Category: Investments

Climate risk vs. interest-rate risk

Mary Pat Campbell

Link: https://www.bloomberg.com/opinion/articles/2024-01-18/coinbase-trades-beanie-babies

Excerpt:

An important meta-story that you could tell about financial markets over the past few years would be that, for a long time, interest rates were roughly zero, which means that discount rates were low: A dollar in the distant future was worth about as much as a dollar today. Therefore, investors ascribed a lot of value to very long-term stuff, and were not particularly concerned about short-term profitability. Low discount rates made speculative distant-future profits worth more and steady current profits worth less.

And then interest rates went up rapidly starting in 2022, and everyone’s priorities shifted. A dollar today is now worth a lot more than a dollar in 10 years. People prioritize profits today over speculation in the future.

This is a popular story to tell about the boom in, for instance, tech startups, or crypto: “Startups are a low-interest-rate phenomenon.” In 2020, people had a lot of money and a lot of patience, so they were willing to invest in speculative possibly-world-changing ideas that would take a long time to pay out. (Or to fund startups that lost money on every transaction in the long-term pursuit of market share.) In 2022, the Fed raised rates, people’s preferences changed, and the startup and crypto bubbles popped. 

I suppose, though, that you could tell a similar story about environmental investing? Climate change is, plausibly, a very large and very long-term threat to a lot of businesses. If you just go around doing everything normally this year, probably rising oceans won’t wash away your factories this year. But maybe they will in 2040. Maybe you should invest today in making your factories ocean-proof, or in cutting carbon emissions so the oceans don’t rise: That will cost you some money today, but will save you some money in 2040. Is it worth it? Well, depends on the discount rate. If rates are low, you will care more about 2040. If rates are high, you will care more about saving money today.

We have talked a few times about the argument that some kinds of environmental investing — the kind where you avoid investing in “dirty” companies, to starve them of capital and reduce the amount of dirty stuff they do — can be counterproductive, because it has the effect of raising those companies’ discount rates and thus making them even more short-term-focused. And being short-term-focused probably leads to more carbon emissions. (If you make it harder for coal companies to raise capital, maybe nobody will start a coal company, but existing coal companies will dig up more coal faster.)

But that argument applies more broadly. If you raise every company’s discount rate (because interest rates go up), then every company should be more short-term-focused. Every company should care a bit less about global temperatures in 2040, and a bit more about maximizing profits now. Maybe ESG was itself a low-interest-rates phenomenon.

Anyway here’s a Financial Times story about BlackRock Inc.:

BlackRock will stress “financial resilience” in its talks with companies this year as the $10tn asset manager puts less emphasis on climate concerns amid a political backlash to environmental, social and governance investing.

With artificial intelligence and high interest rates rattling companies globally, BlackRock wants to know how they are managing these risks to ensure they deliver long-term financial returns, the asset manager said on Thursday as it detailed its engagement priorities for 2024.

BlackRock reviews these priorities annually as it talks with thousands of companies before their annual meetings on issues ranging from how much their executives are paid to how effective their board directors are.

“The macroeconomic and geopolitical backdrop companies are operating in has changed. This new economic regime is shaped by powerful structural forces that we believe may drive divergent performance across economies, sectors and companies,” BlackRock said in its annual report on its engagement priorities. “We are particularly interested in learning from investee companies about how they are adapting to strengthen their financial resilience.”

There is a lot going on here, and it is reasonable to wonder— as the FT does — whether BlackRock’s shift from environmental concerns to high interest rates is about the political and marketing backlash to ESG. But you could take it on its own terms! In 2020, interest rates were zero, and BlackRock’s focus was on the long term. What was the biggest long-term risk to its portfolio? Arguably, climate change. So it went around talking to companies about climate change. In 2024, interest rates are high, and the short term matters more, so BlackRock is going around talking to companies about interest-rate risk.

I don’t know how AI fits into this model. For most of my life, “ooh artificial intelligence will change everything” has been a pretty long-term — like, science-fiction long-term — thing to think about. But I suppose now “how will you integrate large-language-model chatbots into your workflows” is an immediate question.

Author(s): Matt Levine

Publication Date: 18 Jan 2024

Publication Site: Bloomberg

ESG Crime

Mary Pat Campbell

Link:https://www.bloomberg.com/opinion/articles/2024-01-17/making-esg-a-crime

Excerpt:

Oh sure whatever:

Republican lawmakers in New Hampshire are seeking to make using ESG criteria in state funds a crime in the latest attack on the beleaguered investing strategy.

