The Daily Signal - Strive Offers Investors Alternative to ESG-Driven Companies

Episode Date: January 29, 2024

In the investment and financial services industry, companies like BlackRock, State Street, and Vanguard are dominate players. But they’re also increasingly beholden to stakeholder activism. That’s resulted in a greater focus on leftist ideas like DEI—diversity, equity, and inclusion—and ESG—environmental, social, and corporate governance. Strive takes a different approach. It’s focused on maximizing value for investors—and it’s having great success. Today, Strive has over $1 billion in assets—just two years after its founding. On today's episode of "The Daily Signal Podcast," Strive's CEO and chief investment officer explains the company's mission and why it's thriving. Listen to the interview with Matt Cole or read a lightly edited transcript at DailySignal.com. Learn more and sign up for The Fiduciary Focus at Strive.com. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Daily Signal podcast for Monday, January 29th. I'm Virginia Allen. On today's show, the Daily Signal's executive editor, Rob Bluey, is sitting down with Matt Cole, who serves as CEO and chief investment officer at Strive. In the investment and financial services industry, companies like BlackRock, State Street, and Vanguard, are dominant players, but they're also increasingly beholden to stakeholder activists. That results. results in a greater focus on leftist ideologies like DEI, diversity, equity, and inclusion, and ESG, environmental, social, and corporate governance. Strive takes a different approach. It's focused on maximizing value for investors, and it's having greater success. Today, Strive has over

$1 billion in assets, just two years after its founding. Learn how Strive is shaking up the investment market and making its products available to consumers just like you. Rob's interview with Matt Cole is up next, so stay tuned. Hi, I'm John Carlo Canaparo. And I'm Zach Smith. And we host Scotus 101. It's a podcast where you'll get a breakdown of top cases in the highest court in the land. Hear from some of the greatest legal minds.

And, of course, get a healthy dose of Supreme Court trivia. Want to listen? Find us wherever you get your podcasts or just head to heritage.org slash podcast. Strive is a company with a mission that might seem like common sense to most daily signal listeners, but increasingly it's at odds with the rest of the financial services industry. It seeks to maximize shareholder value first and foremost. And we're joined today on the Daily Signal podcast by Matt Cole. He's the chief executive officer and chief investment officer at Strive.

He oversees Strive's investment philosophy, its strategic positions, and its product lineup. Matt, thanks so much for being with us today. Honored to be here. Thanks for having me, Rob. Well, our audience might be somewhat familiar with Strive, given that Vivek Ramoswamy is one of your co-founders. You've been at the helm for nearly a year now. Why is what you're doing so unconventional in today's world? Well, you're right when you open this up that the concept of Strive shouldn't even have to exist. The idea that for a for-profit company, the shareholder, comes first, should not be a control.

Contrarian statement. Go back 20 years, that would be the consensus statement. But today, that's a contrarian statement. And so part of my background, I came from the largest pension fund in the United States, CalPERS. You're probably familiar with them. And I was there for almost 16 years. And one of the things that I learned there was how political the asset management industry is. And so I joined there. My parents were law enforcement officers. And I went to school and why I was going to school. school, the funded ratio of CalPERS plummeted, from having enough money to pay benefits for their retirees to being under 80% funded. So I made it my professional mission to help solve this crisis. And it just kept getting worse over the last 20 years. And so I was actually working on the same idea as strive. I got connected with Avake and we teamed up. So I was part of the day one team initially heading up just the investment side of things. And when he decided to run for president, he put me in as CEO of the company. And I think what we've learned, and we believe this to be true when we started the company, but I think it's undoubtedly true now, is that the majority of

Americans that are saving for retirement, they want one thing. Value maximization, help me retire. And across all of America, 401Ks, pension funds, there's one thing that's consistent. And it's that people don't have enough money to retire. So we're trying to fix that. It's a contrarian position today. I'm hopeful in the near future it will no longer be a contrarian, but back to consensus. Well, let's hope so. I want to go to your experience at CalPERS.

