audit comes to Southeast Asia, it's only about $200 billion a year.

Most of that is not used for, or very little is used for energy transition purposes. So my plea to the holders of liquidity would be that developing economies can't afford any more than $0.5 per kilowatt. The new technology is for renewables, right, about $0.15. This thing will come down probably faster on the back of technological innovation. This thing will come up faster. I mean, slower, more slowly, because of call it political neurosis, right? There's got to be a product that can be created, right, to cover for that gap. And somebody needs to take a view when that intersection will take place, whether it's two weeks or 20 years.

We can call that product insurance. Yeah. And this is where I think capital allocation for sure could pursue, right? So that there is a better way for developing economies to embrace energy transition. Because without that, I don't think we're going to be able to attain carbon neutrality by 2050 or 60. I don't think many of us will not attain modernity. This is without rebasing ourselves into AI, you know, the way you guys are doing it in North America, the way the Chinese are doing it.

Yeah. So maybe this is a chance for me to illustrate how I think about these challenges. So I am lucky I have a lot of policymakers around the world that sometimes come and say things like, how do I find a trillion dollars for X? hey Ashby, you know, you're the pension whisperer. How do I get pension funds? You are the pension whispers. How do I get pension funds too? Let me be the whispers or the whisperer.

Yeah, exactly. And so let's say we need to find two trillion dollars for Southeast Asian energy. Great. Let's start thinking about that project. Well, there's not many places we can turn to find that much capital outside of the long-term investors. So first, I call this my 100 trillion club, and there's really only four members. There's companies.

You've got about 100 trillion in public market value and 100 trillion in private market value. That's the world market cap. We've got about 100 trillion in tax revenue in governments around the world. I've got about 100 trillion in for-profit asset managers. So those are the GPs, the mutual funds. and then you've got about $100 trillion, called $140 trillion of asset owner capital. But it's that asset owner capital

that often flows through the for-profit managers into the companies. So I would say, if you're trying to find $2 trillion for energy, you have to go look to the biggest pools of risk capital. Governments are going to struggle. Their tax bases eroding. They've got domestic problems. Companies could do some of it.

but I would turn to the pension fund, sovereign funds. So then the question is, how do they think about this? Well, they have a fiduciary duty to maximize risk-adjusted returns, which some people groan about, not me. I see that as a very useful framework to understand the terms of trade that they will accept. Their fiduciary duty is to maximize return per unit of risk, per unit of cost. if we can present to them a project or an opportunity that delivers more return per unit of risk than what they are finding in other parts of the planet, it is almost their duty to consider it, at least consider it, and begin to develop ideas for why or why not they shouldn't do it. Beyond that, you can also present opportunities that have different risk profiles.

So if you say, provide a guarantee, and this is how the World Bank gets capital to flow into certain geographies, because they will use their multilateral investment guarantee agency in order to guarantee that the 200 million you invest in a certain place is at least going to be repaid if there's a revolution. And so when you think about the return per unit of risk, you have a few things you can play with. You can play with the return your offering, so higher return, or you can take the risk away through insurance guarantees or through government guarantees or through partnership with development funds that put themselves in a first lost position. These are the policy tools that a government can put in place to attract not billions, but trillions. And sometimes you simply need to demonstrate what the performance could be in a region to take the pressure off the government from guaranteeing return.

So I'll do 30 more seconds and then I'll pause. I'm falling, yeah. The idea would be a government says, let's pick on CalPERS again because they're nearby and they're big. Calpers, please invest in energy. infrastructure in Southeast Asia. We are going to guarantee your principal. And it's a three-year project. It's a 30-year project. But we're going to guarantee your principle over a certain period. And Calper says that's great. I mean, we almost don't need to do due diligence on the project. We need to do due diligence on your promise to cover my principle. So you're literally shifting who

your diligence. You're actually trying to vet the insurance contract as much as you're vetting the project. But now the project gets done and the world can see, oh, something is happening. It shoots off cash flow. The returns are higher than we expected. They're good partners on the ground. We're seeing rule of law, human rights. These are things that we call track record. This is like in the investment business, history is called track record. We now have track record for what happens when you put your money on the ground. And if people see that CalPERS is getting a great return, capital chases it because now it's not uncertain. Now we have track record. We have a legitimate investor that goes by the name of CalPERS that is deployed capital. And all of a sudden,

this geography becomes investable. And so the magic in all of this is putting... Black Rocks of the world. Exactly. Yeah. And so oftentimes people will turn to Black Rocks first. I've seen that. You see it right now in Saudi Arabia?

Black Rock is there. They're doing projects with the PIF. I think that's a heavier lift sometimes. Because BlackRock has commercial objectives on an annual basis. They've got shareholders that are yelling at them for their... Calipers are much more stakeholder oriented as opposed to shareholder. That's right. So you're going to see pension funds that are legitimately taking a 75-year horizon.

The Canada Pension Plan website used to say, we invest on a 75-year horizon. Well, on a 75-year horizon, of course you want exposure to Southeast Asia. Sure. Even if by the planet. Even if my risk-adjusted return is lower, you might say, but, But in year 50, this is year T equals zero, and T equals 50, I will start getting paid for being an early mover. Right?

So I'm the early mover in Africa. I'm the early mover in Latin America. 50 years from now, being that early mover will pay off. Well, if you're a for-profit fund manager, you might be off the planet 50 years from now. but if you are the steward of a permanent capital structure called an endowment foundation pension fund or sovereign fund which are probably the longest lived entities on earth maybe governments live longer but Harvard's endowment is longer than this government Harvard's endowment has been around longer than our government in america so these entities are truly intergenerational yeah and so if If you can be the steward of these platforms, they are the bridge, the time machine, into these future states. And if you know how they think, you can start to make arguments about going early, investing in these geographies.

I mean, I think I could get people to invest in space mining, you know, because fast forward 100 years. Of course we're mining off of the moon. There's probably hotels on the moon 100 years from now. I think less than 100 years from today. That would be fun. We'll do our next vacation together to the moon. But who should trigger the conversation, though? Are you talking about the G here, the government that needs to tee up with the calipers, the pension funds of the world?

I am a little bit. I mean, look, I'm a capitalist. I'm, you know, I've built companies. Yeah. But you have to have these rules in place. So as an investor in companies, I'm constantly using this thing called a safe note. Sure. Right?

