Today I filed my application to become an Content Provider to iTunes. My goal is to publish my writings as iBooks, and my first is ready to go. It won't make full use of the multimedia capabilities of iBooks, but we have to start somewhere...
It can be agonizing going over the "final, final" before deciding to hit the "publish" button. There always seems to be a passage or a thought or a sequence that could be made clearer, easier, more complete. In the end, I took guidance from some words I recall seeing in one of my wife's magazines about art. It observed that imperfections in a painting are what make it interesting and engage the viewer.
I usually pride myself on being very thorough and complete. This can be very satisfying, once you are committed. But maybe leaving things a little less than perfect will better when we are just trying to engage. It leaves something for the reader to do.
- TPM
Thoughts about what can be done, and should be done, before the day begins
Thursday, July 5, 2012
Tuesday, May 29, 2012
Respecting the Authenticity of the Capital Markets
In Economics today there is a growing movement to shift thinking away from inertial systems towards adaptive processes. See, for example, The Institute for New Economic Thinking, and biomimicry.org.
The search for scientific predictability and precision engineering is seen as driving Economics in what is seen as a vain pursuit to investigate and illuminate the patterns and paradigms that can guide us in perpetuating our prosperity through the construction of mathematical models that do not and cannot capture the real dynamics of economic activity.
Instead, it is argued that reference should be had to life sciences to model human actors in an evolutionary process of adaptation to changing circumstances.
Paralleling this debate among economic thinkers about the right way to look for economic truth is a practical debate among economic activists about the right way to legislate for prosperity.
Unifying both debates is a shared sense that the Capital Markets are not working quite the way we need them to. Misaligning the two debates is a difference in method. Economic thinkers are asking, "what is wrong with Economics?". Economic activists are asking, "what is wrong with People?"
In my view, both are the wrong question.
Better results will be obtained if we respect the authenticity of the Capital Markets as an ecosystem for value creation, capital formation and wealth distribution that is built on place-based technologies for invention, innovation, information and communication.
These place-based solutions for driving the flow of money through the economy were first adapted in America, in the 19th Century, to meet the needs of Industrial Expansion into a Western Frontier that was so large as to appear limitless. There always was a limit. We knew that. We had reached and mapped it. It was just that the open spaces within those limits were so vast, that the limit was not really that important. The vastness was.
Scale is what was needed, and the invented, innovated and adapted the Capital Markets to achieve Scale.
Today, for the most part, the challenges of Scale have been met and mastered. We live today in an economy that already operates on a global scale. But it also operates within global limits. We have traveled to the ends of the Earth, and discovered that they fold back in upon themselves. We have ventured out into Space and found that there is nothing really out there for us.
We have the Earth, and it is well and truly ours, but it is all we have.
This is a new experience, not only for us, but for all Mankind. Always, until now, there has been a Physical Frontier, a place beyond the bounds of what is known into which we could expand, endlessly, as our fathers and our forefathers have expanded for time beyond memory. Today, there is no place to go. We are here, and this is where we must be.
Scale is still important, but it must be scale within limits. The Capital Markets were not built for this. The Capital Markets were built for scale without limit. Increasingly, as we encounter this new reality of global scale within global limits, we also encounter the limits of the design criteria for the Capital Markets: they are not built to see the limit. So, the only way they ever find it, is to go beyond it, driving choice and action that is not sustainable.
The Capital Markets are losing their integrity, but it is not because we are not using them correctly. It is because, increasingly, we are not using authentically.
If we think with those economic thinkers who want to define economic truth as an adaptive process, we can imagine the limits of choice available to actors within any given set of circumstances. These circumstances can be imagined as six related domains for choice and action.
There is a domain of technology, and the technical capacity to shape things as we find them to arrange them the way we want them.
There is a domain of economy, and the commercial capacity to exchange artifacts of our technology with artifacts of other technology, to increase the wealth of choices we have available to us, overall, as a group.
There is a domain of society, and the emotions of caring and concern that bind us together as a community of shared interest, with a common commitment to the completion of the same work.
There is a domain of politics, and the ability to agree to rules for resolving conflicts over the personal use of shared spaces.
There is a domain of integrity, and the unity of action, expression and intention.
There is a domain of authenticity, and the ground that is both the source and the limit of experience.
The authenticity of the Capital Markets is as a pattern or paradigm for prosperity within an experience of scale without limit. When applied to perpetuate our prosperity within the new experience of scale within limits, the pattern loses its ground. It becomes unstable and unreliable. It's not that it is wrong, so much as that it just is no longer a good fit.
