Starbucks' former chair on why patient owners win

Brandon (00:22) Hello everyone. I'm so excited to welcome Ms. Mellody Hobson to the Owner Mode Summit. She is a groundbreaker in so many different ways that you can break ground from being the first black woman chair of a Fortune 500 company to building one of the biggest

asset management firms to writing books and ultimately spreading this idea of wealth. And this is what the Owner Mode Summit is about. High earners who are looking to shift from earner to owner. Mellody is taking time out of her busy schedule to share some of what brought her to the point she is today and also some of the things, the really exciting things she's working on now. So with that, Mellody, thank you so much for joining the Owner Mode Summit. Thank you for having me. Okay, so our audience is kind of confronting what

I know you see as one of the biggest kind of issues facing our time, which is the ownership question, Underlying health disparities, education disparities, housing disparities, oftentimes is a ownership disparity. Control, freedom, all these things are associated with ownership. For me and the folks in our audience, they've done everything right. They've gotten the right degrees, they're working at the right careers, right? But they don't necessarily have ownership. And a lot of the ownership they have is in...

401ks, the index funds, the public markets. We are here to talk about the private market specifically. I would love to hear your perspective on what the average person who's not really invested in the private markets is missing and why is this the moment to pay attention? Well, I think that I always want to very much underscore having a diversified portfolio. And so it's not one thing that makes for a long-term investing success.

Diversification, I think, is a great way of achieving long-term goals. This is one more form of diversification. So it's not the thing, it's one more thing, from my perspective, that I think helps augment long-term investment returns. Private markets have done very well over time. And the one thing that I would say that is very different when investing in private markets is time.

You don't have the liquidity. You can't go and just change your mind and sell as easily. so recognizing you're, you're exposing yourself to a longer term investment period that is really necessary to generate the returns that have been generated in the past. And you, you know, your journey at Ariel, has gone from being one of the top performing public market platforms to now moving into the private markets. Can you share a little bit around?

that story and you kind of shaping the vision for the next era of Ariel? Sure. We have been a long-term public markets investor. We cut our teeth and are really known for investing in small and mid cap companies dating all the way back to our inception 43 years ago. And then we evolved over time. We got involved in international and global public market investing in 2011.

And then in recent years, we evolved into emerging markets, public investing. And that has all been just absolutely a part of our wheelhouse investing in things that are widely misunderstood or under followed investing in public companies. We expanded that same kind of investment thesis into the private markets starting in 2023, 24 with our first fund, Project Black, which seeks to invest to scale sustainable minority businesses.

that can be tier one suppliers to Fortune 500 companies. That fund is deploying capital and it's on its way. And in more recent period last year, we launched Project Level, which is seeking to invest in women's sports. It's a dedicated women's sports fund. And it's exactly again, just in keeping what we do at Ariel, investing in misunderstood, ignored and under followed areas. I call women's sports the small caps of sports.

Yeah. And it's a lot of excitement around women's sports in general, and particularly Project Level. And this is something I want to tap into now specifically from two angles. I would say Project Level is probably one of the most exciting things happening right now in private investing. And these are types of opportunities that a lot of folks within our network would love to participate in, especially with the groundbreaker like Mellody Hobson. But there's the realities of access, right? And access infrastructure and just the way things are set up right now.

Not everyone is qualified to have access to everything. Can you maybe just share some of the landscape around how you think about access and particularly as it applies to what you're doing with Project Level? Well, the one thing about the private markets, there's a lot of conversation about how that will evolve in terms of private market funds being included in 401k plans. We're in the early, early, early days of that. And I am a big believer in just a lot of education before people.

put their hard earned money into something that they may not understand. So that's one thing. And I've talked about the long-term horizon and the like that I think is really necessary in order to achieve investment returns in general, but are particularly specific to private market investment returns. I think that access over time will grow. Right now, our access is limited to investors who could make a commitment of $5 million or more. And so we know that does limit the investment

opportunity to, to high net worth individuals. And that is just has to do a lot with the mechanics of, of running a fund like this and the challenges of smaller amounts. But I think that's going to change over time with operational breakthroughs and a lot of things, things I think will happen that will make it easier for, for everyday investors to have access to private markets. so you

You have your purview as you see, as you mentioned alternatives, international public equities, you've seen it all done at all. What was it, you you you call, I think women's sports as kind of like the new micro caps of sports, you know, tell us more about why this specific opportunity was so exciting to you to pursue. Well, one of the things I just think we're in a once-in-a-generation inflection point in sports, and it's going to the growth is going to be driven driven by women. We're seeing it already.

No matter what statistic you look at, sponsorship, media rights, girls playing sports, attendance at games, merchandise sales, all the arrows are straight up and to the right when it comes to women's sports. The women's sporting phenomenon is not new, but it is caught on in a very different way in our society. And we're seeing just fans light up to women's sports.

