Human Positive Alpha

We are living through one of the most complex and consequential transitions in human history. What we choose to do over the next 20 years, weighted toward the front end of that window, will determine the future trajectory of humanity.

Understanding the nature and nuances of this transition with clarity and specificity is imperative for all allocators, but especially those who allocate patient capital. The asymmetric risks and opportunities of this moment are more pronounced for Family Offices.

From my view, most investors are under-appreciating the awesome nature of this moment.

First, in their ability to appropriately scope risk. This risk comes in two major forms: most are unaware of the sheer number of intractable, value-draining challenges that are the result of this paradigm shift. They also underestimate what happens to the value of assets when people do begin to create solutions to these problems. 

Second, to spot opportunities and seize one of the greatest legacy building and value generating opportunities ever.

The asymmetric upside that's available uniquely to Family Offices is the ability to strengthen family bonds, further ensconce a humanity-affirming family legacy and position patient, legacy-building capital as the most preferred capital to engage in this transition.

Put another way, I believe investors that can effectively distinguish alpha from human positive alpha position themselves to more effectively capture the latent value in this transition.

‍

WHERE ARE WE?:

We are living through the chaos of a paradigm shift.

Everyone can feel it, the once stable pillars of society are becoming less and less stable, creating a challenging mix of uncertainty and an increase in chaotic events. Everyone is in agreement that something isn’t right, but there is very little consensus around how to successfully navigate through.

When I say we’re in a world in transition, I’m talking about a novel confluence where the shortcomings of our inherited systems are exposing unsustainable cracks in the status quo.

Knowing we’re in a polycrisis is one thing. Understanding how to effectively respond to these circumstances is quite another, and it’s time to admit that how we’re going about it isn’t working. When we look around, no one has really created a scalable blueprint for how investors, companies and leaders can effectively respond to this moment.

First thing first, we must understand the assignment. To this point, solutions that have been deployed all have a fundamental flaw: the complexity of the problem has been underestimated, so solutions are doomed from the start.

The true aim, if one has the courage to care about humanity emerging victorious, is: we must become experts at elegantly evolving our inherited one value system to a multi-value system, while liberating potential and value in the process. 

Our single value system values money. Everything revolves around maximizing it. Our multi-value system expands to embrace two additional realities: equity and sustainability. Why these two? Inequitable societies always falter and our planet necessitates our care. 

Though this sounds straightforward, successfully crossing that chasm, which we call the Humanity Gap, has proven to be a deeply intractable challenge. 

We call it the Humanity Gap because the transition from a one value system to a multi-value system just means embracing more of the reality of humans’ lived experience.

There is a long, expensive history of well intentioned efforts that have cost time and money and left people and companies exhausted by the effort. These solutions try to alleviate the shortcomings of our inherited one value system without evolving the system itself. Systems snack on shallow solutions. Systems, if not evolved, will always revert back. We must find a better way through.

Until now, the challenges created by this paradigm shift have been viewed as separate issues. They’re not. And it’s this insight that creates the possibility that we can actually do something to move toward our most positive human future possible and have the change stick.

‍

ONE PARADIGM SHIFT, MANY CHALLENGES:

In Family Offices, the $84T wealth transfer is a precarious moment for most. The paradigm shift is felt most acutely as tension between the generations. There exist deeply rooted worldview differences between the generation that created and / or stewarded the family’s wealth and the generations inheriting it. 

Beyond the normal tensions of succession, Family Offices are contending with this paradigm shift. The generation that created or stewarded the family’s wealth has successfully generated value in a one value system. Most in the rising generations have either seen the limitations of that one value system, don’t respect how humans or the planet is valued in the single value system, feel uncomfortable with the extreme wealth that’s been generated, or are full-on multi-value system natives.

The tension this creates is a microcosm of the Humanity Gap.

In companies, this paradigm shift and resulting Humanity Gap shows up as persistent people problems:

• The inability for companies to sustain deep engagement
• Challenges attracting and retaining A players
• The intractable nature of things like the glass ceiling
• The inability to sustain inclusive workplaces
• A consistent inability to collaborate, innovate and nimbly respond to ever-shifting dynamics

Our inherited one value system is fracturing under the tension created as humanity is evolving into a multi-value system. 

These issues persist, despite significant investment of time and money, because solutions have been fundamentally flawed and have served mainly to optimize a dysfunctional system. 

A one value system simply cannot embrace multiple values.

‍

WHERE ARE WE GOING?:

Our current way of doing business is full of moral hazards. That fact hasn’t mattered, because dehumanization and destruction of the planet are tolerable in a single value system, as long as that single value is maximized. The tide is shifting, and when allowances and protections for these moral hazards disappear, it will carry substantial risk. They already drain value at an alarming rate, but we believe the costs will continue to compound.