Standard agreement for equity. This little instrument has made it possible for so many of us to invest in the earliest stage companies for almost no legal expense. We have certainty about what we're investing in because it's been defined through established legal principles. Even though these startups barely have a problem. product or an idea, we know what we're buying through the safe note. That's the kind of thing. You can't skip creating that to create the capital market. You have to create, fine,

it's not a safe note, but whatever it is, you know, it's something that sets the rules of the game so that investors know what they're investing in and they can take that risk. When I invest in a startup, I know there's a chance it goes to zero every time. I'm okay with that. What I don't want to know or have happened is the founder tell me I invested in an instrument that's worthless because they decided it was worthless. The difference is quite clear to me, but I don't know if it's clear. Just to make it a little bit more constructive for some of us in a developing world. Yes. What you're advocating for is for the government to basically come to the table and say, I insist on this being an equity story, not a fixed income story.

I think I am saying that. I'll cover for you for the first three years. If things don't go the way I'm promising you, I'll cover for capital preservation. But in a long shot, it's an equity story. I'm going to use that. Maybe this is a paper we co-author together. there is a big part of this, which is shifting from that debt mindset, which is a downside mindset. It's a, I don't want to lose my money mindset, to an equity mindset, which is a growth mindset.

It's an optimism. When you look at investing in a startup, you're thinking about what's possible. When you buy a bond, you say, what could go wrong? and I know that's a it's a nuanced difference that every investor has but I tell you would you sit with a fixed income team versus a private equity team or an venture capital team? It's a very different culture. And the risks that you're willing to take when you have an equity mindset are far broader and you're more worried about capturing upside than you are minimizing downside. So I like you. That's your frame big, but I think we should.

Yeah, yeah. No, no, no. It's useful to talk to somebody with a 75-year recycle mindset, right? As opposed to a six months recycle mindset. 75-year, and oh, by the way, an 8% return target. Maybe that's nominal. Maybe it's a real return of 5%. I mean, think about, let's use Indonesia, for example, right?

Using linearity economically here, there's no reason for this country not to be the fourth or fifth largest GDP in the world. I agree. 2045. Yeah. And there's room for non-linearity in a good way, not in a bad way, right? So the equity story is pretty compelling here. It's incredibly compelling. I mean, it's so exciting.

If some dude from some developing country or a set of developing countries would approach. whoever you've been whispering to, you know, okay, I'll provide you a backstop for the next three years. Yeah. For capital preservation purposes. But I need to build renewable energy. It's going to cost me $2 trillion for Southeast Asia. Okay. So now let me ask you something.

Now I put my $12 billion into a port or an airport or a toll road or hospitals. Tell me about the rule of law. tell me about my ability to get liquidity. I might need this. I have a 75-year horizon, but that doesn't mean I'm giving you the money for 75 years, right? So these are the questions people are asking

coming through the recent experience in China where they're wondering, can I get my capital out? And so I'm asking you, like, play the other side of that with me. You've got to get that rep and warranty, right? You do. Yeah. And so is that a government thing

or are the rules established sufficiently today? Or do we still need new rules? They are. They are. I mean, to the extent that the government should be able to take a view on this, positively. Then your safe way out would be to get an arbitration somewhere neutral. Yeah. Typically, it's Singapore or some other countries.

If things don't go away, you know, they're supposed to be. So let's invent a strategy together right now. Okay. So, Gita, here we go. More time machines for you. Yeah. But this time machine is a venture capital time machine. And you see it, you saw it in China. You're seeing it in the Middle East right now. Or certain models that are thriving in, call it Silicon Valley, business model innovation, tech innovation. You can bring that to Indonesia.

Yeah. Right? So you've launched Uber, you launched Lyme, you launched all these days. different, you know, Airbnbs. We see in other geographies a move to create the stripe for the Middle East or the Airbnb for China. This is a pathway that is well-worned that you could do for Indonesia, where you need the local partner. And it's not like, I have to tell you, it's not like somebody's cheating here, because

it's very hard to get the local part right, you know. It's true. But getting that local part right is that pathway to say, well, they're doing something like that in the U.S. Let's, we know that five years from now in Indonesia, we're going to have the same thing. Let's do it now. You know, and that's maybe where an INA or a Donantara could be a catalyst through local venture funds where you're bringing in foreign capital to do 51%. And Donantara is doing 49%. And you pursue some of these time machine venture capital bets.

You know, in a triple B rated setting, it's a who you know model. Yeah. Not a what you know model. Yeah. You got to have a local hand that can help you navigate through the risk, right? Or maybe we call that uncertainty. But the local person knows its risk, but the foreign person thinks its uncertainty. Well, it needs to be re-termed as risk.

Yeah, you're right. That can be assigned with probabilistic scenarios, right? Yeah. But we'll get back to this. On that point, really quickly, one of the things I tell people my job is, is taking these uncertainties and converting them into risk. But even beyond that, converting them into dollars and cents. So I've done a lot of work on climate change.

And a lot of the providers of risk analytics, they'll come to you and say, your building has a yellow fire risk. and the investors will say, I don't know what to do with yellow in my portfolio construction. Can you give me something more? And then the answer is, of course, we can convert that analytic. Rather than being yellow, we can convert it into a damage projection. We can convert it into an insurance policy change.

We can convert it into an inability to sell. Or it could be binary. It could be this piece of property is going to fall into the ocean. We can start to create these projections that have a dollar sign in front of it instead of a color or a letter. Colors and letters are difficult to translate into dollars. But somebody needs to do that work. And that's the work we're doing in this school right here at Stanford for things around the built environment, whether it's earthquake risk or it's fire risk or it's hurricane risk related to climate change.

But I'm guessing there's a lot of that. type of work you could do in the developing world as well. No, I'm with you. I'm with you. I want to go back to the conceptual stuff here, right? I mean, we recognize that this economic capital abundance has not been properly democratized, right? There's abundance, but there's no distribution. Now, the next commodity is called intelligence.

intelligence is getting super duper commoditized. The price of intelligence is approaching zero. It's asymptotic to zero. My concern is that at the rate that it's going to approach zero, we're going to have abundance of intelligence on the back of AI, but that intelligence is not going to get democratized the way we've seen abundance of capital or economic capital not being democratized. then we're seeing the price of labor also approaching zero on the back of robotics.

So we're going to witness increasingly the abundance of economic capital, the abundance of potentially labor, and the abundance of intelligence. Would it be a mockery of these three commodities are not going to be democratized? There's no proper reallocation. of these public goods. What's the way out? I don't know what to tell my students to do. I mean, that's like the personal pain I'm feeling right now. I'm looking at young people in the eye and I find it challenging to predict where they will be in 20 years, which makes giving advice quite hard in this moment.

