Just recently, I had an interesting conversation with a very large pension fund about asset management strategies, with its board-member enthusiastically intrigued by my previous write-ups, and even more enamored by my explanatory viewpoints. Viewpoints uncorrelated to what is, and instead correlated to what must be.
The board member of the fund demonstrated a sincere interest in finding better alignment between their asset allocations of long and the predictability and repeatability of returns. Not new is such attempted alignment, for I have spoken in the past with the fund’s Chief Investment Officer pondering the same. What appeared new is the urgency of that interest and the apparent quest for truth.
The complexity of years of financial engineering has proven not to produce consistency of returns, with others at the fund once admitting having hired every reputable external money-manager, consultancy, and statistician on the planet, and still nothing significantly moving the needle.
Spoiler alert: the suboptimizations of an investment allocation thesis having merely evolved downstream must be usurped by a new normalization of truth, upstream.
One major problem with the prevalent asset management strategies is its reliance on the regurgitation of much-socialized hindsight. An approach that at best produces me-too returns, short of what stands out or saves the bacon. And worse, accelerated by pancake economics, and stuffed with self-induced and embedded risk, the commonly accepted strategies have gradually turned into a musical-chair dance of asset-class escapism by which the declaration of top-quartile assumes whole new meaning. In other words, the distribution strategies of asset management are now just as flawed as the allocation strategies.
Hindsight is a terrible prognosticator of foresight that breaks the norm. Strategies susceptible to yield-curves, Fed normalizations, inflation, trade tensions, earnings growth, credit, all forming dire consequences from fiscal policy, capital expenditures, regulations, and technology advancement at its cause. The latter cause, however, detached from evolutionary cause gradually turning asset-management into a rebel without a cause.
With asset-management strategies now lacking any direct correlation to the strengthening of human renewal, and thus by definition yielding an increased allocation to humanitarian false-positives and asynchronous performance. Exacerbated by the placebos of ESG, responsible investing, and corporate citizen initiatives attached to another grandiose fantasy; the oxymoron of sustainability.
However, the fog induced by the ruse above can still produce rather misleading returns. And humanity is prone to indulge in many long-lasting hallucinations from which a lot of money can be made. With a catch.
For investing in say tobacco, and now fuming, has and can produce investment-returns as a result of widespread usage. Never mind respiratory disease, as its consequence, now the third-leading cause of death to Americans, for which we all now, thirty years later, pay ballooning health-insurance premiums. Who cares? Not your asset management cost-center. Think again. Investing in crypto-currencies can produce returns for years to come, regardless of the false assignment of indiscriminate trust inherent in its mechanism. Never mind the fable of finance-sans-production. Think again.
Think again how the anthropogenic cascade described above is guaranteed to negatively affect each and every one of us.
Room at the top
Indeed, the time has come to reassess and reassert the value and role of asset management to improve human excellence. With a thesis of asset management, in the words of Einstein, that determines what humanity can discover.
For when the thesis of human excellence improves, rather than degrades by virtue of the above, a recurring stream of new and viable inventions will present themselves, yielding the renewal of the asset-classes of interest, in sync with the expansion of the fractal of human evolution. The short of the renewed strength of human ingenuity contributing to the long of asset-class returns. The strength of renewal as the only reliable cause capable of building the desired consequence of prolonged sustainability.
The only asset management strategy to hang the hat of humanity on, therefore, is one that aligns with the evolution of evolution. A process of evolution not conjured up by the cheap and uninformed karma induced by self-aggrandizing financiers, but by a higher-order normalization of investment excellence aligned with the irrefutable laws of nature. The very nature that holds humanity and all our manmade constructs ultimately to account.
Asset management, by its newfound alignment to evolutionary principles, has an awesome responsibility and opportunity to act as the conductor of human excellence. Away from the regurgitation and diminishing returns from hindsight towards the repeatable returns from the ever-expanding fractal of foresight offered by nature.
Without the need for government interference or legislative approval, asset managers can independently decide to spur endeavors pertinent to the renewal of its member base, in addition to steadfastly breeding the integrity of our collective evolutionary excellence.
Let us make that happen.