Season 2: Episode 03 - Private Market Investing with Josh Hile of Citizen Mint
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Linda Rogers: [00:00:00] My name is Linda Rogers and this is Investing Forward.
Linda Rogers: [00:00:26] Thank you so much for joining me today. As I have mentioned before, I'm a military spouse and we recently completed a move from Japan to the D.C. area. If you've ever moved, you know how disruptive that is, especially with four kids, but I'm thrilled to be back with another episode. My guest this episode is Josh Hile. He's the founder of Citizen Mint, a platform built to connect investors with private market opportunities. They have a team that researches each investment on the site for both positive impact and financial return. We have talked about private investments before on this show. These are investments that are not traded on a public exchange, so they are less liquid and they typically are subject to higher minimums. But for impact investors, private investments can be especially appealing as part of an overall strategy. They allow you to be more hyper-focused on specific problems and solutions. Josh has experience sourcing private investments, connecting investors with those investments, and monitoring financial and impact data. He will walk through the solution he has built and the gap he is filling in the marketplace with Citizen Mint.
Linda Rogers: [00:01:42] So thank you so much for joining me today. Please go ahead and introduce yourself.
Josh Hile, CEO & CIO of Citizen Mint
Josh Hile: [00:01:47] First of all, thank you for having me. My name is Josh Hile and I'm a co-founder and CEO of Citizen Mint. I've been in the investment field for almost 15 years and have worked at large institutional asset managers as well as large wealth managers. I was most recently the director of Investment Strategy and Research for a $16 Billion Wealth Manager in the Seattle area.
Linda Rogers: [00:02:08] Great. So go ahead and tell us more about Citizen Mint.
Josh Hile: [00:02:12] Yeah. So Citizen Mint is a web-based platform designed to help wealth managers and investors easily access private investment opportunities that generate both financial returns and positive social and environmental impacts. You can think of this as affordable and attainable housing, solar / wind development, top-tier impact private equity, venture capital, private-debt funds.
Linda Rogers: [00:02:33] So what pushed you to leave your previous role and want to start Citizen Mint?
Josh Hile: [00:02:38] Yeah, we believe there are two major inflection points where investors are actively seeking two items. One, better access to alternative investments, and then two is investments that really align with their values or issue areas. And on that second point, what I think I learned at my prior role, investing hundreds of millions of dollars in the space is that you can get benchmark-like returns while doing good, which was just something I hadn't really seen before. But when we, there's a lot of new investment opportunities out there where people are getting very strong returns while doing good for either social or environmental issues.
Linda Rogers: [00:03:17] That's awesome. So what are the main impact areas you're focusing on with Citizen Mint?
Josh Hile: [00:03:24] Yeah, we have three main broad areas we focus on. So one is environmental, two is community health and wellness, and then three is empowerment. So under each one of these broad areas, there are more specific possible investment opportunities, say, for environmental, we could provide investments in solar or wind development. For community health and wellness, this could be opportunities in affordable and workforce housing.
Linda Rogers: [00:03:47] Yeah, and I have to imagine that people interested in these investments want to see some sort of impact metrics, right? So how do you measure the impact on the investments listed?
Josh Hile: [00:04:00] Yeah, it can really depend on the specific opportunity. For say solar / wind development, we usually take total power output and carbon reduction and put it into metrics investors can actually understand. So examples of this could be total homes powered in one year or carbon reduction is equal to so many passenger vehicles driven for one year or so many gallons of water were saved compared to a coal plant. For affordable housing, we may be measuring number of housing units built or financed, number of people housed, at what percentage of area median income are they housed, number of individuals employed in construction. So there's just a lot of different metrics we can measure. And it really just depends on the opportunity that we have on the site.
Linda Rogers: [00:04:45] Yep, that makes sense. How do you source your offerings?
Josh Hile: [00:04:51] So a lot of the early sourcing is really based on my extensive network within the space. So this is both opportunities for direct investments with affordable housing developers as well as fund investments with, say, large institutional managers in the renewable energy space, private equity space, or venture capital space. The early opportunities on the site will focus more on affordable and workforce housing, private debt and renewable energy. We believe starting early with, say, real estate will provide investors with a great opportunity to invest in shorter-term projects, say three years, that are easy for investors to ultimately understand.
Linda Rogers: [00:05:28] Yep. Good. And what do you feel are the advantages of private investments?
Josh Hile: [00:05:34] Yeah, I think there's really four main advantages that we see. So one is diversification. Private markets offer this wide variety of investment opportunities that have very different characteristics than traditional stocks and bonds, especially in a year like this year. You kind of see these correlations of stocks and bonds coming down together, and that's not a great place to be. So many times these investments can behave very differently than those public markets and create better diversification for investor's portfolios. Number two is really the long-term focus. So many times these investments are concentrated in a specific area with a long-term focus. This allows the ultimate manager to be opportunistic and take advantage of these market drops. Say right now we want to see in private market managers taking advantage of the differentiation and valuation where it's dropped a lot so they can put money to work at a way better valuation than it was at the end of 2021. And then on the other side of that, we want to see them being a buyer during market euphoria. Number three is really the due diligence pay-off. So there's an average of a 10% difference between the best and the worst managers in most of these asset classes. So this really creates an advantage for investors who have rigorous due diligence capabilities. And then four is that targeted impact. So you can really select opportunities that align with your values or interest. And this could be investing in affordable affordability through, say, a real estate investment.
