Title: Talk Your Book: The Anti-AI Portfolio

Summary

Podcast Summary: Animal Spirits – Talk Your Book: The Anti-AI Portfolio

Date: December 15, 2025
Hosts: Michael Batnick (A), Ben Carlson (C)
Guest: John Neff (D), Portfolio Manager & CIO, Akre Capital Management
Main Theme: How an anti–"Mag 7" concentrated, long-hold fund navigates market momentum, the AI narrative, and sector concentration while maintaining discipline and performance.

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Episode Overview

In this episode, Michael and Ben talk to John Neff of Akre Capital Management, a boutique asset manager renowned for its highly concentrated, long-term, and research-driven investing philosophy—in direct contrast to the AI and Mag 7–obsessed market. The discussion covers Akre’s investment process, the challenges posed by today’s market structure, the AI narrative’s impact on stock valuations, and the rationale behind their significant allocation to financials and core holdings, including MasterCard, Constellation Software, KKR, and Brookfield.

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Key Discussion Points & Insights

1. The Challenge of Beating the S&P 500 Today

• Akre’s Focus Fund holds ~16 names, has incredibly low turnover (4–10%), and has historically kept pace with the S&P 500 despite no exposure to the Magnificent 7 (Apple, Nvidia, Microsoft, etc).
• John Neff states:

  “[T]he index has become itself a very concentrated momentum bet and that's worked in the favor of the index over the last five to 10 years to an extent that I think an active manager that is trying to sort of manage performance ... [finds] very difficult.” (03:28–04:32)

• Both hosts and Neff agree that the current era may be the most difficult ever for active managers to outperform the benchmark.

2. Conversion to ETF Structure and Tax Efficiency

• Akre Focus Fund converted from a mutual fund to an ETF for tax efficiency, especially valuable given its long holding periods and substantial embedded gains.
• Neff explains:

  “As an ETF, we can manage what is already a very tax efficient strategy even more tax efficiently.” (05:14–07:09)

3. The "Three-Legged Stool" Investment Philosophy

• Akre’s criteria for investments involves:
  1. Quality of the business (durable competitive advantage)
  2. Quality of people/management (alignment, culture)
  3. Reinvestment ability (how management redeploys free cash flow)
• Neff on stock holding discipline:

  “As long as the competitive advantage remains intact, the people are behaving well, the reinvestment opportunity and acumen continue to be in place. We're going to hold the business, and that's what we spend most of our time monitoring.” (08:05–12:08)

4. Countering the AI Panic & "Is AI Eating Software?"

• The portfolio’s software names (e.g., Constellation Software) have been hurt by the narrative that AI presents existential risk.
• Neff is skeptical of the idea that AI will quickly disrupt established software businesses:

  “People tend to be awfully myopic about what the opportunity is and tend to be awfully myopic about … what's going to sustain that leadership. … The value of proprietary data, customer intimacy and ecosystem dominance become even more valuable, we would argue, in an AI world.” (14:47–18:05)

• He adds that LLMs and code generation won’t make enterprise software plug-and-play:

  “We don't believe, number one, you can just press a button and software becomes a DIY proposition.” (17:26–18:05)

5. Overreactions in Market Narratives

• Neff draws parallels to the dot-com bubble’s overbuilt telecom infrastructure and questions current capital spending by AI hyperscalers:

  “No one's calling that debt right now. … Is there an analogy there to some of the spending here? From the standpoint of the viability of an economic return, these are huge numbers. … that's just a question, not an answer.” (21:47–23:28)

6. The Fund’s Major Positions: Financials, Private Equity, and Networks

• Over 50% of the portfolio is in “financials,” but Neff stresses they avoid commodity lenders:
  • KKR and Brookfield: “closest thing to a financial” (24:24–36:28)
  • MasterCard and Visa: payment networks, no credit risk exposure
  • Moody’s: credit rater, not lender
• On the rise of private equity for high-net-worth:

  “That Wealth Channel … represents ... essentially a doubling of the AUM that the alt space currently has. So there's a big opportunity there.” (25:24–27:24)

• Differentiating KKR and Brookfield:

  "...there's no adverse selection of deals offered to the retail channel. They are peri passu with all the institutional investors..." (25:24–27:24)

7. Opportunistic Approach to Market Corrections

• On recent sharp drops (e.g., KKR losing 1/3 of value), Neff:

  “We have buy targets on everything we own. We have sell targets on nothing that we own.” (29:41–30:06)

  • Opportunistic buying when narratives overshoot.

