024: Ben Fraser’s Journey: Growing Up with a Tech Dad to Private Equity Fund Manager

Ben Fraser (00:00:00) - What really got me interested is it's not just a little bit of just mints that most people need to make relative to what these ultra wealthy investors are doing. It's completely different. What I saw in the bank was kind of a microcosm of that subset of borrowers and what we've seen on a bigger scale with a lot of research that we can back it up with is generally these ultra wealthy investors. They're largely invested into private equity, real estate, and private equity businesses. Those three usually make up close to anywhere from 30 to 50% of the portfolios.

Christopher Nelson (00:00:37) - Welcome to Tech Careers and Money Talk. I'm your host, Christopher Nelson. I've been in the tech industry for 20 plus years, and after climbing my way to the C-suite, working for three companies that have been through IPO and investing my way to financial independence, I'm here to share with you everything that I've learned and to introduce you to others that can help you along the way. Today, I'm excited to introduce you to my friend Ben Fraser. Ben Fraser is the chief investment officer at Aspen Funds.

Christopher Nelson (00:01:07) - Aspen Funds is a private equity company that runs a debt fund, and it also runs an energy fund or oil and gas fund. It's so important as we are getting ourselves educated to understand private equity. Private equity is really, if you listen to the previous episode on the breakdown of private equity is how the ultra wealthy build maintain a lot of wealth. Today I want to introduce you to two separate asset classes, debt funds, as well as oil and gas funds, so that you can get a general understanding of what they are. And knowing Ben, we're going to go deep. So I'm excited to share this with you today. Let's go meet Ben. Welcome to this week's episode of Tech Careers and Money Talk. I'm excited to be here with a friend, Ben Frazier. Ben Frazier, for all of you, is the chief investment officer at Aspen Funds. Aspen Funds is an Inc 5000 company and is responsible for sourcing, vetting and capital formation of a lot of different alternative investments, private equity investments.

Christopher Nelson (00:02:14) - Ben has prior experience as a commercial banker and underwriter, and he's also worked in boutique asset management, some of that in oil and gas that will get into some of those things today. He also contributes to the Forbes Finance Council, and he's a co-host of a podcast. I'd recommend checking it out. Invest like a Billionaire. Welcome, Ben.

Ben Fraser (00:02:36) - Hey, thank you so much, Chris. First is going to be awesome. Looking forward to it.

Christopher Nelson (00:02:40) - I'm looking forward to it too. And it's important to understand that. I know Ben Fraser. I also know his dad, Bob Fraser. And I think as you know, listening to this podcast, we always talk about origin stories. We talk about careers, and it's going to be no different. Even though Ben doesn't come from a tech background. I think it's fascinating that his father, Bob Fraser, did have a startup tech company, transitioned into asset management, transitioned into real estate. And for the people who know Bob, he has a big focus on macroeconomics.

Christopher Nelson (00:03:20) - He does a lot of speaking around it. I want to understand what it was like to grow up in a house like that where your dad was involved in technology transition careers, and I can imagine that he spoke around the table a lot around money and about finance.

Ben Fraser (00:03:37) - Yeah, well, yeah, it's fun. You bring that up and don't talk a lot about that on the podcast. So it's fun to do it. But yeah, I get to work with my dad now, which has been really cool, kind of a full circle thing. So he's one of the founders of Aspen and you know, one of our four partners. And yeah, it was really cool, you know, growing up with an entrepreneur dad and just I thought he was so cool. He was my hero, you know, And he, you know, a little bit of story on him, you know, really fascinating timing because he started a.com and the.com boom. And so in the early 90s started a kind of back office ecommerce platform.

Ben Fraser (00:04:17) - And, you know, who knew e-commerce became a big thing and he did very well, raising a lot of money. Venture capital was one of the in the Midwest here in Kansas City. He was the largest venture capital firm in the Midwest. He won the Ernst and Young Entrepreneur of the Year award. He was preparing to go IPO. And I'm sure, as you tell all your listeners, you know, get that exit. Well, he just missed the exit and it all ended up crashing and burning right when the.com bubble burst. So, you know, 2000 in 2001 were pretty rough. So he went from, you know, nine figure net worth to pretty much nothing. And you know, the long story between them and Aspen. But the long and short of it is he had amazing business. And they had I mean, I think 2000 paying customers you know even when they were, um, you know, things went south and he had lost control of the board, but he gave up kind of the last, um, or another spot of the board when he did his last round of capital raising and lost control and they voted to liquidate the company.

Ben Fraser (00:05:31) - So he just, it was out of his hands at that point. And so it's really difficult. Um, but really kind of transitioned into finance investing and ultimately how do I find something that I can have more control over and I can have more stability, you know, and build wealth through. And so led him, you know, into real estate, let him into a few other things, but ultimately kind of formed the basis of Aspen funds. And kind of to your question on the kind of familial side, growing up, what was it like having, um, dad like that? I mean, it was interesting because I would say we didn't actually talk a lot about money. So, you know, our relationship now is actually a lot different than it was then, right? And so things have evolved over time. And I think there was always a sense, especially in those early years, the really good years, you know, we had a sense of, hey, we're getting a lot of Christmas presents or going to Disney World.

Ben Fraser (00:06:25) - Things were nice and easy, and then we had a sense of, Oh wow, we're not getting that many Christmas presents. And you know, we're not doing all these big family trips. And so it kind of shifted in, you know, there wasn't a lot of talk that was explicit about, you know, money management or investing, but it was kind of understood, you know, the entrepreneurial journey is kind of a roller coaster sometimes, right? But to me, it did, I think, inform a lot of what I wanted to do in my career, which was ultimately to have ownership, buy assets and really invest for the long term. You know, and aside from just money, pure money investing, a lot of things that I learned was just how to build a good career, how to maximize value wherever you're at and overperforming, get paid, you know, or do more than you're getting paid for. So you're always adding value and, you know, went to school, got an advanced degree.