Linda Rogers: [00:07:00] Yeah. Good. Well, that was the advantages. So what are some disadvantages?
Josh Hile: [00:07:07] Yeah, I think the number one thing that really comes to mind is liquidity. So the average term of a private market is between 3 to 10 years. Some can be as long as 15 years. This allows the investment manager to really make long-term decisions about how they invest the capital. But the illiquidity premium is essentially the extra return investors are going to receive because they are required to lock up their money for so long. That said, in most cases, investors overestimate the liquidity that they might actually need in the near future. So but it is one of the major disadvantages. You just can't sell things that easily. And then taxes could be number two. Tax reporting can be more complicated because you're going to have an inclusion of a K-1 that you receive as part of being usually part of a partnership. That said, many online tax preparers, including TurboTax, now have the ability to process K-1s. So it's making this process a lot easier for individual investors. And then number three is really that manager selection. If you don't have the due diligence capabilities to do that, then as I said, you can get managers that have poor performance over time and there's a lot of bad managers unfortunately within the private market space. So you really need that due diligence.
Linda Rogers: [00:08:21] Yeah, I'm glad you mentioned the tax piece. I prepared taxes in California for a few years, many years, six years, and the K-1s. It's just about setting expectations. Like you said, many people are getting them. You may need to extend, but just knowing that ahead of time, being okay with that, it's not a huge deal. But just knowing that going into it, great.
Josh Hile: [00:08:44] Yeah, exactly.
Linda Rogers: [00:08:45] So how do you think Citizen Mint compares to other competitors in your space?
Josh Hile: [00:08:51] Yeah, we don't have a perfect direct comparable for what we're doing related to the impact side of things, but there really are a lot of other democratized platforms such as CrowdStreet, Cadre, Yieldstreet that focus on providing either real estate or yield products to a broader group of individuals. So we think that our differentiation really is, is in providing very well due diligence opportunities that provide both that good, solid benchmark-like returns for that asset class as well as strong impact, whether on the social or environmental side.
Linda Rogers: [00:09:30] I saw that you're working on adding investments for non-accredited investors. Is that like a crowdfunding type thing or what is that?
Josh Hile: [00:09:39] Yeah, no, definitely. So we definitely want to add non-accredited investor opportunities. This isn't actually going to be crowd-funding, so you have to set up this 1940 ACT structure that's an SEC structure and you have to get the SEC sign-off on that. This will there's also a couple additional questions that an individual investor will have to answer, such as this is not more than 10% of your net worth. This is not more than 10% of my net income per year. So there is some restrictions around it, but it does allow for both 1099 reporting, which is great for the ultimate investor, as well as being able to get into these opportunities that are very hard to get into on their own.
Linda Rogers: [00:10:21] Got it. Great. And how do you and your team get paid?
Josh Hile: [00:10:26] Yeah, we have. We take an assets under management fee on investments we have on the platform. This usually ranges between 1 to 2% based on the complexity of the investment. I mean, ultimately what we're trying to do is really reduce the overall fees that we pay. So we try to negotiate with the ultimate sponsor or manager to make sure that their fees are lower. And so like, say, for like the real estate investments, we'll try and increase or decrease the fees that we're ultimately paying to them. They could have a development fee underlying and say instead of paying 4% development fee, we're going to pay a 2% development fee. So we really want to gain scale and be able to decrease those ultimate fees to the ultimate investors.
Linda Rogers: [00:11:13] Yep. Good. Is there anything else that you want to discuss?
Josh Hile: [00:11:17] Yeah. No, I would just encourage investors to review the site and current open opportunities. We're really excited about being able to provide this to a broader group of individuals.
Linda Rogers: [00:11:28] What's the best way for people to stay in touch with you?
Josh Hile: [00:11:32] Yeah, we're very active on multiple social media platforms, but they can also contact me directly by sending an email to contact@citizenmint.com.
Linda Rogers: [00:11:42] Great. Thank you so much for joining me.
Josh Hile: [00:11:45] Thank you so much. Really appreciate it.
Linda Rogers: [00:11:52] If this episode was of interest to you, check out citizenmint.com. The FAQ has the answers to a lot of questions and topics discussed today. Also, if you go to "Resources" on their website, there's a Private Markets Investment Guide that goes into more detail on the pros and cons of private market investing, as well as the definitions of major types of private investments. Thank you so much for joining me and happy holidays.
Linda Rogers: [00:12:26] My name is Linda Rogers and this is Investing Forward. If you liked what you heard, leave us a rating, subscribe, and stay tuned for next time.
Linda Rogers: [00:13:52] Linda Rogers is the owner of Planning Within Reach, a registered investment advisor, Planning Within Reach produces the podcast and makes it available on its website and through other distribution channels. Linda Rogers and any guest on the podcast are providing their own views and opinions and are not necessarily the views and opinions of planning within reach. Nothing on the podcast should be construed as a solicitation or offer or recommendation to buy or sell any security investment. Advisory services are only provided to investors who become Planning Within Reach clients pursuant to a written investment management agreement. Clients of planning within reach may hold positions in securities discussed in this podcast. Past performance is no guarantee of future results. All investments involve risk and may lose money. The Investing Forward podcast is for informational purposes only and should not be relied on for any investment decisions. Consult with a financial advisor, accountant, attorney, or conduct your own due diligence.
Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego County and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.
Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning and ongoing impact-focused investment management services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.