WTT – The Impermanence of Permanent Capital

Capital Allocators – Inside the Institutional Investment Industry

Ted Seides – Allocator and Asset Management Expert

Investing, Capitalallocation, Business

4.8 • 806 Ratings

🗓️ 24 June 2023

⏱️ 6 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

"Nothing lasts forever" as the aphorism goes, and such is the case with permanent capital. The quirk in the theoretically sound concept cause some challenges for both managers and allocators.

Read Ted’s blog here.

Transcript

Click on a timestamp to play from that location

0:00.0	Back in 1994, I was overseeing Yale's boring internally managed bond portfolio.
0:12.0	We benchmarked the portfolio to the Lehman Brothers Government Bond Index and occasionally sought to add value buying securities with the same characteristics as a bond at a discount.
0:23.0	One example was the Morgan Stanley Government Income Trust, GVT, a closed-end fund comprised of
0:29.6	securities backed by the full faith and credit of the U.S. government that traded around a 10%
0:34.6	discount to net asset value. Closed-end funds are one type of permanent capital
0:39.3	vehicle. The manager of the fund does not offer redemption rights to investors. Instead,
0:45.0	closed-end funds are publicly listed on an exchange, and investors get liquidity by trading shares.
0:51.3	When we found a good manager trading at a discount at Yale, we supplemented our long-only
0:55.7	portfolio with closed-end funds investing in domestic equities, international equities, and
1:00.7	fixed income. GVT was my first professional involvement with a permanent capital vehicle.
1:06.9	Permanent capital vehicles are a dream for money managers. Whether markets go up or down, or
1:12.3	investors fall in or out of love with their strategy, the assets can't leave. Managers can play
1:18.4	for the long term without worrying about interim liquidity needs that almost everyone else in the
1:23.0	industry faces. Even 10-year private capital strategies end up buying assets with longer durations than the
1:29.9	funds can hold. From an allocator's perspective, permanent capital vehicles make intuitive sense,
1:35.9	aligning the duration of their underlying investments with that of their spending needs.
1:40.5	Universities educating scholars for centuries, foundations supporting humanity, sovereign wealth funds
1:46.6	supporting citizens for generations, and pension funds doing the same for retirees, have an incentive
1:52.5	to optimize their return potential by matching the duration of their assets and liabilities.
1:58.3	Continuation funds initiated from investors' desire to hold great assets rather
2:03.8	than watch GPs flip companies from sponsor to sponsor incurring frictional costs along the way.
2:10.6	I currently invest in three permanent capital vehicles that offer different attractive features,
	...

Please login to see the full transcript.

Previous episode | Next episode

Disclaimer: The podcast and artwork embedded on this page are from Ted Seides – Allocator and Asset Management Expert, and are the property of its owner and not affiliated with or endorsed by Tapesearch.

Generated transcripts are the property of Ted Seides – Allocator and Asset Management Expert and are distributed freely under the Fair Use doctrine. Transcripts generated by Tapesearch are not guaranteed to be accurate.