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One and welcome everybody to 
another smart money circle show.

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I'm Adam Sarhan. 
With me today is Darren Dodson, 

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who's managing Partner at Alum 
Capital with around 250 million 

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in assets under management. 
Darren, thank you so much for 

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coming on the show. 
Oh. 

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It's great to be here, so I 
always like to begin. 

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Can you tell us your story and 
how you got to where you are 

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today, please? 
Sure, I grew up in Washington, 

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DC, started. 
Looking at and understand the 

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asset management business after 
graduating from Duke University 

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and focusing on antipredatory 
lending legislation, which I 

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worked with a group of attorneys
to pass legislation in in 18 

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states to protect low income 
homeowners from predatory loans.

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After that, I had the 
opportunity during that time to 

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look at. 
Research as a power for creating

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change. 
And the research there showed 

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that loans were underwritten 
above risk to black and Latino 

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families in particular, which 
was, you know, created a lot of.

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A lot of people stuck in loans 
for reasons that hurt them as 

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overall borrowers over time, 
which is bad for banks but also 

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hurt them in terms of. 
You know, no one should pay more

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for a loan because of the race 
or color of their thick skin. 

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So using those insights ended up
going to Stanford Business 

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School and then focusing on 
underwriting for companies that 

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create positive impact in the 
world. 

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And that's been my focus for the
last 15 years of my career. 

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I did 8 years at the Calvert 
Funds where I focused on 

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investing in transformative, 
environmentally focused 

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companies as well as. 
Health tech companies before 

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starting my own firm, Alumin 
Capital, which I'm excited to 

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share more about today, perfect 
by the way, fantastic cause I 

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love that that there's 
something, there's a purpose 

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behind the mission there and 
that's really, really fantastic.

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So next is a perfect segue to my
next question. 

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Please tell us about your 
investment strategy. 

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At Alumin Capital, we're fund of
funds. 

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We're private equity venture and
growth fund of funds. 

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We focus on investing in. 
The leading impact funds in the 

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world and working with them to 
apply rigorous evidence based 

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strategies to address biases 
that prevent our managers from 

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seeing the all too often 
underestimated and overlooked 

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entrepreneurs talent within 
their hiring processes and then 

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also within their board 
construction and selection 

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processes. 
I love that. 

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So you're fund the funds, 
meaning you're looking at other 

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strategies. 
I guess it's a good segue again 

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to my next question. 
How do you handle risk and what 

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are some mistakes you see people
make with respect to risk 

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management? 
Well, one of the things that we 

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do is that we look at investing 
in an area where there's latent 

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value in the in our investment 
strategy. 

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So when we look at. 
The asset management business, 

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about $82 trillion under 
management, 1.4% of it is 

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managed by women and people of 
color. 

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So one might naturally think 
that there would be an 

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opportunity and investing in, 
you know, 50% of the universe of

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possible funds would be women 
led. 

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So we might look to women led 
firms as a potential for 

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outperformance. 
And women and people of color 

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led firms. 
In fact, our own research with 

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Stanford University where we 
systematically tested 180 asset 

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allocators and looked at their 
ability to select high 

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performing black managers versus
high performing white managers 

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controlling for a number of 
variables and we found that 

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systematically asset allocators.
Would leave money on the table 

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before investing in high 
performing black led funds which

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means that there's a tremendous 
opportunity that it for those 

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that can see the opportunity 
which is the way we spend a lot 

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of time partnering with our 
downstream funds in order to 

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unlock the verticals that we 
invest into and their ability to

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see these. 
We liken it to drive in a car 

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and if you're driving a car and 
you've ever had your. 

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Your parking break on you know 
something's going slower and 

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you're not sure what quite what 
for a while and taking the 

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blinders off and seeing 
opportunity within communities 

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that might be different that 
then fund managers meet through 

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their networks or you know 
through familiarity might in in 

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many cases given our thesis sort
of yield economic opportunities 

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that might not have seen. 
I love it. 

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I love that. 
So I guess next question for you

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from a before we well let me ask
you about the risk again. 