Representatives led by Mike Belcher introduced a bill that would prohibit the state’s treasury, pension fund and executive branch from using investments that consider environmental, social and governance factors. “Knowingly” violating the law would be a felony punishable by not less than one year and no more than 20 years imprisonment, according to the proposal.

Pensions & Investments reports:

“Executive branch agencies that are permitted to invest funds shall review their investments and pursue any necessary steps to ensure that no funds or state-controlled investments are invested with firms that invest New Hampshire funds in accounts with any regard whatsoever based on environmental, social, and governance criteria,” the bill said.

The New Hampshire Retirement System “shall adhere to their fiduciary obligation and not invest with any firm that will invest state retirement system funds in investment funds that consider environmental, social, and governance criteria, as the investment goal should be to obtain the highest return on investment for New Hampshire’s taxpayers and retirees,” the bill said.

Investors aren’t allowed to consider governance! Imagine if this was the law; imagine if it was a felony for an investment manager to consider governance “with any regard whatsoever.”

….

I’m sorry, this is so stupid. “ESG” is essentially about considering certain risks to a company’s financial results: You might want to avoid investing in a company if its factories are going to be washed away by rising oceans, or if its main product is going to be regulated out of existence, or if its position on controversial social issues will cost it sales, or if its CEO controls the board and spends too much corporate money on wasteful personal projects. Obviously ESG in practice is also other, more controversial things:

  1. If you care about the environment, social issues, etc., you might want to invest in companies that you think are environmentally or socially good, whether or not they are good financial investments.
  2. You might incorrectly convince yourself that the stuff you think is environmentally or socially good is also good for the bottom line: You might have a wishful estimate of how quickly the world will transition away from fossil fuels, to justify your desire not to invest in oil companies. You might tell yourself “this company’s stance on social issues will cost it lots of customers” when really the customers don’t care, but you do.

But if you make it a crime for investors to consider certain financial risks then you get too much of those risks.

In particular, I suspect, you get too much governance risk. If every investor tomorrow said “okay we don’t care about the environment,” most companies probably wouldn’t ramp up their pollution: Their executives probably don’t want to pollute unnecessarily, polluting probably wouldn’t help the bottom line, and many companies just sit at computers developing software and couldn’t pollute much if they wanted to. But if every investor tomorrow said “okay we don’t care about governance,” then, I mean, “governance” is just a way of saying “somebody makes sure that the CEO is doing a good job and doesn’t pay herself too much.” If the investors don’t care about that, then a lot of CEOs will be happy to give themselves raises and spend more time on the corporate jet to their vacation homes.

Author(s): Matt Levine

Publication Date: 17 Jan 2024

Publication Site: Bloomberg

As ESG Investments Soften and Pressure Grows on Allegedly ‘Woke’ Finance Giants, Conservative Investment Firms Scour for Missed Opportunities

Mary Pat Campbell

Link: https://www.nysun.com/article/as-esg-investments-soften-and-pressure-grows-on-allegedly-woke-finance-giants-conservative-investment-firms-scour-for-missed-opportunities

Excerpt:

In May, the United Kingdom’s version of the Securities and Exchange Commission will begin enforcing its pledge to crack down on so-called greenwashing by companies wishing to trade on the label of being green-friendly.  

The Financial Conduct Authority’s rules, announced in late November, come as U.S. traders await stronger regulations from the SEC. That body moved in September to curb misleading marketing practices by requiring 80 percent of funds that claim to be “sustainable,” “green,” or “socially responsible” to actually be so. 

The sustainability disclosure requirements are now deemed a necessity after regulators found “environmental, social, and corporate governance” analysts at Goldman Sachs and Germany’s DWS Group were promoting investments that were not as ESG-friendly as they claimed. 

“The portfolio managers weren’t necessarily doing all of the work that they said they were doing,” the associate director of sustainability research for Morningstar Research Services LLC, Alyssa Stankiewicz, said. “They didn’t have documentation or data maybe related to the ESG-ness of these investments.”

At the same time as ESG-friendly firms are facing accusations of insincerity, they’re also coming under pressure from state pension funds in states with Republican-controlled governments that don’t want their employees’ retirement funds affected by what they view as politicized, left-leaning investing strategies.