Ben Fraser (00:07:17) - And so there was a lot of indirect things that really launched me to where I'm at now. And, you know, very, very grateful for that. And now it's really fun, too, because on this side of it, you know, where I have now four kids and get to work with my dad, it's a pretty cool experience because we are talking every day about money now. Right? And we're now talking about family, legacy and trust planning and other things that are really cool that we want to build generational wealth. And how do we do that? What does that look like? And so there's a lot of cool conversations happening now that have been pretty fun.

Christopher Nelson (00:07:52) - That's great. And I think it's so important, you know, when we get to different levels in our careers, when we get to different levels in our life to reflect back on what we heard around the dinner table, on some of the experiences that we saw, because the reality is those do impact us. Those do help drive some of our decisions.

Christopher Nelson (00:08:12) - So for yourself, how did that, you know, being in that entrepreneurial family, seeing the ups and downs, what type of degree did you decide to get and what was your first job move?

Ben Fraser (00:08:26) - Yeah, Yeah. So, I mean, early on, seeing an entrepreneurial dad and kind of the concept was you got to go earn your keep, right? You got to go. If you're not going to work hard, you're not going to make anything. And so we had kind of the allowance like most people, but it was barely, barely minimum wage for a kid. Right? You know, it wasn't paying the bills. So if you wanted to go make more money, you got to go earn it. So I remember, you know, we would do all these different things. I'd like to create these carnivals for the whole neighborhood and we charge them money to come play these games. We started doing lemonade stands, but we were on a really slow street, so we didn't get that much traffic.

Ben Fraser (00:09:02) - So, you know, we started like going door to door sales and, you know, early on. And so a lot of that kind of entrepreneurial foundation was built there, but, you know, I went to school and didn't really know what I wanted to do. But at that point, my dad was doing a hedge fund. He was doing trading on, you know, the stock market. And kind of got somewhat interested in finance and so took a finance kind of path and got a degree in finance, got an MBA after that and just fell in love with it, to be honest, just always. I've always loved money in the sense of it's fun to, you know, count, count your winnings and how do you maximize it? How do you grow it? How do you save more? How do you invest and get better returns? Like those are things I've always just been naturally wired for. So it was kind of somewhat serendipitous. I obviously had a lot of mentorship, you know, partly with my father too, and kind of deciding what was the right path.

Ben Fraser (00:10:01) - And, you know, now I'm here as a, you know, running on the investment side with the firm. So it's worked out well.

Christopher Nelson (00:10:09) - And what were some of the what were some of the steps in between that got you to before you started Aspen Funds, what were some of the things you did earlier on in your career that helped prep you to actually be a partner in the firm? Yeah.

Ben Fraser (00:10:22) - So, I mean, I had a pretty winding road. I think for me, I was pretty motivated. I wanted to grow very fast. I've always been very curious and, you know, some aspects of the corporate world appeal to me. I'm a natural maximizer. So if I have, here's all the constraints. How do you, you know, work within a system and perform well? So I always did well in that, but always at the same time disliked the constraints. It's like I just want to move a lot faster than some of these companies want to move.

Ben Fraser (00:10:54) - So I just tried lots of different things. I actually ended up doing door to door sales during college, learning some kind of sales skills. That was very, very important to kind of, for me, balance out some of the real technical training that I was having and, you know, all the kind of career focused books and things, you know, self-improvement stuff. I was reading, I was like, Hey, you gotta have sales no matter what position you're in, within a company, being able to sell is really, really important. So I wanted to grow that and put myself in positions. I had to, um, so did several different things like random sales roles and then kind of got into the asset management side. So I was working for a large asset manager that had several ETFs and mutual funds that were traded in the oil and gas midstream space and got a really cool exposure to, excuse me, institutional equity, institutional investing. These were big endowments, pension funds, foundations that we were working with, as well as kind of the retail side, but was more on the institutional and kind of very eye opening experience.

Ben Fraser (00:11:56) - Um, and then from there kind of shifted into commercial banking. And that's where I really learned a lot of underwriting of really getting to see kind of underneath the hood of, of what makes these wealthy borrowers of the bank so wealthy. One of my favorite things I got to do when I shifted to banking was look at the personal financial statements of all of these borrowers that we have. And it was kind of a boutique bank. So we're focused on wealthy business owners as the kind of clientele. And so I got to see exactly how much they're making from their tax returns and where they are investing, how have they built their net worths? And I mean, talk about education. All the things that I got to see were so cool and then just got the fire stoked to me like, Hey, I want to do that. You know, I don't want to.

Christopher Nelson (00:12:45) - To go build that. I'm curious what it's like because that's so one thing here for technology employees, we get overexposed in stocks sometimes in a single stock for a company that we're working for or we do venture funding.

Christopher Nelson (00:13:02) - Give us a view into when you look at that personal financial statement and you think about what's a pattern that you saw with the ultra wealthy that doesn't get fed to us, We get a lot of messages from these larger financial services companies stuff everything in your 401. K, you know, get everything into growth equities. 4% rule. What? Did you see that? You know, you'd share with us.

Ben Fraser (00:13:29) - Yeah, absolutely. I mean, the two really simple ones are probably partly a bias from the clientele, the bank. But I think it can be universally applied is, you know, the wealthy generally own businesses and they generally own real estate, you know, whether the real estate is what caused them to build the wealth, you know, that's usually someone in a professional industry. But regardless, these people are invested in real estate and a lot of times they own businesses, right? That's one of the biggest amplifiers of building wealth. And so it actually I mean, it's a great thing you bring that up because part of our focus now in our podcast, Invest Like a Billionaire is studying the ultra wealthy because it got me so interested in saying what are the ultra wealthy doing? And what really got me interested is what the ultra wealthy are doing.