You are quite humble because in your performance there, you were top of your game, and you certainly did all that you can could in that position to maximize the value for those people, like your parents that you spoke of. First of all, you made it sound like it was very mission driven for you because you had your own family who you were trying to take care of. What were some of the challenges, though, you experienced? And still, despite the fact that you were exceeding the market in many cases, I've heard you talk in the past about some of the impediments that you felt in that position. Yeah. So just quickly on my background, I was there.

So I was doing portfolio management for 11 of the 16 years, active portfolio management. I outperformed my benchmark every single year, was their top performing portfolio manager, was managing $70 billion of the roughly $500 billion pension fund. And over the last five years of my career there, there became increasing pressures for me to evaluate every single investment opportunity to invest in an ESG bond because I was in the fixed income area of CalPERS. And what became very clear after looking at... at hundreds of them was that there was never a single ESG bond that was attractive to buy over

the non-ESG bond from a risk return basis. And so every single time I would write out analysis, this doesn't make sense for X reason or Y reason. Typically it would be that it would just be at a higher price for the same amount of risk that we could get elsewhere and same amount of return potential. So I say, this doesn't make sense. And the response is always the same. Oh, okay, don't buy it, there's no ESG mandate, but just make sure you look for the next one. And it became an increasingly distraction. And you just take a step back and you're like, we're underfunded. Making money over a benchmark is actually not easy.

Most managers don't do it. They underperform. And you're going to put these constraints and these additional pressures to take my focus away. This is going to harm the fund. I didn't buy an ESG bond. I mean my colleagues did, and they would start getting. promotions for buying certain bonds. And it just, it stunk. And I became increasingly convinced that I could not solve the problem there. And so just as an example, I made a billion dollars of alpha

over what I was asked to do in my 11 years of portfolio management. Great. I was outperforming BlackRock. I was outperforming PIMCO. But CalPERS was $200 billion underfunded. I was picking up pennies in front of a steamroller. So I said, enough with that. I'm going to strive. Well, great. And we're glad you're doing it. Take us back and tell us a little bit about the history and how the financial services industry got to the point where it is. I saw a fascinating chart on your website, Straves website, which showed the difference between kind of this European style stakeholder investing versus the approach that traditionally we have embraced in the United States. Yeah.

It bundles down to this. Do you put the shareholder first or the shareholder last? or the shareholder equivalent to all other stakeholders. And what our belief is, and this is actually Delaware law, so most corporations in America have had to follow this for the last 100 plus years after Dodge v. Ford is that corporations must prioritize the shareholder over all other stakeholders. And so how this evolved was in 2019,

there was this initiative by the Business Roundtable that was saying, that the shareholder primacy idea is outdated today. So shareholder primacy is the idea that the shareholder is the most important stakeholder. And there was this claim that it's outdated. And 181 CEOs of large publicly traded companies in America signed this statement in agreement with that core concept to change American capitalism towards the European model stakeholder capitalism. And I think to me, one of the easy.

easy ways to think about this is actually a biblical principle that you can only serve one master. And so who is your master? And if you try to serve multiple masters, you're going to fail. And so that's what's happening in corporate America when you deprioritize the stakeholder, the shareholder and for other stakeholders. And what I've used is actually pretty simple when you think about stakeholder priorities. The shareholders first, the customer second, the employees are third, they all matter. You have to treat them all well to have a successful company, but you need a clear mind in

prioritization of the different stakeholders to actually drive success for a company. That makes a lot of sense. Thanks for that explanation. In your business line, obviously, you've mentioned a couple of major companies that have embraced this pro-ESG, pro-D-EI type of perspective. Who do you consider Strive's biggest competitors today? So as far as people that stand for shareholder primacy, period, I don't think there's actually true competitors to strive. There's surely other asset managers, there's wealth managers that would agree with some of the things that we're talking about.