I often try to depersonalize it and talk about certain analogies that I think are useful. So the analogy that I talk about is often about travel or navigation. So there was a time when being an airline pilot was maybe the most prestigious job in the world. And I love airline pilots, but there's also certain categories of airline pilots today. that I think start to feel like, I hope nobody gets mad at me for saying this, but like a bus driver. You know, like there's a lot of automation and tech and routine that have made that role, which many of us, I'm 48, grew up wanting to be a pilot. Now the type of pilot I think people are probably dreaming about is test pilot or astronaut. It's not airline pilot anymore.

And I think that's a function of technology taking over for some of the functions that were, you know, a function of their experience, track record, their gut. All of that stuff has been converted into science and instruments. And so as you and I look 20 years into the future and we're like, well, what is happening with this intelligence revolution? You have to expect what we've seen with airline pilots over the last 20 years will take hold across our industry. history. And so I have tried to understand what is the intelligence revolution, really? And so I have a kind of a different take right now, which is to say, we aren't in an AI era yet. We are in A.K. So that means knowledge is artificially delivered. If you go into chat GPT, you have endless knowledge at your fingertips. But you still have to apply it.

the difference between an airline pilot is that plane will fly itself for a lot of it. It might even land itself in certain cases. And there is a point for pilots that's not too far where we prefer machines or running those planes, less likely to make an error. And so the question for us as capital allocators, investors, people thinking about the distant future, is like how do we continue to maintain that decision-making authority, given that knowledge is coming at us? It's useful maybe to take a step back and tell you what data, information, knowledge, and

intelligence are. So data is a signal coming off of a sensor. The minute that data is put in context, it's now information. once you have a lot of information, and information is usually presented you in a dashboard, on your watch, on your phone, once you have a lot of information, you can start to form knowledge, models of the world,

algorithms, heuristics, understanding. Traditionally, that knowledge layer is the layer we're pursuing when we come to universities, when we get a CFA accredation, knowledge is also delivered through apprenticeship. So you go and you work on Wall Street because you want to demonstrate, you've collected the knowledge of having completed that program, whatever it is. Intelligence is when you have knowledge that is useful and contextualized,

sufficient that you can make a decision. Almost all of the intelligence is still human today. Now, we have algorithmic hedge funds that have managed to collect the data, get it clean, get it into information, study it, build algorithms, and literally connect into markets and trade. Those algorithmic hedge funds, they have vertically integrated the data to intelligence hierarchy. We call the hierarchy of insight. And they are running autonomous investment strategies. that is not where most of us are yet. That autonomy hasn't hit. When I go into chat GPT and I say, tell me about my neck injury, it will give me all sorts of information, but then I need to

choose what to do with it. So we are getting democratization of knowledge. The question is, when does it convert into true autonomy? And it's when we bring our data to these systems and connect it. And we say, here's my health records. Here's my location on earth. Here's my past, my portfolio, my goals. Because remember, a lot of what you're asking the AI to do for you is make decisions about the short, medium, and long-term future. So you have to define your goals, which might be defined as liabilities, might be defined as risks to be avoided. All of this makes it very difficult. I have like a framework that I've just presented to you. But with this framework, what do I tell a 22-year-old kid graduating from Stanford

or a young person from Indonesia that wants to go and study? I can tell you that people writing code are going to go the way of the airline pilot faster than the people who are building human relationships. I think in the investment industry, which is the industry I know best, we're going to have super users of technology, the people who spend the time to understand how to do the prompts, how to get the best out of our tech, our co-pilots, and we're going to have people who do human relationships. And those are the two types of roles. And so then if we want to think about education, how do we back into human relationships and super tech users?

Well, just to put this in a context of Southeast Asia. Yeah. Indonesia has more than allegedly 40 million farmers. Southeast Asia has more than 50 million farmers. There is a vested interest to increase marginal productivity, and that's probably going to be done with the help of robotics. But there's a fundamental question about what do we do with the pre-existing 50 million farmers for a purpose of re-skilling or upskilling?

Right. And this is imminent. It could be in the next five to ten years, right? These are farmers probably in the 30s, 40s, 50s or 60s. In the Philippines, there is a sector of the economy called the BPO, which does a lot of call center capabilities. That's going to be replaced with AI. That represents about 8 to 9% of the GDP. It employs about 1.5 million employees in the Philippines. So this is the great uncertainty. Correct. You know, we have to find a way. But the policies or the policy framework will help people quantify or price the risk. Exactly. Right. Yeah, you nailed it.

That's what I was going to say. Same thing. We have to find a way to get ahead of these uncertainties and find them defined as risks. challenge to do as a like question for you when was the last time you used a paper map actually not too long ago because I love papers

oh I love maps too I look at maps on my but I came across a Stanford map on a piece of paper and I thought it was really cool and I picked it up and I I do this joke with my students where I put this paper map. Was that the wrong answer? No, you did the right one. There is no wrong answer. I show them this map and I'm like, guys, this paper map, like the red on this map does not mean traffic and the green does not mean no traffic. Those are highways and, you know, freeways. And this paper map is how I grew up. And what changed was GPS. Now everybody knows where I am at all times. Google indexed the world. So now we, I actually know where the locations of everything are. And Google, at least here, also mapped

the routes between where I am and everything. And then they overlaid collective intelligence, which is the phones moving through the cars, people alerting police cameras, people alerting police speed traps, accidents, traffic. There's a point we're at now where if somebody in your car says, hey, I know a shortcut, you're like, what are you talking about? You're smarter than Google? You know, you don't, you used to be proud of your shortcuts. But now it's kind of weird to say you know one because the collective intelligence in your phone will help you avoid the traffic accident, the construction zone has all of this extra data that's enriching your pathway. And so you're saving time. What I ask people about is wherever you're working today,

What is your equivalent of the GPS? If you're a farmer, it's your crops. It is the destination, which might be this year's yield, but it might be 10 years yield from now. Do you need to rotate your crops? Do you need new seeds? Do you need? What do you need? And then the destination between your location today and your future goal is the routing. But I do think that navigation concept, which has transformed how we move through the world is coming to every industry. So asking yourself, what is my version of a GPS? What is my version of Google telling me my destination?

