Brian Dally: Both enjoying the summer mountain weather, I assume. It's been pretty awesome the last couple weeks. So, you have an intriguing background. I gave the thumbnail sketch of the bio, but can you share your version of your background and how you got to where you are today?

Bob Fraser: Yeah, sure. I [00:02:00] mean, definitely a circuitous route. I got a degree in computer science from UC Berkeley in the '80s, back in the old days, and started a dot-com. I worked for a programmer for many years as a programmer. Started a dot-com in the late '90s, and the thing blew up. It raised tens of millions in venture capital, became this massive, really the fastest growing business in the Midwest region of the United States. And it blew up. And then I win the Ernst & Young Entrepreneur of the Year award, and then I lost everything in the dot-com crash. So yeah, so wiped out by the public markets.

After that, I got into the stock market and started using my quant skills, computer skills to do automated trading and economic analysis, et cetera. And I was making a ton of money in that until the great financial crisis, and then again got wiped out. And after that, I'm like, "I [00:03:00] am so sick of the public markets." I'm like, the absolute vagaries, right? It's either manic or depressive. And I'm like, "You know what?" I'm looking across the street at an apartment complex and thinking, "Okay, did that vaporize? No. It's still there. Did those people still pay rent? Yeah, they're still paying rent." And I'm thinking, "You know what? I want to get into something that I can control," right? That is not sentiment-based. It's not based on people's feelings and emotions like the stock market.

Brian Dally: The animal spirits, as they call them.

Bob Fraser: Exactly. So, with my partner, we got into distressed debt. In the aftermath of the great financial crisis, we were able to buy discounted debt, non-performing debt, and fix it, and we became one of the largest non-performing debt operators around, and made good money at that. But clearly, that had a finite [00:04:00] lifespan.

And we never viewed ourselves as the distressed debt guys, and branched out into the various asset classes, industrial real estate, private other kinds of real estate, energy, et cetera. And here we are today.

Brian Dally: Well, that's a great story. It sounds like a lot of ups and downs. Some really high highs and some tough lows.

Bob Fraser: Yeah, exactly.

Brian Dally: But here you are. Now you've co-founded Aspen Fund. You're CFO and chief macro strategist. I'm guessing you started Aspen because you wanted out of this manic secondary market, public market trading. But what did you have in mind with Aspen Funds that might be different from other funds people know, in that kind of realm?

Bob Fraser: So after getting wiped out twice by the public markets and kind of blindsided by economic [00:05:00] winds, I became passionate about understanding economics, and I started making a lot of forecasts, just because I read a ton. I've got this computer brain, and I just consume an enormous amount of information. And I started making macro trends, poor forecasts, and they turned out to be right.

And so we want to think like a hedge fund, but we want to do private investments where we're thinking like a hedge fund. Where should money be placed? What are the big trends that we can get behind that give us a little extra alpha?

We want diversified asset classes. One of the biggest mistakes investors make is they over-concentrate. Can't tell you how many people in the real estate space, commercial estate, they're just multifamily, and now, the markets have proven that you can't do that.

We have a retail mission, so we're [00:06:00] very, very different from other sponsors. We're not after just raising investor capital. We're about raising retail investor capital. We're very much retail-focused. It's our mission. We're education-based, which is why the Invest Like a Billionaire podcast, why the book, which just became a USA Today bestseller. And we want products that suit retail investors.

And then finally, really, it's an execution focus. One of the things that I think makes us very different, we're just animals about operating discipline and not making mistakes. We're not perfect, but we haven't made a lot of mistakes. So, we're really trying to be different in those ways.

Brian Dally: I think that's very interesting. I think when the market has come around to the idea that retail investor capital is valuable...

Bob Fraser: which is interesting, because they never did. Retail are the Muppets. [00:07:00] Let's get them to buy as much of our crap as we can. And I've seen too many of my friends lose their bacon, and I hate that. I want investors to be better, and that's why we wrote the book, Invest Like a Billionaire, to get the billionaire playbook.

I've studied this. The billionaires make more money, higher returns, and they take less risk. And the playbook is, it's mathematics, and it's something that everyone can do, doesn't matter what your size. passionate about teaching people to be better.

Brian Dally: Yeah. When you talk about earning more with less risk, how do private alternatives deliver that? I mean, billionaires classically have access to more than everybody else. That's now starting to trickle down to the rest of us in different forms. It's still the Wild West in some areas, of course. But, [00:08:00] how does it work to earn more with less risk? How do they do that?

Bob Fraser: Well, private investments have an illiquidity discount, but it's significant. That's in the order of 30% discount. Well, if you could buy Google stock at 30% discount, you're better off, right? You're probably going to make higher returns than everybody else. That's number one.

Number two, you can have access to niche strategies. For instance, in the REIT space, like a real estate investment trust. You probably know what those are. They're big public companies that buy real estate. The problem is, REITs, because of their tax structure, must distribute 90% of their income. Well, that means you can't do development. You can't do heavy value add. You can't do a lot of things that are the most lucrative strategies. So [00:09:00] they're stuck with these core and core-plus things. And if you look at, like, there's a chart in the book, one of my favorite charts from JPMorgan, that showed that real estate investment trusts, they average, the best guys to the worst guys, the difference is between 6.9% and 7.5% returns. The best guys and the worst guys hardly are different.

On the private side, the best guys are doubling those returns. Doubling. On the downside, the worst guys are losing money. So, it's very much Wild West. You can make a lot more money, and you can lose a lot more money. So, operator selection becomes paramount.