The symptoms of this inauthenticity appear as lack of integrity. Without a solid ground, the pattern slips and cracks. Instead of the promised prosperity of open-ended expansion, we get booms that always, eventually, go bust.
Many economic activists are interpreting this lack of integrity in the Capital Markets as the symptom of a social problem. Such movements as Investor Activism, Socially Responsible Investing, EGS, Impact Investing and Social Entrepreneurship see the problem as bad behavior, and the solution in reprimanding and restraining miscreant actors. This problem certainly does have social consequences, but the problem itself is not social. The real problem is one of authenticity.
We need to build a more authentic solution.
The search for scientific predictability and precision engineering is seen as driving Economics in what is seen as a vain pursuit to investigate and illuminate the patterns and paradigms that can guide us in perpetuating our prosperity through the construction of mathematical models that do not and cannot capture the real dynamics of economic activity.
Instead, it is argued that reference should be had to life sciences to model human actors in an evolutionary process of adaptation to changing circumstances.
Paralleling this debate among economic thinkers about the right way to look for economic truth is a practical debate among economic activists about the right way to legislate for prosperity.
Unifying both debates is a shared sense that the Capital Markets are not working quite the way we need them to. Misaligning the two debates is a difference in method. Economic thinkers are asking, "what is wrong with Economics?". Economic activists are asking, "what is wrong with People?"
In my view, both are the wrong question.
Better results will be obtained if we respect the authenticity of the Capital Markets as an ecosystem for value creation, capital formation and wealth distribution that is built on place-based technologies for invention, innovation, information and communication.
These place-based solutions for driving the flow of money through the economy were first adapted in America, in the 19th Century, to meet the needs of Industrial Expansion into a Western Frontier that was so large as to appear limitless. There always was a limit. We knew that. We had reached and mapped it. It was just that the open spaces within those limits were so vast, that the limit was not really that important. The vastness was.
Scale is what was needed, and the invented, innovated and adapted the Capital Markets to achieve Scale.
We have the Earth, and it is well and truly ours, but it is all we have.
This is a new experience, not only for us, but for all Mankind. Always, until now, there has been a Physical Frontier, a place beyond the bounds of what is known into which we could expand, endlessly, as our fathers and our forefathers have expanded for time beyond memory. Today, there is no place to go. We are here, and this is where we must be.
Scale is still important, but it must be scale within limits. The Capital Markets were not built for this. The Capital Markets were built for scale without limit. Increasingly, as we encounter this new reality of global scale within global limits, we also encounter the limits of the design criteria for the Capital Markets: they are not built to see the limit. So, the only way they ever find it, is to go beyond it, driving choice and action that is not sustainable.
The Capital Markets are losing their integrity, but it is not because we are not using them correctly. It is because, increasingly, we are not using authentically.
There is a domain of technology, and the technical capacity to shape things as we find them to arrange them the way we want them.
There is a domain of economy, and the commercial capacity to exchange artifacts of our technology with artifacts of other technology, to increase the wealth of choices we have available to us, overall, as a group.
There is a domain of society, and the emotions of caring and concern that bind us together as a community of shared interest, with a common commitment to the completion of the same work.
There is a domain of politics, and the ability to agree to rules for resolving conflicts over the personal use of shared spaces.
There is a domain of integrity, and the unity of action, expression and intention.
There is a domain of authenticity, and the ground that is both the source and the limit of experience.
The authenticity of the Capital Markets is as a pattern or paradigm for prosperity within an experience of scale without limit. When applied to perpetuate our prosperity within the new experience of scale within limits, the pattern loses its ground. It becomes unstable and unreliable. It's not that it is wrong, so much as that it just is no longer a good fit.
The symptoms of this inauthenticity appear as lack of integrity. Without a solid ground, the pattern slips and cracks. Instead of the promised prosperity of open-ended expansion, we get booms that always, eventually, go bust.
Many economic activists are interpreting this lack of integrity in the Capital Markets as the symptom of a social problem. Such movements as Investor Activism, Socially Responsible Investing, EGS, Impact Investing and Social Entrepreneurship see the problem as bad behavior, and the solution in reprimanding and restraining miscreant actors. This problem certainly does have social consequences, but the problem itself is not social. The real problem is one of authenticity.
We need to build a more authentic solution.
Tuesday, May 22, 2012
Building an Ecosystem of EGS Investing
Yesterday's Inbox included a news update from the Network for Sustainable Financial Markets, promoting an article by Raj Thomotheram and Maxime Le Floc'h on "preventable surprises". It is published in the May issue of the Rotman International Journal of Pension Management.
