Discussing the Opportunity in Sustainable Innovation and Infrastructure with Overlay Capital
This transcript has been edited for clarity.
Dan Carreno: Thank you for tuning in to Rewilding Wall Street, where we provide insights and analysis into the ever-evolving world of sustainable investing. And today we're joined by the amazing team at Overlay Capital, which is an alternative investment manager focused on sustainable innovation and infrastructure. Specifically, we have Overlay's, Chief Investment Officer, Chadd Evans, and Overlay Managing Partner, Brett Wayman. Chadd, Brett, how's it going today?
Chadd Evans: It's good.
Brett Wayman: Hey, happy to be here. Yeah, thanks, Dan.
Dan Carreno: Yeah, that's great. Thanks so much for being here. Maybe to start off the conversation, if you could tell us a little bit about yourselves and, and how you got into the investment business. Chadd, why don't you go first?
Chadd Evans: Yeah, sure. I got in the investment business, right out of school. So, in my early twenties and have been doing basically the same thing for 20 years. I like it because it's mathematical or it oftentimes is. And, and maybe I would say five or 10 years in, what really kept me going and interested in the space was all the things you can do. By being present in financial markets, you're intervening into the future of where money goes, where capital flows. And, and I think it's that interventional quality that has always kept my interest from the early days until now. And so that's what got me in and that's what kept me there.
Dan Carreno: And Brett, what about you?
Brett Wayman: Similar story. I've been doing this since college. I was an economist and focused on the use of capital to drive innovation and also to drive change; to think about the way that the investments we make can have positive social & environmental outcome in addition to providing financial wellness for ourselves, our families next generations.
Dan Carreno: Outstanding. I appreciate the background and I love the conversation about how we’re moving capital around. I think this is a good segue to talk a little bit about Overlay Capital. If you could give us a little bit of background about the firm that you've founded, and then specifically talk about how Overlay actually does exactly what you're talking about and how it directs capital in the world.
Brett Wayman: Yeah, thanks Dan. I think it's an important question. Overlay started about two years ago, and the idea was that we're seeing some major shifts in secular trends. I think there's going to be a couple of big trends that play out over the next 10 or 20 years. Those look like AI, elder care with the aging population, the demographics. But I think one of the overarching themes that we're seeing is around sustainability. And that plays out in so many different asset classes and so many different geographies and sectors and industries. And we really wanted to help investors get access to the investments that will benefit from this trend towards sustainability. And we're seeing this trend play out in a lot of ways. One is in net zero commitments that are being made by big governments and by big corporations. We're seeing it in consumer decisions where we shop and what type of businesses we interact with. We're seeing it in shareholder pressure from big asset management companies, with ESG considerations and their shareholder decisions. We're seeing it in a regulatory environment and all these things are coming together and saying, listen, we're rebuilding the US economy and we're doing it more efficient, cheaper, cleaner, greener. And that's a huge opportunity for an investment shop.
Chadd Evans: I think what Brett just shared is important, I think that you didn't use this word, but what we're talking about is a story of convergence. These secular trends are overlapping. We talk about sustainability a lot because it's this major lens we use to identify opportunities in the world in the investment world. But Brett's right, where we invest is in these ideas and these thematics, but how we invest changes based on the market cycle and the opportunity at the given point. I think that's really what makes us unique. As an investment manager, we're able to tailor that and we're not just saying, ‘Hey, let's build our build product. Let's build the next fund. because it's time for another fund,’ but instead as the world's changing, we can adapt to that as well and build investible strategies that make sense at that moment.
Dan Carreno: Perfect. Thank you. Can you give us a couple of specific examples on the kinds of themes that you're talking about related to sustainable innovation?
Chadd Evans: Yeah. Sure. The investment team at Overlay, most of our experience is in the built environment. People use that as a broad term now to mean everything from ag tech to real estate, to infrastructure. And I do mean it that way. We do look broadly at the built environment, but everything's kind of housed inside of that. So, we're looking at new innovations, the way we manage our buildings, the way we build our buildings. Those are the things we're paying attention to. And it's very dynamic. Some of these industries are slow to adapt. Some are moving more quickly. I think what is most interesting to us right now is how venture markets are thinking about the built environment. Probably because it looks different than other periods of time. Like in 2007 we had mobile phones coming out and now all the apps that can be built around them and marketing SaaS and every kind of SaaS you can come up with. Obviously, there was hardware components there, but most of the money that was made was digital and the built environment. That's only a smaller part of the story that might be a third to half of the businesses are built with software and a lot of them are advanced materials. It's new manufacturing processes, it's infrastructure itself. It's building small scale wind turbines or water turbines. So, we think that we can bring a lot of insight into those businesses because we also participate in project finance and have an infrastructure part of our business. And really, that's just where our experience is. But it's a muscle that the venture communities have yet to build. They've been getting fat off the land of software for 20 years, so why try to even build this other skillset? But I think it's necessary now, given the types of innovations that are coming about. I think we can add a lot of value there. So, we're spending most of our time looking at those kinds of opportunities.