8. Moody’s, Private Credit, and Quality Control

• When asked about risks in the private credit market—especially concern that “rubber stamp” agencies overrate assets:

  “One of the things that was interesting and we talked to KKR about this ... less than 1% ... of the bonds held in their insurance company are rated outside of Moody’s S and P or Fitch. ... Very important question though, something we've ... definitely trying to pay attention to.” (32:38–34:38)

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Notable Quotes & Memorable Moments

• On Investment Conviction
  • “If you are going to pay an active manager, you want to pay a manager with conviction. And I've never seen a portfolio like this ... My favorite quote that John said … was we have buy targets, we have no sell targets.” (02:10–02:21, C)
• On Surviving AI Fears
  • “The question now … is AI eating software? And so that's become kind of the question.” (13:19–14:43, D)
  • “MasterCard is been using and pioneering AI back ... to the 90s, back when it was called machine learning.” (18:34–21:27, D)
• On Market Crises Past and Present
  • “People thought AOL was the Internet … but it never was. ... In a transformative boom, people are in a rush to anoint the leaders.” (14:47–15:20, D)
• On Financials Exposure
  • “We own financials that are called financials by ... classification ... But you know, really we don't own any. We don't own any banks. We don't own any lending institutions ... Most of what they do is private equity. ... We lose no sleep over that financials allocation.” (34:57–36:28, D)

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Key Timestamps

• 03:04 – S&P 500 as toughest benchmark
• 05:14 – Fund’s conversion to ETF & tax efficiency
• 08:05 – Three-legged stool for stock selection
• 12:08 – Difficulty of holding vs. buying/selling
• 13:19 – AI narrative impact on portfolio
• 17:26 – Why AI disruption is misunderstood
• 21:47 – Overreaction parallels: AI vs. dot-com bubble
• 25:24 – Private equity, wealth channel, KKR/Brookfield
• 29:41 – Opportunistic buying; approach to sharp drops
• 32:38 – Moody’s, private credit, ratings concerns
• 34:57 – Sector concentration and “financials”

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Conclusion

This episode offers a rare perspective from a concentrated fund manager who thrives on deep company knowledge, long holding periods, and skepticism toward current AI market narratives. Despite no “Mag 7” exposure, Akre’s disciplined approach has resulted in benchmark-beating performance, made possible (in their view) by rigorous research, patience, and focus on culture, reinvestment, and competitive advantage. Their stance: Overreactions—especially around AI—create opportunities, not existential risk. The discussion is a thoughtful rebuke of index momentum and short-term thinking, making a strong case for “anti-AI” portfolios in a world obsessed with technological revolution.

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For more on Akre Capital and their approach, visit akrecapital.com.

Transcript

[A]

Today's Animal Spirits Talking book is brought to you by ACRI Capital management. Go to acreecapital.com to learn more about the new Acri Focus ETF. That's ticker a KRE. That's how you spell the name of the firm too. That's acreecapital.com.

[B]

Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholz Wealth Management. This PODC this podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

[A]

Welcome to Animal Spirits with Michael and Ben. On today's show we speak with John Neff. We've spoken to him before. He's a portfolio manager and CIO from ACRI Capital Management. You may have heard of Chuck Acree before. He is a Buffett disciple. Is that fair to say? Concentrated portfolios. Old school investor. And I always find it fascinating to talk to these portfolio managers who just have a different way of looking at the world. A concentrated portfolio. A lot of times these kinds of investors are not focused on the Mag 7. It's not that type of concentration. So Acri, their portfolio was more filled with financials, but they have very low turnover. Their typical hold period is 10 plus years. And most individual investors don't have the intestinal fortitude to hold a stock for 10 years. So I find it really interesting when an institutional level portfolio manager does, especially when they're managing billions of dollars. So they do huge deep dives into these companies. They're buy and hold and keep checking in investors. Does this seem like sort of a dying breed to you? I think it's right. It is.

