Motus Mentis

9 Comments

1. the one eyed man says

   Trustees for pension funds have a fiduciary responsibility to seek the highest risk-adjusted return for those funds, and are precluded from using extraneous considerations in portfolio selection. Regardless of the personal beliefs of the trustees regarding investing in private equity, tobacco companies, or gun manufacturers, using these beliefs in fund management would be a breach of fiduciary duty.

   Posted September 8, 2012 at 9:55 am | Permalink
2. Malcolm says

   You’re straining a bit here, Peter. There are plenty of reasonable investments out there, and fund managers can certainly stay away from investments they find morally abhorrent — as witness, for example, the general disinvestment in South African offerings as apartheid began to crumble.

   Posted September 8, 2012 at 10:14 am | Permalink
3. Malcolm says

   Oh, and another thing: if these institutions have a sacred obligation to maximize returns, should they really be supporting a nationwide smear campaign against the very entity in which they have invested their clients’ money?

   Posted September 8, 2012 at 10:26 am | Permalink
4. the one eyed man says

   There is a large body of statutory and case law around ERISA which sharply defines fiduciary responsibility and its requirements. Does this mean that Goldman Sachs, acting as trustee for the Catholic or Quaker pension funds, can’t invest in Trojans or Northrup Grumann? That’s a question for a securities lawyer, but the general principle is that the only valid criteria are investment and not moral considerations.

   I don’t think that Bain or private equity should be vilified. There is nothing good or bad about private equity per se – it’s just a different form of ownership than the public markets – and I don’t know enough about Bain to know whether they were a good actor or a bad one. In my view, this whole meme is a distraction and a non-issue.

   Posted September 8, 2012 at 11:48 am | Permalink
5. Dom says

   “I don’t think that Bain or private equity should be vilified. There is nothing good or bad about private equity per se”

   That’s the point. Now tell Obama.

   Posted September 8, 2012 at 12:28 pm | Permalink
6. Malcolm says

   There is a large body of statutory and case law around ERISA which sharply defines fiduciary responsibility and its requirements. Does this mean that Goldman Sachs, acting as trustee for the Catholic or Quaker pension funds, can’t invest in Trojans or Northrup Grumann?

   My point is that it certainly doesn’t mean they must invest in such things, if such investments run counter to the investing institution’s social or moral principles. There are plenty of other good investments out there.

   Posted September 8, 2012 at 12:45 pm | Permalink
7. the one eyed man says

   That’s not the case with private equity. While you can easily build a diversified portfolio without Altria stock, if you forswear private equity you are giving up an entire asset class, and your investment universe is limited to what is available in the public markets. That is why nearly all institutional funds – universities, unions, pension funds, etc. – use PE as part of the mix. It offers diversification ahd higher returns. Because its omission affects the beneficiaries’ returns, any fiduciary who refuses to use it has some ‘splaining to do.

   Posted September 8, 2012 at 2:26 pm | Permalink
8. Malcolm says

   Still doesn’t have to be Bain Capital, though.

   Posted September 8, 2012 at 2:27 pm | Permalink
9. Malcolm says

   And if BC is providing such incomparable returns for all these public-sector-unions, etc. — thereby providing a vital benefit to working folks — what’s the idea of going around demonizing them as an enemy of the people?

   Posted September 8, 2012 at 2:39 pm | Permalink