Ashby H.B. Monk - The Technologized Investor

THE TECHNOLOGIZED INVESTOR

Innovation through Reorientation

Ashby H.B. Monk and Dane Rook

STANFORD BUSINESS BOOKS

An Imprint of Stanford University Press

Stanford, California

Stanford University Press

Stanford, California

2020 by the Board of Trustees of the Leland Stanford Junior University.

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Printed in the United States of America on acid-free, archival-quality paper

Library of Congress Cataloging-in-Publication Data

Names: Monk, Ashby H. B. (Ashby Henry Benning), 1976- author. | Rook, Dane, 1986- author.

Title: The technologized investor : innovation through reorientation / Ashby H. B. Monk and Dane Rook.

Description: Stanford, California : Stanford Business Books, an imprint of Stanford University Press, 2020. | Includes bibliographical references and index. |

Identifiers: LCCN 2019037479 (print) | LCCN 2019037480 (ebook) | ISBN 9781503608696 (cloth) | ISBN 9781503612099 (epub)

Subjects: LCSH: Investments--Technological innovations. | Institutional investments--Technological innovations.

Classification: LCC HG4515.5 .M655 2020 (print) | LCC HG4515.5 (ebook) | DDC 332.6--dc23

LC record available at https://lccn.loc.gov/2019037479

LC ebook record available at https://lccn.loc.gov/2019037480

Cover design: Tandem Creative

Typeset by Newgen in Minion Pro and 11/15 point

CONTENTS

ACKNOWLEDGMENTS

This project wouldnt have gone anywhere without the generosity, patience, and good humor of a very large number of practitioners and academic colleaguesof whom there are too many to thank in the space here. Nonetheless, our sincerest gratitude goes to all who have helped on this book and the work that has preceded it. There are, however, some individuals who have been especially involved in our research and who deserve our direct recognition: Peter Curtis, Ray Levitt, Joe Lonsdale, Daniel Nadler, Kanishk Parashar, Marcel Prins, David Sara, and Rajiv Sharma. Wed also like to thank our families for putting up with us during the long course of this projectand for putting up with us in general. Finally, we reserve our most heartfelt thanks for our mentor, Gordon L. Clark. This book is dedicated to all of the invaluable lessons hes taught us over the years, and we wish him all the best in his much-deserved retirement (although we wager that hell still find ways to actively keep helping the Investor world!).

INTRODUCTION

A Need for Heroes

There seems to be something fundamental in human nature that makes us love superheroes. Weve been imagining, idolizing, and celebrating them for millennia. The ancient Greeks revered Perseus, Achilles, and Heracles. Ancient Sumerians exalted the heroism of Enkidu. C Chulainn is lionized in Celtic tradition. Maori lore venerates Maui. Norse mythology features far too many super-beings to mention. And Hollywood mints multiple blockbuster movies every year that feed our fascination with superheroes and their extraordinary powers.

But its more than superpowers that gives superheroes their enduring, widespread allure. Superheroes are inspiring because they fix major problems that no one else can, which frequently entails saving the world. In most instances, superheroes possess their superpowers before facing these challenges. Some recently popular superheroes, however, break this pattern. They actively build special powers in response to the crises they tackle. And they use advanced technology to do so (think Iron Man and Batman). They transform from being mere mortals into superhumans by technologizing.

The world currently needs more real-life versions of these technologized superheroes to solve some of its otherwise intractable problems. An expanding wealth gap between the rich and poor threatens socioeconomic disruption. A shortage of modernized, reliable infrastructure depresses the quality of life for billions of people worldwide, even in many first-world countries. Climate change and environmental degradationfueled by unsustainable production, transportation, and disposal practicesthreaten the viability of many (human and nonhuman) communities in both the developed and developing world. And demographic shifts are making it increasingly hard for governments to help citizens who are elderly, unhealthy, or underprivileged.

Despite their diverse causes, each of these existential threats to humankinds health and happiness could be mitigated by the availability and responsible deployment of more long-term funding. However, with banks constrained by new regulations and governments tightening budgets, the remaining organizations that could be delivering the vast majority of that fundingthe worlds long-term asset owners, for example, public pension funds, sovereign wealth funds, endowments, and foundationsare deprived of the resources they need to do so. This may come as a surprise, as one might naturally question: Dont these organizations together manage around $100 trillion in investable capital? Surely, thats sufficient to resolve the aforementioned problems and still have plenty of dough leftover!

Sadly, thats not so. And, problematically, the organizations appointed to invest that capital arent allowed to tap enough of it to grow it, or their organizations, to the extent needed to solve these problems. That is, long-term asset owners (also called institutional investors, and hereafter, Investors) arent presently set up such that their investment and operating activities properly align with their long-term time horizonseven though some of the planets gravest challenges would be closer to being solved if they were!

Instead, most Investors are held captive by their own context. Investors are disadvantaged by the exploitative ecosystem that has cropped up around them and is riddled with intermediaries who charge extortionate fees, distort risks, and chronically deliver flimsy results. Investors are also disadvantaged by their own governance structures, which are often imposed on them by sponsoring entities that are highly politicized (e.g., unions, local governments) but not necessarily fluent in finance. And Investors are disadvantaged by being starved of the resources to innovate and adapt to a world thats ever changing in all domainsnot just in finance. Shockingly, these disadvantages persist despite the fact that Investors are the very anchor of our capitalist system.

To overcome these disadvantages, Investors need to become technological marvels. They need superhero-like technology that can help them understand their liabilities, their assets, their people, and their progress toward success. This book is a flight manual for Investors interested in becoming technologically empowered superheroes capable of delivering high risk-adjusted returns while also solving major global problems. A few intrepid Investorsin Canada, the Netherlands, Australia, and elsewherehave already begun this transformation. Others are only pondering their metamorphosis or have yet to even realize the possibility. Yet we believe they all can technologize.

Our central thesis is that all Investors can utterly transform their capability sets by adopting advanced technology and making it integral to how they manage innovation, data, and knowledge. But such superpowers cant be gained by simply bolting on advanced technology to their existing resources and processes. Instead, Investors must reorient themselves around new technologies. Reorientation wont necessarily be easy. Itll require changing mindsets, priorities, and cultures. Nonetheless, Investors must succeed in making this transition: failure is far too costly, and no one else will be coming to the rescue. To succeed, however, Investors must bypass their weaknesses.