Ben Fraser (00:14:14) - From the research that I've found is very different from the standard stuff in 401. And forget about it until you're 65. And it's not just like a little bit of, you know, adjustments that most people need to make relative to what these ultra wealthy investors are doing. It's completely different. And so, you know, what I saw in the bank was kind of a microcosm of that subset of borrowers. And what we've seen on a bigger scale with a lot of research that we can back it up with is generally these ultra wealthy investors. You know, whether it's a family office, whether it's an endowment, you know, the Yale Endowments, a great example, foundation pension, they're largely and heavily invested into private equity, private equity, real estate, private equity businesses and venture capital. And, um, you know, those three usually make up close to anywhere from 30 to 50% of their portfolios, 30 to 50. And the average retail investor maybe has 2 to 3%. If they own an Airbnb or if they, you know, own a rental or something maybe that, you know, boost that percentage up a little bit.

Ben Fraser (00:15:26) - But by and large, there's a pretty big gap. And so that's really what we're passionate about, is helping people understand, you know, these types of alternative investing.

Christopher Nelson (00:15:38) - Well, and I think that that's a good transition point I want to take. I'm going to put a pause right here. And when we come back, it's important that we learn from Ben, you know, about debt funds. We learn about some of these energy investments because this is the real opportunity for ourselves, is to learn and understand so that we can start expanding and changing our portfolio. We'll be right back. Okay. Welcome back to the second half of Teachers and Money Talk. We're here with Ben Frazier, and I am pumped for this side of the episode because we're going to be talking about two asset classes that I'm heavily researching right now and looking for opportunities to get exposure to Ben with his experience of working on the banking side. Now in Aspen Funds, they created their own debt funds. They essentially became like the bank.

Christopher Nelson (00:16:31) - And so break down for us what are private equity debt funds?

Ben Fraser (00:16:37) - Yeah, absolutely. And so just to kind of create a little more context for how we operate at Aspen is it's a little bit different than some other sponsors where, you know, we're in one asset class, we're a hammer and everything's a nail. And we explicitly decided to kind of go a different route and create more of an agile business model. Because of your comment earlier, you know, part of our focus with Bob and in our research team is focused on what are the macro trends, where are the opportunities based on the big picture things that are moving along the economy. And we want to be positioned to benefit from those. Because, you know, going back to Bob's story with the timing, you know, timing is everything. It was a really good time to be an owner in the 90s, not a good time in the early 2000s, even though nothing changed fundamentally. Right. And so understanding the timing of things is really, really important.

Ben Fraser (00:17:32) - And I say all that to say we are very excited about these two we're going to talk about. But it really shifts over time based on where we think the best opportunities are. And so we've invested in tons of different assets, a lot different asset classes and strategies. And one of the foundational ones actually of Aspen that started us about 11 years ago was coming out of the great financial crisis, buying distressed mortgages and buying distressed debt. And so we have a whole expertise in house around debt, obviously with my banking background coming from that world. And so a debt fund is, you know, not that dissimilar to an equity fund that's investing in, say, multifamily, you know, for a lot of people are invested in multifamily. And, you know, when you are investing in anything, you are investing at some portion of the capital stack. And so that's something I always think is really important for people to understand. It might be a new term that you're getting used to or I've never heard before, which is the capital stack.

Ben Fraser (00:18:30) - And it's understanding you have your asset right here. And the other side of that is what forms the capital stack of how you purchase that asset, how you are funding and financing that asset. And so it's usually some combination of senior debt and equity that has to always be there. Then sometimes you have these other layers of mezzanine debt and or preferred equity. And when you go further down the capital stack, you know, the senior debt is usually a bank or some kind of debt fund and usually the lowest return. So their interest rate is going to be, say, right now they're going to be higher, 8% say, but the risk is lower because they get paid first. And so to the extent that the value of an asset goes down, they're the least at risk. And so the further you are to the capital, down the capital stack, the lower rate of return you can expect, but the lower the risk and conversely, the higher up you are. And the highest is common equity, the highest risk, but also the highest potential return.

Ben Fraser (00:19:32) - And so right now it's interesting if we're kind of in this shifting of the market. There's a lot of dislocations happening, especially in multifamily, especially in offices. And, you know, I think it's important for most people, when they've kind of got excited about this private alternative world, most people invested in multifamily and, you know, maybe you invest in a few different geographies, so you get some diversification there. But did you invest at different parts of the capital stack? Right. It's another level of diversification and allocation strategy to reduce risk. And most people did it. Most people invest in common equity. They see the big returns and that's what I'm going for. Well, I hate to break it to you, but a lot of those deals may not live up to the returns that they originally proposed for a lot of reasons, which problem to get into. But where I'm going with this is in markets like right now where we're seeing some dislocation in values, right? So the bid ask spread is really, really wide, meaning sellers don't want to sell for what buyers want to buy at, and they're pretty far off. These interest rates are putting a lot of pressure on buyers to have to pay lower prices.

