Cathie Wood: Elon & Twitter; Why Facebook is a Value Stock Now; ARK's Performance | 20VC #949

1. 0:00 – 1:15

   Who is Cathie Wood?

   1. HSHarry Stebbings0:00

      Kathy, I'm very excited for this. I've been looking forward to it for a long time. So thank you so much for joining me today.

   2. CWCathie Wood0:06

      Oh, I'm really happy to be here, Harry. I know you have one of the best VC podcasts, if not the best, uh, VC podcast. So we are thrilled, given that we are such a newbie in the space.

   3. HSHarry Stebbings0:19

      That is very, very kind of you. I, I, I needed that ego inflation.

   4. CWCathie Wood0:22

      (laughs) .

   5. HSHarry Stebbings0:22

      But I want to (laughs) start with a little bit on you. I did my research and I read your, you know, incredible backstory. Take me back to the beginning. How did you make your way into the world of finance at, I believe, at the tender age of 24?

   6. CWCathie Wood0:34

      Actually, it was the tender age of 20. And, uh, and I was introduced to Capital Group, which is a very well-known, very large, uh, asset manager on the West Coast, LA, by Art Laffer. Uh, Art Laffer, if you know Laffer curve, supply side economics, uh, he's very well-known for that. I knew very little about the investment business and, but I was fascinated by economics, uh, generally, and thinking about the way the world was going to work in the future. And so he thought I'd be a good candidate. So that's where I started.

   7. HSHarry Stebbings1:14

      So

2. 1:15 – 3:45

   What are you running from and towards?

   1. HSHarry Stebbings1:15

      I, I, I love that as a starting point. I always believe that we're this kind of function of our histories. And so with that as a starting point, y- everyone's running from something, and everyone's running towards something. You know, I spent thousands of pounds in therapy to figure mine out.

   2. CWCathie Wood1:28

      (laughs) .

   3. HSHarry Stebbings1:28

      Um, uh, what are you running from, Kathy? And what are you running towards?

   4. CWCathie Wood1:32

      Well, uh, uh, I've been very clear that one of the things that I've been running from in the traditional asset management world is indexed-based investing. Uh, so benchmarks you've heard, the S&P 500, NASDAQ, uh, Russell, uh, MSCI. And, uh, and I've watched our industry, um, go through an arc, actually. A-R-C, not A-R-K. Uh, and i- in the early '80s when I s- uh, when I r- moved to New York, um, indexing and benchmarks weren't a thing. Uh, we were all investing in the future, trying to figure out how the world was going to work. Uh, and the '80s and '90s were very much like that. And then we got the tech and telecom bubble and bust, and that was the first, "Oh my gosh." And then '08, '09, and what happened during the last 20 years is we've had a move towards benchmark sensitivity, or passive investing. Outright just, "Let me invest with the benchmarks, that's safety." And, uh, we actually think it, that is becoming a very dangerous way to invest. Because if we're right about the amount of innovation that is evolving today, so we've f- we've centered our research in investing around five innovation platforms, uh, genomic sequencing, uh, robotics, energy storage, artificial intelligence, and blockchain technology. Uh, and, and those are all converging. So it's becoming a- very disruptive to the traditional world order. And I think, even though, uh, the onus, uh, or the burden of proof is on us, because passive has done so well over the past 20 years, it's been self-fulfilling as more and more assets moved into passive, or benchmark-sensitive. Uh, I think the pendulum has swung too far. And especially given how much innovation is evolving now, that it's really going to destroy the way the world has worked, and create a whole new world.

   5. HSHarry Stebbings3:43

      I mean, th- there's so many things that

3. 3:45 – 7:25

   Lessons from the Bust of Tupelo

   1. HSHarry Stebbings3:45

      I want to unpack there. You'll learn when I kind of go off-schedule in my interest graph.

   2. CWCathie Wood3:48

      (laughs) .

   3. HSHarry Stebbings3:48

      Um, the, the first, you mentioned kind of the, the booms, the busts, '08, '09. I, I, I obviously did the research and I read about Tupelo, a firm you co-founded. Um, and you know, uh, bluntly, the lesson there, and, you know, going from 1.2 billion to 200 million, I always find that we learn a lot from hard times. (laughs) .

   4. CWCathie Wood4:04

      Yeah.

   5. HSHarry Stebbings4:04

      Um, what, how did that impact your mindset, going through that bust and seeing that happen?

   6. CWCathie Wood4:10

      Well, I wasn't there for most of that. Uh, so, uh, I was there for three years, uh, when we built the firm from th- this was a, a, a family office, effectively. From, uh, 250 million of the family's wealth, uh, we built it at our peak. We were in somewhere, I don't remember the 1.2 billion. I more remember, uh, 800 to a billion, somewhere in there. And we did that with very little in the way of flows. So that was 250, that was, uh, a triple to a quadruple over two years. Now, consider the years, was '98 and '99. And then in year three, uh, 2000, when I was there, we were down 20%. So, uh, by my calculations, we were up, uh, from, uh, the beginning, two, uh, two to threefold, even after that 20% correction. And the reason I left is, uh, the, the, my co-founder, uh, who really this was her family's money, and I reached a, a, a bit of an impasse in terms of our investment strategy. Um, as we had moved into 1991, we knew that too much capital was chasing too few opportunities-... um, too early. Many of the technologies were not even ready, the ones we were talking about. And so, we were buying puts, uh, to serve as protection, uh, throughout, actually, uh, late '99, throughout th- the 2000 period as the market, uh, as- as investors were buying the dips, uh, we were buying puts. And, uh, i- in January of 2001, it was very early, it was probably the first week, um, uh, we ha- we agreed- we agreed to disagree, uh, and that was, uh, the Fed eased. Uh, I didn't wanna take the puts off. Uh, my partner did. This was really her family's fortune, and so, uh, off they went. And- and I just decided that, um, you know, all that work putting the puts on, uh, and- and then just having to let go, uh, probably it wouldn't be a good place for me to stay. So, I was there, as I mentioned, from the 250 million to somewhere between 800 and a billion, as I recall. Uh, and then I was- I take full responsibility for the 20% decline in 2000, as we were building puts though, and, uh, I don't take any of the responsibility for anything else that happened, and I have no idea where it landed. See, this was a family office, and so the- the founders could've been taking money out. They have many, many other investments in many other a- asset categories, so I couldn't tell you what happened after I left.