And then what are those datasets that we're going to be so much more powerful than my experience? Because my experience tells me the shortcut. These lights over here on this road are timed, so we should take that. But at a certain point, the tech will know that,

better than us. And what tech brings, which is the collective intelligence, is even more powerful because then you don't get stuck in an hour-long traffic jam, reroutes you. And that's what's going to come to farming, manufacturing. It's going to come to schools. But to really unlock the power of that framework, you need to understand your GPS, your goal, and your routes. I want to digress a bit. Yeah. We did this in a pre-talk. Talk about how you use chat GPT or rock or whatever for writing purposes. Yeah, so I'm still pretty old school in the sense that I do write from begin to end.

And part of my process of writing, just to give you like a lens into it, is I'll have lots of my kind of findings and notes and literature that I want to reference. And I will begin to move it like I'm moving puzzle pieces around in a outline. And then I'll get the sections into a shape. and then I'll write it. And so my process doesn't yet feel like it links quite clearly with what chat GPD offers, except this last part, where often as academics, the way that we ensure our research is of a sufficient standard to be published, it goes through something called an anonymous

peer review, peer being an academic that studies something similar, anonymous as in I don't know who is reading my paper and review. as in that anonymous person who's an expert in my domain sends me a report that says, here are the things you missed, here's what I like, here's what I dislike. This is how you publish in top journals. Now what I've taken to doing is I will go into chat GPT or any of these systems and I will say, I'd like you to adopt the perspective of an anonymous peer reviewer from a specific journal. And I want you to critique this document for suitability, for gaps, and then I will upload the document. And what comes back is one of the most

thoughtful critiques I could ever hope for. It is telling me the work I've missed, the references I've missed, it's telling me that my argument is failing in certain places, and of course, it's making tons of recommendations which you can ignore or not ignore. The thing that we often do with peer reviews that come back is you will get a peer review from an expert critiquing your paper. There might be 12 things in there that are material. You might actually spend most of your time writing back to the editor on why you're not doing something versus just doing it. And so the way that you would use chat GPT in this case is to really think hard, should I do this or not.

You know, in theory, if you're writing an academic paper, you are putting, you are denting the circumference of human knowledge. Right? Like the whole point of what we do in academia is we're pushing human knowledge out a tiny bit. It's a little bump. And so by definition, Chad GPT shouldn't know more than me about the areas where I'm pushing the boundary. But it's very useful. Last comment about teaching, I think it's fun to challenge students to do this critique that I've just described, but ask chat GPT to write it and critique chat GPT.

So ask chat GPT to write an investment policy for a typical endowment. You'll be blown away at how good it is. But then as a student, why don't you critique that for me? I think that's a way to go deeper. How do you humanize it? It just sounds too perfect. It is so perfect. I think we are the human element, right?

That's our role here. Okay. I mean, in a way, that gives me some comfort that we still have a role. You know, like if it was too human, I think it would start to feel almost scary. Look, at times it does feel scary. I can tell you, because I've been using it, it's adopted my language. chat GPT will use the word awesome with me a lot because I guess I say that word and I have to I had to ask my wife the other day I was like does chat GPT say awesome to you and you know she's like no

and that's because it's figured out it's figured me out yeah it's got my language that's scary man I know that's great but that starts to feel human and but for me it's like I still see chat GPT as the knowledge, the artificial knowledge. You don't need to go to the library. You might not even need to go read the journals. That's what chat GPT has, ready for delivery upon query, especially this new deep research tool where it provides perfect citations on everything. But what it doesn't know is how to apply this stuff to my context. Now, if I upload a paper and say, critique this, it is starting to apply it to my context. That's wild.

That's why it's so powerful for me to say, I don't need to impose on my dear friends anymore, at least not initially. A read of the paper, I'm nervous, is missing something. I loaded into chat GPT. Chat GPT says, yes, you missed this literature. You got to read it, and then you need to reference it.

All right. Let's move on to what you've been spending a lot of your time on. You're the pension fund whisper. You're the pre-existing sovereign wealth fund whisper. Just out of curiosity, why not call it sovereign development justice fund as opposed to sovereign wealth fund? Wealth just has this negative connotation, right? Especially if it's relevant to the developing economies that are, you know, aspiring to set up something similar to what some of the developed economy. he's been doing for a long time.

Sovereign Development Justice Fund. I love it. Let me tell you what. I'm just talking, man. The reason I love it as I'm having like flashbacks to 2008 when my friend Andrew Rosenov, who coined the term sovereign wealth fund, said, I think we should call these sovereign wealth funds, but would own the fact that he didn't quite define it. when he put the term out in a, it was a state street report where he said, I think we should call these

sovereign wealth funds. And we've been struggling to define it since then. What do we mean? And so there's a few important words there. There's sovereign, there's wealth, and there's fun. Let me start with sovereign first, because sometimes people say, a state's not a sovereign entity. It's a sub-national entity. And I have to remind people, the sovereign in my interpretation. Now remember, it was coined without a definition, but my interpretation of that word sovereign is it is about self-determination. It is about ensuring that I can make policy into the future in a way that is not completely vulnerable to international experience. So sovereign funds are a tool of international

cross-border stability. You are through a reserve investment corporation, which is a subcategory of SWF, managing currency fluctuations. Through stabilization funds, which is another category, you are managing commodity prices through a fiscal rule and investing the money in assets that you can draw down if the commodity price drops and fill it up if the commodity price goes up. And there are other types of sovereign wealth fund. But what I want people to think about when they hear that term is it's self-insurance because coming through the 1998 currency crisis and the 2008 financial crisis, many countries around the world said, we don't like the IMF conditionality that comes with this multilateral insurance. And so let's just self-insure. And that self-insurance can be managed by a university, like you. you're seeing right now with these big universities coming together using their endowments, selling big stakes in private equity in order to manage their sovereignty. But it can also be a state or a regional government that has a sovereign fund.

That term wealth is also another polemical term because some funds issue debt. Some funds have no wealth. In the U.S., people are the economists published an article this week. It's like, we don't get it. The U.S. has two types of deficits. Where's this wealth coming from? And part of me wants to say, you're not wrong, but you're missing the utility of this instrument, which is about catalyzing change in economies for the 20-year cycle, not the three-year cycle.

And you require capital markets to drive that change. But the capital market actors have become a... increasingly short term. The hold periods have shrunk incredibly since 1950. If you went back to 1950, the average hold of an investor would have been six to ten years. Today, it's six to ten weeks. And so you need these longer-term entities to help shepherd how this capitalist system functions, and that's where sometimes the sovereign development funds play a role. But in terms of wealth, I agree with you. It's a strange way of articulating what they're doing, that last word fund speaks to the methodology of achieving the goal.