[C]

No, I would say it's a dead breed.

[A]

Okay.

[C]

And I love, I love what they're doing. I think that if you are going to pay an active manager, you want to pay a manager with conviction. And I've never seen a portfolio like this. Is there 16 names?

[A]

Yeah, it's very. It's called the Focus Fund for a reason.

[C]

My favorite quote that John said on the call was we have buy targets, we have no sell targets.

[A]

Right. Yeah, that was interesting. And they've done a good job of keeping up with the S&P 500 over the long term. And what I said and I asked him, is this the most challenging period to ever beat the market. And he said, I think it probably is, especially that market. And they've done a good job keeping up without owning Nvidia and Apple and Microsoft and these big tech names.

[C]

It's astonishing. Yeah, no, this was a fun one. We don't have too many conversations like this with a legendary investment group. So hope you enjoy our conversation with John.

[A]

John, welcome to the show.

[D]

Thank you, Ben.

[A]

All right, so you have your ACRI Focus fund that's been around for a long time and the benchmark is the S&P 500. Correct. That's your, that's your bogey.

[D]

Yes.

[A]

Do you think that The S&P 500 is the hardest benchmark to beat?

[D]

I think over the last five to ten years it's, it's almost been structurally impossible to beat.

[A]

Right. I, I, I think this is one of the hardest times to beat. If you're calling that the market. I think this probably is one of the hardest periods and cycles to actually try to beat the market. That's, that's kind of my feeling.

[D]

No, I, I agree. I mean it's, you know, we're not shying away from, you know, the comparison, you know, we need to benchmark ourselves. But at the same time, when seven names account for half the index return over the last five to 10 years constitute about 33 to 35% of the total market cap of the index. It's, the index has become itself a very concentrated momentum bet and that's worked in the favor of the index over the last five to 10 years to an extent that I think an active manager that is trying to sort of manage performance and balance what they're looking at in terms of their own research process and concern over valuations. It makes it very difficult. So we're dealing at a time right now I wonder if we'll look back a year, two, five from now and wonder whether or not we've sort of reached the pinnacle of the indexing argument.

[C]

I'm looking at a three year return basis and considering that you guys have no exposure to the Max 7, at least in your top 10, you did an incredible job even keeping pace. Now there has been a sharp break in the lines on the chart that happened in the end of the summer, which I'm curious to get your take on. We'll talk about that. A really fascinating development. But Ben opened the conversation saying that you guys have been around for a while. Chuck Hockey, legendary investor, concentrated positions, disciplined approach, which we're going to get into. I guess better late than never. It's 2025. You guys launched an ETF. Well, it took so long.

[D]

Yeah, well, in fact, the launch was actually the conversion of our long standing single mutual fund. So what that did, so we didn't launch a new product, we converted our largest existing product, did that essentially right in place. And that's a tremendous boon, we think, for our investors, because the ETF structure, I think, as you and most of your listeners know, is a tax advantaged one. You know, because it, you can, you can use a redemption in kind process to move in and out of positions as opposed to selling positions and generating potentially realized taxable gains which you then have to distribute. And as an etf, we can, we can manage what is already a very tax efficient strategy even more tax efficiently. But when you're as concentrated as we are and as long term as we are, and our turnover is typically somewhere in the 4 to 10% range.

[C]

Unheard of year, unheard of for a $10 billion fund. I mean, very rare, I should say not unheard of, but very rare.

[D]

It's so we're holding positions and if we're doing the job that we purport to do, we're going to have significant embedded unrealized gains. So with a strategy like ours that is as concentrated as it is and as low turnover as it is, the benefits of the ETF structure weigh even more for us because our strategy brings with it, if it's done correctly, significant unrealized gains. That's what we're compounding over time. And so the fact that we can now new investors into the fund don't have to inherit that embedded tax liability is a great thing, we think for our investors moving forward.