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So you're saying that there's 
basically a layer of the market 

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of portfolio managers that are 
allocators are under invested 10

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or under allocated towards and 
that's strictly based on their 

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race. 
So are there other indicators 

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that you use as far as finding 
these undervalued money managers

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and allocating to them? 
Do you look at strategy? 

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Do you look at beta? 
Do you look at sharp ratio, 

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anything along those lines or is
it just a race component and 

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gender? 
In the private markets, we also 

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have sector based, sector based 
strategy. 

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We have 4 sectors that we invest
into transformative 

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environmental technologies we 
look at. 

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Health enabled technologies as 
well as educational technologies

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and financial tech. 
So when we look at these 

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different areas, each of them 
have their own respective biases

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within the strategies in the 
firms and the companies that the

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respective funds we invest in to
commit to and we're able to add,

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you know our unique. 
Thinking about overcoming biases

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to each of these different 
platforms, for example, within 

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Edtech we see that underwriting 
algorithms, machine learning, 

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etcetera can apply in the biases
of a teacher so that education 

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isn't delivered in an equitable 
way. 

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So if we're interrupting those 
biases, it increases the 

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education for all students in 
the classroom. 

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And helps the firms deliver on 
important aspects that are 

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important to the education 
system. 

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Furthermore, we see in a period 
of high volatility like we're in

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high inflation, high interest 
rates, etcetera, that biases 

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increase from our social 
psychologist friends. 

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In fact, we published a paper 
with some of the leading social 

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psychologists in the world. 
And in in what we learn is that 

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in these periods of time when 
people are often making Ras 

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decisions, slowing down and 
addressing biases becomes even 

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more important. 
So I think that one of the ways 

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that we mitigate risk that you 
know whether it's Daniel 

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Kahneman talking about his Nobel
Prize winning research is under 

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these pressure oriented 
conditions where there's lots of

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emotional energy in the markets.
We're able to help our managers 

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slow down and address some of 
these biases that might occur. 

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Hey, so that makes perfect. 
So it clicked in my head as you 

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were speaking. 
Thank you for that. 

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So basically your alpha, your 
strategy, your edge is being 

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able to find cognitive biases 
that exists in all our minds and

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then help I guess narrow it down
over there to help this, I guess

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discover or find these 
undervalued assets that most 

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people would miss because it's a
blind spot for them. 

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Is that is that a good way of 
wording it? 

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That's it. 
I mean, the assumption I often 

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say, like cognitive biases as we
know from Charlie Munger and 

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Daniel Kahneman, are a very 
broad number of hundreds of 

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different biases that might show
up. 

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But we take, you know, kind of a
broad view that if 1.4% of $82 

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trillion in assets are managed 
by women and people of color, 

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one of the biggest biases that 
the market might have, 

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especially after our research 
that shows the higher people 

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perform, the more bias they face
if they're black. 

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And one of the biggest biases 
that we might see facing women 

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and people of color in the 
market is the inaccurate 

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assessment of their ability to 
outperform relative to the 

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analysis that's currently being 
done. 

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So while many cognitive biases 
may yield an opportunity in 

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markets, this one is so 
imbalanced relative to what we 

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had expect by random chance. 
That we think that there is a 

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massive value that underlies 
people's ability to properly 

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underwrite this group. 
Just like I saw, you know, 

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initially in the banking system 
where people were being 

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underwritten significantly above
risk because they were black or 

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Latino. 
Yeah, no, I love that. 

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So I wrote a book about 
psychological investing as 

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Psychological analysis and it 
was #1 in Amazon for two months 

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every day and in it. 
I yeah, So you're speaking my 

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language, so to speak. 
I have a whole section on 

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cognitive biases, and I'm very, 
very big on the whole idea of 

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the book as a teacher, how to 
make rational, not emotional 

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decisions, especially with your 
money. 

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So what you're saying here is 
it's, it's spot on. 

