对企业而言，中国会是下一个俄罗斯吗？

ISAAC STONE FISH: Thank you all for joining for our latest edition of the Boundaries series. I am thrilled to be joined by Perth Tolle, who is the founder of Life + Liberty Indexes and a true environmental, social, and governance (ESG) pioneer for thinking that perhaps the dictatorial government or the human rights situation that companies find themselves in should play into their ESG scores. We will dive deeper into that as we talk.

I am Isaac Stone Fish, the CEO and founder of the firm Strategy Risks, and I am thrilled to have a conversation tonight about the Russian invasion of Ukraine and what that means for China.

The Russian invasion was very shocking to many people in the political community but also in the investment community who thought, In this world of activism Russia's invasion of Ukraine means that we need to drastically reduce and sometimes remove our exposures to various Russian markets. It has raised a lot of questions about investments in China and the question of China exposure and how ESG rankings interact with investments in China.

The topic we are talking about tonight is: Could China be next with an invasion of Taiwan, with growing awareness of Chinese human rights abuses, or with another global phenomenon?

Perth, let's start by talking about this in big-picture ways. What is the relationship between the Russian invasion of Ukraine and investment in either Chinese markets or global markets that have exposure to Chinese markets?

PERTH TOLLE: Thanks, Isaac, for having me. It is a pleasure to be here with you guys.

Let's start the big picture, investment-wise, with how we have been approaching China on Wall Street up to now. We were focused on the economic opportunity or the narrative of the economic opportunity just because there are so many people in China, a rising middle class, and all these types of narratives that Wall Street has been telling investors for many years now. Right before this happened I think investors were starting to notice the huge exposure to China specifically, especially in broad emerging market funds. So when things like Luckin happened or the crackdown on tech last year, the people who were most affected were not necessarily only the China funds but also broad emerging markets, and people started to take notice in the second half of last year.

Then, when Ukraine happened, I think that really changed the perspective. People have been taking notice of China's decline, stock market returns-wise as well as the expected decline in the economy, but China has had a very dramatic and very real rise over the past several decades in their economy, and that was due to an increase in economic policies that were more open during that time, and that was an incredible, incredible time of growth in the past 30 or 40 years.

But if you look at something like the MCHI, which is the MSCI China Index that includes both onshore and offshore shares, toward the end of last year the annual return was an average of about 3 percent, which is very abysmal since 1992, the inception of the index. So during a time of extreme growth you got less than Treasury-like return. This year that number approached zero. I think right now it is sitting at around 2 percent. Since 1992 if, during a time of tremendous growth, China's stock market returned lower than Treasuries, investors are starting to ask: "What's going on here and is it really worth investing in a market like this? Especially if that's all we got in a time of tremendous growth, good luck going forward." That is the background we are coming into it with.

Then Russia invaded Ukraine. When that happened, investors started to notice that the risk lies with the autocracy, and Russia was the market that got hit. The instant worldwide sanctions and the coordinated way that the West responded to this invasion I think surprised everyone. Not only China investors but emerging markets or stock market investors in general took notice and said: "Okay, this is a risk that we didn't calculate before, and who's next?" It would have to be China because they saw the parallel between China/Taiwan and Russia/Ukraine.

I think that is the risk investors are now trying to price in. That is still, I would say, a minority of investors. I think the majority of Wall Street, especially the biggest firms like iShares and BlackRock, are trying to do business in China and are still very hesitant to change the narrative.

ISAAC STONE FISH: That's fascinating. One of my favorite things about doing conversations with Carnegie Council is that we don't have to put ethics to the side, and we can ask about these issues from strategic, financial, and also ethical perspectives.

A two-part question: You mentioned the problem being with autocracies. First, from a returns perspective what is the problem with autocracies? Second, from an ethical perspective, what is the problem with investing in autocracies and what do you say to folks who say, "Well, economic growth brings liberalization to these autocracies?"

PERTH TOLLE: On the first question, the case for not investing in autocracies, I think the biggest investment case is that freer markets have much better foundations for growth. They have the foundation set to support growth because they have transparency, they have more flexibility in their market, they have feedback loops on the market level instead of central planning, so they have incentives for growth and innovation versus incentives to put state interests first. That is a much better setup for growth. The biggest thing is that freer markets perform better, and that is the promise of our company and how we invest.