[A]

Your turnover being that low means that you're holding these stocks for an average period of, I don't know, seven plus years or something. I don't know what the actual number is, but probably 10 to 15. Okay, so in your presentation you have some examples of some investments and you listed when the first investment was made. And so Moody's you said you made in 2012, Constellation Software was in 2014, and you have MasterCard, first investment began in early 2010. I think one of the harder things for most investors to do is to hold onto something and to know like, has this story changed? And I'm curious what your process is for actually holding something. I think it's way easier to buy and sell something than it is to hold and just kind of sit through the cycles and understand when something has changed or when the story or narrative changed. Like how do you, how does your process evolve enough that you can just sit on your hands and let these stocks run?

[D]

Ben, I think that's a really great point. And it's something I say all the time. I do agree with you. I think it's easy to buy and it's easy to sell, and the harder thing to do is to hold. And essentially what informs it is. We talk about our process according to this three legged stool notion, something that Chuck Akri, our founder, talked about at the inception of the firm in 1989, which is this notion of trying to concentrate capital in businesses that have all three of these legs of this stool working in concert together. The first leg being the quality of the business. And what we really mean there is how formidable and durable is the competitive advantage and can we understand it? We'll come back to the importance of understanding. And then there's the caliber of the people managing the business. So it's business first leg, people second leg. What is the caliber, quality of the management team? What is the culture of the company? What are the incentives? Are they properly aligned? How does management behave in relation to shareholders? And the third leg of the stool, which is a really important one, is reinvestment. So business people, reinvestment. And that third leg of the stool that reinvestment leg really refers to, you have this great business that's generating all this free cash flow. How does the management team rank, order and prioritize and execute against the reinvestment menu? And the reinvestment menu is the same five items for any business you ever care to look at. You can reinvest organically through the P and L or through capital additions. You can make acquisitions, you can pay down your debt, you can buy back your stock, or you can pay a dividend. Those are the five items. They're the same for every single business. And what conventional wisdom, what we often hear in business schools or in the popular financial press, is dividends good, acquisitions bad. But everyone always forgets to look at the example set since 1965 of Berkshire Hathaway from a reinvestment perspective. Berkshire Hathaway has never paid a dividend. Berkshire Hathaway has been a serial acquirer and is focused on organic reinvestment through the P and L and through capital additions. And so has compounded at this incredible rate. And that's what we're looking for. We want to understand. So that's why we have to know the management teams as well. How do they think about this reinvestment menu? Prioritize and execute against it. So what we're looking for from the standpoint of the businesses we own is this reinvestment that focuses on organic and acquisitions. So if you look at our portfolio today, we own companies that are serial acquirers in some particular niche. Constellation Software or Roper Technologies or Topicus. And as a result of that serial acquisition mindset, they're able to put to work more capital at a higher rate of return and so compound faster. And that's what we're looking to own. Great business, great people, great reinvestment. And finally, we don't want to pay too much. So when we find a business, Ben, that actually combines all of those things, which is extremely easy to describe and very hard to find in practice, we want to get to know it really well. We want to understand it across those criteria. And so what enables us to hold a stock for a long period of time is that knowledge and us tracking the business across those three criteria. As long as the competitive advantage remains intact, the people are behaving well, the reinvestment, opportunity and acumen continue to be in place. We're going to hold the business, and that's what we spend most of our time monitoring.

[C]

Ben mentioned the difficulty of holding onto an investment. I'm reminded, as I'm looking at your holdings, the last time we had you on, you made such a compelling case for MasterCard that I bought it and I probably held it for seven months now. Credit to me, I think I turned a nice profit, but. But MasterCard is a. Is a secular compounder that I probably should still be holding, but I don't. So one of the, One of the legs of the stools now, there's only three of them, so they all play a critical role and if any of them get wobbly, the stool is going to fall over. One of the ones that I think is really under attack right now is business. Just generally speaking, people are people, Management is what it is. Discipline. Reinvestment, I think is pretty straightforward, although not. None of these are easy, but the business part of it, when we've got so much uncertainty with AI adoption, where does value accrue? I mean, you can't not have a view, especially in a portfolio like yours, which is concentrated in 16 holdings. You have to have some sort of view on how this is going to impact the mastercards and Brookfields and kkrs of the world.