And that is going to drive long-term value creation for teams, for emerging leagues and junior sports, and for ancillary businesses around those women's teams and businesses that will benefit from the growth of women's sports. And I love you have probably the most stellar track record when it comes to building out platforms that think about the underserved, right? And so everything from Project Black to now Project Level, you're looking at what

you see clearly as an opportunity, but other folks may be a little bit late to the party. But there's still kind of this standpoint of what is the future of innovation around ownership? Because as you mentioned, there's real barriers in place for individual folks, right? So I'm going to get the Project Level gear. We're going to be rocking it, know, as fans and checking out games, et cetera. But what do you see as the evolution of private market? As you see, you mentioned there's going to be probably operational innovation that allows for

the administration for smaller checks. But then you also see things where there's like team ownership, there's carve outs for ownership. Is there anything you could speak to with regards to what you kind of see as maybe the future of ownership with regards to not just private markets, but even sports specifically? Well, I think over time, this will all come to individual investors. And I just think that we're in this inflection point that makes it something that will happen, but it isn't here today yet.

I think that one of the things I believe very strongly is I think access to opportunity is, and the capitalist system that we have is what creates long-term wealth for individuals and being able to democratize that asset, that access I think is very, very, very important. We still have hurdles. There are all sorts of hurdles around team ownership and things like that that need to still be figured out.

but I think it will come with time. I just think that we're in very, very, very early days of this. The one thing I would tell you about private ownership and private equity in general, there have always been angel networks. There've always been angel investors where you could go in and invest in a business. But again, understanding the risks and rewards that can come with that. There can be higher risks in those regards.

and higher rewards and before just jumping in and something. And we all know it, it could be a friend starting a business, it could be all sorts of things that we've seen over a time. Understanding what kind of risks you're taking, especially if it's unregulated, is something that I think is very important. In the private markets, the regulation is there, the businesses are real. I just think that getting that access to individuals because of the lockup and things like that will take a little bit of time.

Yeah, and I can relate to that. a great transition to the next question. Myself as a private markets investor, the illiquidity, right? That's a real thing. I think for myself, you know, just now seeing, you know, liquidity events 10 years in, this is a hard pill to swallow for many individual investors. And I sit on the board of a multi-billion dollar organization and our assets were allocated to private market investments performed extremely well.

But you also had the mark to market kind of question, which is now how are we looking in? There's always, so would you, you know, maybe talk as you kind of made the entree from a platform perspective into private investing. What are some of the harder lessons you learned about private market investing that you wish someone had told you? Well, I think that I've been in the investment business for the last 35 years. I personally invested in private equity during that period. So I think I had a very good sense. I think.

All investing is hard. think most businesses are hard. So it's not a function of one thing that's very different here. I think that there are lots of similar similarities. The liquidity differences is definitely there. But no matter what, I think as an investor, you want to buy really good businesses. I think from the Ariel perspective that have brands and franchises that have moats around them that are able to protect themselves from competition.

and grow over time. Sports certainly creates that opportunity just because of the limited number of teams as an example. But I think that, you you also have to recognize that the difference with the private markets, which I'm saying the same thing over and over again, is the lockup and the time. And that does make it, you can't just sell when something doesn't go well. It doesn't work like that. Yeah. And

We talk about this a lot. You we think about the wealthiest folks with the most resources. What are the advantages available to them? So for one is access. It's ability to have investments for a longer horizon term. And you see what the Sequoias, the Andreessens of the world, they are now building basically kind of forever funds, right? They're going to, to partners and say, hey, look, you know, a lot of what we're doing is just because we need to, you know, show you certain returns. But at the end of the day, a lot of the large returns are going to come from us finding these best investments and sticking with those investments.

And then obviously you don't pay the taxes as well, right? When you liquidate. And so do you see that forever model as being a fundamental opportunity for individuals and for platforms to think about value creation over time? And I guess for me, the question would be what type of mental shift do you think we need to understand value creation over the long term? I think that's a mental shift we shouldn't make. I think that's the one we have to understand. Investing is a long-term proposition, be it

public markets, private markets. I think that's the piece. You can't time this. You know, there's a long standing, it's the time in the market, not timing the market that leads to long-term success. And so these same rules apply. And I don't think I see those changing at all. If you're about creating long-term great returns. That's always been the mentality is just a different instrument applied to the same mindset, which is long-term value creation.

We have a turtle as a logo in Ariel. So we're very much committed to this idea of slow and steady winning the race. So for someone in our audience, they have capital, they have credentials, they have intent. We talked about syndicate investing, which is something we do. And obviously we think about what you're doing and some of the exciting things that are happening in alternative investment space. We love to kind of play a part in that. But you mentioned syndicate investments. You mentioned that maybe 401ks at some point might hold private investments. We'll see how that goes.

