Good morning, everyone, and thank you for joining us. I'm Marty Switzer, CEO and Managing Director of Associate Global Partners. It's a real privilege to be interviewing Cathie Wood today. Cathie needs little introduction. As the founder, CEO, and Chief Investment Officer of ARK, she is widely regarded as one of the most influential investors in the world. Today, ARK manages more than $30 billion across its investment strategies. And at Associate Global Partners, we're delighted to partner with ARK Invest to bring the ARK Venture Fund to Australian wholesale investors. Now, before we begin, a bit of housekeeping. This webinar is general in nature. It does not constitute financial advice. There are no recommendations. Cathie and I will talk for about 30 minutes. We'll then go to Q&A, and you can ask your questions on the GoTo Webinar control panel. Cathie, welcome.
Thank you, Marty. Thank you very much. I'm excited to be talking to Australia.
Fantastic. Cathie, I'd love to start at the beginning of your journey. Why did you found ARK? Or why did you start the company? What was the original purpose of the firm? And how has the mission evolved, or is it evolving?
Well, yes, I founded the firm in 2014 for two reasons. The first was to focus exclusively on technologically enabled disruptive innovation. And then the second was to focus on an open source research ecosystem, where we share our research, give it away on social media. Not only because we want to educate people, which is one of our missions and values, but also because we wanted to reach innovators who are out there building companies, so that we could get direct to the source of where all of this innovation was coming from. The reason for exclusively disruptive innovation is we felt that, after the tech and telecom bubble and bust, and even more so after '08-'09, investors had become extremely conservative and were moving towards passive portfolios or very benchmark sensitive portfolios, and even investment bankers were giving up on the new new. And we believed that we were entering a period where we would see a technology revolution. And I can tell you now, we were more right than we knew we would be or that we believed we would be.
So, really want to talk about this sort of whole thematic of disruptive innovation, but before we do, can you give us your view on the world today, the US economy, global markets, and what that means for this whole concept of disruptive innovation?
Yes, today feels very much like the early days in my career. So, in the '80s and '90s, when I was fresh out of school and very impressionable, I was looking at the stock market, the equity market, and we were climbing a wall of worry, especially after, well, really starting in 1982. When I say a wall of worry, investors were worried about inflation. They were worried about interest rates. They were worried about quotas, so trade quotas. Now, today that would be tariffs. They were worried about wars, the Iraq war and so forth. They were worried about financial crises. In 1987, we had Black Monday, where in one day the stock market dropped almost 25%. Which is a little bit like the private credit drama today. But the market went on to new highs. So, I think we're in the same kind of environment. And in the US specifically, we think that we're moving into what I believe in hindsight will be considered a boom. And it is being driven, we think importantly, by some of the new technologies evolving. So, five major platforms, robotics, energy storage, artificial intelligence, importantly, blockchain technology, and multiomic sequencing in the life science space. And this revolution we think is going to accelerate real GDP growth beyond levels that we're used to. And this is really important, especially given the worries in the market. We think that it is going to lead to much lower than expected inflation. Maybe even deflation from time to time. Not bad deflation in the sense that technology is inherently deflationary. So, we think that these technologies are big enough now to start moving the needle and impacting real growth and inflation.
Cathie, you touched on it before, I'd like to sort of dig a bit deeper on it now. Yeah, ARK is known for this distinctive philosophy around disruptive innovation centered on five innovation platforms. Can you explain what the... you talked about before, but can we actually go through in detail what those platforms are? What sort of differentiates, you know, true transformational innovation from the latest market fad, and some of the investment opportunities or technologies that come off the back of that.
Sure. So, I just mentioned the five major innovation platforms. They involve 15 different technologies. But the platforms themselves, the three characteristics they have is they follow a learning curve. Technologies are all about productivity and gaining efficiency and scaling unit growth and falling costs. So, that's the first. So, lower costs. That in the second characteristic, those lower costs enable access, more industries to access these new technologies. The lower costs go, the more industries can access them, and even consumers. And then the third characteristic is these platforms serve as launching pads for more innovation. So, just to give you an example, if in the multiomics world, DNA sequencing, the costs have dropped from 2.7 billion dollars to sequence one person's genome 23 years ago to less than 100 dollars today. So, now that all of us are going to have our genome sequenced with time and probably every year, we're going to be able to identify mutations with the help of AI. And now that we can identify mutations, which are the earliest manifestations of disease, we'll be able to use a new technology. So, sequencing was the launching pad for CRISPR gene editing, which can edit out those mutations or those programming errors and cure disease.
So, Cathie, you mentioned it before, but just a recap on the platforms. So, we mentioned multiomics, but you've got AI.
AI is the biggest catalyst transforming and speeding up every other platform. So, AI, robotics, energy storage, blockchain technology, and yes, multiomics sequencing in the life science space.
And off the back of that, there's about 12 to 13 technologies that you look to invest in.
Yes. So, those platforms involve 15 different technologies. And just to give you a sense of what we mean by this. So, robotics is a very broad space and reusable rockets are a part of the robotics theme. And of course, that's creating a whole new world for investing.
