The Aspen Playbook – inside the Mind and Portfolio of Aspen Founder with Bob Fraser

I've seen generational buying opportunities come and go. Yeah, and this is one. One of the things that has hit me over the last few years like a ton of bricks is Modern Portfolio Theory. And this is crazy, this is what the billionaires do.

Bob Fraser has won it all, he's lost it all, and he's built it all back up. He's also my dad. Aside from co-founding Aspen Funds and co-hosting this podcast, he's had an amazing career as an entrepreneur and investor. So it's really special to get to interview him and hear his wealth-building journey. It's also fun because he and I have been writing a book together for the past year, and it's been a really incredible experience to hear his stories and learn how he's tailored his approach to investing over the years. And in this conversation, we got to go even deeper and actually take a look at his portfolio and how he's applying those lessons today. This is Invest Like a Billionaire, the alternative investment podcast. Check it out. All right, this is going to be a fun one. We got a very important guest joining us today for this episode. You probably know him because he's actually one of the hosts of the show. So this is going to be fun. We're going to do an interview. I'm going to interview you and talk about your investment portfolio, right? So you're talking all the time about macroeconomics, about what Aspen's doing, but what is Bob Fraser investing in? There you go. What's the journey that got you here? So let's give people a little taste. Some people may have heard bits and pieces of the story, but I think it's gonna be really fun for you to tell some of your story. Talk about first just the road to Aspen.

Well, it was a very long road. That's one of the things about being an old dude, right, is got a lot of history and a lot of twists and turns. Yeah. So yeah, started as a computer scientist. I was just a worker, making a good wage and then started a dot-com that kind of blew up. I raised $44 million in venture capital, blew up to nearly 300 employees and—

Blew up in a good way because—

Blew up in a good way. And then it blew up in a bad way. And it was really a life-defining time for me because I really became a finance guy through that period. And it was a gradual process. And I really became passionate about numbers and became passionate about economics at that point. Watching the dot-com crash unfold and really had always had a passion for investing. I mean, I actually wrote a bunch of code that automated trading systems and did quantitative analysis and had some success at that, but always loved alts. I can't say I always loved alts. It was really watching the volatility of the stock market over and over and over. I can't tell how many times I got creamed. I remember buying a oil company I thought was amazing and literally, I mean, I lost— woke up one morning, lost 90% of it. Value. And it's just that feeling in the pit of your stomach.

Yeah.

And so then I met my partner, Jim, who was a real estate guy, and I always thought real estate was kind of boring. Real estate is what you did when you want to park money. Yeah. Not make money. And I was a lousy real estate investor, you know, I mean, I, I just not that handy, right? Got the wrong people in and paid too much money to fix it. And then nothing worked, you know, with that. But really met Jim and he's a different animal. He was very, very astute with real estate, really understood it. And it was just a match made in heaven where, you know, I'm really the scale guy, the numbers guy, and he was the real estate genius. And we just, we made hay with distressed debt. And so that was kind of the beginning there. And, you know, it was great experience.

Yeah. So from an alternative investment standpoint, obviously a lot of your career, you were, I would say, heavily invested in the businesses that you were running, right? That was kind of your focus as an entrepreneur to let me go all in on this idea to see if it's going to work.

Right.

And now that you've got to the stage where you are investing outside of just your business, what was that kind of process like?

It's pretty gradual, as you're aware. I mean, we're just finishing up this book called Invest Like a Billionaire and seeing that compound returns is way more powerful than earnings. Yes. So it has— you can make way more money by compounding what you're doing rather than just earning.

Well, hit on that a minute, for a minute. What do you mean by compounding your earnings? You have an example in the book about a doctor, right? And they make really good income, but if they shift their mindset to making their money work for them, it's actually a more powerful wealth-building tool, right? Exactly.

So, a doctor who can earn $1 million a year in their earnings, but if they can save just 20% of that and invest it and earn a 10% return, which which is not that difficult to do, right? It ends up being worth 20 times more than their lifetime earnings as a doctor over a 30-year period or something. And so as my net worth grew and I started to realize that, wait, I have a real nut here that I can leave to my heirs and that can really grow and become its own kind of thing. So it forced me to start thinking as an investor.