Ben Fraser (00:20:45) - So it's kind of this stall out in the market. There's not a lot of transactions going on and a lot of deals are kind of headed for some major challenges with maturing debt. And so what we're kind of seeing is going lower on the capital stack. So kind of playing in that mezz debt, preferred equity, you know, slivers of the capital stack. So you reduce your risk because you get preferential treatment before common equity. You get paid usually after senior debt. But what we're seeing right now is because banks are really tightening their credit, meaning they're not lending a lot right now, they're not making new loans. They're kind of holding on to what they have and just hunkering down, hoping things will be okay. There's a huge gap of funding for a lot of these deals that are kind of good deals, good, good properties, good locations. But they have some challenges they need to solve. They need some capital to do that. We can come in, provide that kind of gap funding and you can get about you can get roughly equity like returns with debt, like risk, much lower risk because you're going to get paid before any of the common equity and you kind of come in and save the day, so to speak, in that slice of it.

Ben Fraser (00:21:53) - So I'd be a little too technical, but trying to create the picture here of why there's an opportunity in this particular part of the market.

Christopher Nelson (00:22:01) - Well, don't shy away from being technical where we're technical people here. We love to geek out on all the things. So that's all good. Getting back to the fundamentals, though, is, I love the way you painted up the capital stack. You're getting lower and lower risk in returns. And generally speaking, the way that these types of investments work is you're going to put your own capital into this fund. The fund is then going to provide you some type of a regular payout, regular returns. So this is an income investment because you're not on the equity side. You aren't going to get the distribution, the depreciation. You're going to be able to get distributions, you're going to get cash flow. But it's nice you know, when you think about a portfolio and portfolios need income to be able to have liquidity, to have flexibility, a debt investment I think has been stated.

Christopher Nelson (00:23:01) - Number one, gives you diversity of the capital stack. If you're just doing equity investments, this is another diversity of this is another way to diversify. And then it also provides good, healthy income that I think it's super important for us to have that conversation, I think. Towards the end of the last cycle, right. Coming up into 2022, there were a lot of equity investments that did not have a lot of income. And for those of us, myself included, that rely on my LP investments to replace my corporate check income is critical. And this is where I think for people looking at alternative investments, thinking about a debt fund, it could definitely fill that gap.

Ben Fraser (00:23:47) - 100% and mean. I can't tell you the number of times I've heard from some of our investors that, hey, I'm in these deals and these are with well-known operators that are good operators, but they're pausing distributions right now. Right. A lot of operators are just going to go on hold. We don't really know what to expect.

Ben Fraser (00:24:05) - We don't need to just, you know, build up reserves and make sure we can make it through. And then there's a lot of deals that are kind of halfway through the value add process. And they're struggling and they're trying, you know, they never, never even got the distribution phase. And now they're hoping they can actually preserve principle and capital. And so you're exactly right. I mean, equity investments are generally not designed to primarily be income focused. And even though a lot of times that will be a component of the overall return, if you're investing in a real equity play, you know, the goal is future growth. And so you usually do that at the expense of current income. And so you need to have that balance and you need to have that balance not just from your equity, but also lower in the capital stack that are really designed to to pay the current income. Because of the way a lot of these deals work, when we're coming in as an investor, we have an element of current pay right out the gate.

Ben Fraser (00:25:06) - And so it's different on different structures, but our borrowers have to start making payments on our investment right away and we're getting cash in the door. And so, you know, cash flow is a great way to reduce risk because you're getting, you know, profits back on your original investment right out the gate, lowering your principal at risk. So it's a great way to lower your risk, a great way to kind of bolster up that income side of the portfolio, especially if you're relying on that to, you know, for part of your living expenses.

Christopher Nelson (00:25:41) - And so what? Thinking again, generally, what do we see out there in debt funds? What are some of the general structures of debt funds in flavors of them? Right. I know we talked a little bit before. There's residential, there's commercial. But, you know, give us a little view of the landscape of debt funds.

Ben Fraser (00:25:59) - Yeah. I mean, there's a million ways to slice it. I think the real simple kind of categories would be, you know, residential versus commercial.

Ben Fraser (00:26:08) - And we have a residential debt fund that's been going for ten years and continues to be a great vehicle. We have commercials, you know, debt is another kind of category. And within that there's kind of different types of debt, right? And preferred equity is not truly debt because it's not usually secured by a lien, but it acts similarly in that it has some form of a current pay component to it with some upside. Um, a lot of times these kinds of mezzanine debt structures also not only get the interest rate or the current pay, but they also get some of the back end profits. And so that's very common in these types of structures. The use and the need for these types of funding is, you know, it's pretty similar across the board. You know, it's usually some type of say it's some type of development project, which is more like bridge financing. So it's not really bankable yet because, you know, this is a redevelopment project and so you need to kind of increase your leverage ratio a little bit because banks aren't lending on it or not lending very high.

Ben Fraser (00:27:18) - Um, another one is kind of gap funding. So kind of referenced that a lot of deals that we're seeing right now in the commercial space were purchased on bridge debt terms and bridge debt was great a couple of years ago because you could get super high leverage and usually pretty low interest rates at that point in time. The caveat was these are floating rate, you know, facilities or debt facilities. So. Interest rates went up. All of a sudden, interest costs have tripled on some of these. These loans and they can't service the debt. And a lot of times you can buy what's called an interest rate cap. So you can kind of limit the ceiling to where your interest rate is. Well, those only last usually three years. And you have to buy another cap to kind of continue on with that with that interest rate. So a lot of these deals are needing to purchase interest rate caps. They don't have the capital or hey, they are 80% through the renovation plan. And I've heard this like banks are actually stopping new draws on construction loans that were already approved.

Ben Fraser (00:28:25) - And this is funds that they already said that we're going to give you. Now they're pulling back saying, no, we're not going to give you any more funds. So they are stuck. You know, how do I keep finishing this renovation plan? And then there are deals which are usually a bit higher risk, but you're usually getting compensated for it. If you can find the right deals, they're more distressed, right? These are deals that are not trending in good directions. They, you know, have some bigger issues that need to be solved and kind of, you know, refinance the whole debt stack or, you know, provide additional liquidity. So there's other special situations. This can be called distressed opportunities. So those are other areas that you can kind of, you know, play in this in this pond here.

