YouSaid · the spoken record

Ben Savage

lines on the record: 69
first: 2019-12-17
most recent: 2019-12-17
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“And a spread bet, you're actually transforming a little bit the nature of that risk profile. And so here, if you imagine that student loans, if they were priced accurately, which we know because of the government distortion, they're not, there was some kind of underlying bet on aggregate sort of economic health that's kind of driving it, and then some idiosyncratic thing that's through spread kind of tied to you, which is not at all how these loans price, by the way. When you go to income share agreements, it's just much cleaner. The people who do it are actually underwriting you. They're underwriting where you went to school, what your major is, what you tell them you're going to try to do as a career, what grades you get. You can imagine a very extended data set of things. So you get kind of higher resolution risk pricing, and that's a thing that I think technology does very, very well, is it creates a much higher granularity at which we can price a risk. And so in ICES, at least in theory, you can see this where we're underwriting an individual person.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“And so, as a policy matter, it just doesn't really work. One of the ways that people are thinking about trying to fix it is through an income share agreement, where now I sort of lend you the money, but it's not really a debt asset. It looks more like an equity type of investment because the way you're going to repay me is through some percentage of your income over time. And what that means is that I might get back significantly more money than I lent you. I also might get back less. So I'm taking more risk in the process of giving you some money. But in aggregate, because on some borrowers, I'm going to make more than I ever lent through the income share, it works out sort of better from a public policy perspective and from the whole. And so what happens when you shift from kind of a credit instrument to an equity instrument in capital markets, you are mechanically accessing a different beta. We talk about an equity risk premium that's different from something that you see in credit, even in something like corporate credit where you're taking a direction.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think there are many. I'll talk about one that I find sort of a curious one. I frankly don't know that I have super refined thoughts on it, but I think it's just going to happen over the next generation. And so it's worth talking about, which is income share agreements. So ISAs, as they're called, are a kind of fascinating financial instrument. And there have been experiments in this thing for a while now. But the basic idea is it's typically applied to students. So you could imagine that I make a student loan to you in the conventional way where I lend you money and there are some terms around that. And then over time you pay back or you default on it. In the US anyway, we have turned the student loan industry into this kind of horrible thing that ends up not really working for anyone over the long run. And collectively all of us are going to be on the hook for it because so much of our student loan industry has been essentially guaranteed by the government and it seems almost inexorable that that will not get repaid.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“It actually suddenly becomes efficient. And if you imagine rolling up an awful lot of houses into pools of risk, then suddenly they become tradable. And that's exactly what happened in the mortgage market. And so that pool of senior debt in turn downstream gets hypotheticated enormously. But what we're just starting to see now through FinTech are companies that are changing the risk profiles at the sort of point of origination at the asset level rather than at the bundled level. So we're investors, for instance, in a company called Landed, which what they fundamentally do is they allow school teachers to buy houses, to buy their first home. The basic idea says you're a school teacher, you're actually a tremendous borrower from an underwriter's perspective if you want to give a mortgage because you're”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“Corporate. It is radically more complicated. There's layers and layers of debt, and there's layers of different equities securitizations. And they've got mez pieces, and there's options, and there's this incredibly ornate, elaborate superstructure of ways to address and refine the risk profiles inside big corporations. And you'd go, okay, well, that makes sense. Corporations have a lot of value. They're very valuable things. So if I have something that's worth $100 billion or $10 billion or even a billion dollars, I can kind of carve it up and it's efficient for me to carve it up into other slices of risk. But if I have a house and it's worth $300,000 or a million dollars or even a three or four million dollar house, is it really going to be efficient for me to take the time to kind of carve that risk stack up and create some mez security on Patrick's house that's a certain amount of market cap, who's really going to trade it? Well, it turns out if you have technology to do that,”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I think one really big category that we're far from the only people think about is in real estate. And I alluded a little while ago to the sort of invention of mortgage securitizations in the 80s and the sheer size of that market. One of the things that's kind of funny about just taking the United States single family owner-occupied houses, it is a massive market, every house in the United States that is individually owned and non-investor owned. And you go, well, what's the capital stack of a typical house? It's two classes of securities. It's a single tier of common equity. You own your equity in the house. And then a single tier of senior secured debt, which is