Yeah. And you also talk about, I guess, the convergence of the platforms. And that's what really makes it truly transformational. Can you talk a bit about that? Maybe give us an example that would be well known to the audience.
Sure. Yeah. I think the reason we're calling this period a technology revolution is not necessarily because of the technologies each one of them alone, but because of their convergence. And it's been very interesting to watch Elon Musk over the years. I mean, we've been following, I've been following him for, you know, 20 years now, but he never used the word convergence until last year and he said, and we're pretty proud of this and he may even be reading our research because he does read our research, but he said, you know, I think my companies are converging more than I ever thought. And so wouldn't you know it soon after that SpaceX bought xAI and now there are rumors of SpaceX buying Tesla. So what is that? So one big convergence here is autonomous mobility. Now Elon today is working on robotaxis, autonomous vehicles, passenger vehicles, and that's the convergence of robots, autonomous vehicles are robots, energy storage, they will be electric, electric vehicles are going to become much cheaper than gas-powered vehicles, and AI, they'll be powered by AI. So that's three of the five major innovation platforms. We believe that this space all-in globally including China is going to scale from billions of dollars today in revenues generated to more than 10 trillion dollars within the next 5 to 10 years. Think about that. That's about a third of the US economy today right there. So that is going to move the needle and when we say real GDP is going to accelerate, we think that's going to be as transportation transforms, not just autos, but trucks, drones, air taxis. We think that that's going to be one of the most powerful accelerators of economic activity in the next 5 to 10 years.
Cathie, before we talk about the ARK Invest fund, you touched on Elon before, so I was going to ask this question a bit later, but I thought it'd be a good segue to do that now. You've been one of his strongest supporters. You know, you've invested in many of his companies. What makes him such an exceptional entrepreneur? And why have you maintained such conviction in his vision?
He's the most productive human being in the world. I'm convinced of that. And so what he has done, we get the question all the time, how can he run all of these companies? Well, he does not run all of those companies. He has surrounded himself by some of the most brilliant people in the world, both engineers and business people who want to work on the hardest, most challenging, most exciting projects in the world. And but what he does is he sets the milestones, the goals for the companies. And when one of his companies is missing a milestone, he becomes obsessed with it. And he then starts working aggressively with the teams involved in order to break through any obstacles. I think what makes him unique is he bases everything on first principles. He's an engineer. He breaks a problem down. And he does not let what conventional wisdom suggests is the right way to do things. He likes to rethink how to do things, especially because we have new technologies now. Why would, as automakers did early on, they were trying to construct a battery especially for the auto industry when we had consumer electronics, laptops, and cell phones. We have that whole battery supply chain, which now lines the bottom of a Tesla car. So, he was way ahead of the other auto manufacturers because he thought about a technology that was already in existence whose cost curve, or the cost curve of which, he could ride down while other auto manufacturers were creating an entirely new battery which actually doesn't work. They're all moving towards this way of thinking about the world.
So, SpaceX has been or is a top holding and has been a very successful investment in the ARK Venture Fund. IJP is delighted, Cathie, to be partnering with you on this fund in Australia. It's been going for 4 years now, you know, very strong performance, about 33% per annum over the last 4 years. Can you talk us through the fund and tell us what problem it's trying to solve for investors?
Yes, well, especially in the United States, we were watching companies stay private for longer. And that's because regulations in the United States, after the various crises we were through, whether it was tech and telecom or '08 '09, just one set of regulations after another after another. And so companies felt that it was becoming too costly to go public and too distracting to go public. And so they're staying private longer and so this is why we have trillion dollar companies like SpaceX going public finally. Why are they going public now? It is because the idea of orbital data centers, so data centers in space, that is going to take so much capital that they're going to need to tap into the public equity markets. But it went public at 1.75 trillion. The problem we were trying to solve was to give all investors, whether accredited investors or non-accredited investors, everyone an opportunity to participate in the private world. And of course, because of what we do, we were very well set up to do it. All we focus on is technologically enabled disruptive innovation and we've always followed the private markets because it informed our public market investments as well. As we saw the competition brewing or new ideas brewing in the private markets. So it was very natural and I'll say the other thing, giving investors access in a vehicle that is direct to cap table. So we are direct to cap table. We do not expose our clients to SPVs and especially the layered SPVs where there's one fee paid upon another upon another. And at the end of the day, investors don't even know if they own a piece of the underlying stock. They may just own a promise of an income stream from another investor. So, we are direct cap table. We know the founders. The founders know our research. And so, we have been able to provide access and to gain access to information rights, which many investors in private companies do not have information rights. Those are most appropriate to us. And because of the research we do, we have found founders very friendly to us in terms of information rights.
Yeah, and you're investing with some of the biggest names in investing in terms of I guess it's a private and public fund. How many private names are there in the portfolio, Cathie?
You know, we have had a number of go public recently. So, the number may not be exactly correct, but it's around 50 names.
Right. Okay. And in terms of the investment process, it'd be good to talk through that. You know, how a company makes the portfolio. Can you talk us through the stages from let's call it ID to investment. And then it'd be also nice to talk a bit about the bench strength and the team that you've got associated with this vehicle as well.