Christopher Nelson (00:29:11) - And so when you think about an investor in LP coming in and evaluating a debt fund, what are some of the fundamental things that they want to look at?

Ben Fraser (00:29:21) - Yeah, well, I think just like anything, you got to look at the track record of the operator.

Ben Fraser (00:29:26) - And how much have they done this before? What's the expertise? And you know, debt is a little more technical than equity, right? There's filing liens, understanding how to structure certain things, understanding how you're collateralized and you know where the kind of gotchas are are very, very important. And bankers think differently than, you know, most people. And part of the reason why I wanted to leave was because I was like, I can't do this for my whole career. It's too depressing, right? You only have a fixed interest rate. And then you look at all the downsides of how that could not be earned. Right? You don't have any of the benefits of the upside. So, um, yeah, I mean you're looking at the downside risks, you know, at a simple high level. You want to look at what's the overall leverage, what are you secured by? Right? Because you can be secured by what's called all business assets. If it's like a business loan or something.

Ben Fraser (00:30:21) - But it could be nothing. It could be, you know, 50 year old equipment. And what's the actual resale value of that? You know, very unlikely. You want to look at the credit score for the principles. You want to have guarantees of the principles so that if the collateral, you know, sells at a discount doesn't cover the whole loan, you actually have recourse back to the the owners and the individuals behind the deals. You want to look, I mean, getting reference checks. Right. Are these actually good quality borrowers and people you want to, you know, be doing business with. And then the big thing from the kind of how you get paid back is the first question you're always going to ask. Right? And so you want to see something that has a clear path to an exit, whether that's through a refinance or through a sale of the property. And the great thing when you're coming in at a lower part of the capital stack is your minimum hurdle to get paid out is a lot lower than the equity investors, right? Because usually if someone brought, say, 20 to 30% equity, all of those investors get paid after you get fully paid, all your fees, all your interest, all your principal.

Ben Fraser (00:31:33) - And so usually it's a lower hurdle, which makes it a lot more feasible a lot of times. And unfortunately, sometimes some of these deals may not pay back all the equity and. Right. You know, that's unfortunate, but that's also the nature of how these cycles work and why there's an opportunity, I think, to come in at that level.

Christopher Nelson (00:31:54) - So I was. I had Jeremy roll on the podcast and I don't know if we were talking about this in the Green Room or whether it was on the podcast, but I was asking him about debt funds. And one of the things that he mentioned is especially now, there could be risk to your point if you have large leverage, you know, 70 to 80% loan to value and you're going in and then you have prices coming down. Walk us through, you know, what kind of questions do you ask about the risk and the type of loans to make sure that, you know, you're not getting in with an outfit that's too risky?

Ben Fraser (00:32:33) - Yeah, absolutely.

Ben Fraser (00:32:34) - Mean overall leverage. You don't really want to. You want to kind of cap out at 70% usually. I mean, we don't really get beyond that. So if they're already leveraged 80%, it's probably a no go. Usually we like to be closer to the 50% mean that's a lot of our loans are below 60 I would say. And that just gives you a lot more margin to work with. Right. So some of these deals, they're not going to work. They're just not there. They got to raise more equity to get, you know, to fill the gaps. But you're exactly right. I mean, theoretically, a deal that has come in at, say, 75 or 80% leverage two years ago and they've renovated 80 or 90% of the units is on a multifamily deal, for example, theoretically, they have increased the value of that property a decent amount because if you increase your net operating income, you know, you've increased the value because your value is that net operating income divided by cap rate.

Ben Fraser (00:33:38) - So the big question is then, well, we're cap rates right now. And I think that is, you know, the big question. So you have to be conservative when you're kind of calculating a new value. But it is very, very possible that someone purchased at higher leverage where they've increased NOI enough to they've increased the value, but they can't make any there's still negative cash flow because interest costs, you know, are what they are. They have tripled for a lot of these deals. And so that's pretty challenging. Even though operationally and fundamentally at the asset level, they're doing very well. So that's you got to get a little more nuanced. But again, if you're going to a higher leverage, you're going to be charging a lot, a lot higher rate for that. And you want to know, sometimes we'll do deals where we'll actually be cross collateralized. So, you know, the principals have a big balance sheet and, you know, maybe there's not enough leverage in this one particular deal, but we'll get cross collateralized with some other assets that we feel good about.

Ben Fraser (00:34:36) - And ultimately we generally will get some type of either a broker opinion of value or appraisal or something to kind of substantiate current value when you're going in.

Christopher Nelson (00:34:46) - But. Right, right. That's the current value. That's not, you know, I mean, again, that's, that's looking at current cap rates, current NOI and where are we in the current market because obviously that's changed over the last 12 to 18.

Ben Fraser (00:34:58) - 100%. You got to re underwrite these things with a blank slate. I mean, things have completely fundamentally changed to a large degree. Now, even coming from the banking side, again, like I've reviewed 100 appraisals and even the appraisers, especially on a refinance or without a sale, you know, it's always, always surprising to me. It especially happens in the residential, but even commercial, it's like magically they come up with a value that 95% of the time is the exact value that the purchase price is right on the purchase appraisal, right? It's like, wow, that's just so, so magical that that happens.