Yeah. So as you started doing that, what were some of the first things you invested in and what was your idea behind some of those investments that you made?

You know, I think like a lot of entrepreneurs, I'm wired for risk. Yeah. So I, I think I took outsized risk, you know, and I think as an entrepreneur, I'm also very optimistic and that doesn't help you a lot of times in investing.

Right.

I think I always believed things were going to work, and I think you really should approach investing as a no looking for a yes, right?

Starting with no and looking for really good reasons to convert you to a yes.

Yeah, because I like the home run shots.

Yeah.

And the home runs are really not how you win. The win is really compounding.

Yes.

Getting solid, steady, non-volatile. Minimizing losses.

Yeah.

Returns.

Yeah.

And absolutely minimizing losses. Losses are far more impactful than gains.

Yeah. Well, I think this is an important thing to talk about because we've seen this pattern with a lot of entrepreneurs, right? And entrepreneurs have a predisposition to be able to take outsized risks than maybe some other people can. And by doing so, they can get really outsized returns primarily through their business. Ownership and being able to scale that 100%. And because you're an entrepreneur, you know that, hey, if there's a challenge, if there's something going on that is not what I expected, I know I'm going to figure a solution out. Right, right. So I can go take a bigger risk because I'm banking on myself. But the challenge when you invest in other people is they don't always have the same mentality.

I was actually going to say, one of my big surprises, yeah, was getting into some investments where I just assume people are going to fight like hell for the investment. And they didn't. I'm a computer scientist. Crypto is super interesting to me. Yes, it's fascinating. And I like Bitcoin. I think Bitcoin is going to be a decent investment. And I thought, well, here's a way I could get into Bitcoin a little cheaper is with Bitcoin mining. And a guy started this, and super smart dude, very much knew what he was doing.

He was ex-tech, big tech firm.

Yeah. And so clearly knew what he was doing, but the pro forma I saw was outrageous. I mean, it was predicting Bitcoin was hitting, you know, $350,000 within a couple years, and he predicted the difficulty level of mining Bitcoin was dropping, which I knew all those things were false. I knew those things were, were garbage. And then he also had 50% fees, and I'm like, oh good Lord. But I thought, okay, it still was going to net me cheaper Bitcoin. I did the math apart from what he presented, but the surprising thing is when energy prices rose and Bitcoin difficulty levels rose the market turned against miners and the guy walked away from the business. He literally packed his bags and quit returning phone calls, didn't even hand over the passwords and wiped everybody out. And it's unfathomable to be a person who would do that. I would fight like hell, right, for my investment. So the fact that people don't do what you want them to do, or what I would do, is shocking to me. And so you have to assume that these people are not going to do what you would do and they're not going to do things that make sense.

Yes.

You know, so, so I think those are some of the reality checks.

Interesting. Yeah. And that's probably hard sometimes to put that frame of mind on when you're looking about something you're excited about because you're not assuming all the bad stuff's going to happen, but you need to approach it. I love what you said. Start with a no.

Right.

And then you're gonna have to convince me why this would be a yes.

Well, on your background as a banker, I mean, you were nos looking for a yes, 100%. I mean, if it didn't check every checkbox, yeah, you wouldn't do it. Yeah. You know, and banks are very much— banks don't have any upside, very risk-averse. So they only have downside.

Yes.

So that's what they measure.

Yep.

Yeah. You know, and we don't understand bankers, but honestly, having a banker background is super helpful.

It was very helpful because I'm probably more wired more similar to you than maybe through and through a banker, but it was a great training ground for me to learn. Let's look at the deal from the lens of it's not going to work. And how do you actually come out okay?

Yeah.

And you have to think through every possible scenario of if this happens, here's how we have mitigating risk factors. And it was really frustrating sometimes because I'm like, guys, why are we always talking about the bad stuff? But to your point, banks, they don't have the upside. They don't share in the profits. They just have their interest rate. That's a ceiling of what they earn. If they have losses, it's very impactful.

So every sponsor out there shares in the upside, right? They have a promote, right? What's called a promote.

Yeah.

And they have a management fee. Well, the promote aligns your risks. That means they make money when you make money. The management fee really doesn't, or the development fees, or the construction fee, or the acquisition fee. Okay, they're charging you even though you're not making money. But here's the real disconnect.