It is about leveraging capital markets. It is about mobilizing capital, often international capital, to achieve some goal. And that goal can be paying a pension, 75 years from now, or it can be catalyzing an industry. And you see a growing, number of funds that have a mission to catalyze industries from Saudi Arabia to Indonesia to Singapore to Ireland, Sweden. You know, this is becoming a normal policy tool now. I mean, if you've got the ability to think for 75 years, there's got to be an element of development. There's got to be an element of justice. Not necessarily wealth, right? Yeah, I didn't pick up on your word justice only because I was.

worry about it. I love it. I worry how it would be picked up by, call it like, the fiduciary bound investors that would see that as an overlay that is beyond their core focus. So you'll often hear pension funds, and this is where like maybe I am a pension whisper, I hear justice and I'm like, how will pension fund react to that? I think they'll like it, but I also think some will hate it. Right. So you, it's like, it's like, like the conundrum that Black Rock is in right now. Some people love that they were climate advanced. Some people hate it. I want to create language that opens up the entire capital market, which is why I tell people I study long-term investors. I'm interested in long-term investing.

Guess what? Over a long-enough horizon, everything becomes financial risk, whether it's climate, AI, justice, human rights, everything over a 50 to 100 year horizon has a connection into the stability of economies. And so for me, that time horizon gives me freedom to think about all of the things that matter, but do so through the language of finance. What would be the most foundational differentiator amongst the pension? funds, the Black Rocks of the World, and Sovereign Endowment, I mean, sovereign wealth funds. The Black Rocks of the world are subject to, like, just being a little bit mercenary. I think they're subject to quarterly shareholder pressure. The pensions and sovereigns have the luxury of being stakeholder led, but they don't have the luxury of not performing.

They still have to perform. It's just that performance is defined on a slightly longer scale. If you're a pension fund, you might have a liability going out 100 years with a spousal benefit. It's like not crazy to think. With a sovereign fund, you might have an implicit set of liabilities, maybe not explicit, but implicit, going out centuries. What differentiates a lot of the way they invest is their governance. So I mentioned shareholder activism affecting BlackRock. That's a governance challenge.

Those are the people who ultimately appoint the board, the shareholders. The board tells Larry Fink what to do. Larry Fink does it. In the case of a public pension plan, you get onto the board in different ways. And so I often tell people there's a few layers that allow me to see into a pension fund or sovereign fund and figure out if they will be good. One is the nomination procedures for the board of directors. If you show me the nomination procedures,

I can almost certainly begin to tell you if this is a highly sophisticated organization. Not everybody needs to be ex-Goldman Sachs, but they need to have an understanding of commercial reality so that they can set compensation, they can set delegation, they can procure technology. These organizations may exist inside government,

but they function in capital markets. So they have to operate according to both sets of rules at the same time. That is super hard. The second thing I look at is the delegation frameworks. In fact, I think this is more powerful than the nomination procedures. So if you show me the register of delegated authorities and you can show me the board has delegated

these authorities to an investment committee the investment committee has delegated these authorities to a chief investment officer, I can begin to tell you if this is a very sophisticated fund. The last one I've just started asking about this year is

how hard is it for you to fire bad people in your organization? Because what you learn is it's very hard to build a culture of performance. And if people are bad actors, you want to get them out of the organization. You don't want to be mean about it. You want to, you know, but you have to have a way to get people who are not aligning with the culture out of the organization. And what I've learned, many public pensions,

sovereign funds really struggle to remove the people who should be removed. On the lifetime employment. There's a bit of that. And so show me the nomination procedures. show me the delegations and show me the pathway to fire bad actors, and I will show you the world-class investors. And those world-class investors are places like Canada Pension Plant, New Zealand superannuation fund, you know, Ontario teachers, BCI, APG, you know, these places are the ones that you go look at and say, oh, wow, the board is very sophisticated and you've got really sophisticated delegations. So within the universe of sovereign wealth funds, I mean, you've spent a lot of time with those guys in Southeast Asia, the Middle East, Europe, Texas, whatever.

How would you differentiate, you know, between the ones in Southeast Asia with the others, or even within Southeast Asia, do you see any differentiation between those in Malaysia, those in Singapore? No two institutional investors, to me, feel the same. Okay. Even Yale's endowment and Harvard's endowment, profoundly different. Their GPS is different. They're located at a different place in time in terms of their portfolio, their people, their history.

And their goals sometimes are different. Even if they say out loud, hey, we all have a return target of 7.5%. Actually, when you dig in, the cash outflows that are expected are different. And then inside these organizations, you will find different processes, different information flows. Some will have offices set up in London. Some won't. Some will pay huge sums of money to build internal technology. Some won't.

Some choose to invest directly. Some choose to invest through funds. Some rely on consultants to pick those funds. These organizations, I mean, this is maybe it's like too late to say this, but this is my life's project to remind people, you've had a hundred $140 trillion. Who's studying these funds? Where do you go to learn? You are.

I know, but it's a tragedy. Like, I shouldn't be the only one. And I'm not the only one. I'm not the only one. There are others, but I will tell you, there are no schools of investing. Yeah. We have 10,000 business schools in the world today.

There's no class being taught. We have one class. I'm teaching it. We have 22 students this term, right? No, it's because I had to teach it. on a Friday afternoon and students hate to take classes on a Friday afternoon. Last year we had 50 students because it was a Thursday. How do you create the pipeline? Yeah. Well, first off, so here's my, like, this is something that I'm serious about now. Like, I do think we need the first

professional school of investing. These are not businesses. They sit inside government. They're also not quite government because we try to establish them as independent. We give them double arms length governance structures and we say, go negotiate with hedge funds. So that doesn't quite feel like a government. They're not multilateral organizations. They're not for profits. They're profit for stakeholder. They defy label. Like quite literally, I don't think we have a good name. We were talking about sovereign wealth funds. Like, I don't actually know what we call this community. and I have written seven books and 140 papers on them. Do we call them institutional investors,

limited partners, universal owners, on and on and on. But they are part of the 100 trillion club. They're there. If you want to solve the biggest problems on earth, you need to unravel how they make decisions and you need to work within their rules. And so I want, you know,

my life project is to get the first school of investing where we teach people about the formation of these pools of capital. Is that why capital is not being democratized as well as it needs to be? That there's no discipline that actually teaches people that would have to go into this pipe.

Well, I think that is a reasonable hypothesis that warrants testing, which is to say, part of the reason I teach this class to undergrads, and we've built this fellowship that tries to place young, brilliant students at CalPERS for a year. We're modeling it on this thing called Teach for America. And so this year we're going to place six. Last year we placed four. We're adding a second pension this year.