Ben Fraser (00:35:35) - And the reality is they're assuming that in a, you know, arm's length transaction that what you're paying is the market at that current time. So then they're just using 100 pages of math to try to support that number. That's usually what it's doing. And so all that to say in appraisal, it's valuable, it's very valuable, but it's very limited, especially in a refinance scenario or especially in a purchase scenario. But even in a refinance scenario where they don't have a lot of you know, they're just making assumptions. And so you got to challenge those. But ultimately, when you're kind of capping out at 70%, all in what that means is the value of the property could drop 30% from where it's at right now and you would not lose a dime. Right? That's what it means. So that's historically a pretty big margin. You know, it's very rare that the market crashes 30% in commercial real estate. And even if it does, you know, usually recovers in a pretty short period of time.

Ben Fraser (00:36:34) - So you know, that leverage really matters. Obviously, all these other things matter and how you kind of get to an exit. But absolute leverage is very, very important.

Christopher Nelson (00:36:47) - So let's transition. I want to spend some time talking about some of these energy investments. One of the things that I've learned from doing due diligence on energy investments is that some of them actually have depreciation that you can take against active income, which. And to all of us technology employees where we're getting RSUs and we're getting huge amounts of income every year, this can be very powerful because there's an opportunity to make an investment and then lower your overall tax burden directly. So walk us through a little bit like give us again the, you know, 50,000 foot level. What are general oil and gas investments? What sort of qualification is that? And then what are you doing?

Ben Fraser (00:37:30) - Yeah, absolutely. And you're right that those exist out there where you can actually take tax losses against active income.

Ben Fraser (00:37:38) - That's something you can't do in real estate, which is pretty crazy if you really think about it. But, you know, going straight straight to the tax question, I always have to give the caveat because everyone gets excited about it. But I always say, you know, don't let the tax tail wag the dog because it's a benefit. It should be something you evaluate in the whole, you know, evaluation. But it should never be the primary driver for an investment. That's right. Case in point is. A lot of people that are selling oil and gas interests are selling drilling programs. Nothing inherently wrong with drilling programs, meaning, you know, we are raising capital to go drill some new wells and then you will share in the profit on the success or lack thereof of these wells. And the challenge is the lack thereof. Part of this. Right, is if you're investing in drilling, you are taking additional risk. Now, what they can do, a lot of times they can frontload a lot of these expenses in the calendar year so you can get a pretty nice tax write off.

Ben Fraser (00:38:43) - So it is meaningful and it does reduce your risk because of that. But if you're reducing your tax basis, but then you have a big fat zero as your, you know, return on investment, it's that doesn't put you ahead is kind of where I'm getting at. So our focus has always been, you know, let's go find the best opportunities to maximize shareholder return and find value what's our thesis which we can get into and then try to structure something that is going to be as tax advantageous as possible. And so that that's kind of been our approach to it. And and again, the reason I emphasize this is. For some reason, I don't know why I've been investing in gas for a few years now. Oil and gas attracts some unique people from an operating standpoint. And I don't necessarily think there's more bad actors in oil and gas than there are in real estate. But it does seem to attract people that are a little more just, hey, we're going to exaggerate the truth a little bit.

Ben Fraser (00:39:47) - And because of its ups and downs, when it's good, like right now, it's amazing. I mean, we're buying existing cash flow in wells at 25% cap rates. So 25% unlevered cash on cash. It's insane. So don't tell too many people about that because we're trying to buy as much as we can right now. Right. But then it's like, you know, commodities have down markets, too. So you have to be sophisticated in how you're investing in these types of things. And so I say all that to say just be cautious in this industry because, for example, we were at a conference a few months ago, a lot of oil and gas sponsors there, and they're drilling vertical wells. Vertical wells are fine. There's nothing wrong with vertical versus horizontal. They're different. But they are charging basically, I think it was $3 million for one vertical well. I've drilled vertical wells. I happen to know how much it costs and it's about a fourth to a fifth of that.

Ben Fraser (00:40:50) - And so they are frontloading the fees of this by about four X. And so, you know, even if the wells go gangbusters, you're so diluted that it's not going to be a great deal. So those are the kind of things where you just want to watch out for some of these kinds of unique structures. But at a high level, I mean, oil and gas is, we believe, a generational buying opportunity right now. And, you know, we actually just did a presentation yesterday on this or on this will air, but people can watch it just on one of the megatrends of oil and gas. We think we're in a secular long term and structural supply constrained environment for the next ten years. There's been so little drilling that's happened over the past few years and so much emphasis from ESG, which and a lot of your listeners are tech listeners. I'm 100% behind alternative energy. I think we need to do a lot more of it, especially nuclear power plants. And it's important to invest in these technologies.

Ben Fraser (00:41:58) - But where the challenge is, is the transition plan is so shortsighted. There's so many challenges to make this transition. In the short period of time, we've been investing in alternative energies and trying to, you know, build out new sources for the past 50 years. Really, the 70s started this kind of revolution towards green. Right now, as we said, only 17% of the global energy usage comes from non-carbon sources, 17%. So in 50 years we've made an okay dent, made a decent dent, but it's so far from replacing fossil fuels. And that's where I think a lot of people get it wrong, you know, and not to get all political on it, but you know, there's a lot of reasons why politicians want high oil prices, to be honest. Right? Because if you have high oil prices, it actually potentially forces the transition faster and creates some demand destruction. But demand destruction is a very, very negative thing as a whole population and country because fossil fuels and cheap energy are a primary overall wealth builder because it's or just building prosperity across every facet of humanity, because access to cheap energy fundamentally changes civilizations and improves overall prosperity, whatever source of energy is.

Ben Fraser (00:43:32) - But it's got to be ubiquitous and it's got to be inexpensive. So all that to say, I think there's a very unique time right now where one price is already pretty high and returns look really good right now. But over the next ten years, if you're going to be selling oil, you're making oil, you're producing it and you're selling it, I think you're going to have a lot of upside exposure to a price that you don't have to pay for right now. I mean, like I said, we're buying these wells at 25% cash on cash right now at today's prices.