The other way that they do this, those are two ways. The illiquidity discount, the fact that you can get better operators with niche opportunities, and the third way is through what's called modern portfolio theory. [00:10:00] So if you have a portfolio and you've got 20 positions, right? 20 positions, and they each have 20% volatility. Well, your overall volatility, which is your risk profile, is 20%, right? Wrong. If those 20 positions are not mathematically correlated, meaning that when one of them zigs, the other zags a little bit, well, now your correlation drops to... or your risk, even though each one is individually 20% risk, the overall correlation, or risk of your portfolio drops to 4% or 5%.

So, diversification is paramount. Actually, that's wrong. Not diversification. It's uncorrelation, because they are not the same. People conflate diversification and correlation, and they are not at all the same. You can be plenty diversified and highly correlated.

Brian Dally: You can be diversified within a highly [00:11:00] concentrated position from a volatility standpoint.

Bob Fraser: right now the S&P 500 index, the top 10 positions is 40% of the index. And by the way, those top 10 are all correlated. So it's like, forget diversification, as safety and correlation. The only way to get on correlation by the way, the only way, is in privates, private alternatives. Natural resources are incredibly uncorrelated to everything else. Just for instance.

Brian Dally: I get it. So, I guess, when you look at private markets and you're evaluating them, the tools to do it have changed a lot. AI-based tools are out there now. There's so much available to us to analyze and explore. I'm curious to hear what tools and resources you use to get behind the right trends and the right [00:12:00] positions. Are you using AI for that, or what resources do you turn to?

Bob Fraser: I'm just stuck in plain eye. I actually use AI to do research, help me do research, so it lets me consume more information. But always my game plan was just massive amounts of reading. I read, I read, I read, I read.

Brian Dally: Sounds like you're a good synthesizer.

Bob Fraser: I'm a big synthesizer. It's the way my brain works. And so now AI lets me consume more.

Brian Dally: Got it. And are there particular processes you use when evaluating investments that you think might be different or interesting to people who are listening today?

Bob Fraser: Oh, yeah. So now you're not talking about macro research, you're talking about deal research. Yeah, absolutely. AI is a fantastic tool. My team, we come from a banking background, so we're [00:13:00] very good at underwriting and measuring risk, and right now we do use AI significantly to help underwrite deals, and what it's done, it's about tripled our productivity.

Brian Dally: It's a lot to write an investment memo now.

Bob Fraser: Well, yes. And we can evaluate, instead of 50 deals a quarter we were looking at, we're now looking at 150 deals a quarter.

Brian Dally: That's a lot. So you're seeing a lot of deal flow?

Bob Fraser: Tons.

Brian Dally: That's great. And I guess you're seeing it across private credit, commercial real estate, still some distressed debt, sounds like, and energy. What are the trends that you're seeing? Is there anything that surprises you or anything in particular very exciting to you now?

Bob Fraser: Yeah, absolutely. Look, so the big surprise, and we did a podcast on this, is Kevin Warsh. And as I did [00:14:00] the research on this guy, he represents a sea change in the way the Fed is going to operate very, very materially. So he is very opposed to the Fed's balance sheet. So, for anybody that's not familiar, the Fed has been monetizing a significant amount of debt, meaning they go into the market and buy that debt back and they grow their balance sheet.

And it helps depress interest rates, especially long rates. All right? So, the long rates are set at auction. People are not clear how it works. So what it means, he wants to shrink the Fed balance sheet, and he's satisfied with high long-term rates. And so he wants to go to a steeper yield curve. And so where the front end of the yield curves goes up and down with the business cycle, but the long term, the long rates, stay high. So [00:15:00] it's a very big deal for investors to basically figure that out and factor that into their investing equations, because cost of capital is everything.

Brian Dally: Seems like the cat may be out of the bag and there's some people front-running that because the long end is already steepening quite a bit.

Bob Fraser: Oh yeah. And the banks are the one who wins from a steep yield curve.

The things that I'm most excited about, some of the biggest trends out there, are industrial real estate. So, we're seeing a massive reshoring trend, reshoring, nearshoring. What is the one thing in common? What are the picks and shovels that all these guys need? Well, they need industrial real estate. And so we're buying up large tracts of industrial land, and we're developing it, big box industrial that doubles as manufacturing, as logistics, and as storage, all of the above.

So we're very excited about that trend. [00:16:00] Very excited about the buying opportunity right now in multifamily. Multifamily is on fire sale and there's a huge amount of distress in the market, and these properties are hitting the market, and you can get some really, really strong deals. So we're doing that, building up a new fund for that.

And we're very excited about the energy space. This is one where the world has done a pretty major miscalculation. It's a generational buying opportunity right now in energy real estate. People don't realize the insane cheapness of this stuff and it's all because of the politics.

You have to put a paper bag over your head if you say you're an energy investor, right? Fossil fuels. Well, that's when things are on sale, and it's a generational sale right now, so we're backing up the truck and buying as much energy land as we can. There's a false narrative out there that the world is post fossil fuels, and we are [00:17:00] far from it. The world today is 81% fossil fuel usage globally and 91% for transportation, and that's after 50 years of going green. I'm all for going green, but it's not going to replace fossil fuels anytime soon.

So there's a narrative problem. Again, it's just like the public markets. These narratives take over that are false narratives, and they create a lot of opportunity.

Brian Dally: Well, especially in private markets when the animal spirits are not present, and you can actually take your time, establish a good position, and like you say, back up the truck. I love it.

Well, this has been a great start to our conversation. We're going to pause here. When we come back for part two, let's talk more about your thoughts on investment trends. For our audience, you can connect with Bob via his LinkedIn, which we'll include in the show notes, or you can visit aspenfunds.us.

You can check out all episodes of our podcast at [00:18:00] groundfloor.com/podcast. And if you're so inclined, please like and subscribe, wherever you tune in. Thanks again for joining us on Beyond the Stock Market.