Author(s): SHARON KEHNEMUI

Publication Date: 16 Jan 2024

Publication Site: NY Sun

DOL Can’t Put Fiduciary Duty on IRAs, Ex-Labor Official Testifies

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2024/01/10/dol-cant-put-fiduciary-duty-on-iras-ex-labor-official-testifies/

Excerpt:

The Labor Department lacks the legal authority to promulgate its new fiduciary rule, Brad Campbell, partner at Faegre Drinker, and former head of Labor’s Employee Benefits Security Administration, told House lawmakers Wednesday.

During testimony before the House Financial Services Capital Markets Subcommittee, Campbell maintained that the department “doesn’t have the legal authority to do what it is trying to do” because it cannot impose a fiduciary duty as it relates to individual retirement accounts.

“The reason we are here today is that the Proposals go well beyond DOL’s limited authority,” Campbell told lawmakers.

Labor’s plan ”would make DOL the primary financial regulator of $26 trillion, approximately half of which is held by individuals” in IRAs rather than employer-provided plans.

If Labor’s proposals “were limited to redefining fiduciary advice within the department’s actual authority — which is to administer the fiduciary standard expressly created by Congress to regulate employee benefit plans sponsored by private sector employers under Title I of ERISA — we wouldn’t be here today,” Campbell opined.

Author(s): Melanie Waddell

Publication Date: 10 Jan 2024

Publication Site: Think Advisor

NYC, Oregon Pension Funds Named Lead Plaintiffs in Fox Lawsuit

Mary Pat Campbell

Link: https://www.ai-cio.com/news/nyc-oregon-pension-funds-named-lead-plaintiffs-in-fox-lawsuit/

Excerpt:

A Delaware Chancery Court has appointed pension funds from New York City and from Oregon as the lead plaintiffs in a shareholder lawsuit that alleges Fox Corp. breached its fiduciary duty by exposing itself to defamation lawsuits during its coverage of the 2020 U.S. presidential election.

In September 2023, New York City’s five public pension funds, as well as the Oregon Investment Council and the Oregon Public Employees Retirement Fund, filed shareholder derivative lawsuits against Fox for breach of fiduciary duty. The lawsuits allege Fox’s board of directors knew that Fox News was promoting former President Donald Trump’s false claims that he was the true winner of the 2020 election without regard for whether the assertions were true and thus created significant exposure to defamation charges.

In April, Fox settled a $787 million defamation lawsuit brought by the voting machine company Dominion Voting Systems after Fox broadcasters falsely alleged Dominion was involved in altering results during the 2020 presidential election. Fox also faces a $2.7 billion lawsuit from voting machine company Smartmatic USA Corp.

Author(s): Michael Katz

Publication Date: 9 Jan 2024

Publication Site: ai-CIO

SEC attempts to calm muni market over FDTA implementation

Mary Pat Campbell

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202311101249SM______BNDBUYER_0000018b-ba22-dd16-addf-fb6af3660001_110.1

Excerpt:

As the timeline for implementing the Financial Data Transparency Act grows shorter, the Securities and Exchange Commission is teaming up with other federal regulators in an attempt to allay fears about implementation.

“There’s no new disclosure requirements, standards or timelines, it’s just about structured data,” said Dave Sanchez, director of the SEC’s Office of Municipal Securities.

The comments came during a panel discussion produced by XBRL US on Thursday. The FDTA was passed last year as a remedy for providing more transparency to the financial markets by introducing machine-readable formats into the Municipal Securities Rulemaking Board’s EMMA system, which tracks the muni market.

The SEC is in charge of developing the standards for how the data will be submitted to the MSRB. The upcoming deadlines include publishing proposed rules by June 2024, which will kick off the public comment period. Determining the standards is set for December 2024, with specific rulemaking to be in place by 2026.

Author(s): Scott Sowers

Publication Date: 10 Nov 2023

Publication Site: Bond Buyer at Fidelity Fixed Income

Exxon, Apple and other corporate giants will have to disclose all their emissions under California’s new climate laws – that will have a global impact

Mary Pat Campbell

Link:https://theconversation.com/exxon-apple-and-other-corporate-giants-will-have-to-disclose-all-their-emissions-under-californias-new-climate-laws-that-will-have-a-global-impact-214630

Graphic:

Excerpt:

Many of the world’s largest public and private companies will soon be required to track and report almost all of their greenhouse gas emissions if they do business in California – including emissions from their supply chains, business travel, employees’ commutes and the way customers use their products.