your mortgage. And that's it for virtually every house. You have some exceptions in things like HELOX and Second Lens and stuff like that. But it's a really simple capital stack. By contrast, if you looked at corporations and you said, what's the typical capital stack of a”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“Much bigger than most people think. And the trends of what's been appealing in the art market have changed radically over the past 15 years as wealth moves in Asia. And so there are whole categories of art that suddenly people are paying attention to as a collectible category that were not meaningfully collectible 15, 20, 30 years ago. And I think that's another good example of what happens when you sort of add liquidity to what have historically been illiquid asset classes. It kind of changes the collective preference function. And so it ultimately ends up changing value because that's all markets are. There's more buyers than sellers at the end of the day. Price goes up.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“Certainly, 15 years ago, nobody thought trading of cryptocurrencies was going to be a fairly big asset class. And I think if you'd actually pitched what the cryptocurrency world today looks like to virtually anyone in the investment industry 15 years ago, they would have thought you were insane. And yet today, there's a surprising amount of that happening, and it's happening all over the world, which is the other piece of this that we sort of didn't talk about earlier. You could sell sneakers or collectible car interests to people, not just in the United States in sort of wealthy places, but literally all over the world. And so value changes a great deal when you create a much more connected global market with more heterogeneous sort of risk functions and preferences. And you see this in the art market, which is another example of the kinds of markets that are sort of unregulated, very weird liquidity, and yet there's actually a lot of market cap in art.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“And even in virtually all of these things essentially require you to be an accredited investor in some way, shape, or form, which is an example of what I mean by a huge regulatory distortion that exists in markets, where the SEC said at some point in prehistory, okay, we're going to define this group of people as accredited investors, which is essentially a wealth test. It's not even a sophistication test. They say, well, if you have money, it probably means you're sort of sophisticated enough to lose money, which is kind of on its face absurd. And by the way, the numbers haven't been updated. I mean, there's all kinds of problems with these sorts of tests. And so you have a distortion in the market. And those kinds of distortions will go away, whether through regulatory pressure or technology solutions, which are doing that in pretty real time. And it's these kinds of categories that we think can grow. And I'm not saying any one of those specifically will look back 50 years and go, oh, wow, sneaker trading is this massive asset class. But it could be.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of, hey, in the 80s, they took this massive market that was fundamentally not accessible to institutional capital and they made it visible through securitization. You see the same function happening today. That's kind of standard fair Wall Street transformation of risk. But at the other end, you see things like we were talking before, StockX is an example or Rally Road where you can trade sneakers and you can trade fractional interest in collectible cars. There are startups that allow you to trade receivables on fresh produce from farmers and circle up, which I know came on your podcast and which weren't investor in, allows institutions and accredited individuals to buy into small cap kind of private companies in the consumer market that are taking a set of risk profiles that previously weren't really available for institutions or individuals to easily get to and now buy them. add liquidity to it over time.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so I think there's a pretty broad range of these things. So at one end, you have lending club and prosper and the variety of businesses that we think of as sort of peer-to-peer lenders. They originally started that way. Now they're all essentially institutional platforms. Personal loans as a category, it's a very rapid growing area of our debt landscape. For the investors who are buying securitizations of these kinds of things, you couldn't really do that pre-credit crisis to the extent that the assets even existed. They were held on bank balance sheets. And today, there's pretty robust securitization market, and there's billions and billions of dollars of these loans that are being bought by institutions. Now, those aren't available that much anymore to sort of an individual investor, but this kind of function of taking a set of risks and securitizing them and making them accessible for investors has been happening for a long time, like Michael Lewis sort of famously writes about it happening in the mortgage market in Liarspoker. And that's a great example.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“And they are happy about that. And that's, by the way, been a really good trade for them in the past little bit. It's had real diversifying power and improved ultimately the quality of their portfolio.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, ETFs very much. We were talking before about GLD. Gold, if you imagine trying to buy gold 25 years ago as an individual investor, it was a huge pain. You had to find some store that would sell you some physical gold. They would mark it up to some price that wasn't actually reflective of the current market at that point in time. They'd probably charge you a big fee in order to do it. And then, by the way, you're lucky around a bunch of gold, which turns out to not be the most convenient thing in the world. Today, you can touch something on your screen and boom, you own GLD as an ETF. And what the ETF does is it actually adds liquidity to the market for gold. It also dramatically opens up the number of institutions and individuals who can actually go buy the thing. And it takes what was an asset that wasn't especially legible for retail investors. It was hard to deal with, hard to even see it, hard to see the benefit of it in your portfolio. And now millions of people own gold in their portfolios.