[D]

Yeah, no, Michael, it's a great point. And we've had you mentioned sort of the sharp break we've had in the last few months. I would attribute A fair amount of that to this, this narrative that some of our companies, particularly our software companies are sort of laboring under, which is this notion that AI, in fact we said on our recent semiannual call, Marc Andreessen, I think in 2012, said software is eating the world. And the question now, I think in investors minds is is AI eating software? And so that's become kind of the question. And you've seen significant multiple compression across the software universe, including some of our holdings. And the question in our mind, I think that people are overstating the disruption, the disruptive effect on a lot of the businesses that we own, certainly. And one of the things that people do, and I'm old enough to remember my career really began in the late 90s. And I remember watching the Internet and, and this expanding bubble. And one of the things that I, the analogies I will draw to sort of from today back to the late 1990s is that in the late 1990s, people thought AOL was the Internet.

[C]

It was.

[D]

In terms of people's daily experience or introduction to it was, but it never was. It was an Internet service provider. And what tends to happen when we're sort of at the cusp of no argument, no question, transformative technology, a transformative boom. People are in a rush to anoint the leaders. But people tend to be awfully myopic about what the opportunity is and tend to be awfully myopic about what the leaders, who they are, and what's going to sustain that leadership. And so today, what AI is in the, in the minds of a lot of people are chips and large language models. That's AI. So it's Nvidia and it's Chat GPT essentially. And what we think is being missed today is that these AI tools provided by ChatGPT and others are very powerful, but they're going to add the most value to companies that already possess certain characteristics. And those characteristics include customer intimacy, ecosystem dominance and proprietary data. And if you look at our holdings, that's what we own. So, and I always use the example of Bloomberg is an interesting example, which is a tool and a product a lot of folks in the financial services industry use. And people maybe use 0.1% of the capacity of their Bloomberg. Why? Because the whole system is architected in this bizarre ancient way where you have to go use unintuitive prompts to go to a specific page to see what you know, the information you want to find. Think about what an AI and natural language processing can do to a system like that, that has all this amazing data and analytic capabilities, but now can go to thousands of providers to provide natural, who can provide natural language processing capability to unlock the value in that Bloomberg system. So the value of proprietary data, customer intimacy and ecosystem dominance become even more valuable, we would argue, in an AI world. And that's not the narrative today. Today AI is all chips and large language models. And the belief out there that large language models represent essentially a push of the button opportunity to create all your software. Because we hear about, well, you can code with these large language models and look what that's going to do to the number of human users for software. And look what's going to do the number of programmers. We don't believe, number one, you can just press a button and software becomes a DIY proposition. That's number one. And number two, the tools and the efficiency that those tools provide are going to be best utilized by the companies we own that have that customer intimacy, ecosystem dominance, proprietary data.

[C]

So John, the break that we. And great answer by the way, the break that we spoke about earlier, towards the end of the summer, it's not a mystery. I mean one of your largest holdings, Constellation Software, is one of these companies that is under assault. At least the narrative is the price is under assault. And it's not just Constellation, of course, it's other giants like Salesforce and Adobe businesses that I'm sure you are intimately familiar with. So I'm guessing that you see opportunity during this market narrative shift that we're experiencing right now.