What would you advise someone to do? We talked about thinking long-term, we talked about understanding diversification, maybe doing some homework. But what would be the playbook that you would run if you were someone who's really thinking about entering this space for the first time? Okay, so first of all, I'd be looking at the rest of my portfolio first. Do I have all of my ducks in a row? I would not be running to private equity if I haven't, you know, I don't have a diversified stock and bond portfolio already. This would be an add-on.

not an anchor. I think that's a very, very different perspective. And then once you felt that you had a diversified portfolio, it would be trying to seek through and a financial advisor, most likely, because those deals are not going to come through directly, a financial advisor who's syndicating access to private equity. That would be the way that I would go. Got it. Another kind of dynamic that's facing, I think, the high earning professionals specifically, a lot of folks who are

10 year, 15 years at a Google or JPMorgan, et cetera, is all the AI talk, right? And there's a question of what's real, what's not real. But I do think folks are seeing that there's a lot of capabilities quickly being able to be executed by non-humans, know, AIs. A lot of people have been surprised to see how fast this happened for knowledge workers, lawyers, know, financial analysts, et cetera. How much, from your perspective, do you think someone's position

well right now, but they're thinking about kind of what's happening now. How would you kind of think about as a seasoned professional who may see some of the work or the work they used to do kind of being encroached on by AI and somewhat shaking the foundation of kind of what they signed up for, which is a long career in corporate America. How do you see that trend playing out? Not just in terms of what you see happening in corporate America, but also specifically how someone should be thinking about their portfolio. I think those are two separate questions. I think the first one is that

the world is going to change pretty dramatically. It did with the advent of radio, television, we saw it with the internet and we're gonna see it now with AI, probably in a amped up way, more significant than any of those things that came before. I think that it will fundamentally change how we work. will not, you know, it won't make us smarter per se. And that example I give all the time is, you know, I have a 12 year old child who has access to information.

when she does research, she doesn't go to the library and use the Dewey Decimal System. She can Google what she needs to know. But I don't think she's smarter because of that. I think she just has more access to information. And so, you know, in terms of critical thinking skills and the like, I think you still have to really work your brain in order to develop those. And that's not, that doesn't come with easy answers if you want to be really great at something. So I think that that is something that is

fundamental to this answer. I think how we work will be different. But I think that, you know, the opportunity to still outperform and do extremely well with great ideas and vision and hard work and the like, I think they all, all of those things will stay the same. I think entry level positions will be very different because machines will be able to do things that humans could do before. And so it's the critical thinking skills that will become more and more valuable to me.

Now, of course, they say, well, the machine will be smarter than us. Maybe. And, you know, maybe there's still a ways to go with the hallucinations and with the fine tuning of these things. So there's still time. But I also think that humans bring something that will continue to be very valuable. And there are certain jobs, especially where we will be instrumental. So the world will change. That has happened before. People don't drive.

carriages, know, there aren't buggy whip drivers. We don't make buggy whips. But at the turn of the century, the turn of the 20th century, I don't think you could have imagined a job like a masseuse. So I think there'll be things that we'll never anticipate. Things we do today that we've done for a long time that will basically go away. In terms of the investment portfolio, I think that all businesses are tech businesses now. All.

It's not about one area of AI. I think everything has been disrupted by tech, no matter what it is, from television to how we do certain industrial processes to medicine. I could just go on and on. And so I don't think this is a question of one thing or another. It's all at this point.

I love that because you always kind of come back to these eternal themes as you mentioned, right? Where it's like long-term thinking, growth mindset, know, embrace these as tools versus challenges, which I think in today's world is so hard to think like that because there's so much happening at once. I know you're in some serious rooms. You sit on the board of JPMorgan. There's a lot of just conversation about how quickly things are moving. What is your information diet? How do you, you know, divide the noise from the signal? There's so much happening at once.

How does Mellody Hobson parse out where she needs to focus her time when she's consuming information? Well, first of all, think first you have to read and you have to read consistently. And, you know, I feel very strongly about that. I read newspapers, I know, old school, in the morning. And I read the New York Times and the Wall Street Journal. I read USA Today, the Financial Times, and New York Times, Wall Street Journal. Yeah, those four papers every day.

And I think that's just very important, the consistency of reading and processing information. There are a lot of newsletters I read every day, Bloomberg, I read a number of sports related newsletters for our sports business, specifically related to women's sports. There are just a whole host of things that I read. So consuming information is a big part of my job. And I think all jobs, Warren Buffett and Charlie Munger, the great investors, used to always say, if you want to be successful in the investment business,

buy reading glasses. But that is one fundamental things that you need to do is process information. I also think, you my husband always says, your focus is your reality. What you focus on is who you are. And so I try to focus on the essential things that have to do with my job and my life and not get distracted as much as I possibly can in a world of lots and lots and lots of distractions. And asking yourself how this information is going to make you better, or this conversation will make you better. What can I learn?