Sure. First, I'll talk about the team because that's very important. So, we have 15 analysts. And why do we like that number? It is because of the way we have organized our research. I mentioned we have five major innovation platforms, but they involve 15 technologies. So, our analyst responsibilities are broken down not by sector, not by industry, but by technologies that are going to scale across industries. And so, our analysts are technology specialists. But they are sector generalists because as I described, as costs fall, these technologies scale across industries and sectors. The other thing that's very important to know about our team is that it is a very collaborative team. Why is that so important? That is important because these technologies are converging. So, we have the Tesla model, for example, we have three analysts on that model. Robotics, energy storage, and artificial intelligence. And they collaborate. And that is why I believe our Tesla model and our Tesla expectations were so much higher than any other analyst out there because in traditional firms, who follows Tesla? Even in traditional VC firms, although there aren't many VCs following the auto sector, but just let's say for argument's sake, in a traditional firm broken down by sector and industry, the auto analyst follows Tesla. Well, guess what? The auto analyst is great at the internal combustion engine and human-driven cars, but this analyst is not a robotics analyst or an energy storage analyst or an AI analyst. That analyst is in a very difficult position and can't possibly understand what Tesla is. It's not an auto company. So, it's very important to define markets correctly.
Okay, so then process. Ideation, anytime we hear of a new technology, we seize on it. This is what we do. And I'll just give one of the very first examples of this because it brings to life a few things. In the early days of ARK, our director of research, now he's our chief futurist, Brett Winton, he asked Tasha Keeney, who is still with us, she's now director of research for autonomous technology and robotics, asked Tasha to go out and figure out what an autonomous vehicle was. What did Elon Musk mean in his master plan? And so she did and got to know that ecosystem that was necessary to build an autonomous vehicle. One was a GPU, which at the time GPUs were nothing but PC gaming chip companies. That was it. And PCs were dropping in unit growth because of laptops. So, Nvidia was getting crushed. And when we found this out and we started understanding how powerful this autonomous vehicle strategy would be because it was part of an even bigger movement, AI, we understood Nvidia was going to be much bigger. She also followed other parts of the ecosystem, lidar for example, and very quickly we thought that was not going to be a part of this ecosystem. Anyway, ideation, as we're doing research, we meet through social media, we meet those involved in these new worlds. They present themselves many times. And as we meet these companies, we automatically move into our bottom-up. So, we're doing both top-down research. How big is this market going to be based on how quickly the costs are going to fall and the units are going to scale. And as we're doing that, when we find companies, we start our bottom-up process. Our bottom-up process has a six-metric scoring system. And I can go through those scores if you'd like or for the sake of time, maybe not, but one of the most important ones to me is people. So, visionary management, the right culture, willingness to stand up to short-term oriented shareholders or venture capitalists, and defend their vision of the company and their strategy. So, that gets a score. And if you'd like, Marty, I can go through others, but just that's we go through all.
I think that's a fantastic place to start and we can definitely go into that in more detail when you're at in September, which we're very excited about as well.
So, Cathie, it's a private public fund, about 80% private names. There are some public names. You've touched on a couple of them today, SpaceX, Tesla. Be good to get into some of the companies. ARK has been an early investor in, you know, the big names, OpenAI and Anthropic, which are, you know, scheduled to have, let's call it, some of the most significant IPOs or may have some of the most significant IPOs in the coming years. Who knows when that will be, but you know, it may be sooner rather than later. What attracted us to these businesses before they became household names? What sets them apart from the competition? And what would an eventual IPO mean for investors in the fund with regards to those names?
Yes. So, both of them are going to go public for about a trillion dollars. We, because we had been doing research on artificial intelligence more and more intensively after the breakthrough in deep learning, which was in 2012. Brett and I were at the same firm before I founded ARK. So, AI we had a big breakthrough in 2012 deep learning and an even bigger one in 2017 transformer architecture. Which basically brought us into the world of natural language programming effectively. So, we were looking for companies and in the AI world it is winner take most. It's certainly and we were right on that assumption. So, we were trying to figure out, okay, who is moving the fastest and the most aggressively in terms of investing in computing power and focusing on transformer architecture and natural language programming, not processing. And we were, because we're so focused on it, OpenAI and Anthropic presented themselves as the most aggressive in those regards. And then we had the ChatGPT moment. And we became of course that was OpenAI and that was okay. Yes, we're right on that one. And you know, we've been in the business long enough where, for example, I know Sarah Friar, the CFO at OpenAI. She and I have been in the business. I've known her for 25 years. So, we had access that way, too. And interestingly, when it came to Anthropic, we started our fund, and I will say there was a lot of luck here. We did not start it at the beginning of '22. We started it at the end of '22 when the bear market in the equity market was ending. But in the venture world, there was a bit of a lag. Dario, it was only a $4 billion market cap at that time. He really did want to talk to us because he knew the research we were doing, and he was having trouble getting attention, believe it or not, from others. But we were very interested in him, not only for AI, but also because of his background, which is in the multiomic field, and we thought AI was going to become the most, well, the most profound application of AI was going to be in the multiomic space. So, that's how we met him.