   7. HSHarry Stebbings7:23

      Can I ask, you mentioned the excess supply

4. 7:25 – 10:35

   Is there too much money chasing too few deals?

   1. HSHarry Stebbings7:25

      of capital there, chasing too few deals with too much cash chasing them. Many investors in venture say that's where we are in the venture cycle today. I actually personally would agree with them. W- how do you feel about that? Obviously, you've just launched your, you know, venture, you know, platform and- and fund.

   2. CWCathie Wood7:41

      Mm-hmm.

   3. HSHarry Stebbings7:41

      Like, how do you feel about that in venture, and would you disagree?

   4. CWCathie Wood7:44

      What I believe has happened here, if you look, uh, since February of '21 when our strategy peaked, and as you know, we're focused exclusively on disruptive innovation. So since 2021, um, our strategy has been destroyed, and any innovation strategy, and now more th- growth strategies are being sucked into this. And venture as well- as well. We're seeing down rounds all over the place. I guess Instacart is maybe, uh, 30% of its peak or- or- or roughly. So we're seeing the down rounds, and personally, I like starting businesses and portfolios during downtimes. We can- we are j- we're nascent, and so we could average into, uh, what I do believe, uh, could be a- a set of significant drawdowns in the private world that has already happened in the public world. Now, the fund that we have launched is a public-private crossover fund. And sure, at maturity, uh, our- our desire is to get it close to 75% private and 25% public to allow more liquidity. Um, but, uh, uh, u- uh, right now, uh, we're not near that. So, um, we're- we're- we're getting close, um, but we will continue, if we get flows in, uh, to use public, uh, uh, stocks, uh, because we believe there is a bit of an arbitrage here, opportunity here. Um, and we are buying into down rounds in the- in the private markets at the same time. Uh, so, you know, I think we're at a- a... I also think, I w- wanna make this clear, that the private markets have innovation more right, in terms of valuation, than the public, uh, markets do. Uh, many of our stocks are down 80%. Some are down 90% from their peaks, uh, which is just ridiculous. Um, and, uh, I think that's because these stocks are not in benchmarks, and I just described how the traditional world, in a risk-off period, sells our stocks and moves back close to their benchmarks because they think that's where the safety resides. And maybe it does, if everyone's pushing into them. But if we're right, fundamentals are going to disrupt that way of thinking during the next few years.

5. 10:35 – 15:03

   How do you handle being down 80-90%?

   1. HSHarry Stebbings10:35

      Can I... And I think the reason the show's successful is 'cause I, uh, I hopefully also just asked hon- honest questions. Like, when you see that, you know, 80, 90% down, uh, Cathie, you're- you're a l- a lovely person.

   2. CWCathie Wood10:46

      (laughs)

   3. HSHarry Stebbings10:46

      Like, online, it's not very nice. I get a lot of hate. (laughs) I hope I'm not... D- like, do you doubt yourself when you see down 80 to 90%? What do you tell yourself when you see the red and you're like, "Oh, my gosh"?

   4. CWCathie Wood10:59

      So we are very data-driven, very research-driven, and so many people ask me, uh, where- where- where my- why I have such strong conviction. How could I have such strong conviction when these stocks are down that much? And it- it is- it- it comes directly from our research. And if you don't think we are, um, uh, you know, double-checking and triple te- checking our research and our assumptions, uh, going into the research, and basically, our clients and the social world is helping us, uh, battle test those assumptions. Uh, what we see as our stocks go down 80 to 90%, if we're right, uh, we're seeing the-... total rate of return expectation increase for the next five years. So we keep our eye on that prize, and if the world, and if our research is correct, and the world has not changed, we've just moved into a risk-off period with inflation and interest rates, uh, that the reason, and this move toward, back towards benchmark stocks the reason our stocks are going to be dumped, we wouldn't be selling our stocks. We'd be picking them up, and that's what we do. We average down during risk-off periods, and we also concentrate our portfolios towards our highest conviction names. So we've moved our flagship portfolio, uh, ARKK, uh, from 58 names down to 32, 33 names, uh, and, uh, we're, we're further consolidating in this risk-off period. But we tend to bottom out in that low 30s range.

   5. HSHarry Stebbings12:50

      Do you worry that the market can remain irrational longer than companies can remain solvent. If it gets to, you know, we're seeing certain stages of certain public markets where it's like, oh my God (laughs) , you know, you've got double the cash than you do your market cap.

   6. CWCathie Wood13:03

      Yes.

   7. HSHarry Stebbings13:04

      D- do you worry about that?

   8. CWCathie Wood13:06

      So, uh, what I often say, and, and this was the refrain, uh, when it came to Tesla in, in early 2019 when, my goodness, the traditional asset management world was saying, "Well, this company's going bankrupt. It's running out of cash, can't scale the Model 3," and, you know, our research was, uh, was telegraphing something completely different. And my answer to our critics at that time is, "Wait a minute. The markets are not closed. This is not '08, '09. Uh, if you look at the very loyal shareholders on the front page, you know, the first page of holders, you will find a group of holders, uh, that, if you do an IPO, or I mean a secondary, we're gonna be buying into that secondary." Uh, so, and, and that was absolutely right, and that's how I feel about the stocks in our portfolio right now. Um, Invitae is probably the biggest lightning rod in the, uh, in the portfolio, um, and, uh, our conviction there, um, remains as high as ever. Uh, Sean George, who was the CEO, uh, couldn't bear the thought of shutting down some of his babies, you know, basically projects, uh, and, uh, but he brought in someone from Amazon, he'd been working with him for, uh, several years, and, uh, we think they have streamlined and are going to become th- one of the most, if not the most important molecular, uh, diagnostic testing company. And, and I'll also say that, um, in the private world, we think a contender is Frenome, and, uh, we have that as one of our first holdings.