Dan Carreno: When it comes to the asset classes that we're talking about here; Brett, Chad, I've heard you talk about things like infrastructure and things like venture. When you look at all the different things that Overlay could have focused on, why these areas?
Chadd Evans: Infrastructure is so fascinating. We need new infrastructure in this country. And you can break that down into energy infrastructure and looking at the grid and how we haven't had really any new innovations that have flowed through for 60 to 70 years. But you can also look at the more traditional infrastructure bridges that get referenced a lot of times in political debates. Crumbling bridges and road infrastructure. I think everybody sees that and there's a lot of political support. Then finally on what we frame as new infrastructure. I'll call it sub-asset classes being created every other year or so. Is rural broadband infrastructure? I think so. Are cell towers infrastructure? I saw a piece saying data centers are infrastructure, not real estate. I think that's compelling. Infrastructure, which is only about 20 years old as an asset class in general; I think as you add that to the index, and add these other sub-asset classes in, they're going to get cheaper. They're going to receive cheaper cost of capital as bigger players come in. The pension funds say, I've got to have infrastructure, I also need cell towers and mobile and data centers and sea walls or whatever it may be. And so, we just think it's a dynamic place, both from a demand side and from what's going to happen to these asset classes.
Brett Wayman: I think the same story plays out on the venture side too. You look at what's going on in the marketplace, you've got a tremendous amount of these companies that are making net zero commitments, that are trying to be more efficient with their supply chain. And now, we're in this unique market environment, dissimilar to what we've seen over the past 15 years. Cost of capital is very high, interest rates are high, and companies are cutting back on their internal R&D. They're cutting back on M&A activity. So, as they're trying to meet these commitments they've made to their shareholders and to their community and constituents and stakeholders, they're having to outsource to these small startup companies. And these companies are going to be the ones that solve a lot of the efficiency within supply chain, within the new buildings for these corporations or municipalities. Over the next couple of years, as these smaller companies start to prove themselves and start to scale, they'll be taken out quickly by the strategic acquirers. They're not going to necessarily have to go through the IPO process. I think it's going to be a little quicker offtake than perhaps we've seen in venture with traditional software and hardware technologies. We’re excited about the interplay between the innovation and infrastructure. A lot of these big infrastructure projects are leveraging the technologies that we're investing in on the innovation side. And you see the spectrum of investment from helping these smaller companies build, for example, advanced solar panels, maybe perovskite panels that then are deployed through solar projects on the infrastructure side. That creates continuity within our investment thesis.
Chadd Evans: Yeah, I think that's exactly right. What’s happening that’s different this go round is that when we're thinking about building new infrastructure, we're asking the question, ‘what are the technologies that are there today that we can employ?’ And looking around the corner, where are we going to be? No one wants to not leapfrog if they can. That's true in developed world economies as it is in developing world economies. I think that link is established at this point. And sometimes we get questions about how we can be good at one and be good at the other. We being good at one, makes us better at the other. Both inform upon the others. It's very dynamic and I think it's going to continue to play out that way as these new innovations flow through.
Dan Carreno: Outstanding. I appreciate the insights there. As we're starting to run short on time here, I guess I'll just ask for any sort of closing thoughts that you have about sustainable innovation, these asset classes that we're discussing, and if our listeners want more information about overlay capital, where should they go?
Brett Wayman: You know, Dan, one of the things I want to make sure that we cover is the way that we work with investors and the way that we've built our strategy to really to fit into portfolios for individual investors. I was looking at the latest Morgan Stanley Sustainable Signals report that just came out. About 84% of investors in the US are interested in having an allocation to sustainable investing just generally. We know that allocations are low, but more than half of them are planning to increase their allocations. And this is a trend that we've seen over the past three or four years. Allocations are low because a lot of the funds that are addressing venture or infrastructure in the private markets that have a sustainability lens are the purview of institutional investors, foundations, endowments, pensions, and the capacity in those funds is taken up by these big organizations. That's great, but it doesn't leave space for individual investors who are oftentimes working with a wealth advisor. That's where we're focused: helping advisors understand the space and building investment funds and strategies that can fit neatly into a traditional investment portfolio. So, the funds and the strategies that we tend to build are low minimum, and they're diversified by intelligently making small allocations to other funds we think of as blue chip in the space. They're the leaders in their sector, and they're technical experts. And then using those funds to help us identify other direct or co-investment opportunities. They're basically sourcing for us. And that ends up with a portfolio that's broadly diversified across different themes within venture. For example, agtech, ocean and water, built environment, climatetech. And the same thing with our infrastructure or strategy
Chadd Evans: www.overalycapital.com folks.