As far as investing in autocracies, there are some risks that I think investors are starting to take notice of. There are three main risks—political risk, regulatory risk, and autocracy risk. That is the way I categorize it, and those are three different things that are all related but are heightened in autocratic markets.

The first one, political risk: Companies in autocratic regimes have to prioritize state interests above the interests of all other stakeholders, including their customers and equity shareholders. Investing in these companies lowers the cost of capital for them to operate this way, so we are essentially as investors subsidizing their cost of putting state interests first.

In some autocratic markets—and we are talking about China here—the line between military and civil activity also is diminished. Often through these funds passive investors are inadvertently funding military activities that may be against their own interests and the interests of free people everywhere. These types of investments carry also sanction risk. Right now we are seeing the United States possibly about to sanction some of these investments here in the States of these Chinese military-related companies.

The second risk that is heightened in these types of markets is regulatory risk. We have seen already some very volatile and very unpredictable government actions that can wipe out shareholder value overnight.

An example of this is that last year we saw online education companies in China like New Oriental Education and Technology Group (EDU) and TAL Education Group (TAL) that were very profitable companies and were growing fast. The joke in China was, "Hey, if we can't get a job after graduation, we will just work for New Oriental because they pay so well." These companies were doing very well, and overnight, Friday night, the government decided: "Okay, you guys are now nonprofits. You're not allowed to make a profit anymore because we want to decrease the cost of raising children because now we want people to have more children after decades of the one-child policy decimated our demographics."

Overnight the value of these very profitable companies was completely wiped out, and we have seen The Wall Street Journal report that the founder of New Oriental basically broke down in his shareholder meeting the following week. It is a very sad situation, but also a very real risk in these types of markets.

We saw recently in the Russian market that shareholder value was completely wiped out across the board. That is a different situation where they literally became untradeable due to the worldwide sanctions, but with the same result. Shareholder value destruction due to policy interference or due to sanctions is a very real risk in these types of very autocratic markets.

The last one is data risk. Companies that are in these regimes use accounting practices that don't meet international accounting standards. They don't have transparency, and we usually don't know about problems until it is too late. One example is Evergrande. Their debts were showing up on the wrong side of the balance sheet the way that they do their accounting, so nobody knew there was a problem until it became way too big to fix.

There is also no independent verification on data because there is no freedom of speech, freedom of media, or any kind of freedom of expression, so nobody can question data that comes out of companies or out of governments. Without that foundation of freedom in place we really can't use data from these countries for measuring the impact of investments. Especially ESG investors should be aware that ESG data from these countries is not reliable either as a way to measure impact.

Those are the three risks. Those are the investment risks and the investment case for freer versus unfree markets.

As far as the moral perspective, we do see investors that invest this way just to align their values with their investments, and I think that is a very good thing. As investors we are in a position to direct assets, and that is a position of power and privilege. We can affect outcomes.

First of all, you don't hear a lot of concerns about China. If you are concerned that China is going to invade Taiwan but you have the power to affect those outcomes, we should use those powers for good. Also, if you are concerned that China is going to invade Taiwan, for investment purposes I would be a lot more concerned in emerging market funds that have 30-to-40 percent China at any given point than one that has Taiwan. One is being aware of the risks aligning with the autocracy, and two is using your powers to affect outcomes for good.

ISAAC STONE FISH: Tell me more about Life + Liberty Indexes. Do you consider yourself an ESG company, and in what ways do you feel like the ESG space understands or misunderstands investing in autocracies like China and Russia?

PERTH TOLLE: Life + Liberty Indexes is the creator of the FRDM Index, which is the world's first freedom-weighted emerging markets index. The reason we made this is because the standard way of investing in indexes, including emerging markets, is market capitalization weighting. The biggest markets get the biggest weight, and as a result China and other autocracies have 40+ percent weight in most broad emerging markets indexes.

We started with emerging markets because in emerging markets there are so many autocracies in the universe. It is a way to capture alpha in the freer markets instead of being these autocracy-heavy investments. That's why we do what we do.

I forgot the second half of your question.