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“That institutions had access to and democratizing them for individual investors first, and then the institutions kind of catch back up to it.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“In fact, over time, I think where most of the quote market cap will live or most of the value will actually end up is in what today we would think of as private markets. And there are some pretty profound implications of that for you as an investor. And whether that means you're an individual trying to sort of save for your family and for your retirement or you're a very large institutional fiduciary responsible for that task for a much larger sort of quantum of people. And for us as a venture investor in fintech, one of the things that we're particularly excited about is trying to find businesses that are kickstarting that, that are finding asset classes that historically were sort of invisible and illegible and making them accessible for people to invest in, which is kind of been the trend we were talking about before for a really long time in public markets, the rise of indexing and passive investing is in some sense about taking asset classes, strategies, ways of making money.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“Happen as a function of both regulations sort of getting weaker. I think we've probably hit peak regulation sometime around the election of President Trump. And technology driving more and more liquidity to unlock what we're traditionally sort of less liquid markets. It sort of moves the curve. So all the stuff that used to be less liquid, harder to invest in becomes slightly more liquid. At the same time, regulations kind of matter less and less. And so you get the opening up for investors whether they're institutional investors or retail investors of whole segments of risk that were sort of invisible and illegible before because they were stuck in this quadrant of this imaginary grid I'm drawing of illiquid and less regulated. And if you're a big institution or if you're an individual, you're going to look at the world, I think, in 20 years or 50 years and say, huh, most of what's actually interesting to me in terms of generating alpha.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“Useful reference frame to stop talking about public and private markets and talk about liquid or illiquid markets on one axis and then regulate it and unregulated markets on the other. And so today we have liquid regulated markets as public markets and it's a huge industry and it's created a spectacular amount of wealth for a lot of people and it's transformed the way Americans ultimately save and invest for themselves and their families over time. And it's done wonders for capital formation in the United States. There's no sort of disagreeing with that. But if you imagine on sort of a different end of the spectrum, you have venture capital, which is essentially a less liquid historically and less regulated historically market. And venture has also done a pretty good job of capital formation and driving innovation in this country. And I think broadly in the future, the world is going to move away from liquid regulated markets to what have historically been less liquid and less regulated markets.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of thing. It's really an artifact of a regulatory regime that got created following the Great Depression, which was such an outlier in human history. The degree of suffering that occurs in the Great Depression relative to what was at that point known by economists and regulators was so extraordinary that we said, wait a second, let's put some rules around how markets are going to work because essentially the great crash destroyed the US economy. And it was this feedback loop from markets that had not really been seen in that kind of way before. So we created a regulatory architecture in the United States that stabilized capital markets, but also stabilized the economy through the creation of the Fed. And once you get sort of stable economic volatility from the Fed, which essentially says we're going to dampen the economic volatility, and you get a statutory regime around markets, which dampens market volatility, you get the creation of what we think of today as public markets, which are really just liquid and exchange-traded markets. And I think it's a useful.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I think an interesting way to think about markets and think about investing is always kind of push things in time to extremes. And so if you imagine the world 100 years ago, 200 years ago, what did markets look like then? And by contrast, what do they look like today? What's different? It seems unlikely to me that there's something fundamental that's changed about human nature over those 200 years. And so while capital markets might have changed, it feels less likely that that change is deeply foundational and it's got more to do with just some curiosity of the rules essentially shifted. And you can do the same thing by imagining kind of a hundred years forward or 200 years forward. And one of the telling departures, I think, over the past hundred years or so is the idea of public and private markets, which I don't think would have been a sensible distinction to somebody investing 100 years ago or 200 years ago or Isaac Newton kind of.”
2019-12-17 · Invest Like the Best · Ben Savage – All Things Fintech Investing - [Invest Like the Best, EP.152] · IDENTIFIED FROM THE TRANSCRIPT · source