Dan Carreno: Great. Well, thanks guys. We'll start wrapping it up there. But before we leave today, we're going to take a few minutes to chat around the campfire. And this is our usual segment. We're going to go around the horn and just briefly share something that we've come across in our lives recently that's been interesting, inspiring, or otherwise thought provoking. And maybe I'll kick us off today.
One thing I wanted to share is I recently had an opportunity to watch a short documentary series, which I believe is on Hulu, called ‘Arctic Ascent’. I'm a little bit of a climber in my spare time here in Colorado. This documentary is about a famous climber, Alex Honnold, who goes deep into the fjords of Greenland to scale this immense sea tower. The documentary is harrowing and it's interesting, but what I also liked about it is that they inject a lot of climate science and climate education along the way. And that seems to me to be the way that a lot of entertainment is evolving. Climate is no longer something that is external to our daily lives. It's literally a part of everything we do. And I thought that was really brought to the fore in this documentary. So again, it's called ‘Arctic Ascent’. I really recommend it on Hulu. And, Brett, how about you?
Brett Wayman: I'm a huge music lover, and so one of the things I've been really interested in is seeing the interplay between live events and sustainability. Festivals, venues, tours could all be seen as temporary built environments. And a lot of the technologies that are being deployed and tested more broadly for permanent structures can also be applied towards live events, sporting events, music events, things like that. And the coolest part of that is it really is engaging for consumers of those events, for attendees who love to see that the things that they enjoy doing in their spare time can be enhanced and can be improved through sustainability initiatives. Powering of these through renewable energy sources, sustainable merchandising, compostable food wrappers, and things like that.
Dan Carreno: Oh, that's so cool. I love it. I have so many questions about that, but in the interest of time, Chadd, what do you have for around the campfire?
Chadd Evans; Yeah. I get asked this whenever I'm part of a forum or some kind of group, usually as an icebreaker, but for the last year have been giving about the same answer. I'm fascinated by the West, and when I say the West, I'm talking about the US West. I've been reading, for about two years now, just a series of books on that topic. My, favorite is Undaunted Courage, which is about Lewis and Clark's expedition west. It's a Stephen Ambrose book. I think he’s a phenomenal author. It's just amazing to get this firsthand account of this country in its relative virgin state west of the Mississippi, and the interactions with original peoples and the animals they saw and the abundance that was here. Part of it makes me sad, but it also puts me closer in touch with our physical world. I guess it's a book recommendation, but it's what drives this interest.
Dan Carreno: That's fantastic. I had no idea you were going to talk about Undaunted Courage. Happens to be one of my favorite books. I think for folks in our industry that have concerns about biodiversity, that is one of the things that really drove it home for me; hearing these firsthand accounts about how dense the wildlife populations were at that point in time versus what we see today. It's a pretty stark difference. Great book and highly recommended. Thanks, Chadd. Well, we'll start wrapping it up there. And, for those that are interested in more information about us, about O-Six Impact Partners, you can go to our website, which is www.osixpartners.com. Of course, please feel free to reach out to us through the website, and we do appreciate you tuning in today, listening to this podcast, and we will be back soon with another episode of Rewilding Wall Street.
Disclosure
The opinions expressed herein are those of O-Six Impact Partners, LLC and are subject to change without notice. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities product, service, or investment strategy. Investments involve risk, and past performance is not indicative of future results. Therefore, it should not be assumed that any specific investment or investment strategy made reference to directly or indirectly by O-Six Impact Partners, LLC will be profitable. Be sure to first consult with a qualified financial adviser, tax professional, or attorney before implementing any strategy or recommendation discussed herein.
O-Six Impact Partners, LLC specializes in providing outsourced sales and marketing services to investment managers and related financial entities. These services may include lead generation, client outreach, relationship management, and promotional activities aimed at enhancing the visibility and market presence of investment products. O-Six Impact Partners’ services are strictly limited to sales and marketing efforts. Under no circumstances should any communication, content, or action taken by O-Six Impact Partners be construed as investment advice or recommendations.