Christopher Nelson (00:44:08) - And so when I think, though, when I think about oil and gas investments, am I really seeing the same spectrum that you see in traditional real estate where you are opportunistic. I have a piece of dirt. I'm going to go. We're going to go. Brand new wells opportunistic all the way to. Sounds like what you're doing which may be I don't know if it's a value add or it's maybe a core core plus where we have existing wells, we're going in, maybe adding some new equipment, adding some new things, and then we're just going to continue to cash flow off of this existing infrastructure.

Christopher Nelson (00:44:42) - We have knowledge of, you know what that asset is. ET cetera. Is that is that. And because I also know there's a few different flavors around it, but is that sort of like the meat and potatoes of it?

Ben Fraser (00:44:55) - Yeah, you're exactly right. There are kind of nuances to what you're investing in. So understanding the strategy is very important, you know, going and doing new drilling. To me, that's the highest risk because you have no cash flow. If one or a couple of these wells don't hit oil or hit oil economically where they can take it out of the ground at a profit, then you know, your return is going to be severely impacted. So to me, it's potential for big upside, but it's the highest variance of return, which is one of the definitions of risk, right, is what's the range of return this could be and you know, maybe all your wells hit. You're making 100% returns. But if a couple don't or all of them don't, you're making 0% and anywhere somewhere in between.

Ben Fraser (00:45:42) - So I've done a lot of people. So why do some people I've been talking with have invested in gas and like, Oh, it's amazing. I got so much capital and some people are like, It sucks. I've never done it again. I got like, I got 0% returns, right? And that's why because they're investing predominantly in drilling programs. Right? The other side of it is you can go buy existing producing wells. So you have, you know, a few different terminologies. The simple ones are PDP and PWD. So you have proved developed and proven undeveloped. And so these are SEC terms. You have to prove reserves are very difficult to do and it's a very meaningful designation. And PDP, which are your producing wells, you can buy these at really, really good values. And that's kind of what I'm talking about right now. And so what our strategy is, let's go buy existing producing wells because we have cash flow like we're talking about earlier, that reduces risk, reduces a whole lot of risk, and you can purchase cash flow at a really good basis like a 20 to 25% cash on cash.

Ben Fraser (00:46:45) - That reduces it even further. And then we do that if we get the rights to be able to participate in new drilling activities on the acreage that we have the rights to. And so like we for, for example, just purchased a package of 143 horizontal wells in a really, really good basin. And the Scoop stack in Oklahoma, and this is producing amazing cash flow. And then we can leverage that cash flow to participate in new drilling. There's about 68, I believe, planned developmental drills in this basin, and this is why we consider infill drilling, right? So there's exploratory wildcat and you may have heard of these are going to explore new areas of different basins infill if you know we already drilled a thousand wells in this area. We're about to drill the thousandth and first well right and that's that's the difference. So it's lower risk. But in this particular basin it's still really compelling returns. So they had about a 90% success rate and gross IRR on average or 50%.

Ben Fraser (00:47:54) - So and that's including the wells that don't work. So that's a pretty good rate of return to take that risk. And so what we're doing is layering the cash flow, reinvesting that back into these new drilling programs to kind of get this snowball effect where you can kind of build even more cash flow. Because one of the things I think about oil and gas is very different from real estate. And this took me a while to kind of shift the brain space here. Real estate generally appreciates over time. Right. And that's why we all love real estate. Oil and gas depletes over time. Right? Because there's a fixed amount that you can pull out from each well. And so to continue to produce the same levels of cash flow over time, you know, when you need higher prices or you need you to produce more and you don't want to bank on higher prices, so you gotta be producing more. So drilling is kind of a key component of this, but I think the best way to do it is to layer it in with existing cash flow.

Christopher Nelson (00:48:55) - What are you, I mean, I'm just curious. So you said I mean, we talked about a lot, especially on the energy side, especially with, you know, the fact that we haven't been drilling enough. And I remember your father speaking earlier this year, you know, just sort of on the supply demand around that. What do you think is the future of private equity investments in energy like this?

Ben Fraser (00:49:22) - Yeah, well, I think over the next couple of years, it's a good buying time right now. We'll see what happens. I mean, oil's, you know, as we speak right now, $90 a barrel, which is definitely higher than the long term average. And some, you know, economists and investment bankers are predicting potentially oil prices that we've never seen before because we're headed over the next 5 to 7 years to a place that if we don't reverse course and start to drill more, we're not going to be able to catch up. JPMorgan actually just released a report where they said by 2030, they are expecting a 7.1 million barrels per day, 7.1 million barrels per day shortfall based on where the demand is expected to be at that point.

Ben Fraser (00:50:13) - And that's including all sources, OPEC included. There's just fundamentally not enough supply. So what's that going to do that's going to put a lot of upward pressure on price, but it's probably going to create demand destruction, too. So it's always this demand destruction, meaning, well, someone was going to go on a trip and now all of a sudden, plane tickets have tripled because jet fuel is so expensive. Or maybe we're not going to go drive to the coast because gas prices have tripled. So there's people who start making different decisions if prices get that high. Right. But to a certain degree, you know, there's going to be a flaw because of that supply factor. So, you know, unfortunately, I think we're headed for a crisis in energy. But, you know, from an optimistic side of me, let's position to be taking advantage of that. Let's be selling oil when it's a really good time to be selling. Right?

Christopher Nelson (00:51:10) - Well, Ben, thank you so much. Really appreciate your time today.