There are two factors that are currently outside the dominant worldview that can never be sustained by a single value system. How humans and social systems react to this inherited narrowness is completely outside the control of investors. We believe it is this reality investors must attune to, because non-financial factors will increasingly determine where asymmetric returns are to be found.

Two major forcing functions accelerating this transition:

1. Humanity, sustainability and generational shifts:
The reality of our predicament is more apparent to younger generations, who also happen to be more diverse. As an example, the novel phenomenon of lawsuits related to a habitable planet are being brought and won across the globe. Children are inheriting a world their children can’t comfortably live in. They will become increasingly more motivated to evolve out of a narrow worldview that calls the climate crisis and equity externalities, because that’s simply not their reality.

2. Values-alignment will create risks and opportunities: 
Demonstrably aligning to a multi-value Human Future that is sustainable and equitable will provide an intangible, solid competitive edge, because humans are inherently motivated to survive and thrive and they will gravitate to multi-value systems. At some point, we predict there will be increasing costs associated with non values-alignment. And the tricky thing about this transition is that that payment can come seemingly out of nowhere, overnight. 

We believe opportunities will come in the form of positive tipping points and risks will be experienced as EBITDA spirals. 

Positive tipping points are these brilliant, mysterious undercurrents in society that seemingly burst on the scene and generate substantial value.

The number of underappreciated assets ripe for a positive tipping point is staggering.

Think of the meteoric rise of the value generated in women’s sports. Angel City FC paid an expansion fee of $2M in 2020, which will cost other teams $53M in 2026. And Angel City is currently valued at $180M, the most valuable team in the NWSL.

The only difference in these allocators? They could see the value in what was once underappreciated and seize the opportunity.

What’s happening in women’s sports right now has been obvious to those with a multi-value investing lens–allocators who didn’t, a priori, discount the value of women’s sports. Their investment helped catalyze a human positive tipping point and they’re currently building out the ecosystem of services, brand deals and broadcast rights that will continue to compound asymmetric, human positive alpha for decades to come.

On the flip side, you have EBITDA spirals in the form of slow bleeds, unrealized opportunities and big blows.

The slow bleed is what’s happening now. The compounding cost of clinging to ineffective ways of operating is costing companies dearly. Unrealized opportunities come in the form of not being able to see underappreciated, human positive alpha.

The big blows will come in the form of a volatile climate crisis exacerbating instability, regulatory changes, and the mass exodus. The mass exodus is what happens when there are enough multi-value systems where people can work, invest and patronize. The most relevant for Family Offices is values-aligned cap tables, which I talk about more below. 

Understanding this transition, aligning more closely to our Human Future than our inherited past, while still including the brilliant ways of operating we’ve already figured out, is a deft move that will position family offices to mitigate risks and capture the compounding upside. It opens up the possibility to allocate with greater clarity around the risks and opportunities of this transition. Not to mention, it's an enlivening way to deepen and enrich family bonds across generations and an ennobling way to participate in humanity’s hero journey.

‍

WHAT TO DO: 

By now, I hope you’re wondering about crossing the Humanity Gap in Family Offices. For private, patient wealth, the question is, how can we most positively relate to navigating the journey from thinking about alpha to understanding human positive alpha? How can we encourage our investments to accelerate this transition, while strengthening family bonds and furthering a humanity-affirming legacy?

This moment is inherently challenging. The ways through require new ways of operating and relating to one another. In the face of such a challenge, the impulse for safety, to retreat into what is known vs. strike out into the unknown, is immense.

The willingness to do so anyway will be the distinguishing characteristic of those who will generate value in this transition and solidify a human positive family legacy. 

There are three options moving forward:

‍

Entrench:

Stay the course

It’s always an option to do nothing different. Keep operating on models from the past and maximize for profit above all else, ignoring the reality of “external” force factors and deal with the irreconcilable tension created by clinging to our inherited past. 

Risk: Doing business from an inherited, narrow worldview will become more costly. 

This route is making the bet that the new majority and existential climate crisis won’t fundamentally alter human behavior, that humans aren’t passionately building alternatives, and that once these alternatives are built, single value assets will retain their value. Our inherited value system occludes the extreme peril we’re in, but betting on humanity’s demise–though very tempting from a traditional investor perspective right now–is a bad bet in my view.

‍

Wait:

Let others figure this out and then jump on the bandwagon at the right moment

Risk: In one word, receipts. This catchy term by the youngins perfectly describes an aspect of values-alignment that most investors are not accustomed to understanding: money won’t be able to buy everything. There will be a transparent measure commensurate with Scope 3 emissions, applied to Human Future business practices.