ISAAC STONE FISH: On the ESG space itself, how well do you think they understand or misunderstand China and Russia?

PERTH TOLLE: I think most of our investors understand it pretty well, but I think that all investors are starting to now pay attention to these types of risks in autocracies. Russia invading Ukraine had a lot to do with that, and us seeing this unprecedented and coordinated move on the freer markets' part to limit the way that investors end up funding terrorism and funding war I think really opened people's eyes. Also it opened people's eyes to how ESG has failed up to this point, and how the way we look at ESG as an industry is insufficient for these types of risks. We have completely ignored in the ESG industry country-level political risk.

ESG right now, the way that Wall Street does it, is company-level only. We only look at company-level metrics. This works great if all you care about is the S&P 500 or developed markets, but when you go into emerging markets, as we have already mentioned, those metrics are meaningless if you don't have the basic freedoms in place that give those metrics independent verification. Just looking at company-level metrics, especially in the emerging markets, has been extremely ineffective as far as an ESG strategy.

We don't call ourselves ESG, but the metrics we look at are personal and economic freedoms, things like terrorism, trafficking, torture, women's freedom, freedom of speech, media, expression, assembly, religion, and Internet, civil procedure, criminal procedure, plurality of political parties, legitimate elections, and then economic freedoms like taxation, rule of law, private property rights, business regulations, freedom to trade internationally, sound monetary policy, and so forth. All of these things are very much in the spirit of ESG.

Yes, a lot of ESG investors use our products. We don't use company-level ESG metrics, but what we have found is that if you have the G on the country level in place the security level typically takes care of itself as far as ESG. In fact, without doing any security-level ESG, we do just 100 percent FRDM rating on the country level. Without security-level ESG metrics we have an A rating from MSCI on ESG for our fund. I think the most important thing in emerging markets based on our research is that country-level governance score, and everything else is builds on that.

ISAAC STONE FISH: Awesome, awesome. Mentioning ESG, I kept thinking about the Chinese company Hikvision, which has a pretty high ESG score across several platforms, even though it makes surveillance cameras for concentration camps. It should be coming out that it will likely have more severe U.S. government restrictions. At least it seems things in that case are moving in the right direction.

PERTH TOLLE: Yes, that's really ridiculous because Hikvision was a holding in most emerging markets' ESG funds up until recently. Obviously we are not funding surveillance in, like you said, concentration camps in ESG funds, so no gambling, tobacco, alcohol, or porn, but genocide is perfectly fine. That is just a failure of traditional ESG.

ISAAC STONE FISH: What role does China play in that failure—not in the sense of the heavy hand of Chinese officials meddling in the data, but Western perceptions, perceptions of firms like BlackRock, Blackstone, or Goldman that don't want to upset their chances of investing in China? Do you feel like part of the reason it has taken us so long to wake up to these realities is because of that, or do you feel like that is a separate issue?

PERTH TOLLE: No, I think Wall Street definitely led that conversation. These are the biggest asset managers in the world, and they set the stories, they set the stage. Also they are tracking benchmark indexes by MSCI and by FTSI. It is like a "triangle of death." You have the asset managers, the BlackRocks of the world, you have the index providers, the MSCIs of the world, and then you have the largest institutional investors—the pension funds, the endowments, the sovereign wealth funds—of the world who have to benchmark to indexes. They have to follow whatever MSCI is doing.

MSCI, setting the benchmarks, is going to tell you: "Well, we don't tell people how to invest. We're just an indexer."

Then iShares, the asset manager, is going to tell you: "Oh, we don't tell people how to invest. We just follow the index."

Then the big investors will tell you: "We can't deviate from the benchmark because that is career risk, so we have to follow that."

So with these three it is like an endless cycle of death. Everybody has to follow each other, and nobody takes responsibility.

MSCI's president Henry Fernandez has gone on TV and said: "We don't tell people how to invest. We are just a market cap rating."

iShares' president—I'm sure everybody knows Larry Fink—is a huge fan of China in the media, and he has also made himself the purveyor of all things ESG, so he is now the standard bearer for ESG in the United States. He has put himself out as such. Yet at the same time last year, as China was drawing down, crashing in the second half, BlackRock Institute came out and said, "Everybody should triple their China exposure." If they followed that advice, they are crashing even more this year.