6. 15:03 – 20:32

   When is the time to sell?

   1. CWCathie Wood15:04

   2. HSHarry Stebbings15:04

      Y- you know, I spoke to many, you know, mutual friends and friends of yours before the show, and conviction was something that many of them (laughs) cited when, when talking about your investment strategy. There's also always a time to sell, and you know, when we look at the last decade, it's kinda been categorized by this, like, never sell, always hold on to your winners in this boom market, zero interest rate. My question is, when you're managing a public book, how do you think about when's the right time to sell, and how to manage liquidity in that way? 'Cause there is a time.

   3. CWCathie Wood15:33

      Oh, absolutely. Uh, in fact, as we were reaching the peak in 2021, many of our, uh, our stocks were beginning to fall below our minimum hurdle rate of return over a five-year period. That number is 15% for the public portfolios. And as they were falling below that 15% mark, we were not raising the earnings or the valuations, we were selling the stock. And the stocks, uh, so that, a- and a very good example is NVIDIA, for exam- uh, example. Um, it is one of the most important, uh, artificial intelligence chip companies in the world. Uh, and, uh, we've owned it since, uh, since we started ARKK. But we sold out of it, because, uh, everybody in the public market needed an AI chip company, or an artificial company so that they could check the box for their clients. NVIDIA was in the index, it was therefore much more of a safe stock than some of the other stocks, and they took the valuation up to crazy levels. So we were selling as we were... Especially as we were concentrating our portfolio towards our highest conviction names. We ended up selling out of NVIDIA, and only recently, since it has had, uh, a tumble, have we reinitiated our position. So we're quite disciplined, and I think one of the, one of the reasons we are is because of this concentration strategy. To go from 58 ni- names to 32 or 33 names means we have to sell, you know, 20-some-odd names. Uh, so we definitely have a sell discipline, and you know, usually, the names that go, and I always say this to our analysts, and I do believe we have the best analyst team when it comes to innovation in the world, and the reason we do is because their responsibilities are broken out not by sector or industry, but by technology. They're technology specialists. They are sector generalists, because we expect our technologies to scale to market, to mass market levels. So in order to do that, you ha- uh, uh, a technology has to cut across sectors. So, um-... uh, I-

   4. HSHarry Stebbings18:04

      Can I ask you-

   5. CWCathie Wood18:05

      ... I know I should-

   6. HSHarry Stebbings18:05

      You mentioned-

   7. CWCathie Wood18:06

      ... veer a bit.

   8. HSHarry Stebbings18:07

      No, no. No, I love this. You mentioned NVIDIA there, being kind of part of index and the benefits that come from it. The kind of question I have is, like, how much of the performance of large cap tech is tied to the growth of passive ETF index investing, do you think?

   9. CWCathie Wood18:21

      I think a lot of it has been. You know, last year, uh, uh, the market reached all-time highs in 2021, as we were selling off. And it was f- it was the FAANGs, it was Microsoft, it was NVIDIA. And those, those ... If you look at the NASDAQ 100, account for, n- or accounted, at that time, for nearly 50% of that index, and they also accounted for a very substantial, uh, uh, percentage of the S&P 500, uh, and the, uh, uh, MSCI. So yes, there was this crowding into indexes supported those stocks. And now look what's happened. We didn't own them. We, we thought the FAANGs ... We saw TikTok coming, uh, and we did not own those stocks. For different reasons. TikTok, when it came to Facebook and, and Netflix, competing for, uh, time. Social commerce, when it came to Amazon. Uh, and s- and also this cyclical concern about inventory building, because of all the supply chain issues. So we've made some great calls, both macro and micro, and they are starting to pay off now. But we're still in a risk-off market, and, uh, and I am seeing glimmers of hope. Our, our strategies are starting to outperform now on days when some of these big, uh, benchmarks don't. And that's what usually happens as we're coming towards the end of a bear market. At the end of the bear market, the saying goes, "The new leadership shows itself." We're always the new leadership. And most of our stocks are not in those benchmarks. Uh, only three are. Tesla, Zoom, and I'm talking about our public portfolios. Uh, Tesla, Zoom, and, uh, NVIDIA. Those are the three. So, but less than 10% of our portfolio is, or I should say, I should say less than ... There's much less than a 10% overlap between us and adding-

   10. HSHarry Stebbings20:30

       Yeah.

   11. CWCathie Wood20:30

       You know, it's usually less than

7. 20:32 – 23:33

   Views on Risk Management

   1. CWCathie Wood20:32

      5%.

   2. HSHarry Stebbings20:33

      You mentioned the word risk there, and Kathy, I'm a Brit. I get very uncomfortable asking, you know, difficult questions. You mentioned the word risk. Um-

   3. CWCathie Wood20:40

      (laughs) .

   4. HSHarry Stebbings20:40

      People suggest that you have zero risk management (laughs) . Why do you think they do, and why are they wrong?

   5. CWCathie Wood20:46

      Well, I think the reason they say that is there are so many generalist, uh, strategies out there. We're not a generalist strategy. Uh, we know who we are. We're focused exclusively on a slice of the market. And it is up to asset allocators, not us. We're not an asset allocator. We're giving asset allocators an opportunity to make up for the massive short that we believe they have in their portfolios. Uh, and that short is truly disruptive innovation. That's all we do. So, uh, those who are saying this, and I've seen some wire houses, uh, uh, saying this, but if you go to their due diligence departments, their due diligence departments understand what we are. We are a slice of an equity portfolio, and it is up to advisors or asset allocators, other asset allocators, to determine how big a, a slice of, of the pie our strategy should represent. That's not our decision. Advisors know their clients better, right, than we do.