That means oil and gas companies like Chevron will likely have to account for emissions from vehicles that use their gasoline, and Apple will have to account for materials that go into iPhones.

It’s a huge leap from current federal and state reporting requirements, which require reporting of only certain emissions from companies’ direct operations. And it will have global ramifications.

California Gov. Gavin Newsom signed two new rules into law on Oct. 7, 2023. Under the new Climate Corporate Data Accountability Act, U.S.- companies with annual revenues of US$1 billion or more will have to report both their direct and indirect greenhouse gas emissions starting in 2026 and 2027. The California Chamber of Commerce opposed the regulation, arguing it would increase companies’ costs. But more than a dozen major corporations endorsed the rule, including Microsoft, Apple, Salesforce and Patagonia.

Author(s): Lily Hsueh

Publication Date: 10 Oct 2023

Publication Site: The Conversation

SBF Was Reckless From the Start

Mary Pat Campbell

Link: https://www.bloomberg.com/opinion/articles/2023-10-04/sbf-was-reckless-from-the-start?srnd=undefined#xj4y7vzkg

Excerpt:

First: “A Jane Street intern had what amounted to a professional obligation to take any bet with a positive expected value”? Really? I feel like, if you are a trading intern, you are really there to learn two things. One is, sure, take bets with positive expected value and avoid bets with negative expected value.

But the other is about bet sizing. As a Jane Street intern, you have $100 to bet each day, and your quasi-job is to turn that into as much money as possible. Is betting all of it (or even $98) on a single bet with a 1% edge really optimal?[6] 

People have thought about this question! Like, this is very much a central thing that traders and trading firms worry about. The standard starting point is the Kelly criterion, which computes a maximum bet size based on your edge and the size of your bankroll. Given the intern’s bankroll of $100, I think Kelly would tell you to put at most $10 on this bet, depending on what exactly you mean by “this bet.”[7] Betting $98 is too much.

I am being imprecise, and for various reasons you might not expect the interns to stick to Kelly in this situation. But when I read about interns lining up to lose their entire bankroll on bets with 1% edge, I think, “huh, that’s aggressive, what are they teaching those interns?” (I suppose the $100 daily loss limit is the real lesson about position sizing: The interns who wipe out today get to come back and play again tomorrow.) 

But I also think about a Twitter argument that Bankman-Fried had with Matt Hollerbach in 2020, in which Bankman-Fried scoffed at the Kelly criterion and said that “I, personally, would do more” than the Kelly amount. “Why? Because ultimately my utility function isn’t really logarithmic. It’s closer to linear.” As he tells Lewis, “he had use for ‘infinity dollars’” — he was going to become a trillionaire and use the money to cure disease and align AI and defeat Trump, sure — so he always wanted to maximize returns.

But as Hollerbach pointed out, this misunderstands why trading firms use the Kelly criterion.[8] Jane Street does not go around taking any bet with a positive expected value. The point of Kelly is not about utility curves; it’s not “having $200 is less than twice as pleasant as having $100, so you should be less willing to take big risks for big rewards.” The point of Kelly is about maximizing your chances of surviving and obtaining long-run returns: It’s “if you bet 50% of your bankroll on 1%-edge bets, you’ll be more likely to win each bet than lose it, but if you keep doing that you will probably lose all your money eventually.” Kelly is about sizing your bets so you can keep playing the game and make the most money possible in the long run. Betting more can make you more money in the short run, but if you keep doing it you will end in ruin.

Author(s): Matt Levine

Publication Date: 4 Oct 2023

Publication Site: Bloomberg

State legislators: Oregon treasury’s investment choices create risk to us all

Mary Pat Campbell

Link: https://www.portlandtribune.com/opinion/state-legislators-oregon-treasury-s-investment-choices-create-risk-to-us-all/article_65cae490-406b-11ee-a841-a3bbfbc99a7f.html

Excerpt:

The Oregon Public Employee Retirement System (PERS) pension fund has been in the national spotlight recently because of risks from private investments hidden from the public. What risks? Risk to public employees’ retirement, risk to taxpayers who have to pick up the shortfall, risk to workers as private equity asset managers rake in huge profits at Oregonians’ expense, risk to all Oregonians as private equity undermines our communities, and risk to the climate as private equity firms are uniquely exposed to fossil fuel companies.