Christopher Nelson (00:51:14) - We do transition. We ask everybody a series of five questions, a little fire around here at the end. So I have a couple questions for you. So, uh, what's some advice that you would give your younger self, you know, getting started in your career and investing?

Ben Fraser (00:51:32) - Oh, that's a good one. You know, I think I play the long game. I think for me, I'm sure a lot of your listeners where I just wanted to be a millionaire by the time I was 25. Right And you see especially now it feels like all these Tiktokers or whoever, like, you know, posing by Lamborghinis, it's like, Oh, I'm just so far behind. But, you know, wealth building is not linear. And what I've found, you know, just personally the past five years, my net worth is 10 or 20. Um, but it's because the accumulation and compounding of the skills that I've been building for a long time wasn't really getting paid for them for a long time.

Ben Fraser (00:52:12) - But now all of a sudden there's a way for me to monetize those skills and to be able to leverage all that I know into building wealth, right? But it took a long time to get to that point where now it's becoming a hockey stick. And if you understand the power of compounding, that's an inherent truth. Just in the fundamental way things work is you play the long game, but it's not linear, it's exponential. And that's what's so cool about compounding is not just in money, but in skills. And the faster you can learn, the faster you can iterate, the faster you can get up that you know, to the more fun part of the compound stick.

Christopher Nelson (00:52:44) - Yeah, exactly. More zeros, baby. That, uh, what soft skill do you believe has helped your career the most?

Ben Fraser (00:52:53) - Yeah, I think I alluded to it earlier. I think sales is so fundamental and having a technical degree coupled with the soft skills, the people skills and the sales skills have been very, very invaluable.

Ben Fraser (00:53:07) - And just being able to sell. Right, whatever your idea is, whether you're in a company and you're trying to sell the next project or the next whatever, that's a very, very important skill.

Christopher Nelson (00:53:19) - What do you do to recharge?

Ben Fraser (00:53:22) - Oh man, try and get up earlier before all my kids get up. Yeah, yeah. I mean, I have a daily practice of. Of reading the Bible and prayer. I do a lot of music. So before I kind of went to school, I was a musician, recorded a couple of CDs, and sang a song. Right? So my wife and I are both musicians, so we love to do music together. Um, any kind of physical activity and just, yeah, being with the family, honestly, I got four, four young girls, so it's a blast. It's crazy, but it's there. They're so fun.

Christopher Nelson (00:53:58) - So. Oh, yeah, love. I love that man. I love them. The energy kid. Energy is awesome. What's the best investment that you've ever made?

Ben Fraser (00:54:16) - That's a good question. You know, I think I could probably say a lot of things. One thing that kind of floats to the top of my mind is, um. I used to be very anti mastermind. You know, it's kind of funny because you and I are both masterminds, which is how we end up meeting. And I just like, this is such a crock. I mean, you're paying to get access to, you know, these people that are in the mastermind. But since the one that we're in together, I joined my first one. I'm in like 2 or 3 others. And it's just crazy to me, like the ways that you can shortcut. Anything you're doing by the right connections and Connections and Partnerships network, it's so imperative to this kind of growth path and in every area of life, right? Health, faith, money, career path mean just getting around with people. So spending time I mean, most of the travel my wife and I do now.

Ben Fraser (00:55:14) - It's for masterminds, but it's masterminds that we're both excited about and, you know, have an overlap of values and excitement over. And, you know, we're traveling more than we ever have or spending more time doing these things. But the return on it has just been exponential, if nothing else, just to see what's possible, right? Because so much of our reality is created by what's our perception of reality and what do we think is actually possible to achieve? And so that's been surprising to me because I was so against it a couple of years ago, right?

Christopher Nelson (00:55:45) - Yeah. Yeah. No, it's a big shift. And it's true what they say. Your network is your net worth right. And making investments to systematically grow your network. I mean, it does have compounding returns. It's amazing. And so this one saved the best for last. What's the worst money or investing in vice you've ever received?

Ben Fraser (00:56:08) - Um.

Ben Fraser (00:56:10) - I've received this, but I did it. I tried to buy a dropshipping business on the side knowing nothing about e-commerce or online retail or dropshipping and ended up losing money and my wife was pretty pissed.

Christopher Nelson (00:56:26) - So yeah.

Ben Fraser (00:56:27) - Don't buy online dropshipping businesses. Apparently that's an old business model that doesn't work anymore. Maybe. Maybe someone's making it work right now. But yeah, I think that kind of plays into the Warren Buffett theme of investing. What you know, I mean, investing really is so simple. But because we're humans and, you know, we're so complex, we make it very complicated. But there's really just a few simple rules that if you just do and you don't veer from all that much, you're going to be fine. Right? And I think one of those is this: Invest in what you know. And if you don't understand it, if it doesn't make sense to you, don't invest in it, no matter how good the returns look. Right. It's just something that's so important because you're going to miss things if you don't if you don't know.

Christopher Nelson (00:57:11) - So true. Well, Ben, I know your time is precious. Thank you. Thanks so much for coming on today.

Ben Fraser (00:57:17) - Yeah.

Ben Fraser (00:57:18) - Thanks, Christopher. It was really, really fun.

Christopher Nelson (00:57:20) - All right, man. Bye. 

Thanks so much for listening to today's podcast. It's so important that as technology employees, we understand the world of private equity, whether you're going to invest in it or not. It's a big world. Today, we learned about debt funds. We learned about oil and gas investments, energy investments. Expand your horizons. Understand this world because it's through private equity that we can really start accelerating our exit and add big value cash flow into our evergreen portfolio. If you have any questions or suggestions for us, my ask today is please send us anything that you want to ask at ask@techcareersandmoneytalk.com. We answer all emails. Thanks so much. See you on the next one.