To Preserve and Appreciate

Ashby Monk

Here’s something odd: I’ve come across some funds lately with mission statements that call for both capital preservation and capital appreciation.

Don’t the boards that write these statements realize that these two concepts are diametrically opposed to one another? Don’t they realize that the portfolio that will achieve the former won’t achieve the latter? Apparently not.

As I see it, the only way to achieve both of these objectives from an investment strategy / risk budget approach is to split the fund up into two separate units with their own strategies and profiles.

However, even then, that would probably require two separate mission statements to guide the behavior of staff. After all, one of the touchstones of good governance is clarity of mission — without this it’s really hard to align the interests of the staff with the organization as a whole.

Anyway, Board members, to preserve and appreciate is akin to eating cake and having cake. You can’t do both. Rewrite your missions accordingly.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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