So I think, yes, Wall Street is going to perpetuate this narrative, but that's okay, because you know what? We need everybody on different sides of the trade, so as long as they continue to do that there will continue to be alpha found in the freer markets.

ISAAC STONE FISH: Let's get back to Russia. Can you remember when you first thought of the China link between the Russian invasion, when you first asked yourself the question, "Oh, gosh, when will this happen to China?"

PERTH TOLLE: The Olympics were the previous week before Russia invaded, when Putin was in Beijing with Xi, Xi said: "We will stand behind Russia 100 percent. There are no limits to our relationship." I think when they said that everybody was thinking: Well, why are they saying that right now? Is it because they are about to invade Taiwan and they want Russia's support? Or is it because they know Russia wants to invade Ukraine, and they don't want Russia to do that during the Olympics but want them to wait until after? In fact, Putin waited until after the Olympics to invade Ukraine, so maybe that was the actual reason they said that.

Even now China has not truly backed down on their rhetoric supporting Russia. They are blaming the United States for the invasion, saying it is because we forced Russia's hand by strengthening the North Atlantic Treaty Organization (NATO) or whatever it is, just like they blamed the United States for the coronavirus, and they blamed the United States in 2015 and 2016 for their own stock market crash. They actually blamed MSCI as one of their many scapegoats: "MSCI didn't add A-shares to their indexes, so now we are crashing." They are going to blame other people.

I think the way they have intensified this rhetoric is causing a lot of investors to realize that there is some not only secondary sanction risk but there is heightened autocracy risk that we should be aware of in China as well as Russia. The time to divest from Russia was not after they had been written off from all the indexes. The time to divest was before that happened, and the time to divest from China is not to wait until after they invade.

ISAAC STONE FISH: For those who don't know, can you walk people through what secondary sanctions are?

PERTH TOLLE: I am actually not a policy expert, but my understanding is that if China were to help Russia evade sanctions put on them by the rest of the world then China could be subject to secondary sanctions.

ISAAC STONE FISH: One thing I like to do in conversations like these is ask impossible questions about predicting the future, which unless you're a clairvoyant, which you didn't put in the bio, you can't do. If China does invade Taiwan, let's say two different cases—there is a limited invasion or there is a major invasion—what impact do you think that will have not on Chinese companies but on U.S. companies with high China exposure, companies like Apple and Tesla?

PERTH TOLLE: Apple's suppliers have started to diversify their supply chains already. They are building plants in the United States, Japan, India, and other places, so that is something that I think they are already preparing for. Yes, it will affect them, but the better they prepare for it the less it will affect them.

Tesla seems pretty stuck. I think that would be very bad for Tesla. I think that American companies are very much intertwined with trade with China. We did expect better outcomes from that trade, and in general as FRDM investors we believe that trade is good. We just don't want to invest in companies that are subject to the Chinese government because at the stroke of the pen they can say, "You have to become nonprofits now," or something like that.

But we are invested in a lot of companies that do trade with China in Taiwan, Chile, and South Korea. Those companies can be affected by what happens in China. There is some cross-pollination there. They can choose to diversify their supply chains now, and a lot of them are doing that. It is a cost-benefit analysis on their part. They are going to do what is in the best interests of their shareholders and themselves, and that's what we want.

Hopefully these companies will take action, and I think in the freer market they do have more flexibility to do so, but your question as far as if China were to invade Taiwan right now what would happen with American companies like Tesla, I think it would be a very bad situation for Tesla. Tesla has a lot of issues already. It is a precarious situation in general, but that would be very bad.

ISAAC STONE FISH: Are there companies that you feel have engaged in best practices with Russia since the invasion, either by rectifying past mistakes or putting out statements that you feel are good templates for corporate behavior or investment behavior with China?

PERTH TOLLE: Since the inception of the fund we have never had China or Russia exposure. Also we are emerging markets only, so we don't invest in U.S. companies either. We don't have U.S. exposure, so I don't keep up with U.S. statements, but I think the companies that acted quickest and made a bold cutoff—"We don't want to be associated with this even if we're going to lose money"—ripping off the Band-Aid at the earliest possible point in a decisive way helped those companies. It is the ones that wavered, that went back and forth, that I think people are wondering, "What's actually going on here?"

