Wednesday, May 29, 2013

Fiduciary Duty Requires Fiduciary Returns

The advocacy group is presenting its Blueprint for Sustainable Investing to its Investor Network on Climate Risk.

OECD is publishing its High-Level Principles of Long-Term Investment Financing by Institutional Investors.

These organizations and others in the legal profession generally are calling for a re-consideration of the rules of fiduciary duty as they impact the rights and responsibilities of pension plans and other stewards of large, purposeful, perpetual pools of entrusted corpus held to sustain the payment of chartered benefits to successive generations of extensive populations of entitled or intended beneficiaries.

Corpus + benefits. These are the fiduciary duties of these quasi-public trusts.

They need fiduciary returns to match those fiduciary duties, i.e. returns that sustain corpus while paying benefits.

How are they going to get those returns?

Experience since the 1972 Uniform Management of Institutional Funds Act was first passed has shown they cannot get them by speculating on valuations through the transient ownership of trading positions in public shareholdings, or their private-market alternatives.

What are we going to try next?

Thursday, May 23, 2013

Pension Plan Break-Out of the "Asset Owners" Box

Yesterday I was invited to review and comment on a campaign being developed to get young people to rally their parents to pressure their pension plans to reform their investing policies, specifically to address climate risk and economic inclusiveness.  In the prepared materials, is this quote from Paul Polman, CEO at Unilever:

"If you look out five or ten years (which is my job), the power is in the hands of consumers."
This is as perfect an expression of values-driven business leadership in optimizing commercial competitiveness for sustainable wealth creation as I can imagine.

Pension plans and other stewards of large, purposeful, perpetual pools of capital entrusted to their care for the benefit of others under governing charters of trust need to rally to Mr. Polman's call.

Here are the 3 steps they must take.

  1. Embrace stewardship - stop being passive “asset owners”, start being responsible stewards of change and adaptation to change
  2. Invest evergreen - stop being passive “asset owners” extracting wealth from other investors by buying and selling pre-packaged "investment products", and start being proactive capital sponsors sharing directly in wealth creation with values-driven business leaders (see Paul Polman, above)
  3. Sponsor organic growth - stop inauthentically “maximizing shareholder value” along an prematurely truncated exponential growth trend line and start authentically optimizing commercial competitiveness over the entire length the organic growth cycle (see below)