[D]

Yeah, we do. And I think that there are some interesting examples there. So, so Salesforce is a horizontal software company, Adobe is a creative software platform. And then Constellation is comprised of roughly 1,000 small vertical market software companies. And I think the answer to AI is a little different across those three things. I think horizontal software is in good shape. But horizontal software, because it's not based on customer intimacy is theoretically a little more exposed than I would argue vertical market software is to sort of the AI disruption. That said, I think horizontal software companies like Salesforce are fine. Adobe might be a different question because Adobe is a creative thing and I think that's what a lot of the sort of the immediate low hanging fruit for these large language models, these image generators we made. This is kind of a funny thing because we talked a lot on our semi annual call about this AI narrative. Having weighed on our holdings of late, we actually had, I had some friends of mine create a unique stock market themed country music song created entirely in seconds on AI. Better than I would argue I'm not a country music fan better than I would argue than 99% of country music songs and created in seconds and amazing sounding like you would think it was being played on the radio. And that kind of creative capabilities, I think are being really accelerated, let's say by AI and LLM and these image generators, music generators and things like that. That would make Adobe a little more frightening to me. So where we are really focused is on those vertical market applications where you, you compete on the basis of customer intimacy, ecosystem dominance and proprietary data. And Michael, you mentioned MasterCard. MasterCard is been using and pioneering AI back, you know, to the 90s, back when it was called machine learning. There's a reason why you can, you can travel to, you know, West Africa, go into a, a store you've never been in and swipe your card and be authorized to make that purchase in microseconds. That doesn't happen without AI. So MasterCard and the Security and the data and the behavioral data, the purchasing data, the transaction data, all that feeds this incredible AI engine that just gets more and more powerful over time.

[A]

This is the history of technological innovation is just that there are over and under reactions, right? Mostly overreactions. But other than just people maybe taking the valuations of the Mag 7 too high, where else are you seeing overreactions right now that you think play out in 2, 5, 10 years that people are going to look back on and go, oh, of course, that was obvious. Why didn't we do this?

[D]

Well, I think I mentioned some analogies to the Internet bubble, but I also think it'll be interesting. I'm not predicting it per se, but there are some awfully large spending commitments being made by some of these large AI players. So at last count that I saw, and again, I'm not trying to pick on OpenAI ChatGPT, but last count they had committed to $1.4 trillion of spending at data centers on chips, et cetera. No one's calling that debt right now. And in some respects, therefore, it becomes kind of analogous maybe to some of the telecom boom bubble that we saw as well. And I forget the name of the company that sort of set the tone for this, but essentially got taken out in the late 90s at 10 times. For every dollar of capex they spent on fiber, they got taken out at 10 times that. And that sort of set off this massive stampede to sort of deploy fiber, the capacity of which we still haven't. You know, people still can't make a great economic return on Fiber that's been in the ground for 25 or more years. And so is there an analogy there to some of the spending here? From the standpoint of the viability of an economic return, these are huge numbers. So, you know, I think that's just. Again, that's just a question, not an answer.

[C]

Yeah, well, it's a question that the market is grappling with. As you see these trillion dollar companies just swinging around. $100 billion market cap here up to the upside, and then $300 billion to the downside. There is a lot of uncertainty. And you see it in the stock price because we're trying to make sense of the future. And every day we show up again and say, nope, different today, nope, different tomorrow. So, yeah, obviously the question, the ultimate question in my mind is what happens to the hyperscaler and the commitments on the money they're going to spend? Shifting gears to finance some of the financial companies that are in your portfolio, which is a huge part of your portfolio, over 50% of it is in financials. We mentioned MasterCard. You've also got a large. I don't even have to say large because they're all large positions. You also own Visa. But I want to talk about Brookfield and kkr because Ben and I spend a lot of time on our shows talking about the private equity industry, the build out. By the way, these are, you know, data infrastructure players. You know, certainly large exposure there between these two. The prevailing story is that the institutional investors. I'm generalizing, institutional investors have been allocating to these private assets for decades and they are basically full. They're on average at 30 to 40%, give or take. And they're not going to repeat their allocation of the last 20 years. It's not happening. They're full. Okay, great segue to the Wealth Channel, where the average millionaire next door has effectively zero exposure to these private assets. The pivot from their point of view is understandable. The opportunity is, is less certain what's going to be left for us. The wealth, the wealth managers. As more and more capital comes into the space, I would assume that returns get lowered, but whatever. I don't want to start rambling. What, what, what's your take on what's going on with these two behemoths and the field?