Same thing on the country level. Countries like Estonia and Poland jumped in from the beginning to help and take a stand, and then you have countries like Germany, where we still don't know what is going to happen.

I think there are a lot of companies that still are buying into this growth story, which they think they are going to be able to capture, and they are ignoring these expropriation and other types of risks. I think the more they drag that out in the end the more it is going to hurt shareholders, so I think it is important before something happens to have a plan in place if you are a company that works that closely with China—and if something were to happen you should implement the plan without a second thought because the more it drags out the more your shareholders are going to wonder what's going on.

ISAAC STONE FISH: Are there countries that people are either surprised you consider autocratic or surprised that you consider non-autocratic? Are there some edge cases that raise eyebrows or people think, Oh, I didn't realize that X country was as dark as you say?

PERTH TOLLE: Yes. I think India is one of those. India is borderline in our index. Sometimes it's in and sometimes it's out because our index looks at your relative FRDM level to your peers, so as long as you are freer than your peers you're in, if you're less free than your peers, you're out. Then it is according to the strength of your FRDM level that your allocation is, so the heavier allocations are the freer countries.

India was in the index in 2019 and 2020, and they dropped in 2021 and did not come back in 2022. What happened was they increased the repression of their Kashmir people, they blacked out the Internet in places that had farmers protesting, and they increased their coercion of the media in that year.

We use third-party scores. We don't score countries ourselves, so we have that third-party objectivity. We use the Human Freedom Index scores by the Cato Institute and the Fraser Institute. Their score dropped enough that they dropped out of the index.

I think a lot of people were surprised by that. I was surprised because it's the world's largest democracy and I think has a lot of potential. They have a young and educated population. I think India is one of those countries that surprises people when it is not in there. Sometimes it surprises people when it's in there, so it just depends.

What I found is that the reaction from people in these countries to being excluded or included is telling and interesting. We have a lot of fans in India actually. They were in our fund for a couple of years, and when they dropped some of them were like, "Yeah, I'm not surprised," and some of them were like, "Well, it really shouldn't have been dropped or it should be back in," but the reaction was kind of mixed.

Brazil made it into the index recently. It was not before. I have been in New York in the subways and met Brazilian people who asked about the index, and they were like, "Is it in there?" and when it wasn't they were like, "Yeah, that sounds about right." These countries that have the freedom of expression, the freedom to criticize their governments, tend to respond better to being excluded when that happens.

In China everybody hates us. They say: "You're ridiculous. This is the stupidest idea ever. China is the world leader in ESG." It's literally a night-and-day difference as far as the reactions we get from investors in these countries. I think that is telling.

But yes, India is one of those countries that really surprised me when it was dropped, but it is very borderline. It can make it back in at any time.

ISAAC STONE FISH: We will be taking some questions from the audience, so folks who have thoughts or questions they want to add please put them in the chat, and we will get to those soon.

Perth, you mentioned, I think the expression you used was "circle of death" with Wall Street, China, and this negative cycle of encouragement. What about positive encouragement? What do you recommend folks do who want to see, say, their university endowment or their pension fund make more ethical investment decisions?

PERTH TOLLE: There are a lot of positive benefits to freedom. Freer countries have higher life expectancy, lower infant mortality, higher gender equality, lower poverty rates, and if you look at their poverty rates the poorest people in the freer countries are significantly wealthier than the poorest people in the least-free countries. They have lower corruption. They have higher income per capita and higher gross domestic product growth.

These are all the benefits of freedom that I think we should focus more on. But they are very nebulous and hard to measure, so with the FRDM index in the emerging markets we try to be a running scorecard for freedom, and if you look at our performance since inception three years ago compared to benchmarks like EEM, ING, or VWO, the market cap-weighted benchmarks, it is very stark outperformance. It's crazy. I think that is because we have had some very extreme events like COVID-19 and the Russia-Ukraine war.