And in any conversation I'm in, notwithstanding this one where you're interviewing me, I'm always trying to ask questions, you know, to make sure that I'm probing and being very, very curious and not just, you know, just sitting and receiving or taking what I need. I want to be engaged in a way that says, can I walk away better from this discussion? So what are some of the big questions that Mellody Hobson is thinking about right now? What are some of the bigger questions that...

that, you know, for you are really important to pay attention to and think through. Wow. There's a lot. The list is so long. I have to like how to be more efficient. I ask myself that every day, how to be better, how to keep my mind sharp, how to make sure that I'm not overwhelmed, how, as it relates to our business, how to be smarter about how we run our business, how to make sure that

We are making really good decisions that we have great people who want to work here and want to stay. I mean, it's an endless list. How do you juggle all the things that I need to juggle? And just doing that, but trying to just always be thoughtful and disciplined. I try not to react to things. I try to respond. There is a difference. Reaction feels very knee-jerk to me, and that's something I try not to do. Try to take being very measured.

about how I do things, but there are, the world has a lot of big questions at hand, a lot. And the world has become a more challenging place. And that is something that I try to be very realistic about and think about where, what that means for me, us, and our broader society. What can I do about that? As opposed to just being a bystander. Yeah. And I, you know, I think we, one of the things we really respect about you is

As you continue to ascend and break new ground, you're always giving back and sharing the lessons. That's why you're here now. We appreciate it. You're a mom, you're a wife, you're a leader, you're an investor, you're a lot of things. And it seems like, you we talked about the information diet, the human connection component of things today. I wonder, right, as we think about what's happening globally, as we think about what's happening in the United States, when we think about kind of the AI piece, can you share what you've known as someone who's really navigated?

just a lot of different environments and you've been able to stay true to yourself and combine learning with connecting with people. What are some of the lessons that you would share with folks who are navigating to so much change around the human connection piece and how important that is? Life goes on. My husband always says this to me. Life goes on. Everything feels so at times insurmountable or hard or difficult. No matter what you think, he always says to me, no matter what the outcome, life goes on.

And he also tells me all the time, bad things happen to good people. There's a certain amount of tragedy we all must deal with in life. And we just understand we have to learn to process whatever it is that is coming our way and understand the sun will come out tomorrow. know, people will continue to do what they do. Having that perspective, I think is very, very important. And it could be having overcome something really hard or a failure.

which by the way, he always tells me failure is the path to success. That there are these things that just happen, but my big, big perspective is life goes on. I think the universe unfolds as it should. It really does. what happens to us is supposed to happen for whatever reason, even when it's difficult and painful. It may be allowing us to build up the resilience we need for the next thing. I don't know, but I've learned to

to always ask myself, what am I supposed to be learning? What am I supposed to be doing in this moment? And that has led to some great breakthroughs for me. I love that, because kind of saying life goes on, to me, it means a few things. It means be present in the moment, right? Because that's what you have. Focus on what you can control. And then in some ways, like, live fearlessly, right? Because you never know what's going to happen. If you have confidence that what's supposed to happen will happen, then you can move with the freedom of knowing that.

You know, you have a certain span of control and you should just focus on it. I love that as a navigational tool in a really crazy time. Oli, give us one last gem, if you will. For the audience here, high earning folks, they're doing well from the perspective of their friends and their circles, but they are thinking about this transition to becoming an owner. A lot of ways to do it, entrepreneurship, investing in public equities, investing in private markets. But it feels like things are different in terms of kind of getting your ducks in order.

getting your ducks in a row, having a foundation that's strong. What would you leave people with kind of in that situation? Well, I would tell you one thing, which I do. I'm saying the same thing, but I want to say it's slightly different. If you're going to be an owner, be a patient owner. Again, understand the businesses take time for them to be able to demonstrate who and what they are. And you look back to great businesses, Apple, Microsoft, I could go on and on. There were decades of work that led to that. NVIDIA.

You know, all of these companies we hear about today, people just put in the work and put in the time. So if you're going to be an owner of that business, help that entrepreneur to be able to live to fight another day and not be the person who is, is, looking for quick riches because nothing works that way. Literally nothing. Hmm. Especially in today's age where everything is so fast and scrollable.

With that, thank you so much, Mellody. It's been such a pleasure to kind of get your perspective as someone who's in every room around all the change that's happening and sharing some insights on private markets. With that, the audience, give Ms. Mellody Hobson a virtual round of applause. Thank you so much for joining the Owner Mode Summit. We really appreciate what you're building and excited about what's next.