A recent article in the business section of The New York Times, “The Risks Hidden in Public Pension Funds,” focuses on the Oregon treasury’s unusually large private investments in PERS. The treasury has long hailed its private equity investments for producing high rates of return, overlooking warning signs that the managers report earnings that turn out to be overstated. The Times reported, “they aren’t taking account of the true risks embedded in private equity. Oregon’s pension fund is over 40% more volatile than its own reported statistics show.”

…..

Divest Oregon’s 2022 report, “Oregon Treasury’s Private Investment Transparency Problem,” documents that more than 50% of PERS is in private investments, with various labels (“private equity,” “alternatives,” “opportunity,” even real estate).

These private funds are heavily invested in coal, oil and gas. The treasury increased its investments in fossil fuels in private investments from 2021 to 2022 (the most recent data released by the state) and continues to invest billions in the fossil fuel industry in 2023, for example in the private investment firm GNP. While Divest Oregon applauds Treasurer Tobias Read in his work to create a “decarbonization plan” for PERS, the treasurer must respond to calls to stop new private investments that fund the climate crisis.

Author(s): State Sen. Jeff Golden and state Reps. Khanh Pham and Mark Gamba

Publication Date: 29 Aug 2023

Publication Site: Portland Tribune

Public Pensions: Double-Check Those ‘Shadow Banker’ Investments

Mary Pat Campbell

Link:https://www.governing.com/finance/public-pensions-double-check-those-shadow-banker-investments

Excerpt:

For almost a decade leading up to 2021, bond yields were suppressed by low inflation and central bank stimulus. To make up for scanty interest rates on their bond investments, many public pension funds followed the lead of their consultants and shifted some of their portfolios into private credit funds. These “shadow bankers” have taken market share from traditional lenders, seeking higher interest rates by lending to non-prime borrowers.

Even during the pandemic, this strategy worked pretty well, but now skeptics are warning that a tipping point may be coming if double-digit borrowing costs trigger defaults. It’s time for pension trustees and staff to double-check what’s under the hood.

For the most part, the worst that many will find is some headline risk with private lending funds that underwrite the riskiest loans in this industry. Even for the weakest of those, however, the problem will not likely be as severe as the underwater mortgages that got sliced, diced and rolled up into worthless paper going into the global financial crisis of 2008. And until and unless the economy actually enters a full-blown recession, many of the underwater players will still have time to work out their positions.

The point here is not to sound a false alarm or besmirch the private credit industry. Rather, it’s highlighting what could eventually become soft spots in some pension portfolios in time to avoid doubling down into higher risks and to encourage pre-emptive staff work to demonstrate and document vigilant portfolio oversight.

Author(s):Girard Miller

Publication Date: 8 Aug 2023

Publication Site: Governing

Fiduciary principles need to be reaffirmed and strengthened in public pension plans

Mary Pat Campbell

Link: https://reason.org/policy-brief/fiduciary-principles-need-to-be-reaffirmed-strengthened-public-pension-plans/

Executive Summary:

Fiduciaries are people responsible for managing money on behalf of others. The fundamental fiduciary duty of loyalty evolved over centuries, and in the context of pension plans sponsored by state and local governments (“public pension plans”) requires investing solely in plan members’ and taxpayers’ best interests for the exclusive purpose of providing pension benefits and defraying reasonable expenses. This duty is based on the notion that investing and spending money on behalf of others comes with a responsibility to act with an undivided loyalty to those for whom the money was set aside.

But the approximately $4 trillion in the trusts of public pension plans may tempt public officials and others who wish to promote—or, alternatively, punish those who promote— high-profile causes. For example, in recent years, government officials in both California and Texas, political polar opposites, have acted to undermine the fiduciary principle of loyalty. California Gov. Gavin Newsom’s Executive Order N-19-19 describes its goal “to leverage the pension portfolio to advance climate leadership,” and a 2021 Texas law prohibits investing with companies that “boycott” energy companies to send “a strong message to both Washington and Wall Street that if you boycott Texas Energy, then Texas will boycott you.” Both actions and others like them, attempt to use pension assets for purposes other than to provide pension benefits, violating the fundamental fiduciary principle of loyalty.

The misuse of pension money in the public and private sectors has a long history. The Employee Retirement Income Security Act (ERISA), signed into law by President Gerald Ford in 1974, codified fiduciary principles for U.S. private sector retirement plans nearly 50 years ago and is used as a prototype for pension fiduciary rules in state law and elsewhere. Dueling sets of ERISA regulations issued within a two-year period during the Trump and Biden administrations consistently reinforced the principle of loyalty. State legislation and executive actions, however, have weakened and undermined it, even where it is codified elsewhere in state law.