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Like I've got my mind going in a
gazillion different directions 

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here. 
I love that you were able to 

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take that realization you have 
and then create a whole entire 

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business around it. 
And being a fund to fund 

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manager, you can help, I guess 
find those blind spots that 

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other people would miss. 
So that to me is fascinating and

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I and brilliant by the way. 
So hats off to you. 

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I mean really, really, really 
great job. 

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Thank you. 
So. 

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OK, well, let me also give the 
audience something. 

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There's something called the 
personal blind spot bias, one of

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these cognitive biases. 
So if you ask 100 newlywed in 

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case the audience isn't 
following, here's how to explain

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it. 
Ask 100 newlyweds the night of 

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their wedding. 
Raise your hand if you think you

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can get divorced. 
Almost no hands are going to go 

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up. 
Yet statistically, we know half 

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of them are getting divorced. 
That's called the personal blind

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spot bias, and that's a blind 
spot that people just don't see 

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if you're in it. 
But if you're out of it, you can

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clearly see it. 
And that's what I guess what 

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you're doing over here in an 
investment standpoint. 

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So yeah, no, I love that. 
Okay, timeless lessons. 

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What are some timeless lessons 
you've learned along the way 

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that you'd like to share with 
the audience, please? 

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Well, one is the power of James 
Baldwin's contributions to our 

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work. 
And James Baldwin often talks 

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about people and the way that 
they think, the way that they 

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act, and the. 
The difference between and the 

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space between those two. 
And he says many people think 

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that they would like to do the 
right thing or underwrite with 

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these types of tools. 
But when they try to move into 

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action, there's there's a danger
of, like you just mentioned in 

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your example, sort of 
understanding how their identity

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might be challenged in the 
process of acting. 

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So in in some ways removing some
of the motion from the 

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underwriting process sort of 
helps us to get there. 

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I think in studying something 
like both of us have been 

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working on and something that's 
unseen bias by definition, it's 

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going to be a little bit harder 
to explain to people something 

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that they don't naturally see. 
But I think that the consistent 

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frameworks for questions that we
ask. 

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Those that were evaluating. 
Although it seems quite simple 

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as an analytical framework, we 
often see it change drastically 

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when women are presenting and 
you know large numbers of 

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downside questions that are 
asked. 

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Isn't the risk of this business 
greater than other businesses? 

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Are you afraid you'll run out of
money or not hit your milestones

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versus men who are often asked? 
You know, how hard can you hit 

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the ball over the fence or 
what's how big could this 

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opportunity be? 
These heuristics creep back into

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the process of investing and the
field that we're in. 

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Within venture capital, although
we found similar findings within

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public equities as well as fixed
income, when we look at private 

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equity venture and growth, there
is where we invest into. 

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There's often massive value 
creation and upside that could 

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be lost if we're missing some of
these biases in a major way. 

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In other words, being second or 
third in a category isn't always

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a desirable position. 
So really, choosing the number 

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one entrepreneur in a particular
field, it can be very, very 

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valuable. 
So investing heavily in the 

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underwriting process to partner 
with our managers is something 

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that we focused on for that 
reason as well. 

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I love that. 
So let's talk about timeless 

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mistakes. 
What are some timeless mistakes 

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you've learned you've made, and 
or how do you avoid them that 

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you want to share? 
So I think one of the timeless 

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mistakes that I've seen made 
quite often is. 

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The creation of something new, 
let's call it the field of 

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impact investing or ESG without 
one of the critical 

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SuccessFactors in producing an 
alpha, which is namely the 

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inclusion of women and people of
color. 

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And particularly because of this
finding that shows that bias 

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increases when performance 
increases, which is sort of. 

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The hallmark of our our, our 
paper, so weeding out top 

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performing managers because of 
their race, timeless mistake 

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that I think a lot of portfolios
could benefit from intentionally

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looking for managers that they 
might inadvertently through bias

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weed out. 
Also, I think it's an important 

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dimension of fiduciary duty, so.
Turns out that this timeless 

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mistake is also important for 
that reason. 

