Endowment Investors Might Learn a Lot From Keynes

Keynes made a major contribution to the development of professional asset management, and today's investors should take heed, a newly published paper asserts.

(October 3, 2012) — How has British economist John Maynard Keynes impacted the way investors handle endowment portfolios today?

According to one paper, the answer is “a whole lot.”

The paper, by David Chambers and Elroy Dimson, from the University of Cambridge and London Business School respectively, notes that the King’s College endowment–which Keynes managed–permitted Keynes to give full expression to his investment abilities. Keynes revolutionized the way his Cambridge college endowment was managed, the research notes.

“First, his strategic allocation to equities was path-breaking. Not until the second half of the twentieth century did institutional fund managers follow his lead,” according to the research. “His aggressive purchase of equities pushed the common stock weighting of the whole endowment’s security portfolio over 50% by the 1940s. This was as dramatic and far-sighted a change in the investment landscape as the shift to alternative assets in more recent times. At the same time, his approach to equity investment also anticipated the development of small stock and value investment strategies which have been defined retrospectively by modern research.”

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Meanwhile, the paper asserts that Keynes’ willingness to take a variety of risks in King’s portfolio and to depart dramatically both from the market and institutional consensus exemplifies the opportunity available to long-term investors such as endowments to be unconventional in their portfolio choices.

Additionally, “the contrast between the receptive environment at King’s and the conditions he faced at other institutions reminds us of how critical, conditional on possessing investment talent, is the right organisational set-up.”

Read the full paper here.

Caisse Sells Back $1.5 Billion Stake in Media Firm

After acquiring nearly half of Quebecor in 2000, the Caisse is selling back half its shares despite solid returns. 

(October 3, 2012) — The Caisse de Dépôt et Placement du Québec, a $159 billion public Canadian pension system, is backing off of its deep investment in Quebecor Inc., a broadcaster and cable company. 

The $1.5 billion transaction, which will return 20.4 million shares to Quebecor, will cut the Caisse’s stake in the firm by almost half, from 45.3% to 24.6%. 

“We are convinced of Quebecor Media’s potential to create value,” Michael Sabia, the Caisse’s president and chief executive officer, said in a statement. “For this reason, we are retaining a substantial stake in the company. In our view, the conditions are right to rebalance our portfolio by divesting a part of the major position we held in the media and telecom sector.” 

The pension fund acquired the large holding in 2000, when it helped bankroll Quebecor’s nearly $5 billion takeover of another local media firm. This acquisition took place at the height of a media conglomeration frenzy in Canada, when content providers and delivery networks were coupling up with abandon. 

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“Our intention was to take advantage of the window of opportunity created by the favorable conditions on the debt markets to increase our interest in Quebecor Media,” said Pierre Karl Peladeau, president and CEO of the media firm. “We believe in the company’s future. Repurchasing a portion of the Caisse’s investment, while we continue our partnership, will allow us to benefit from the company’s expected growth over the next few years.” 

Investing to support Quebec, and not simply maximize returns, is part of the pension fund’s mandate: “The Caisse provides significant support to Québec companies, typically at a crucial stage of their development, such as during an expansion or acquisition project…The Caisse is more than an investor. In addition to financing, it offers businesses solid support for their growth projects, both at home and abroad.” 

Quebecor has more than tripled in size since the 2000 takeover, and paying out substantial dividends to shareholders, including a total of $324 million to the Caisse since 2003.

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