To gain entry, you must provide proof that you’ve been an active participant in operationalizing our Human Future and reducing the harm caused from our inherited past. 

When you’re ready to jump on the bandwagon, the bandwagon will have evolved into a train and the train will have left the station. If you catch the train, you’ll need receipts to gain entry. Values-aligned cap tables will change the rules of the game, seemingly overnight for those not working to operationalize a multi-value system. 

If you do happen to have too much money to ignore, my bet is the terms will be less favorable than those of values-aligned parties.

‍

Evolve:

Embrace the inevitable through mature leadership and values-aligned investment decisions. You need both.

Risk: Hubris. The belief that embracing these values is straight forward, is what has most fall into the chasm and fail to successfully cross the Humanity Gap at great expense of time, resources and setbacks. 

Those who choose to stop wasting time and money optimizing dysfunctional systems, will have a critical head start. At which point, they will not only be able to see asymmetries, they will be able ot create them.

This transition is straightforward, complex and more than anything it takes time. Not an absurd amount of time, but enough that it can’t be done overnight. Taking a thoughtful, measured approach to this transition free from pressure and outside scrutiny puts you in a better position than attempting to do it overnight under duress from factors outside your control.

‍

For Family Offices that make the courageous choice to embrace our emerging future, there are a few places to begin to focus.

‍

Lead the Way: Go First 

An elegant way to resolve generational tension and create open, caring relationships with family is to evolve into a multi-value family system. This will be a clarifying process that illuminates how to navigate and operationalize crossing the Humanity Gap. That knowledge and experience is invaluable.

From that new vantage point, have fun as a family. Explore what about our emerging Human Future is compelling to your family. Where can you spot underappreciated opportunities, how can your family uniquely create human positive alpha, where can you catalyze human positive tipping points, where can you seize and create asymmetric value through Human Future ecosystem building?

Without going too far into the weeds, worldview transitions always require a re-building of the world, the opportunities are endless.

‍

CIOs and Allocators of Patient Capital: Know the Emerging Future

Understand the downside risk of assets that don’t keep pace with humanity’s evolution. That includes understanding the nature of forcing functions, positive tipping points and the emergence of a multi-value system creating virtuous and vicious EBITDA spirals.

The expertise of traditional investors has been honed in a one value system. Moving forward, that lens will be necessary but insufficient and over time, will become ever-more off base. Investment decisions made today can easily drain value in ways a single value system would not have anticipated within patient capital timeframes, simply because an investor based their thesis on a narrow worldview.

‍

How to Begin to Engage in this Transition:

This isn’t a check the box moment.

This is a roll up your sleeves and deeply engage with the increasing tension of this moment. That tension is the visceral experience of the Humanity Gap. A great place to start to navigate this transition is to distinguish between creative and destructive tension.

Creative tension is the gap between what-is and what’s possible. A gap has opened up that is pulling the current situation to create a higher order solution. Creative tension can be anything from a nagging sensation, to a taught, very clear need for something better. Creative tension is a springboard into the possible.

Destructive tension is what happens when creative tension goes unresolved. Think of equity in leadership. Inclusive, diverse leadership teams demonstrably outperform homogeneous ones. An organization that can’t sustain heterogeneous leadership teams is no longer in creative tension. It’s morphed into destructive tension that takes resources (time, energy and money) from the organization. 

The same is true of family dynamics. Creative tension occurs when different points of view don’t overlap. Not inherently an issue, if it’s used as fuel to deepen connection and find higher order truths. Left unattended, these creative tensions turn destructive and fester in families.

Everyone can use this awareness of creative and destructive tension to begin the journey of elegantly evolving systems. We need people from every age, all skill levels, identity and socioeconomic backgrounds at the table creating our most positive human future possible by embracing the tension created as we move from a one value system to a multi-value system, and use that tension to create instead of destroy.

‍

IN SUMMARY:

Our view at Human Possible is that our inherited status quo must be evolved to embrace new realities that are well outside our individual control. At its core, our thesis is: leaders who sincerely want to create our most positive human future possible, at the speed and scale necessary at this moment in time, must understand how to elegantly evolve our inherited one value system into a multi-value system. Without this capacity, these efforts will ultimately fail to successfully cross the Humanity Gap. 

‍

It’s exhilarating to create the future with people you love, for a world you are courageous enough to care about. 

‍

Never before has there been a better time in human history to purposefully design the future for investors, operators, employees, founders and families. And in so doing, we get to help humanity successfully navigate this paradigm shift.

‍