This has really shown the benefit of investing in the freer markets. When Wall Street and everybody else is so focused on China, Russia, and Saudi Arabia, some of these very unfree markets, I think that takes the focus away from where it should be, which is where the freer markets are, and they are missing out on those markets. That is a huge opportunity cost.

I think for people who are wanting to encourage their endowments, their schools, or whoever to invest in a way that supports freedom around the world, especially in the emerging markets, you should focus on those growth stories that are the growth stories of the future. These are the freer countries that have more sustainable growth. It is not that driven, state-mandated growth. They have better recoveries if you like the recovery from COVID-19 drawdown. The freer markets significantly outperformed the unfree markets in the recovery.

They also have better use of human and economic capital, so there is less capital flight and capital destruction. When you have something like the one-child policy for 30 years, that is huge capital destruction on a human level. When you have governments coming in and making companies nonprofits with a stroke of a pen overnight that is huge shareholder capital destruction. So there is a lot more capital destruction and capital flight from these types of unfree markets.

The freer markets also, because they have stronger institutions, better rule of law, and investor and private property rights and individual protections, are the safe havens in the emerging markets especially. We should focus more on those markets and less so on the unfree ones to find the growth stories of the future instead of focusing on the growth stories of the past.

ISAAC STONE FISH: What role does the conversation about climate change play in decisions to invest or not invest in China and Russia both before and after the invasion? What are your comments and thoughts on that?

PERTH TOLLE: Again, we don't look at environmental factors. Those come with the territory. The freer markets correlate better with better environmental protections, so the freer markets are leaders in that aspect as well.

What I have seen before is a lot of these autocracies using climate change as a talking point. China has touted themselves as being the world leaders in environmental protection, the world leaders in fighting climate change. That is their rhetoric.

I would say watch their actions because they have been the world's biggest polluters, and they still are. They are not making the changes that they pledged to make. I think the climate change conversation has provided autocracies with a distraction from the issues like human rights and issues like slowing growth in their own markets.

I think we need to be careful there as ESG investors not to let climate change become a way for dictators to hijack the conversation because it is easy to make promises. It is easy to make pledges, and climate change is a very easy target for dictators to do that with.

ISAAC STONE FISH: We have a question from the audience about Tesla and the idea of Tesla being "stuck" in the Chinese market. I am wondering perhaps if you could elaborate on what you meant by that.

PERTH TOLLE: The reason I said that is because Elon Musk is very vocal. That is why investors who like him love him so much. He just says whatever he wants to say.

But never about China. He has said things about the United States and about Saudi Arabia. When he was about to buy Twitter and the Saudi owner said something like we don't want you to, he said, "Well, how do you feel about free speech in Saudi Arabia or media freedoms?" He was referring to what happened with Khashoggi. He just went right back at them, but he will never say anything about China.

In fact he seems to do whatever China wants him to do. Last year when all the news stories came out about Xinjiang and the proof of genocide taking place there, he opened a Tesla showroom in Xinjiang. That is kind of a big middle finger to the Uyghurs and anyone who cares about the Uyghur situation. The timing of that was very interesting.

He has openly said good things about China, things that sound very much like sound bites, that he may or may not actually mean but has to say. He is a very smart guy. He is going to do what's best for Tesla, and maybe right now because he is so ingrained in the China market maybe the best thing is for him to be muzzled on that and speak out about everyone else's social issues instead of China's. I am just looking at his actions. He seems very stuck based on what he can't say and the actions that he has taken, actions like the Xinjiang showroom.

ISAAC STONE FISH: That's fascinating. In a business investment where good information is placed at such a premium you have so many people speaking very blandly or inaccurately about China and just focusing on the positive. Every country in the world has positives and negatives. There are obviously very clear negatives with a party but that so rarely comes out from folks like Musk, and I think that is one of the things that perverts our understanding of Chinese markets and Chinese investments.

PERTH TOLLE: With Musk I will just add one more thing. I think we should hold him accountable here in the States, especially if the Twitter deal goes through. The Chinese state media has already tweeted out so much—they re-tweet everything he says. When the news came out that he was going to buy Twitter, they actually came out and said: "Hey, we love Tesla in China. Tesla is doing great here." It was kind of like: "Nice car business you have here. It would be a shame if something happened to it."