Stay tuned. But the idea is we're creating a pipeline of talent from places like Harvard, Princeton, Stanford, Yale, etc. anywhere, by the way, not just those fun names, and placing them at public pensions. To reveal the pathway to becoming investor doesn't need to take you to Goldman Sachs first. We're teaching the class, but I do notice, after being at Stanford for 15 years, that many students come back and say, my gosh, like, now I'm building a fund, now I'm working at a private equity fund, and everybody's telling me I need to go in fundraise. I don't even know who these funds are.

What is the Abu Dhabi Investment Authority? What is the difference between Abu Dhabi Investment Authority and Mubadla? Two sovereign funds sitting down the street from each other in Abu Dhabi. How do I think about their differing goals? What's the difference between Cal Sturs in Sacramento and mile and a half down the road, CalPERS in Sacramento? Very different. And yet two public pension plans sitting in a town. in Sacramento, California.

Unraveling how they allocate capital will be critical to solving the world's problems. They have all the money. And so, yeah, I'm like completely flummoxed at why we don't have schools. But I think part of it is that this is all fairly new. Yeah. You know, like when I first typed the word

sovereign wealth fund into Google, there were no answers. That was 2006. So the funds existed. We just hadn't named them yet. You ought to start typing sovereign justice fund. Sovereign justice fund. Yes.

Exactly. What are some of the pros and cons with respect to managing money that comes from the foreign exchange reserve versus managing money that comes from the fiscal? space. If it's excess reserve, then it's a similar logic in the sense that you're trying to keep the cost down of holding your currency at a certain value. It's costly to do that sterilization work domestically. And the idea is you accumulate these foreign currency reserves, and if somebody takes a run at your currency, you use those reserves in order to protect the value of your currency and protect your industry.

The excess reserves are then invested overseas instead of domestic, and those overseas investments are usually very much like a pension. They're commercial. They have a return target. The classic ones are CIC in China, KIC in Korea, GIC in Singapore. these are the foreign currency reserve funds that are most well known. They don't invest domestically because it's about international trade and maintaining a certain currency price. So in that sense, they feel more like stabilization funds, where a stabilization fund, you'll generally hold the wealth offshore rather than invest domestically because, again, you're trying to protect domestic industry from what we call Dutch disease, which is the erosion of profit.

profitability due to currency appreciation. So stabilization funds, reserve investment corporations will generally have a shorter horizon on their investments. But if the excess reserves become very excessive, then they just start to invest in infrastructure, private equity, venture capital, they do it all. Let's talk about Danantara. Let's do it. I'm excited. You spend time in Indonesia, right? What's the way forward? Broadly speaking first, then we'll peel the on in a little bit more. I'm excited. So it's very rare in my space where you get an asset owner startup, right? Like pension funds and sovereign funds live for hundreds of years, but it's not every day

they're born. And I've had the pleasure of working a few times on asset owners that are born. And having the blank sheet of paper upon which to design is really, it's an honor. Like when you're doing that work, you're starting to think about. this fund could be here for a thousand years. Why not? For successful. Yeah. You know, my friend Jagdip Bashir, you see, he's like, this fund has been here for 80 years. It's going to be here for another 80 years. And when it comes to sovereign funds, you can really start to think about that intergenerational capacity. So I think that's exciting. And it's an opportunity to not just help

Indonesia, but to help the world by creating a role model. So, because, these funds are so rarely created when they are, we as a community of scholars need to pay attention and help Donantara leapfrog some of the things we see as suboptimal that's happening in other geographies. It's also an incredible moment with technology. We talked about some of it. So I'm very excited about Donantara as a project to help the world advance our understanding of developmental investing. Dual objective, we have a development mandate, but also drive high performance. Say what you will about TAMOSEC, and that's one of the potential rivals in the region of the world you're from.

It has generated incredibly high return, and it has become a role model that has guided others. When I get a chance to work on a new fund like Donantara, I see a chance to build a new role model. So what does that role model need? It needs good governance. It needs to really connect into the challenges of Indonesia. And then it needs to unravel the comparative advantages that it has and go after them with an investment strategy. What would be your message to the leadership of the institution for purposes of recruiting? talent. I actually think you're going to do super well on recruiting because these entities end up

tapping into patriotism. You know, like the Singaporean sovereign funds recruit the best and the brightest. You know, if you go and you look at the Irish... From all over the world. Yeah. From all over the world. These are really interesting projects. And I do think that you are going to find, in the case of Donantara, Indonesians wanting to come home and work. People will go to some on campus. Yeah, I can think of one. It might be a student in my class this year.

I can think about when the New Zealand Superannuation Fund was established. It was almost as if it was their HR policy to go to Hong Kong, London, New York. and just go talk to all the Kiwis that had young children and say, hey, you should come back to Auckland with your young family, you know, come build this sovereign fund. And they were remarkably successful at bringing back the diaspora, talented diaspora. And that gives you that shot in the arm of talent. But then you start building your own talent. And now, you know, New Zealand sewer annuation fund is like the epitome of sophistication. in the sovereign fund space didn't have to be like that.

It's not like I thought of Auckland as the epicenter of talent for sovereign fund investing, but we do now. And so that's what I mean by this blank sheet of paper. 20 years from now, somebody's going to look at Don and Tar and say, they're the world's best at X. What is X? And that's what we,

and I do include myself in this. Like, we could think about that, Gita. What could this fund be the best at? And is it an entree for the world into a part of the global economy that they haven't had? No. If Indonesia is going to become the fifth biggest economy, as we talked about earlier, maybe Don and Tara converts a lot of those uncertainties into risks.

Maybe that's what it becomes the world's best act. Should that be the GPS? It should be. Right? I mean, that's the way we see. think about development funds at the outset. That's got to be delivered. It serves as the GPS.

It helps you understand if your destination is feasible. So here's the GPS, but also having that local knowledge to tell you, is this the destination we should be pursuing? And what are the routes to get there? And that is why the rule to say, 49% of the... the capital can come from Don and Tara, and 51% has to come from, name your sophisticated pension, that is a recipe to really do something special. Because what you're saying in Donantara is like, you need to go talk to these companies and make them know that you can't

invest unless they get their act together. And so that starts to serve as the corporatization, the reconciliation of, if there's dysfunction in the 900 billion portfolio, somebody's going to need to communicate to that portfolio what the expectations are of the global economy. What do you think is going to stop the calipers of the world, the Mubadalas of the world, from wanting to collaborate with Donantara? They need to feel that Donantara's incentive structures align with their goals. So what does that mean? That's a very powerful message. You as an external partner coming into Indonesia, walking into Don Antara's office, need to feel.