But Strives products right now are competing against Black Rock, State Street, Vanguard, index offerings that are the core equity beta, the core fixed income beta for most people. retirement accounts, investment accounts, passively managed products. And I think what is the differentiator for striving and why we have no competitors is that our differentiators actually are mandate to corporate America, how we vote, how we engage. And that mandate is for these corporations

to prioritize the shareholder over everything else. And it's really, it's a very capital-intensive industry. strives benefited from a lot of investors that believe and are excited about our mission, invest in strive and have given us the capital to launch 11 ETFs. That is very difficult to compete with. And I think it's why we don't see competitors. I think it's unlikely that we will see competitors. But we're going after the big dogs. And I think it really becomes simple. Are you willing to sell your vote? Sell your vote. Sell your potential returns for a couple pennies. Or do you want an asset manager that's going to push your value into corporate America. And I think it's

pretty simple. People's investment accounts, their retirement accounts, they should be working for them, not against them. And I think it's actually the opposite today. And I don't think it has to be that way for that much longer because one of the things that we've noticed in a lot of our conversations with corporate America is that most corporations actually agree with us and have been pushed, pushed by these large asset managers, pushed by climate activist. And it gets to, you may have seen recently Exxon is actually suing some climate activists to stop them from even bringing a proposal to their board because this proposal has nothing to do with shareholder value. It's actually aimed at capping the knees off of Exxon. And this doesn't make any sense. So it should not be a

proposal that's even voted. And I think why they have to sue versus just let it go through. is two reasons. One, they'd have to spend millions of dollars to block it, which instantly hurts shareholder value. And two, I think there is a little bit of worry that historically, sometimes these large asset managers, CalPERS, Black Rock, State Street, Vanguard, vote for these climate proposals, even if they harm shareholder value. And I think it gets back to the fundamental truth that BlackRock State Street Vanguard and

even strive, we are not the shareholder. The shareholder is the people that buy our, ETFs. And so I think that's what Exxon's really fighting against here. Thanks for sharing that example. I do want to get into more detail on some of the product offerings and your customers in just a moment. But first, on this notion of ESG and DEI and the fact that so many have embraced it, have you seen any desire to move away from that, especially given the success that you've had and some of the fairly vocal criticism that we're hearing among everyday Americans who say, enough is enough, this is not the direction that I want

our country to go. We've seen some. We've seen a couple companies that have made some changes, some that are starting to roll back part of ESG executive compensation. We've seen Exxon that proactively added two board members to their board without a shareholder vote to counteract when engine number one, which is a climate activist in 2021, got three people added to the Exxon board with no oil and gas experience

they were environmentalist Exxon opposed it CalPERS Black Rock State Street Vanguard pushed them on Exxon took a proactive step to counter their power by just adding more people to their board which I think is a great thing. It's something that we actually had

advocated for we sent Exxon a letter a couple months prior to them doing that requesting that exact thing so I think Exxon has been a leader in pushing back. Now, it's kind of the battlegrounds where the climate activists are forcing environmentalists onto the board. Exxon's pushing back, adding different ones, but you are seeing this fight at different companies. But what's actually really worrying to me is the trend of just

don't say ESG, don't say DEI, but keep doing the same things, the same value destructive things. And I think that's where this is actually heading. So as an example, in their recent 10-Q filing, BlackRock said ESG one time, and the one time was actually in their disclosures. They were talking about that their stances on ESG create a risk to their business. So they're kind of leading the front there of don't say ESG. One other just interesting example was last year at Davos, the CEO of Coca-Cola, he said to a group of a bunch of CEOs that ESG has become a tainted political word.