   6. HSHarry Stebbings22:06

      Sure.

   7. CWCathie Wood22:07

      And we just do one thing. Uh, we don't have to worry about asset allocation. We're just providing ... Uh, we are, we believe, filling an unmet need in the marketplace. And yet many people consider s- consider what we're doing to be extremely risky. And it is volatile. It is volatile, because the future is filled with uncertainty. Whereas these benchmark stocks are more about the past and their past successes. Uh, so do you understand why? I, I don't understand why, uh, people say we, we don't, uh, consider risk. I've just given you, uh, uh, uh, the story about our concentration towards our highest conviction names. We're selling a lot (laughs) of our portfolio to concentrate. And, uh, again, some of those sales are very good, because we have a dou- ... Wait a minute, there's a management turmoil, uh, or a lot of turnover. And just, you know, little red flags that, um, w- don't force us. They maybe, uh, we lower one of our scores. But not to a level that puts us in yellow or red territory. But when we're, when we're forced, and it's a self-discipline, to concentrate the portfolio, we will let a name like that go.

8. 23:33 – 26:27

   Why hasn’t ARK had more outflows?

   1. HSHarry Stebbings23:34

      I, I, I totally get you, and I think, you know, the, the secret to great venture investors is the willingness to be uncomfortable and deal with uncertainty.

   2. CWCathie Wood23:40

      Yes.

   3. HSHarry Stebbings23:40

      Uh, and also the willingness to be lonely. Uh, which sounds weird, but when everyone else (laughs) disagrees-

   4. CWCathie Wood23:45

      Yes.

   5. HSHarry Stebbings23:45

      ... you have to be okay being alone.

   6. CWCathie Wood23:47

      Yes.

   7. HSHarry Stebbings23:47

      Um, so I, I do totally get you. The trouble with being alone (laughs) , um, uh, is that, you know, in, in your world, not in mine, in venture, like pure venture, old school venture, like, there are outflows in your world. Given performance and people generally being less comfortable with uncertainty, why do you think ARK hasn't had more outflows?

   8. CWCathie Wood24:09

      Yes. We've been really gratified by our asset retention, and I think, uh, the traditional asset management industry is astonished by it. Um-

   9. HSHarry Stebbings24:20

      Beautiful.

   10. CWCathie Wood24:20

       ... there are a few reasons, uh, we believe. Uh, one is we give our research away, and we are on social media, uh, giving it away, not when it's finished, but as it's evolving. So, those who are following us on social media, or those who get our newsletters or our blogs, they, they sign up for various levels of information. Um, they, they are taking the journey with us. They understand what we're doing, why we're doing it, and they also understand, uh, because we say this all the time, we have an, a, a five-year investment time horizon. This is for the public, uh, uh, world. We have a, a five-year investment time horizon, and if you don't have a five-year investment time horizon, maybe we're not right for you, uh, because we are a very volatile strategy. So, last year, our net flows, now they were front-end loaded to be sure, uh, they were $17 billion. Uh, that's net. There, there were redemptions, but we kept $17 billion of the flows last year. This year, we haven't even outflowed $1 billion, you know, uh, out of that $17 billion. And I think the reason is we give our research away, and I- another really important reason is investors know that we are providing them with something they're not going to get anywhere else, and that we're a really good diversifier. Um, and the key to long-term outperformance and risk control, if you are an asset allocator, is to diversify, diversify, diversify. So, what should people do now that we are down? At our worst, we were down 79%. Good asset allocators, really good asset allocators will be buying our strategy, and they'll be selling some of the more index strategies that

9. 26:27 – 28:38

   Why does ARK make its research public?

   1. CWCathie Wood26:27

      had held up so well.

   2. HSHarry Stebbings26:28

      In, in terms of the social media side, you know, I mean, for venture i- it's kind of common, for, for public markets, it's, it's not common at all. I, I read one journalist say it's like playing poker with your cards turned up.

   3. CWCathie Wood26:39

      Mm-hmm.

   4. HSHarry Stebbings26:39

      Why is that wrong? I thought that was an interesting analogy.

   5. CWCathie Wood26:44

      You know, it's interesting. Uh, when I started in the business, which, as we discussed a l- little earlier was quite a while ago. I'll give you the year.

   6. HSHarry Stebbings26:52

      (laughs)

   7. CWCathie Wood26:52

      It was 1977, and I was in college. Um, there were no computers. There were no mobile phones, no mobile internet, nothing, nothing like that. Information was really scarce. And, and we had to pay a lot and spend a lot of time digging it up. And, and I mean, not just from companies, but even the government, going to the government, calling the government. It was just a nightmare being transferred from one place to another, to another, as a researcher. So, uh, that was then, and here we are now. Information is ubiquitous. It's how you put it together. And I think it will be considered, uh, very provincial in, let's say, three to five years' time, uh, to hear a firm saying, "Well, we don't share any of our research because it's our secret sauce." You know, we've all got all this information, all of these different points of view. They're all out there. Pick one. You know? We pick the one that, uh, w- that, um, fits in with our research, and our research starts from the top down. We're sizing opportunities using Wright's law, a relative of Moore's law, to try and understand cost declines, and then we c- do our bottom up analysis. We are as stock-research-driven as any other bottom-up team out there. And then, we have a six-point overlay just for innovation, a scoring system. Um, and we'll probably get into that, uh, a little later, um, if you'd like.

   8. HSHarry Stebbings28:30

      Yeah, totally. I, I, I do wanna touch on, on kind of the... well, not touch on, but (laughs) discuss (laughs) bluntly, the venture fund, which is, you know, I am glad moving into a world

10. 28:38 – 33:07

    Why did ARK launch a venture fund?

    1. HSHarry Stebbings28:38

       where I actually understand things. Um-

    2. CWCathie Wood28:39

       (laughs)

    3. HSHarry Stebbings28:40

       Always helpful. Um, but you know, you obviously decided to launch the new venture fund within ARKK as a, as a new product. Why did you decide to launch a new venture fund for retail?