And by the way, Pandu was great when I talked to him. He's like, we are here to make money. We see our interests aligned with the international finance community because we want to invest and build and grow. And that translates into performance. So when you meet somebody at Donantara, it's not that you need to pay them carry. But I do want to ring the carry bell one time. Carry is a form of profit share. I'm not saying a public pension or sovereign fund needs to do carry, but I want to ring

the bell carry because it is a powerful concept to say, Don and Tara gets to invest in these entities, and we are going to compensate this team for performance, commercial performance. Yes, you might have a bonus that is linked to development. development outcomes, or what you might actually say is you only get to invest in these industries where there will inherently be development outcomes. The rest of it is performance-based. And then when the foreign investor shows up in Jakarta or Palombong or wherever, they're looking at the project and they know the team in Donantara is motivated to find the best deals for them. And then the capital starts flowing because they know they're finding. To what extent?

Do you think Donantara ought to be open-minded with recruiting people from beyond Indonesia? How do you see that as a premium as opposed to the discount for this thing to really be able to move to the next level? Yeah, there's always a tension between the next generation of domestic talent and that Big Bang moment where you say, we want this fund. and in the case of New Zealand, they brought Kiwis back from overseas. In the cases of certain Middle Eastern sovereign funds, they recruited international talent and they compensated them very well. And now, if you walk into some of those sovereign funds in the Middle East, it's largely domestic talent running these places. There's been success transfer. Yeah, especially in Abu Dhabi.

Those funds are very good. not to call any others down. I just have done work with those ones. So I just know how good they are. So. I'm just thinking there's got to be open-minded. I think so. I think so.

It's a globally common. If you want to start off in a good way, you've got to recruit the best talents, irrespective of nationalities. I think there is a program that you could start by saying it's time-bound, where you say so here's some of the things I've seen. You form a partnership with a major bank and they second talent.

You form a partnership with a peer and you second talent both ways. You build programs to recruit your diaspora back. So there's your three policies we just mentioned, which is all about talent. Fourth one, you send talent to places like Stanford to get trained from your domestic economy

and then sent back to Donantara. You build consultants into the original logic of the fund, not for permanence, but for building the culture, the governance, the process, and you start to replace those consultants over time. These are all strategies for getting the knowledge into the organization. I think if you get the compensation right, You will be surprised at how many people apply to be a part of this project, whether they're Indonesian or not.

You know, like I'm sitting here in California. I'm a Canadian. I'm, you know, I'm excited to go back to Jakarta. I've been there. Maybe you're a tour guy. I'm excited. I know that plays a little bit better than you do. I know you do.

I know you do. It is a startup in a space that has so few startups. Yeah. what a cool thing. What should be the quick wins or the low-hanging fruits that Donantara needs to think about attaining so that it gets that necessary confidence boosts, right? Well, focusing on the long stuff. So we wrote a book in 2017 called Reframing Finance, which was about a collaborative model of institutional investment. It's all about getting peers, really sophisticated peers, bought into your strategy.

It builds the legitimacy and the momentum behind your project. So if Don and Tara can sign deals with Australian Super, Ontario Teachers, Canada Pension Plan, APG, notice I'm not jumping to the other development funds because... No, I'm with you. The other development funds may have a development agenda. that we're not fully seeing. That's okay that they have that. But finding these long-term investors

that are really strict about their fiduciary duty and their generation of risk-adjustice return, getting them bought into the project, seeing the pathway to performance, that's enough to build momentum. Obviously then we need to start deploying capital with great process, great governance, no big mistakes to begin.

One big mistake can unravel everything in the early days. So, you know, as much as we talk about FOMO here in California, fear of missing out, in these initial days, there should be some FOMU, fear of messing up. But not forever, because the power of these development funds is the following. You can't buy development off the shelf from a Wall Street firm. You have to invent it. And so part of what, if I was going to contribute anything into this project, I would want to help your team in Indonesia understand the pathways to failure. Failure is a part of innovation.

It's a pathway to success. Bake it into the organization. Create safe spaces to fail. Build incentive structures that encourage failing in safe spaces, not failing, pure. failing in places where we expect some failure, which is another way of saying, experiment, create,

try. You are going to succeed in these domestic places without capital markets by building those capital markets. As a founder of multiple startups, I can tell you, you're going to fail a bunch. It's not easy to do in a government fund, by the way.

People forget that, you know, people fail more than succeed. I failed three years. times today already. You know, like failure. This is no, going back to the beginning of our chat, this is where rowing is really powerful. It's like just keep putting in the work. Absolutely.

You're not going to have your PR every day. Yeah. Your personal record. You're going to go out there and you're going to try. Grimes. Sometimes it's going to feel horrific. Getting out of bed at 545, you just keep doing the work and you expect that work translates into success.

Now, it's got to be the right work and the right process and the right framework. But I do think failure should just be baked into that process. You know, in a developing or a typical developing economy, the political content is pretty thick. How do you start about that? Do you mean things get politicized very easily, right? How do you, in the context of fiduciary responsibility or accountability, what would be your advice to the leadership to avoid getting politicized? or for that fiduciary responsibility to get politicized. Yeah, it used to be that, at least here, that are, whether you were a Democratic or a Republican administration, you had continuity of certain beliefs.

International trade, certain alliances. Part of the challenge right now is those beliefs feel like they're up for debate again. and that's pretty scary. It creates a lot of uncertainty. So the politics in my mind creates uncertainty and language matters. So talking about long-term economic plans, no matter which side of the aisle you're on, is beneficial, finding things that are agreeable, creating politics. policy certainty. I think all of this helps the international investment community come to grips

with whether or not they should engage. I think maybe it's useful to remind people that these investors, their scarcest resources time, it is not capital. They're scarcest resources time. They often exist inside governments where they do not have all of the people that they would love to hire, and those people aren't always paid fairly at pension funds or sovereign funds or endowments. They're paid less than they would get paid if they were working for a for-profit fund. And so when you come to them with an innovative project, oftentimes you simply hear, I don't have time for this. So if you're going to ask people to make time, it needs to be quite compelling and it needs to have a story that feels certain. I know that's like hand wavy,

but I do think those foundational principles will help the, you know, when I think of this stuff, I always think, how does a Canadian pension fund get interested in Indonesia, real estate, infrastructure, overtime, private equity, data centers? And it is that certainty. To the extent that the leadership performs. Yeah. How do you make sure that he or she is insulated from political cyclicalities? And that's, that's kind of like a given risk, you know, with, you know, developing economies. It is.

