Top1000 Funds Fiduciary

Editor of Top1000 funds by Conexus Financial, collating the best practices of the world’s largest institutional investors/asset management industry, Amanda White writes how the industry organization wants to be a “catalyst for reformed fiduciary thinking” as the way to move forward.

Amanda, in a recent email, spells out what her organization now stands for. A list that reminds me how far asset management is removed from reality, leading me to pick her assertions apart:

Premise: Diversity and inclusion drive better investment outcomes

Diversity is a consequence, not the cause of merit—a confounding of consequence and cause that leads in Nietzsche’s words to grave depravity of reason. Never mind my arguments, listen to Manhattan Institute fellow Heather Mac Donald explaining at Harvard how a preferential predisposition to diversity delivers the opposite of improving merit.

Premise: Sustainability is a core responsibility of investors

Sustainability does not exist anywhere in the universe, as nothing is sustainable. This false-positive of absolutism steadfastly ignoring general relativity applied to the nature of investible assets. An investment arbitrage thesis stuck in absolutism, falling at least two dimensions short of nature’s relativity, will not be able to expand the fractal of human ingenuity in a direction that matters.

Premise: Principal-agent problems dominate the investment industry

Transparency, too, is a consequence, not the cause of renewable investment strategies. Especially when the measure of transparency is correlated to the wrong thesis, transparency loses relevance rapidly. The biggest problem in asset management today is that the supposed risk managers know nothing about risk, as their embedded risk is steeped in ten levels of bottom-heavy diversification, tied to arcane distribution over risk, unable to systematically detect outliers that have no precedent.

Premise: Costs matter

Costs do matter, especially in allocation strategies that barely eke out 7% returns. Interesting how an innovation greenfield of about 80% cannot be not married with a financial arbitrage producing a higher upside. Cost, as Steve Jobs explained, should not matter if the upside is high enough. So, the sensitivity to cost signals the desperate downside protection of a thesis unable to produce significant upside.

Nature’s Alpha

The asset management business must be reinvented around the first-principles of nature to produce consistent returns from the continual change induced by nature paired with human adaptability to meet that change. Human adaptability to nature’s entropy must become humanity’s most pressing objective instilled as the overarching goal in all of the operating-systems of humanity, including asset management.

Nature’s alpha is the only guaranteed and repeatable alpha in existence, so why is nobody in asset management chasing it?

The asset management business has an awesome responsibility, in my opinion way more impactful than the government, as it is responsible, in Albert Einstein’s words, for deploying the thesis that determines what humanity can discover—unencumbered by the wrath of democracy.

Reality

Consistently producing investment returns requires asset managers to understand the nature of the investible assets and the first-principles by which the evolutionary trajectory of its assets are bound.

I suggest Top1000funds change its reformed fiduciary thinking into informed fiduciary thinking for asset management to begin to support and trace the fractal of human ingenuity, or asset management is poised to remain stuck in the regurgitation of its past.

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