    4. CWCathie Wood28:50

       What is one of the biggest questions, most frequent questions, uh, we have received over the nearly nine years since ARKK has been in existence? Retail investors saying to us, and they're usually young people, they're usually saying, "Why is it, uh, that just because we don't meet an income or asset threshold, um, we can't be accredited, and we can't participated in, uh, participate in these huge growth opportunities when we probably know more about those opportunities than the people who are investing them in the institutional world?" And I will tell you, from what, just what I've seen in the public world, if, if we were to use knowledge as the, uh, uh, metric for accreditation, uh, the accredited investors for ARKK would be those retail investors. They have, they, they are passionate about innovation, and they know so much about it, and many of them are working in the industry or in the various communities. So, you know, we've talked to Hester Peirce at the SEC who really believes that we have to, we have to modify, or-... revolutionize this accreditation process, because it's not American. It's, it's truly not American to use income and asset thresholds when knowledge could be an accreditation, uh, mea- measure or metric.

    5. HSHarry Stebbings30:34

       I mean, this respect thing, it sounds very un-Robin Hood-like of me, kind of, 'cause I, I agree, like, democratization of, of, you know, wealth and everything that comes with it. I'm just thinking for you and for your sanity, Kathy, like, managing, you know, 50,000 investors who have, I don't know, 500 bucks to, I don't know, $50,000 in your fund, it seems like a bit of a headache. Like, it's much nicer to have an endowment fund in for a hundred million and have one relationship. Is it not a fundamental nightmare in terms of LP management and fund management to have this fundamentally, maybe not new structure, but kind of innovative structure with this diversification of LPs?

    6. CWCathie Wood31:12

       Sure. Well, we're, we're going after the endowment market as well, in different structures, but the structure you're referring to here, uh, is the interval fund. This-

    7. HSHarry Stebbings31:23

       Yeah.

    8. CWCathie Wood31:23

       ... this structure r- is a retail, um, inv- investment wrapper that was devised and approved by the SEC in 1993 for this purpose, to give retail investors a shot at some of these great growth opportunities, right? Um, but because of the tax advantages that private equity and, and venture capital specifically have in this case, um, the f- the, the, the, uh, businesses chose to focus on private equity. Um, we have chosen to focus on retail in this way with a partner. Titan is our partner, our distribution partner. It is an app, Andreessen Horowitz-fou- uh, funded app, uh, and we are the first outside equity, uh, um, fund that they are putting on this platform. And they are going to help us help our retail investors get to know our companies with interviews, interviewing the CEOs, uh, and, uh, with our own analysis. We'll be featuring our analysis and sharing our research, as we do anyway, but we'll do it specifically through Titan, uh, to focus on these private companies and the public companies. So they're really going to do a lot of the legwork that you're describing.

    9. HSHarry Stebbings33:02

       Always wonderful when someone else does the legwork. Um, (laughs) -

    10. CWCathie Wood33:06

        (laughs)

    11. HSHarry Stebbings33:06

        ... uh, uh,

11. 33:07 – 38:57

    How incentives work in a 0% carry fund

    1. HSHarry Stebbings33:07

       can I ask? I saw the terms of the fund, and I was like, "What? It's a 0% carry fund, Kathy." Um-

    2. CWCathie Wood33:14

       Yes.

    3. HSHarry Stebbings33:14

       ... can you help me understand the incentive alignment between investor and you when it's a 0% carry fund for you?

    4. CWCathie Wood33:22

       Well, again, the, the f- the fund ... So we don't have a carry. If we did have a carry, then we could only accept accredited investors. So, we said, "Okay." Because interval funds can have a carry. So we said, "Okay, no carry." Um, now, our, uh, our fee is, our management fee is 2.75% compared to the 2 and 20. Now, if you compare, if you compare a top quartile venture fund, and we hope we're in that category, um, to, uh, to this, uh, t- to this fee structure, so 2 and 20 tw- versus 2.75, just for the, the management fee, over the life of that mutual, I mean, that, uh, venture capital fund-

    5. HSHarry Stebbings34:21

       Mm-hmm.

    6. CWCathie Wood34:22

       ... uh, you're, you're probably going to be paying a 9% fee on average per year when it's all said and done and tallied up. Uh, for us, it's 2.75%. Um, and if you-

    7. HSHarry Stebbings34:39

       S- can I, can I, can I, can I interrupt? I'm so sorry. But I'm, I'm-

    8. CWCathie Wood34:43

       Oh no, go ahead. Yeah.

    9. HSHarry Stebbings34:43

       I'm a- you know, I'm, I'm hiring people always. And, um, if you want the best talent, they wanna see a lot of millions on that carry sheet, and I have to show them some big ass numbers. (laughs)

    10. CWCathie Wood34:54

        Yes.

    11. HSHarry Stebbings34:54

        Um, if it's on fees alone, it's d- I, I, I'm, I'm really s- I don't understand how you can attract the talent and actually create that alignment to make them so hungry to get the best companies in the world if it's just fee-based, which you'll get anyway.

    12. CWCathie Wood35:08

        Yeah. So, all right. L- let's go there. And I just wanna wrap up what I was saying before.

    13. HSHarry Stebbings35:15

        Mm-hmm.

    14. CWCathie Wood35:15

        Um, the correct r- arithmetic, if I were to say this precisely, and this is with our compliance in the back of my mind-

    15. HSHarry Stebbings35:23

        Yeah.

    16. CWCathie Wood35:23

        ... um, if you were to compare our f- our fees all in, uh, management fees all in, the 2.75, uh, versus the fench- m- venture, 2 and 20, that top quartile fund, uh, you would have to pay 40% more in fees over time. So just wanted to close that loop there. Now, um, because there's a nuance here, our 2.75% is on NAV, of course, eh, uh-

    17. HSHarry Stebbings35:56

        Mm-hmm.