Yeah.

Is that they have no downside.

Yep.

And so they are incentivized to do flipping moonshots.

Yeah, right.

And they don't care. Hey, let's leverage up 90 to 1 and make, you know, how many, you know, we saw back in the heyday of multifamily, you know, people are buying properties at a 4 cap, 4% cash on cash yield. Right, and levering up 90% and showing decent teens level, you know, mid-teens level returns. Yeah, that is a bug looking for a windshield. And they've got only upside if everything works and no downside. So the key to mitigating, to getting alignment, the key, the key is co-investment. You must have sponsor co-investment. And to me, that is an absolute walk away. That's a deal breaker to me. There's no sponsor co-investment. I will not invest. And by the way, the Bitcoin mining guy, didn't co-invest. Yeah, right. So it cost this guy nothing to walk away.

Yeah, interesting. Well, let's shift a little bit to just your portfolio overall. So this is kind of fun. We kind of pull back the hood a little bit. Let's talk about how you're currently allocated, right? Maybe how that's changed over time from an investment standpoint. So give us an idea of range of net worth, don't say exact number, but you know what, about mid-eight figures. Okay. And then what would you say percentage-wise is allocated to alternatives versus public markets versus business ownership? So give us a little sense of just high-level percentages. Yeah.

So a lot of business ownership there, you know, going concern value probably is 60% or so of that. Public markets is probably like 2%. Just kind of your little play pile of money. Yeah. Which I'm going to be changing. I really see a lot of value in the public markets, which I really didn't I think this is interesting.

So let's talk about this because you went, I think, pretty much in your investment portfolio, 100% alts, right?

Pretty much.

Had a couple that didn't go as planned. And still, obviously, there's real reasons to love alts, but you're also kind of maybe pulling back a little bit on the spectrum of, hey, there's also wisdom and balance between private and public. Talk about maybe some of that journey or your thought process.

Yeah. So the ultra-wealthy, the billionaires, through my research, invest 20 to 30% of their net worth in the public markets. And these are the world's best companies and the largest companies. Yep. And they generally go up. I mean, you have periods of drawdowns, but they go up. They can fight inflation. They have cheap access to capital. They have best research. They're great companies. The issue is volatility. But if you can manage that and let's say you have, you know, 20 or 30% and the markets crash, it's really no big deal. Right. It's time to actually probably invest a little more. The other thing that is watching the way billionaires invest, and they use bonds, and I always laughed at bonds. I thought bonds were a joke. Now, of course, bonds are not that bad right now.

Yeah, especially right now.

And the key is having, you know, there's a great quote in the book by Warren Buffett who said, you always want to have enough cash to manage through a panic.

Yes.

And what the billionaires do is they have non-disruptive liquidity. Where you have—

I love this concept.

Yeah, where you have liquidity that you can access without messing up your— you don't have to sell things at the, at the bottom.

Yes, right.

Well, bonds are really important for that, and they are highly uncorrelated, of course, to stocks, to stocks, um, although the correlations have been rising the last few years, but they're still highly uncorrelated. And, and the key is having forms of non-disruptive liquidity, having bonds and cash and lines of credit.

So how would a bond be non-disruptive? Explain that kind of concept.

So a short bond, you can sell it without any losses generally, right? They're just not volatile and they're extremely liquid. I can't remember, I was something like $2 trillion a day trades in the bond market. Yeah.

I mean, insane amount of liquidity, insane amount of liquidity, and they're not bad.

You can have what, a 5% yield right now?

It's as attractive as it's been in decades.

That's not nothing, right? And so keep 5 to 10%. You need to calculate your liquidity. And I actually have a worksheet in the book about how to calculate your liquidity need. And then also the other thing to do liquidity needs is just lines of credit. So having a, having a big line of credit and that's not that difficult to do. You can do a HELOC in your home. There's a lot of ways you can get lines of credit. So I'm realizing the value of liquidity, you know, and I remember watching the great financial crisis. I mean, I think it was, you know, 2010 or something. I'm looking and sitting at my desk and noticing that Miami beachfront condos were selling for $35,000. And I'm thinking, holy crap, this is a time to be buying. And I didn't have two shackles strung together. You want to have liquidity for market sell-offs to be able to go dip the toe in and never get in an uncomfortable situation. I'm realizing I don't have enough. And so, I'm really building out my public market portfolio and debt portfolios right now.