This is something that I think everyone is watching very closely. I hope we will hold Musk accountable. The Chinese state media is asking him to remove their state media-affiliated labels. Is he actually going to do that? I think it would be very telling if that happens. As U.S. investors and as Twitter users, we should hold him accountable for those things as well.

ISAAC STONE FISH: A lot of young folks would love to get into the investment space but are worried about these human rights and ethical concerns. What advice would you give someone just coming out of college or just coming out of business school who wants to work in the investment field but cares passionately about these issues?

PERTH TOLLE: I would say, please come work in the field because we need you. This field is rife with people who are just here to make money, people who don't care about human rights, and I think the problems that stem from that are obvious now. The tide is turning, and the young people coming in have the potential to change the world, they have so much power. I hope they realize their power and use it for good because we need people like that in the industry.

ISAAC STONE FISH: There is a question from the audience that takes on some of those points about comments that Chamath Palihapitiya, who was an early investor in Facebook, and Ray Dalio made both about China but also about the idea that people don't really care about human rights in the investment and venture capital worlds. Do you feel like that is an accurate reflection and/or do you feel like there is a way to counter or push back on that and a real movement to do so?

PERTH TOLLE: Chamath and Dalio are different in the sense that Chamath just doesn't care and he doesn't care that anybody knows that he doesn't care. He has said this. He is telling you who he is. He is telling you what he cares and doesn't care about, so if you're an investor you choose accordingly. Do you want to invest with someone like that or not? If not, there are a lot of other people you can invest with.

I think that is a little different from Ray Dalio, who has business in China. I don't know how much China has invested in Bridgewater Funds, but it seems like it's substantial enough when they can make him one of the most famous China apologists on Wall Street today.

These types of things just show us who these investors are and what they stand for, and that is an important thing for investors to know. Once we know that, invest accordingly. It is their right to say these things. It is their right to care or not care, and it is our right to invest with them or not.

ISAAC STONE FISH: I'm glad you made that point about freedom of speech and free choice. It does feel like with more information about what is going on in a lot of these places people will make more ethical choices.

Where do you like to gather information about the situation, say, in China or in Russia? What kind of news services or databases do you feel have the right inputs to look at for these issues?

PERTH TOLLE: One more thing on that question. I notice that the questioner also asked if there is a movement within these communities to counter that vision. I failed to address that.

I think there is. Some of them do it anonymously, but for every action there is an equal and opposite reaction, and I think that is fair to say in the hedge fund and investment world as well.

I have been in this since before the war and since before China imploded, and I can tell you that I have felt the difference. Our fund basically doubled in March because of the Russian invasion and because people started to realize these issues, and once people realize these issues there is no going back. I think there is absolutely a movement to counter the traditional position of Wall Street and hedge funds.

Going back to your question, Isaac, can you repeat it?

ISAAC STONE FISH: The sources of information that you really like to use on these issues.

PERTH TOLLE: Rumor has it that you are developing a source that I am going to love, so I'm looking forward to the completion of that project, and I hope you will keep me posted on that. I also like China Beige Book. There are some very good Twitter accounts, but I don't remember them now. CN Wire (@sino_market) has a lot of good investment-related headline news issues. They will usually come out with breaking news. It is like a constant newsfeed.

In the hedge fund world obviously Kyle Bass (@jkylebass) is very vocal. There are lots of good Twitter accounts. I can't think of them all right now. There are so many. Maybe I will tweet out a list at some point, but there are too many for me to remember right now.

Actually I like a lot of CNN and Bloomberg journalists surprisingly. I know these guys have a reputation for having a bias, but I follow a lot of journalists on Bloomberg and CNN who are becoming more vocal on reporting things coming out of China that are maybe not popular with the Chinese government, not in Hong Kong or China—so not journalists who are in those countries right now, they have to be a little more careful, and you do see that self-censorship going on—but the ones that are based in Taiwan or in other countries.

ISAAC STONE FISH: I think we were able to hear some great thoughts from Perth, who is experiencing some technical difficulties. I think this is a good point to end, and I am glad we got to address a lot of these fascinating issues.

I am grateful to the Carnegie Council as always for hosting this conversation, and I hope to see and chat with everyone soon. Thank you.