    18. CWCathie Wood35:56

        ... versus the, the, the 2 and 20 in VCs. It's on a different base. Okay. So got that. Uh-

    19. HSHarry Stebbings36:04

        Yeah.

    20. CWCathie Wood36:04

        ... in terms of attracting talent, um, we've attracted our talent. Uh, our analysts, uh, are our talent. And we are not using different analysts for private than public, because they've been following these private companies-... the whole time. We have to. All we do is focus on disruptive innovation. Well, what is our, one of our biggest risks? Uh, that one of our companies is disrupted by a new technology or a new c- c- company, um, coming through the pipeline, through the private pipeline. So, we have been monitoring and following and analyzing these companies, um, for years. Uh, so, so, that's the first thing. The second thing is, we give all of our analysts equity in ARKK from the beginning. Um, and so, they will benefit not just from our success with this venture fund, but from all of our funds. You know, uh, the ETFs, the separately managed accounts, the mutual funds, the international funds. So, we're, we're, we're set up very differently. Um, I know that in other traditional asset management firms, there's a group of analysts on the private, uh, side, and a group on the public side. That, to us, makes no sense. And one of the other, other reasons I feel this way is because we want... if we really believe a company is going to blaze a trail and be successful from early stage to mega cap, we wanna stay with it, and we can stay with it. And not only ca- in our venture funds we can stay with it. Not only can we stay with it in our venture funds, but then we've got feeders of all these ETFs and mutual funds for this. So, it's a beautiful thing. And by the way, the top-tier venture funds out there love this. They want, they want to be known, I think... I, at first, I thought they were just interested in what we were doing as a curiosity. But I think they have really embraced us in a way that I didn't expect, introducing us to some of their top ideas, because they know, they're trying to figure out a way to, you know, DTC, direct to consumer. We are direct to consumer, and we can partner with them to help them move towards, uh, uh, that place. We know Sequoia also has, uh, a fund of funds that's an evergreen fund. So, the, the big VCs out there know, uh, that this is the way the world

12. 38:57 – 43:55

    How do you win access to the best deals?

    1. CWCathie Wood38:57

       is going to work, I believe.

    2. HSHarry Stebbings38:59

       So, uh, there, there's one interesting element here, which is, in venture, it is one of the only asset classes, I believe, where the asset chooses the capital. In all others, the capital chooses the asset. And, eh, my question to you is, in the top decile, which is, as we all know, what drives performance for all funds, there is 50 people chasing it, and it's Ben Horowitz at Andreessen who turns up to Ali at Databricks with a Easter egg and a present for his wife-

    3. CWCathie Wood39:26

       (laughs)

    4. HSHarry Stebbings39:26

       ... and says, "Please take my money over someone else's." Um, when you have a, a crossover team and there's not the star power of a Ben Horowitz, a Bill Gurley, a Roelof Botha, there's a question of, respectfully, are you gonna win access to the best deals?

    5. CWCathie Wood39:43

       Well, I think that, um, many companies have asked us when they are private, and this was before our venture fund, how, what do, "What would it require for us to get into your portfolios?" And we have our top-down analysis and our screening metrics, our metric scoring system, uh, and we can explain to them what, uh, what it takes to get into our portfolios. Uh, so I think that our research carries a lot of weight out there. And I think that because we're quite selective, I mean, we are very concentrated. As I just mentioned, in our flagship public fund, we're down to 32 names. And so, we are showcasing these companies as w- the, the companies that we think, in the public markets, are the most innovative and most disruptively so, and, uh, you know, that we have, um, that we have found out there. Now, we can do this in the private world. And I do believe our s- selectivity, which is a function of our research, we know what we're looking for. I can go... Now, we don't own this yet, but I can tell you this story. We did with, um, with Square, now called Block, um, when the brouhaha erupted over, uh, Elon putting Bitcoin on Tesla's balance sheet, and the environmentalists saying, "What are you doing? This is so, uh, environmentally unfriendly," we turned around, and with Block, were able to show how, if you incorporate Bitcoin into, uh, uh, utility ecosystems, so that they earn more money for that extra power from sunshine or wind that they would just waste, and instead, they put it, when their storage is full, into Bitcoin mining, they can overbuild solar and wind, or you can put Bitcoin mining machines into natural gas fields and take the flares, which are pure methane, which is like 150 times more toxic s- than carbon dioxide in year one, you can turn that into Bitcoin mining, and do that around the world. So, Exxon's doing that at six different, uh, maybe many more now, fields around the world. So, we were able...... um, with our research to go back and say, "Okay, what companies out there are doing this?" Well, we found a private company, Crusoe Energy. "Oh, let's talk to them." And, uh, we were able to talk to them. And we said, you know, "We've been looking for you." That is a very appealing, um, comment to a founder who's on a mission to do something, to blaze a trail and transform the world, make it a better place. That's what innovation does. It's very appealing to have a portfolio manager, a member of the investment committee, the leads. We have two leads. Um, so, uh, Will Summerlin and Max Friedrich have been amazing in terms of blazing a trail, getting t- really, uh, helping us to connect with, uh, all of these, uh, venture capital firms, you know, the best of the best. Um, they have just opened doors. I think ARK has opened doors. Our research has o- opened doors. And, uh, so you know, we are getting, um, we are getting more than our fair share of attention, uh, in terms of the VC space, both from the VCs-

    6. HSHarry Stebbings43:49

       I- I-

    7. CWCathie Wood43:49

       ... themselves, the best VCs, and from the best private companies out there that we believe

13. 43:55 – 46:50

    Capital Planning in an Open Evergreen Fund

    1. CWCathie Wood43:55

       are going to be transformative.