[D]

Yeah, well, we think, you know, it's. There are some secular tailwinds to the space in terms of institutional allocations. In terms of the Wealth Channel, you know, kind of starting to open up. That Wealth Channel essentially represents at sort of a seeming reasonable level of penetration, essentially a doubling of the AUM that the alt space currently has. So there's a big opportunity there. I think there are some real issues with how do you make that a palatable structure for the individual investor. One of the things, kind of an interesting segue there. One of the things that distinguishes KKR and Brookfield in that space is versus some of the other folks who have made a retail offering. And this again goes back to the people and the culture aspect of why we own some of these businesses is that there's no adverse selection of deals offered to the retail channel. They are peri passu with all the institutional investors, other places, other firms you're seeing in terms of what gets offered to the retail investor. It's sort of what's left over from a deal quality perspective. So again, I think that's an instructive insight into sort of the behavior of the people and sort of the cultures there. But we think that there is a great deal to be said for what these two companies are doing. One of the other things that we would mention is that back to the reinvestment, you have a compounding mentality at Brookfield and kkr. In fact, when we first bought kkr, it was on the heels of them converting from a publicly traded partnership structure to a C corp. They made that transition.

[C]

When was that?

[D]

Oh, I'm blanking on the. It was a 2015. I'd have to go back and look Michael, I'm not exactly sure of the date. I'd have to look back that that back up. But it was a while ago. And they did that entirely to be able to retain earnings and reinvest instead of having to dividend everything back out to their investors. And so that compounding mindset. Again, one of the few companies that's really studied the example set by Berkshire Hathaway, they said, well, the whole fund structure as traditionally conceived requires that we sell all the businesses after five, seven, nine years. Well, what if we want to hold on to some indefinitely on our balance sheet? And so that's the strategic holdings component of the KKR story today, which is going to go from as these companies have sort of they own 18 or 20 companies today, 20ish to 20, 30% sort of minority stakes held in perpetuity, where the dividends from those companies collectively are going from about $6 million as of two years ago or so to a billion dollars in the next two to three years, all on the balance sheet at kkr. So we think that there's a Difference among these companies, although they all enjoy certain secular tailwinds, there's a difference in compounding mindset, compounding structure, and sort of a cultural mindset that attracts us to the ones we own.

[C]

Public markets shifted on private markets, interestingly, a couple of weeks ago as news started to leak out about some of the loans gone bad, which from an outsider's point of view, I understand the concern. You shoot first, ask questions later. I think it was an overreaction and I understand exactly why people overreacted. I'm not like naive to the risks there. But, but when a company like KKR loses a third of its value, again due to some narratives that might not be 100% true or might not be not 100% false, do you act on something like that? Like how quick are you to put money back to work?

[D]

Well, we have buy targets on everything we own. We have sell targets on nothing that we own. So we know where we want to buy KKR or Brookfield or anything else that we own or are looking at. And those valuations tend to come around seldom because they have to be truly sort of opportunistic and have to discount a fair amount of bad news. What I would say, did we get.

[C]

There or was it not quite that extreme?

[D]

It was getting there. It was getting there, definitely. And we sort of in that 115 range for KKRS, looking pretty attractive. Would look pretty attractive. What's happening a little bit right now is that there have been some, you know, and look, we have the, we have the concerns for all the potentialities, you know, that you can have, but there's been some concern and some sort of looking to private credit today, which has grown very rapidly, you know, has been a strong area of growth for a lot of alt managers. They're looking at trying to find like, okay, is this going to be where the next credit crisis comes from?

[C]

Right, right.

[D]

You know, and so you've had some, some high profile bankruptcies, but as, as Howard Marks recently said, you expect that. You know, it's, it's, there's, there's a, there's a, there are going to be defaults in private credit and you would expect that. And we're really not seeing anything that would impact our view of sort of how sound that practices at KKR or Brookfield.

[C]

By the way, there are defaults in public credit.

[D]

Yeah, exactly.

[C]

It happens.

