The question is a familiar one to family officers, trustees, and those who serve as investment fiduciaries: How does one ensure adequate capital is available for future needs in today’s increasingly complex and risky investment environment, while avoiding blow-ups and the Bernie Madoffs of this world?
Too often the approach taken to reconciling the competing demands of the present with those of the future is ad-hoc. Investment fiduciaries systematically underestimate the importance of professional asset management in the achievement of this goal. A successful investment program requires thoughtful strategy, efficient implementation, and a greater attention to risk management.
Michael Maubussin, chief investment strategist at Legg Mason Capital Management in the US, was asked what advice he would give to a novice analyst coming into the asset management industry. He cited an understanding of four different dimensions that would lead to success: capital markets, strategic issues, valuation, and behavioral finance.
His remarks are pertinent to structuring a charity endowment today. However, this “back-to-basics” approach is not being systematically applied. Where are so many investment programs going wrong?
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