I'm just going to stop using it. I'm not changing what I'm doing. And so I think that's really where we are. And so my biggest worry of why strive or why this movement to restore shareholder first, to restore meritocracy, how it could fail is passivity amongst people that want to see it succeed because they think just because the word goes away, the issue solved. And unfortunately, I don't think that's the reality. Well, we know those activists on the other side are certainly not going to rest easily.

and we'll continue to look for creative ways to insert their agenda, whether it's ESG or DEI, into companies, higher education institutions, government, you name the institution in our country. Let me ask you this. You've mentioned during the course of the interview some of the product offerings. If we have listeners or viewers right now who feel inspired by your words and agree with your mission, what are some of the ways that they could get involved or take advantage of what Strive is offering.

Yeah. So we've designed our product offering very carefully to fit the needs of, I'll call it right now, 80% of the investment needs of the average person. So we have a 500 fund, a small cap fund, a value fund, a growth fund, a dividend growth fund, a core bond fund, a short maturity, short duration bond fund. We have an energy fund. We have a semiconductor fund. And so the idea being is that we're not necessarily,

We are very bullish on energy. We're bullish on semiconductors, but for the most part, how we're constructing these offerings is that it's not really about whether we're bullish or bearish. It's what are the core offerings that people need in their retirement accounts, their investment accounts, and making sure that people can have a fiduciary that's going to push shareholder first for whatever that need is. So that's how we're building out that product set. So that's just the ETS we have.

We also have a 401K offering that we just launched. And one of the reasons for that is the 401k industry is a really interesting industry where it's completely captured. You go to an employer and you get put into a 401k plan and there's a limited option set of what you can invest in. So in that instance, you're actually stuck. You have to give your vote to BlackRock or Fidelity or whoever it is and let them push ESG and stakeholder capitalism with your retirement account, literally making it, harder in many ways for you to retire by lowering the returns, raising the cost by constraining these businesses in different ways. So we're trying to make people's retirement accounts work for them, and we're going to continue to roll out products that make that the truth.

That's great. I love it. I would imagine that financial advisors, I know from my own personal situation, are a key element to this. So what's your outreach look like to them and making sure that they are advising their clients on what you have to offer? It's really about education. And so when you talk to a lot of advisors and even beneath that, the people that are trying to retire, save for retirement, most people don't realize the importance of corporate governance, the importance of the vote. I think if you were to rewind to when Strive was launched in 2022, probably over 90% of

people had never even heard the term ESG. and now I think with your group and Twitter, ESG has become a hot-button word. Most people have heard of it today. Most people have a very strong opinion of it for it against it. I think most people are against it. But that was not the case then. And so it's really education and informing advisors that it's not just risk, return, and fee that you need to look at when picking an asset manager. You actually have to look at what is their approach to corporate governance.

Are they active in it? How are they voting? How are they engaging? How do they view the shareholder? Because as you mentioned on our website, we have something about shareholder capitalism versus stakeholder capitalism, which is really American capitalism versus European capitalism. And it's one of the most interesting studies that I've seen. And part of the reason why I think it's so interesting is that typically when you see Wall Street research, they'll look at returns over five years or 10 years. Here we have a 40-year sample. of different forms of economic models, different forms of capitalism, and how do they return differently? And the difference was just about 4% a year, just under 4% a year in the high threes. And so when you compound that, and that's when you get to finance 101, compound 3.something percent over 40 years, it's the difference between being able to retire securely or not being able to retire securely. And that's what we show on our website is it's literally for most people a different of millions of dollars in their retirement account at the time they retire. And frankly, we can't afford to throw that money away for some values. And then I think when you get into the

values, you quickly realize that they're 100% left-leaning values. So it's not even a equal distribution of values. So if you're a Democrat, you'll like the values. If you're Republican, you won't like it. Our view is that corporate Americans shouldn't be switching that and moving towards Republican values, they should be moving forward and focusing on shareholder value, and that's what we're pushing. That's absolutely right. And it's so important. I think conservatives often talk about the importance of personal responsibility, taking

care of yourself, so you're not going to be dependent on the government one day. And so, you know, not to give investment advice to our listeners, but, you know, what you talked about compound the power of compounding over time, so important for our young listeners to start investing and to have an option like this that certainly aligns with their values and maximizing shareholder value. You know, one thing we didn't cover is the fact that you made some big news last year. You have now over $1 billion in assets. So, you know, as we wrap up the interview here, can you share about what that meant

to you in terms of being a player in the market and the secret to your success? Yeah. Anytime you start a new business, the first question is not profitability. It's actually, do you have product market fit? And so you take a contrarian position for Strive, going against ESG, going against DEI, not against considering environmental risk, social risks or governance risks, but against these politicized factors and investment decisions. And is anyone going to care?