[D]

Yeah. Well, and nobody, you know, we own Moody's. And I remember Ray McDaniel years and years and years, who was the CEO prior to Rob Faber. Who's the current CEO telling me, you know, look, you know, there are. There will be AAA credits that default, just like there are 26 year old, you know, marathon, you know, triathletes who die during a race. You know, there, there's, you know, there. It's a, it's an actuarial risk.

[A]

You better be careful. You're going to talk Michael into holding this for seven months.

[C]

John, one more while we, While we have you on this topic. This might be a little bit in the weeds, but I am curious to hear your take. So, Moody's, there was an article. The FTA has done a really good job covering a lot of what's happening in the private credit space. And there are some flags. I don't know exactly how to color code them, but there are some concerns that I think are warranted on the insurance companies that are captive, that are owned by a lot of these alternative asset managers, and the private credit that they're buying and them not going to Moody's or S and P, and going to some companies, some. Some rating companies that I've never heard of. I mean, what. What's your take? I'm sure that you know the story better than I do.

[D]

No, Michael, no, you're, you're, you're raising a really important point. And, and, you know, it's something that the NAIC itself is, you know, which is the sort of the. The insurance industry credit raider, if you will. You know, I don't. I'm not sure that they're actually rating a lot of credit, but they're sort of looking at the credit that their insurance companies that they oversee are holding. Pointed out that in some private instances, you're seeing internal rate. You know, certain marks are being made that, you know, are multiple notches higher than what the equivalent Moody's or S and P rating would be in KKR's case. You know, we asked them about this. So you mentioned Egan Jones. You know, not by name, but you mentioned Egan Jones, which, you know, is a name that, you know, has been around for a long time, but, you know, that rates thousands of. Of credit issues with, I believe, a team of about 30 analysts. You know, and their ratings. You know, we could. We could, we could spend. We could spend two hours on the history of the. Interesting history of the credit ratings.

[C]

Let's just say. Let's just say that I think that this is probably not the last time we'll see that story.

[D]

No, no, it's. It won't be. And, and one of the things that was interesting and we talked to KKR about this, I believe K and they're global Atlantic Insurance Company, I think less than 1%, maybe not even that high of the bonds held in their insurance company are rated outside of Moody's S and P or Fitch. In other words, they're not using these kind of more rubber stamp type of inflated ratings in order to, to mark their portfolios. Very important question though, something we've, you know, definitely trying to pay attention to.

[A]

So a lot of people are worried about the technology aspect of the stock market being concentrated. Your portfolio has, I guess over 50% in financials. Does, does that worry you when you have that big of sector concentration or for you, is it. No, no, no, it's bottoms up. It's companies first. And it just happened to be that financials were the ones that we thought, thought were undervalued and that we own.

[D]

Yeah, no, it's, it's an important question and I, and thank you for giving me an opportunity. I meant to, I meant to sort of say this in, in response to Michael's question as well. But you know, we own financials that are called financials by, you know, industry, outside industry, you know, classification systems. But you know, really we don't own any. We don't own any banks. We don't own any lending institutions, with the exception in a limited way. It's not like they're not entirely lending institutions by any stretch. Most of what they do is private equity. KKR and Brookfield are the closest thing to a financial that we own. Moody's rates, credit, they don't extend credit. MasterCard and Visa are payment networks. There is no credit being extended there whatsoever. So I do make that distinction in terms of financials and financials. When I think of a financial, I'm thinking of a lending institution first and foremost. And that isn't what we own. So what we own in that concentrated sector allocation, we own two of two in terms of the payment network oligopoly. We own one of two in terms of the credit rating agency oligopoly. These are exceptional business franchises, not commodities lenders. And that's a huge part of what gives us. We lose no sleep over that financials allocation.

[A]

John, for people who want to learn more, where do we send them to find out about your funds and your ETFs and the whole investment process?

[D]

Well, thank you. The best place is acapital.com we have some good white papers on there about how we think and approach the investment process and also as relates to our ETF, the ocrifund.com website.

[A]

Perfect. Thanks, John.

[D]

Thank you, Ben. Thank you, Michael.

[A]

Okay, thanks to John. Remember, check out ocreecapital.com to learn more. Email us animalspiritscompoundnews.com.