So what are you doing now that's maybe different than you were doing 10, 20 years ago from an allocation standpoint? What are you prioritizing now in your 60s from an investment standpoint? Are you reducing risk? Are you trying to still go for the moonshots?

Yeah, definitely not going for moonshots. Realizing that venture capital is very, very risky. You know, very few people actually make money in it. So I'm liking steady returns and I'm really wanting to do compounding. One of the things that has hit me over the last few years like a ton of bricks is modern portfolio theory. Okay? And this is crazy. This is what the billionaires do. This is what David Swensen talked about, who's the founder of the Yale Endowment and a pioneer of using alts. And he called it the free lunch, is the fact that if you can get uncorrelated returns, that your volatility drops enormously. And volatility is the kryptonite for compounding. So, I give an example in the book. If you have 10% volatile returns, you start with $100,000. So, you make 50% profits your first year, you lose 30% your next year. Well, that's average 10%. And you do that for 30 years. I think you have a couple hundred thousand dollars by year 30. Yeah. If you get 9% compounded without volatility, you just earn 9% every year. You end up with $1.3 million in 30 years. So, volatility destroys compounding. The key is avoid volatility.

Yeah.

And the way to do that is compound returns. So literally, if I have stock A, B, C, and D and they have average of 20% volatility each, you would expect your portfolio would have 20% volatility, right? Wrong. You have about 10% volatility as long as they're uncorrelated. That's the free lunch. Yeah, it's get uncorrelated returns. And then looking at alts, they have higher returns. So David Swensen, was able to earn 13.1% returns over his tenure as money manager at a time when the stock markets and 60/40 portfolios were returning 8.8%. What's there not to love? I mean, you just— the more you study, also the more you got to fall in love. Yeah, with them. You know, the caveat is you got to pick the right managers. Yeah, that's the key. Yeah, you got to not do what I did.

So, so what— with that train of thought, what are the asset classes that you're interested in right now and what are the things that you're avoiding now?

Okay. Well, public markets and bonds, you know, I'm starting to think about building those things up.

And targeting kind of that 20 to 25% portfolio mix or somewhere around there.

Yeah, that's it. As far as alts go, you know, we talk about what are the big megatrends and all this. And in my own personal portfolio, I'm actually overallocated in real estate. Why? Because we've done a ton of real estate deals, you know, and So, I'm realizing I've got to do some more other things. So, I'm looking for things like private equity. I'm definitely looking for things like natural resources and infrastructure and other categories. I love private credit. I love private credit. I mean, the returns we're getting, you know, you got to find a great manager and I have, I found a great manager. It's us. I mean, you know, but We're earning low teens. Yep. I mean, what's not to love with liquidity? Are you kidding me? I mean, the risk is just not that much compared to full equity play. So I'm loving private credit. Of course, you know, I can't help but get excited about the macro opportunities. And for me, that's oil and gas. You look at— I mean, it's a generational buying opportunity right now. I've seen generational buying opportunities come and go.

Yeah.

And this is one. This will— oil assets will not be this cheap ever again. And it's time to buy. So back up the truck, beep beep beep, and load up because it's just generational. So I'm liking all these things.

What about an investment that might surprise people that you've invested in or that you like or you're interested in or excited about?

Yeah. Uh, oh, okay. I'll say I invested in a little media company that basically sponsors movies and looking to change the culture for the better and, uh, and raise up young media producers, screenwriter directors, and kind of mentoring them and really a cool model. It's, you know, it's one of those things that definitely could be a moonshot, but I'm not counting on it for anything, you know? Right.

It's something you're passionate about. You enjoy it. Yeah.

And it's great to have fun with your investments. You just can't make it. You know, the bedrock of it. That's it. You got to distinguish between core and play. Hey, take 5 or 10% of your portfolio and play with it. You know, I like gold. I think it's pretty, you know, so I got a few gold coins, you know, and but it's not core. Yeah, it's not core to what I do, but it's— I enjoy it. Yeah.

