Transforming Finance: Empowering Asset Owners and Disrupting Rent-Seeking

Key Quotes

"I can't say that I was inspired by what I found within the bowels of the financial services industry. Well, I mean, just the process of first of all being an investment banker and learning what it meant to do transactions was not what I thought it meant. I truly did believe that we were the center of this important institution that was allocating capital between asset owners and projects. It was much more self-serving than that."

Ashby Monk explains that his early experiences in investment banking and venture capital were disillusioning. Monk believed these roles were about allocating capital between asset owners and projects, but he found them to be more self-serving. This realization contributed to his shift towards academia and a desire to understand the financial services industry more deeply.

"The problem is the assumptions that went into those models were just as suspect as the selection bias that might be in a case study. So rational actors and efficient markets, I mean, I think sitting here today, 2017, I think we'd all obviously agree that that's crazy because we are all crazy, so we're not rational."

Ashby Monk critiques traditional economic models, particularly those relying on assumptions of rational actors and efficient markets. Monk argues that these theoretical constructs are flawed because human behavior is inherently irrational. He prefers a "bottom-up" approach to understanding economic activity, which builds theory from empirical data and case studies rather than abstract models.

"The Canadian model to exist because it's quasi-private. So the boards of directors of these public entities can set comp in such a way that they can recruit and retain very high-quality people. And the reason they do that is they've done this massive analysis of the fees and costs paid to external managers, and they've decided, 'Well, listen, what if we did this ourselves and stomach the political damage of paying public employees $7 million a year?'"

Ashby Monk highlights a key structural advantage of Canadian pension plans. Monk explains that their quasi-private legal structure allows boards to set compensation competitive enough to attract and retain top talent. This internal capability is driven by an analysis of external management fees, leading them to manage assets in-house to reduce costs.

"Australia, they did this incredible mandate that all individuals have to contribute, it's going towards 12%, it may even go higher than that now that I think of it, of their income into a super fund. The super funds, so you're already getting enough money into the door, that's important. Beyond that, they also are professionally managed and increasingly professionally managed as you're seeing consolidation among the super funds."

Ashby Monk describes the Australian superannuation system as a successful model for retirement savings. Monk points to a mandatory contribution mandate for individuals, ensuring sufficient capital inflow. He also emphasizes the professional management and increasing consolidation of these funds, creating what he considers globally leading retirement organizations.

"People are so sick of me talking about fees, but this is my chance, right, to tell people why the hell I'm on this soapbox. So I spent 10 years trying to figure out how do we change the behavior of the big asset owners? And why did I want to do that? Well, first and foremost, I think the financial services industry is capturing too much value. It's distorting incentives. We have this increasingly short horizon of investment, despite the fact that we have $100 trillion in long-term capital."

Ashby Monk expresses his strong conviction about the impact of fees in the financial services industry. Monk states that the industry captures an excessive amount of value, which distorts incentives and promotes short-term investment horizons. He argues that this is problematic given the vast amount of long-term capital available.

"I have an interesting love-hate relationship with the hedge fund space because it appalls me that we are dragging some of the best and brightest minds of society, chemists, physicists, mathematicians, away from what I would describe as more traditionally value-adding activities and into the pursuit of basis points through a black box that is barely socially valuable, if at all."

Ashby Monk shares his critical view of the hedge fund industry's impact on talent allocation. Monk finds it regrettable that highly intelligent individuals are drawn away from potentially more socially beneficial pursuits into the complex, often opaque, world of hedge fund management. He questions the overall social value generated by this shift.

"The most interesting company is a company I started. So I started a company with Lindsay Holden called Long Game. And Long Game is about trying to help people save money who struggle to save money. We started this company about a year and a half, maybe two years ago."

Ashby Monk identifies Long Game as his most interesting current venture. Monk explains that he co-founded Long Game with Lindsay Holden to address the challenge of personal savings for individuals who struggle to save. He highlights the company's mission to help these individuals build savings.

"My parents were incredible role models in the sense that incredible loyalty, honesty, and integrity. I think my dad, when I was young, would often talk about the higher interest, and he would invoke the Steve Jobs quote all the time in our family, 'You just got to put a dent in the universe.'"

Ashby Monk attributes his core values to his parents' influence. Monk describes his parents as exemplars of loyalty, honesty, and integrity. He recalls his father frequently referencing Steve Jobs' quote about making an impact, which instilled in Monk a drive to pursue socially useful endeavors.