    2. HSHarry Stebbings43:57

       How does one think about capital planning in an evergreen open structure? You know, if you have a closed-end 400 million fund, you can say, "Okay, we're gonna do 20, 20 million checks. That's diversified enough. We're gonna lead Series A's," what... You can plan efficiently. In open-ended structures and evergreen structures where the capital i- is kind of varying, h- how do you think about planning? Do you want to lead? Do you have a check-sized desire? What does that construction look like?

    3. CWCathie Wood44:24

       Well, we're, we're quite small now. We're, we're wa- certainly walking before we run, um, but we have many, many more opportunities in terms of secondaries. I, I know a lot of VCs are limited to 20% secondaries. We're not limited. We don't face those limits. Um, we can use convertibles. We can get very creative with this fund, and we have a surprising, uh, degree of flexibility here. And we'll start from, right now, series B. And as we scale, uh, we'll get bigger. We will not lea- be leading deals right now. We're very grateful to the in- e- eh, for the introductions that these, um, these, uh, wonderful and top-tier venture funds are, uh, are giving us. So, um, we want to walk before we r- run. And I think the most important thing I'll say is most people, e- except for venture funds, most investors, most people in the world today do not understand how much innovation is on the way and how much we'll be able to scale into this market, and just to give you some markers there. Uh, we believe today that truly disruptive, um, uh, technologically enabled innovation is priced in the global markets, public and private, at somewhere in the $7 to $8 trillion range. So, it's less than 10% of the global equity cap, public and private. Um, we believe that $7 to $8 trillion is going to $210 trillion in, uh, i- in the next eight to 10 years. So, that's a 30-fold increase. Uh, so we think there's gonna be incredible opportunities, but we're going to need, uh, uh, we're going to need strategies that can really scale and stick with it. We're evergreen. We wanna be with companies from early stage to mega-cap. And we

14. 46:50 – 49:03

    The Risk of Investing with ARK

    1. CWCathie Wood46:50

       can because of our structure.

    2. HSHarry Stebbings46:53

       A final question before we do a quick-fire. You know, when you think about the bet that people are taking on you and investing in your fund, for the venture fund, if I say it for me, it's that I can convert, you know, bluntly, a media company into a top-tier investment firm. That is the risk. You buy it or you don't. Like, fair enough, whate- whatever way you wanna go. (laughs) I obviously buy it. Um, but, like, what's the risk that people are underwriting when they're evaluating, "Do I invest or not into ARK's inv- into ARK's venture fund?"

    3. CWCathie Wood47:22

       Uh, w- well, they're taking the same risk that they're taking, uh, with our... Uh, we call ourselves... Before we started the venture, we, we described so that people could really understand what we were doing in the public markets, we said, "We are the closest you will find to a venture capital fund in the public equity markets, and you have to have a long-term investment time horizon in or... A- and, and, and the stomach to deal with the volatility if you are goi- if you need to look at your portfolios every day." And they will be able to look at their portfolios here every day now, and, because everything will be mark to market every day. Um, now, of course, there will be liquidity events, will pop the, the, the venture, eh, just as a takeover would pop, uh, our public funds. But if you don't have that long-term investment time horizon and, and a real, and r-... real conviction that the innovation that we're seeing today is going to create massive investment opportunities. Um, if you don't believe that as a starting point, then you shouldn't be involved. If you can't have a long-term time horizon, you probably shouldn't be involved or just with $500, maybe you can take that risk, because that is our minimum.

    4. HSHarry Stebbings48:49

       I, I, I totally get you. I, I do, I could talk to you all day, but I, I do wanna move into a quick fire round because otherwise it's (laughs) -

    5. CWCathie Wood48:56

       (laughs)

    6. HSHarry Stebbings48:56

       ... 20 Minute VC just doesn't, y- make sense of a name anymore.

    7. CWCathie Wood48:59

       (laughs)

    8. HSHarry Stebbings48:59

       Um, but, uh, (laughs) ... Terrible name, why did I call it that? Um-

    9. CWCathie Wood49:02

       (laughs)

    10. HSHarry Stebbings49:02

        ... so I say a short statement,

15. 49:03 – 49:36

    Cathie’s Favourite Book

    1. HSHarry Stebbings49:03

       you give me your immediate thoughts. Does that sound okay?

    2. CWCathie Wood49:05

       Okay.

    3. HSHarry Stebbings49:07

       So Kathy, what's the favorite book and why?

    4. CWCathie Wood49:11

       Well, I'm known for saying the Bible, and the reason is obvious there. But, the, in terms of innovation, uh, The Emperor, uh, of All Maladies. So, the biography of cancer and how we turn cancer from man's worst enemy to man's best friend, just like we turned wild dogs from man's worst enemy

16. 49:36 – 50:55

    Why Facebook is a Value Stock

    1. CWCathie Wood49:36

       to man's best friend.

    2. HSHarry Stebbings49:39

       How do you evaluate Facebook's current state? I read Brad Gersten's letter recently. (laughs)

    3. CWCathie Wood49:45

       I think that Mark Zuckerberg, uh, i- is probably investing in i- an idea be- uh, before its time, really. Uh, when I think about metaverse, I think about Zoom. We're already in the metaverse in Zoom, and, you know, who knows where Zoom's going to take that. So, um, uh, so a little bit before its time. However, I'll, just in looking at their last quarterly results, I am shocked at their engagement still. Uh, this is becoming a value stock. We're not value investors, it's not what we do, but if I were in the public markets as a value investor, I might take a look at this because its engagement, so, uh, daily average users over monthly average users, 67%. Hasn't changed. It has three billion plus users. It's pretty astonishing what they've done. I think they're gonna have to pivot away from this, uh, or pivot and maybe have a more graceful entry into the metaverse instead of brute force.

    4. HSHarry Stebbings50:53

       I think TikTok's the $2 trillion

17. 50:55 – 53:17

    Elon and Twitter

    1. HSHarry Stebbings50:55

       power course, um, to be honest. (laughs) Um-

    2. CWCathie Wood50:57

       Yes.

