Tuesday, September 24, 2013

Evergreen is for Everybody

It takes size to negotiate investment directly with enterprise. It takes purpose. It takes longevity. It takes leverage.

As individuals, we do not have the size, the purpose, the longevity or the leverage it takes to negotiate. We are small, idiosyncratic, time-limited, and therefor leverage limited.  The default form of investment as securities trading is a good fit for our small scale, idiosyncratic and highly liquid investment needs and capabilities as individual investors investing for our own account.

As participants in a pension plan, however, we do, collectively, have the size, the purpose, the longevity and the power to negotiate. Or rather, our pension trustees do, when investing "other people's money" -- our money -- on our behalf and for our benefit. The new form of evergreen investment is a good fit for large, purposeful and powerful pension plans and other evergreen trusts investing for the collective benefit of successive generations of current and future retirees or other chartered beneficiaries.

The choice of evergreen investing by pensions and other evergreen trusts is important to those trusts, to their trust sponsors and to their sponsored beneficiaries. It is also important to all of us, because it affects the proper flow of money through the economy.

Evergreen investing by evergreen trusts flows money directly into enterprises that are also evergreen, to sponsor the ongoing work of physical wealth creation that is also evergreen. There is matching, alignment and balance. A healthy flow.

The default form of securities trading by evergreen trusts traps money inside the closed loop of a zero-sum game of extracting value from other investors, including other evergreen trusts. There is bloat, not balance.

This affects more than just the trusts. It affects us all.

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