What would you tell your younger self about investing if you could go back and, gosh, coach yourself up?

Yeah, it is. I think I would say the first things we talked about is Don't be optimistic. So you as a banker, you manage all these risks, but so many of the risks out there are nothing anyone can predict, right? Right. Okay, the dot-com crash. Yeah, no one was calling this, right? No one was calling this. Or the, the great financial crisis with home prices crashing. No one was predicting, and it was so out of the box. Or even the 2023 interest rate explosion. No one was calling this, and who would see these things coming? So really, you just have to build bulletproof anyhow, or you don't over-love her. You stress test everything and pass, be able to walk away. The other thing I did is whenever I had money, I spent it. I mean, I invested it, right? It's like money's burning a hole in your pocket. And don't do that. Don't do that. I say in the book, take 5 years to allocate your windfall. Don't be afraid to sit in cash for a while because how do you know you're not buying into today's fad and tomorrow's bargains you're not going to have cash for?

Right.

So, just take your time and don't believe what people are saying. Check the numbers. Don't believe the headline numbers. It's a promise at the end of the day. It's nothing more. Do your own analysis. Read PPMs, read the risks, underline it to ask the questions, and be more than willing to say, you know, in fact, your first guess is it's a no. Looking for a yes.

Yeah, I love that. How did the losses that you had over your career impact you? And for maybe those that have either gone through a loss, uh, business investment or otherwise, what would you say to them having got to where you're at now?

Yeah, well, you don't want to be cynical, right? There's a lot of really good people out there and a lot of really good deals. You just have to find them if you really want to just up your game, which is really where I'm at now. I'm definitely a no looking for a yes. And the losses have done that to me. I'm much more conservative. You heard me on the calls arguing for lower leverage points. Let's give up a half a point in return. Yep. And let's make these things bulletproof. Every deal we do, I look for, hey, here's Plan A, but let's say there is a crisis. What's our plan B? I want to make sure there's a plan B for every asset and every investment I've got and everything we do as Aspen.

Yeah. Love it. Well, this has been really, really fun. Any other kind of final parting thoughts you'd leave? I mean, you gave a lot of hints toward a book that's coming out later this year, so maybe just share about this book because I think it's going to be pretty incredible.

I am beyond excited about this book. Honestly, it is really going to be a game changer. For anybody who reads it. And it really is laying out the models of how the ultra-wealthy invest, the mathematics behind why it works. You know me, I'm a total nerd.

Yep.

So it's got 65 charts in it and plenty of math, but it's easy to read and understand. It's laying out really everything about how the ultra-wealthy play the game. They pay less taxes, they get higher returns with lower risk and lower volatility than normal people, and it's available to everybody, right? You have to know how to play the game. I'm just super excited. I think people are going to jaw drop when they read it and go, oh my God, this is, this is insanely interesting. And it's really for everybody. You don't have to be a financial wizard or investing guru to get through this book and to make sense of it.

Exciting. Well, thank you so much for listening to today's episode. If you did enjoy, please give us some feedback. I enjoyed it.

What? I enjoyed it.

Well, good. Thanks for listening Thanks for listening to today's episode. I'll echo my dad's sentiment right there. I'm also very excited to share this book with the world. Invest Like a Billionaire will be out later this year, and we touched on a few lessons in our conversation that we drill even more into in the book, but I want to highlight some of the big ones that I heard in this conversation. Compounding interest will always win over earnings no matter what, and every day your money isn't compounding is a day that you're losing money. Be a no looking for a yes. My experience in banking and my father's journey have taught me that optimism is not always your friend in investing. So you must be discerning and always make sure you have clear alignment from the sponsors running the investment. Keep some funds allocated for the public market. Bob Fraser is increasing how much he has in the public markets right now while still allocating most of his portfolio into alts. And like he said, keep more liquidity so that you can be nimble. I hope you got as much out of this conversation as I did. Be sure to subscribe to the show and leave us a review. We're always looking to hear your feedback. And if you have ideas for episodes or questions for the podcast, email us. And stay tuned, we have loads more interviews coming with great insights, hard-won lessons, and unbeatable advice. I can't wait to share what's next.