What a billion dollars in a year showed is that people care and they care in a massive way. Because for those that aren't familiar with this industry, you might say, oh, you have a billion dollars, BlackRock has $10 trillion, you're tiny, that is true. But when you look at success, what does success look like in asset management? A billion dollars in a year is unheard of success. When we were actually starting to strive, we had three different competitors that we thought had found success in different ways in this industry. We're going at the pace of all three of them combined. And so that's just a, we were thinking, is it, here's the three companies for you, JP Morgan, Pacer, and Aric.

And they're like, should we compare ourselves versus J.P. Morgan, Pacer, and Arrick, and it's actually all three of them combined. And so I think when you look forward, what that means is that Strive is on place to be a major asset manager in the future. And that this is not going away. So for corporate America, they're going to have to take seriously that Strive is going to be a long-term holder on their cap table, representing the interest of everyday citizens that want the shareholder to be put first. That's great. And Matt, I know that not only are you focused on investing, but you're also, there's a component that at least I've observed that Strive is really out there to educate Americans

about the current situation we're in. So if you could, share with our listeners about things like the fiduciary focus, how people can follow you personally on X and learn more about Strive. Yeah, so we've launched a weekly newsletter. You can sign up for it on strive.com. It's called the fiduciary focus. And part of the movement that we're trying to create since day one here is education. So when Vivek was part of the firm, it was literally every week op-eds in the Wall Street Journal. Now we're still doing that on a less frequent basis, but we're on a weekly basis publishing a newsletter that talks about these issues, that talks about all these issues with ESG, with DEA.

and I how they're actually hurting shareholder value, what you need to know. And it's really fascinating because every single week, we have to figure out what to put in because there's so much. And so there really is a lot. It's a complicated topic. We try to make it digestible for everyone to actually understand why they should care, and you should care. So definitely recommend signing up for the fiduciary focus.

It's completely free. If to follow me, you can follow me at Cole Macro on Twitter. strive is at strive funds, but we're going to continue to lean into being thought leaders in this space, providing value, and really help being a solution provider in pushing shareholders first, pushing pro-capitalism, pushing pro-business, pushing pro-meritocracy across corporate America. It's been great to see it happen recently in the university systems. Over the last couple months, this pushback against DEI,

corporate America is next. And so educate yourself on where this fight is going to move next. Absolutely. And for our listeners who want to learn more, be sure to visitdailySignal.com or the show notes of this transcript. We'll leave links so you can sign up for more information. Matt, congratulations on the success that you're having. Thanks for doing what you're doing. We appreciate you being a guest on the Daily Signal podcast.

Thanks, Rob. It's awesome being here. And with that, that's going to do it for today's episode. Thanks so much for joining us. on the Daily Signal podcast. Also, be sure to check out our evening show. It's right here in this exact same podcast feed where we bring you the top news of the day. Also, take a minute to subscribe to the Daily Signal podcast wherever you like to listen

and help us reach more listeners by taking a minute to leave a five-star rating wherever you get your podcast. Thanks again for being with us today and we'll see you right back here at 5 p.m. for our top news edition. The Daily Signal podcast is brought to you by more than half a million members of the Heritage Foundation. Executive producers are Rob Luey and Kate Trinko. Producers are Virginia Allen and Samantha Asheris. Sound designed by Lauren Evans, Mark Geiney, and John Pop. To learn more, please visit DailySignal.com.