But in other circumstances, you see a guy or a girl at the top of that position of leadership staying on for decades. because he or she would have done really well, despite whatever political climate might have taken place. Or perhaps there is a much more stable political climate. I wonder if... Because I want this to succeed, right? Yeah. But I do wonder if the development fund is a pathway to achieve that stability.

So let's take a second and think about an independent investment agency that has oversight. Right. but feels independent in the way that a central bank does. So the, you know, President Trump, in theory, could fire the Fed governor, but the markets would collapse if he did because it would be non-standard. And so you endow in this sovereign development fund a level of independence and you marry on top of that an incentive structure that communicates commercial performance and you give it sufficient sense. scale that everybody on both sides of the aisle wants it to succeed. Then all of a sudden, whether you're left, right, centrist, you have this agency that is almost autonomous, but it wouldn't be autonomous because you have boards and ideally the boards of directors would be at least

approved, if not appointed by certain officials. Those boards of directors would be expert and sophisticated, much like the Board of Advisors, you so deptly help put together. And the mandate is then well defined. I think that type of an entity really could build that continuity because it becomes like a fixed variable in the economy. But instead of whether, you know, wondering, is this going to go away? It's like your policy is around that entity. And entity is linked to commercial success and partnering with international investors. I admit I am riffing here with you because some of this stuff, this is the fun part, is like some of this hasn't been tried yet, you know, but the ability to build an arm's length entity, like, that's, by the way,

not what the PIF is in Saudi, where you have MBS as chair, right? And so if you're If the fear is, how do you depoliticize and remove this from politics, I can point you towards governance models in Canada, in New Zealand, in Australia that have done that. It's a double-arms-length governance model, which refers to the way in which you appoint people to the board of directors. And then you endow that board of directors to build the plan for the fund and its budget out of the asset pool. So you don't have to come back

to the legislature and say, I want to hire this many people. No, you just tell the board, get on with it. You've got these assets. We're going to hold you accountable as an organization to achieving your goals. And, you know, go do it.

Ashby, we're almost two hours into the game. It's gone so fast. I'm going to have. to probably the last question. I mean, I've got a few more, but you've got to go to a dentist. It's true. Southeast Asia looks at China as an indispensable inevitability. The way Southeast Asia looks at the U.S.

You know, they're both indispensable inevitabilities, right? But the common person in Southeast Asia looks at China as a technological capital alligator because it's just so cheap. That's right. We're so much cheaper. It's not because of the absence of technological capability in the U.S. And the way we look at the U.S. would be more for, I think, going forward economic capital allocation.

So if that thinking were right, right, what would be the advocacy for Donantara? How do you think it should go forward in the context of thinking that China is going to be the technological capital allocator, the U.S. is going to be the economic capital allocator. How do we optimize upon this narrative that's rich with development, wealth creation, justice, you know, economic, whatever, prosperity, and sustainability? A broad question, but I thought I should try. No, I love it. I guess part of me wants to,

understand from you where you think Indonesia has its comparative advantage and how that advantage can be translated into an investment strategy for Donantara. So let's imagine Don and Tarah establishes a San Francisco office and the purpose of that is to build relationships with venture capital and Stanford and also to tap into the, pools of capital here. They should also set up an office in Shenzhen. Yeah. And so I do think there is some reason we are telling the investors in Sacramento or Olympian

Washington why they should be partnering with Don and Tarra in Indonesia. Is it Net Zero electricity grid? Is it, you know, Timberland? I'm not sure, but this is part of that project right now. What I think of is the investor identity? What are the advantages we can put together to form a 20-year strategy where 20 years from now people will say, oh, you know who you need to talk to about doing Southeast Asian private equity? You have to talk to Donatorra.

They're the world's best. They have the best relationships on the ground. The way that people talk about Tamasek, you know, if you're on a different planet, man. When you're, even when you're investing in India, people will say you should talk to Tamasec. Yeah. And it's amazing. You know, you make reference to Tamaise for due diligence purposes. If they've done the due diligence.

Yeah. It's a halo effect. You probably don't need to do the due diligence because they've checked off all the boxes. I mean, that's the kind of conversation we're hearing. Yeah, it is. It is, it's like a Warren Buffett. Like when Buffett invests in something, there's like a premium that comes with it. Somebody was telling me that they want to do a research project on the halo effect for

Tamasek. And so what is that about Tamasek? It's process, it's good governance, it's aligned incentives. Those people are paid very well that work there. They're not angelical, but they've done some great things. Agreed. We all have problems. Even though. There's many, you know, it's like I've had the luxury of going inside the best Canadians and the best Europeans. And the people in those funds have lots to complain about. But I have to remind them. that compared to other funds, like they're operating on a different level. So just to recap, let's do it.

It's important for Donantara to take the long view, right? It is. With respect to the geopolitics, how China is going to be looking at Southeast Asia or how Southeast Asia is going to be looking at China and how Southeast Asia is going to be looking at the U.S. As two indispensable inevitabilities. I mean, my personal bias is back towards open markets and free trade. So that's my personal.

So now I'm injecting my own politics. I think worlds function, I think we prevent world wars when we all need each other to function. And free trade is a great way to link all of our economies to a collective project. and, you know, I don't mind trade deficits. I think it's about specialization. And I think we need domestic policy to help the losers and maybe tax the winners, but by and large, free trade lifts, a lot of boats, even if it doesn't lift all boats. I worry when we start putting tariffs up that that's just the beginning of a downward

cycle. And so, of course, you take the long view towards justice, if you will. The law, what was it? Martin Luther King? The arc of time bends towards justice or something. But I do think that we take this view of justice that 50 years from now, when we design the rules of this system correctly, and maybe to give credit to the current administration, they're trying to reset the rules in a way, that is more equitable according to their logic. We get the rules right, but we get that flow of capital moving again and really build that collective project. You have to take a 20-year view.

And I do think if we get the governance right of Donantara, you're talking about a thousand-year organization. Amen. Yeah. Why not? Well, we'll be around for 2,000 years. There you go. So another 2,000 at least.

Aspre, thank you so much for your time. Thank you so much for having me. It's been amazing. It's been amazing. Friends, that was Ashby Monk from Stanford University. Thank you.