Thirty million plan members rely on public pension funds for financial security in their old age. The promises to plan members represent an enormous financial obligation of the taxpayers in the states and municipalities that sponsor these plans. If investment returns fall short of a plan’s goals, then taxpayers and future employees will be obligated to make up the difference through higher contribution rates.

The exclusive purpose of pension funds is to provide pension benefits. Using pension funds to further nonfinancial goals is not consistent with that purpose, even if it happens to be a byproduct. This basic understanding has been lost in the recent politically polarized public debates around ESG investing—investing that takes into account environmental, social, and governance factors and not just financial considerations.

It is critically important that fiduciary principles be reaffirmed and strengthened in public pension plans. The potential cost of not doing so to taxpayers, who are ultimately responsible for making good on public pension promises, runs into trillions of dollars. Getting on track will likely require a combination of ensuring the qualifications of plan fiduciaries responsible for investing, holding fiduciaries accountable for acting in accordance with fiduciary principles, limiting the ability of nonfiduciaries to undermine and interfere with fiduciaries, and separating the fiduciary function of investment management from settlor functions like setting funding policy and determining benefit levels.

Author(s): Larry Pollack

Publication Date: 11 May 2023

Publication Site: Reason

Why Municipal Pensions Should Kick-Start an Innovation Fund

Mary Pat Campbell

Link:https://www.governing.com/finance/why-municipal-pensions-should-kick-start-an-innovation-fund?utm_campaign=Newsletter%20-%20GOV%20-%20Daily&utm_medium=email&_hsmi=266390798&_hsenc=p2ANqtz-9XCnmkpBsz7qeaom3Wd8LYY7HJUvGw_23wYI3K2k_OJd4ifQ6BmeoSGQSkdqdPtxzuK5YefHRPo_EMn8DeMV66jxxg-vECbMbX4zn0u7Ma9C6-9B4&utm_content=266390798&utm_source=hs_email

Excerpt:

Most of the media coverage of the collapse of Silicon Valley Bank was focused on the long lines of depositors who feared losing their money and the eventual bailout by the FDIC. The sequel to that story is that the failure of that bank and several others left a gaping void in the nation’s entrepreneurial economy — the place where new jobs spring out of the innovators’ alchemy of novel technologies, management skill and risk capital.

As a result, many early-stage growth companies in America are now stranded in a financing no man’s land between the highest-risk seed capital stage funded by individual angel investors and the multibillion-dollar private equity sector that still looks for eight- and nine-figure deals featuring companies already making sales on their way to a stock exchange listing. The startups’ cash cliff has been cited as the cause of a “mass extinction event” — a dead cylinder in the U.S. economy’s growth engine.

That’s where the idea of an “innovation fund” partnering with a dozen or so midsize local government pension funds could fill the void in this still-risky growth stage. Pension trustees could harvest lush investment returns on a nationally diversified portfolio with lower fees than the venture capital industry typically exploits. As a bonus, they could collectively fuel the engines of economic growth nationwide. Emergent businesses based in a state where a pension fund participates would have a fair shot at some of that capital if they could pass stringent due diligence reviews and fiduciary governance oversight by angel investment experts in their industries.

It’s a concept that originated years ago from the now-retired founder of one of the nation’s most prominent pension consulting firms. Today, the drawback on his original vision is that the larger public pension funds have outgrown the startup economy. As the chief investment officer of the California State Teachers’ Retirement System, the nation’s second-largest public pension fund, recently noted in a TV interview, they manage so many billions in each asset class, and with so many rules, requirements and restrictions, that it’s difficult for them to effectively put money into the venture capital marketplace. And even then, it’s got to be the chunkier, later-stage money earning a lower return than angel investors are seeking. Accordingly, my proposals here are a second-generation revision for which I alone am accountable.

What’s missing today is early-stage Series A and B funding. Putting money into promising firms raising $5 million to $20 million of fresh capital in these transition stages following their angel funding round would never move the dial on the Goliath pension portfolios’ investment returns. For their trustees and staffs, it’s just not worth the effort and headaches of monitoring hundreds of pubescent companies that are too young for them.

Author(s): Girard Miller

Publication Date: 11 July 2023

Publication Site: Governing