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Because if we're trying to be 
great fiduciaries and we noticed

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that a dimension about 
performance is missing from our 

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pipeline, i.e. 
Women and people of color led 

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funds that in some cases have 
are more often than not produced

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at or above results. 
Then we should be looking you 

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know carefully through the 
portfolio for these 

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opportunities. 
I love that because that that's 

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really, really smart. 
So you actually you're able to 

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almost shed shed light if you 
will on that blind spot and then

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extract alpha from there if I 
understand your process. 

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Yeah, that that's right. 
And it is sort of consistent 

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with modern portfolio theory. 
We want to start with a set of 

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the investable universe. 
And what we found is that in 

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evaluating pension funds, 
sovereign wealth funds, 

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university endowments, family 
office asset allocators. 

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That they are are are not 
looking for inadvertently sort 

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of some of these alpha producing
managers, which in some cases 

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are women and people of color 
led funds. 

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I know the National Association 
of Investment Companies, for 

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example, has done research over 
the last 40 years showing at or 

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equal performance despite this, 
you know, kind of lack of. 

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Additional asset allocation to 
managers of color and women LED 

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funds. 
So when we combine the thinking 

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there, we asked, well, why 
aren't asset flows following 

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performance And one of the 
things that we think and 

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hypothesize on it, there seems 
to be some. 

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You know, important additional 
work to be done is that bias is 

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one of those things that can 
make the mind think differently 

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about allocating capital to 
outperforming funds, right. 

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Yeah, you're chasing returns and
then yeah, that that makes 

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perfect sense. 
OK. 

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Next question, what's the best 
piece of advice you'd like to 

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share with the audience or your 
20 year old self? 

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Let's see. 
I think that. 

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One of the exciting pieces of 
advice that someone gave me, and

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this is a consistent, I found it
to be somewhat consistent. 

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But my venture capital teacher 
at Stanford Business School was 

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Andy Rycliff, one of the 
founders of Benchmark. 

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And you know, he was one of the 
people that told me, you know, 

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big ideas come from two major 
conditions, and many listeners 

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may be familiar with this. 
One is that. 

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They're non consensus and the 
2nd is that they're right. 

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So in other words, if we went 
around to a number of people and

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we asked them if this idea was a
good idea, a lot of the people 

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would say I don't know or be 
confused by the idea. 

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And the second condition is that
you know there's economic value 

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associated with delivering on 
the other side of that idea. 

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Now I think the idea of bias. 
Facing women in color of in 

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asset management, when I go 
around and talk to leaders of 

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financial institutions, a lot of
them seem puzzled at first. 

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But when they look around their 
offices in their industry and 

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they see 98% of 1 race and one 
gender in in the industry, they 

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then begin to kind of examine 
how bias might be showing up. 

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And then the second piece is the
associated latent economic value

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with fixing that problem or 
addressing these biases. 

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And you know that's the essence 
of a looming capitals message 

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and thesis. 
So trying to find follow Andy's 

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advice there and sort of find an
area where there is untapped 

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00:18:32,980 --> 00:18:36,580
value that many people may not 
understand or. 

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Have attention focused on for 
one reason or another and 

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deliver that value to, of 
course, our investors and create

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a movement of others that see 
this value and can build 

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00:18:50,380 --> 00:18:55,180
organizations to address it. 
That it's almost it reminds me 

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of the story with Henry Ford. 
If he was going to ask his 

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customers what they wanted, they
would have said a faster horse 

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00:18:59,900 --> 00:19:01,780
and buggy, but instead he 
invented. 

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So yeah, that makes perfect 
sense. 

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So, OK, beautiful. 
Well, Darren, this has been 

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00:19:06,760 --> 00:19:08,840
absolutely fantastic. 
Thank you so much for coming on 

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the show. 
What is the best way for people 

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00:19:10,720 --> 00:19:12,960
to get in touch with you? 
Is it a website or how would you

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like people to reach out? 
Yeah, I think just go to our 

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website and you can learn more 
about our work at 

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www.alumincapital.com. 
Beautiful. 

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Well, Darren, thanks so much and
hopefully we'll see you again 

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soon. 
All right. 

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Really appreciate it. 
Thanks a lot, Adam.