    3. HSHarry Stebbings50:58

       ... uh, uh, w- tell me, uh, Elon and Twitter, what do we think of what's happened there?

    4. CWCathie Wood51:03

       You know, I am pretty excited about this. Um, m- you know, we, our best social network to getting the word out, engaging with p- people is Twitter. It truly is the global public town square. And I find, you know, there, there, there are a lot of ways he could go, uh, with this. He's talking about subscription along with advertising, and most people don't think that will work, but I'm an old newspaper analyst and that worked really well back then. So, I think he's going to try and iterate and test. Vine, I remember my son using Vine, that was TikTok. I watched my son, he was six years old at the time or whatever, um, but he loved it and it was just a little before its time. Hey, you never know. And I also think, now this is the wild card answer, Elon is a big fan of vertical integration, right? And when you think of Tesla, what is Tesla? It's the internet on wheels, right? It's a computer on wheels. Um, okay, he's got that vertical integration right. Well, a lot of people are getting annoyed at Apple for its, uh, walled garden. I wouldn't be surprised if, uh, somehow, uh, Elon figured out a way to disrupt Apple. I don't know. There's n- there's, uh, you've got the, the car is the ultimate mobile device, but it does equip him, in some sense, uh, to understand what it takes, uh, to deliver a mobile device and an everything app. And, you know, we have, uh, looked at WeChat Pay and, you know, the, the opportunity in digital wallets, it's enormous. And with Square or Block Cash App, you know, Jack Dorsey is, uh, and Elon, they've been talking, you could tell from all the docs that were released around the case. Uh, I wouldn't be surprised if they got together and we had one of the most interesting digital

18. 53:17 – 55:17

    Best Investment Advice Cathie Ever Received

    1. CWCathie Wood53:17

       wallet opportunities ever.

    2. HSHarry Stebbings53:19

       What's the best investment advice you've ever received? Mine is, "This too shall pass." (laughs)

    3. CWCathie Wood53:25

       (laughs)

    4. HSHarry Stebbings53:25

       I remember it often. (laughs)

    5. CWCathie Wood53:27

       Well, I guess, uh, mine is, if you have the evidence, uh, data, if you're data-driven and the world is saying one thing, they're sure that inflation is a problem and that it's, n- it's, it's gonna be impossible to get rid of, and you have data that's telling you the opposite, and you start betting in the opposite direction based on the data, especially if the data accumulates, which it is, uh, you're gonna make a lot of money. And so, our strategy, having been as destroyed by this fear of inflation, is, you know, a prime gande- candidate for that beneficiary. Now, consider the source-

    6. HSHarry Stebbings54:12

       How would you-

    7. CWCathie Wood54:12

       ... consider the source.

    8. HSHarry Stebbings54:13

       (laughs) How would you describe your relationship to money, Kathy?

    9. CWCathie Wood54:18

       My relationship to money? Well, I, (laughs) I don't...... here is how I would describe it. Where I have conviction, you know, I ... And, and this is more on the investing side. I think advisors looking at how I have, uh, positioned my own portfolio are shocked at how much I'm all into innovation between our funds, uh, crypto, and, uh, private funds. So, um, I, uh, I feel I'm very blessed to be able to take this risk, you know, so that I can just, you know, vote, uh, w- you know, with my conviction. And I don't have to be as well-diversified as others do. So, I don't really think about it too much. Uh, you know, I'm really focused. Honestly, I'm focused on, on ARKK and

19. 55:17 – 56:22

    Where would you put all your money?

    1. CWCathie Wood55:17

       making sure we're doing the right thing for our clients.

    2. HSHarry Stebbings55:20

       You can put all of your money in one company. Which company do you put it in?

    3. CWCathie Wood55:26

       Okay. Um, well, I, uh, because we believe the autonomous opportunity is massive and is not priced at all in Tesla's stock, uh, we would still put Tesla n- n- near the top or at the top of the pack. If you look in the flagship fund, it toggles between first and second. Zoom, I mentioned, is already in the metaverse, and yet people are treating it as a stay-at-home COVID, uh, play, when we think it is the fir- the, it and Microsoft are the two beneficiaries of the first rip-and-replace cycle that we've seen in the enterprise communication space since the early '90s, when Cisco was building out the internet. Now, but, but that was on-prem and hardware-oriented. Now, we're moving into the cloud. And it's not

20. 56:22 – 58:23

    Future of ARK

    1. CWCathie Wood56:22

       Cisco taking us there, it's Microsoft and Zoom.

    2. HSHarry Stebbings56:26

       Final one. ARKK. This is, this is your life's work. What do you want it to be in 20, 30 years time?

    3. CWCathie Wood56:35

       Oh, I, I want it to be what it is now. I want it to be a, you know, known first and foremost for its deep research into technologically-enabled innovation, to he- uh, for a couple of reasons. Not only to make sure that we are on the right side of change for, from an investment point of view, uh, meaning we are getting people away from those benchmarks which are, we think, going to fall into disfavor, and getting them onto the right side of change. They're short innovation now. Uh, we'd like them to get long innovation, truly disruptive innovation. But I'd also like it to be a place where anyone can come, parents, grandparents, professors, grade school teachers, and, um, and learn how the world's going to work, so that they can educate their children, their grandchildren, their students, you know, um, how the world's going to work, and get them on the right side of change. Because let me tell you, there are so many amazing things happening now, so many opportunities opening up, that, uh, those who do move onto the right side of change are gonna have wonderful lives.

    4. HSHarry Stebbings58:04

       Kathie, I've absolutely loved this, as you can tell from my wayward questions.

    5. CWCathie Wood58:07

       (laughs)

    6. HSHarry Stebbings58:07

       Thank you so much for joining me today, and you've been a wonderful guest. (laughs)

    7. CWCathie Wood58:10

       No, thank you, Harry. Thank you for doing all of the homework you did, and for the great questions, and for the tough questions. Those are how people get to know us best. So, thank you, Harry.

Episode duration: 58:23