In the article, the authors lay out a 6 point plan for Institutions to follow in building EGS into their investment practices. It is hard to think of a point they missed, except for this: there is an architectural flaw in the solutions they propose.
Sometimes in life it is good to live in the moment, figuring things out as we go along, moment-to-moment. Other times, it's better to do a little forward planning.
Our Capital Markets are architected to operate in the moment. EGS plans ahead.
Do you see the disconnect?
The answer we need to resolve this conundrum can be found in the work of Hazel Henderson at Ethical Markets. Hazel is on a mission to get Institutions to invest some portion of their portfolios directly into Enterprise, rather than investing indirectly, through the Capital Markets.
Direct investing will give EGS the running room it needs to plan ahead, but direct investing will not work without one other innovation.
The Capital Markets provide Investment with only one strategy for realizing returns: selling out. It's a buy-low, sell-high ecosystem.
Selling out is inconsistent with EGS. EGS investors have to stay in, and make their money by sharing in the profits of the Enterprises they are invested in, as and when those Enterprises earn their profits, by delivering value to their commercial counter parties.
Direct investing and revenue sharing. These are the twin pillars of a sustainable ecosystem of EGS investing.
Hazel cautions that making the shift to direct investing will require re-training the entire profession of institutional investment managers. But maybe we don't have to re-train everybody. Maybe it will be enough if we just support the emergence of a new breed of investment professionals, professionals trained in a new EGS ecosystem built on direct investing and revenue sharing.
These professionals will have to compete with the Capital Markets for dollars to invest. And they will have to compete for Enterprises to invest in.
This may be a good thing. Competition may be better than regulation for achieving the goals of EGS.
In the article, the authors lay out a 6 point plan for Institutions to follow in building EGS into their investment practices. It is hard to think of a point they missed, except for this: there is an architectural flaw in the solutions they propose.
Sometimes in life it is good to live in the moment, figuring things out as we go along, moment-to-moment. Other times, it's better to do a little forward planning.
Our Capital Markets are architected to operate in the moment. EGS plans ahead.
Do you see the disconnect?
The answer we need to resolve this conundrum can be found in the work of Hazel Henderson at Ethical Markets. Hazel is on a mission to get Institutions to invest some portion of their portfolios directly into Enterprise, rather than investing indirectly, through the Capital Markets.
Direct investing will give EGS the running room it needs to plan ahead, but direct investing will not work without one other innovation.
The Capital Markets provide Investment with only one strategy for realizing returns: selling out. It's a buy-low, sell-high ecosystem.
Selling out is inconsistent with EGS. EGS investors have to stay in, and make their money by sharing in the profits of the Enterprises they are invested in, as and when those Enterprises earn their profits, by delivering value to their commercial counter parties.
Direct investing and revenue sharing. These are the twin pillars of a sustainable ecosystem of EGS investing.
Hazel cautions that making the shift to direct investing will require re-training the entire profession of institutional investment managers. But maybe we don't have to re-train everybody. Maybe it will be enough if we just support the emergence of a new breed of investment professionals, professionals trained in a new EGS ecosystem built on direct investing and revenue sharing.
These professionals will have to compete with the Capital Markets for dollars to invest. And they will have to compete for Enterprises to invest in.
This may be a good thing. Competition may be better than regulation for achieving the goals of EGS.
Friday, May 18, 2012
Circulating Wealth
I was made aware yesterday, through an email from the group Wealth for the Common Good, about a petition being circulated through Change.org calling on TED Talks to publish a talk given by Nick Hanauer on the subject of fairness in tax policy.
Nick is apparently a wealthy man who wants to be heard to say that he, as a member of the class we would call rich, does not believe that the rich should not be taxed because they create jobs. His argument, as I follow it, is that jobs are created when money gets spent in the economy to buy goods and services, and that if wealth is not spread out broadly enough, then there is not enough energy in the economy to support the vigorous buying and selling that makes us all, more or less, rich.
TED has declined to publish Nick's talk, claiming that it is too "political".
The issue of collecting taxes to support public expenditure is always fraught with emotion. First, there is the sense of invasion by the government into our personal lives. Then, there is concern about waste, inefficiency, even tyranny, in the governmental expenditure of private wealth. Always, it is supposed to be for the common good, but reasonable minds can differ about what is "common" and what is "good". Then, there is the sense that we earned our money, and we should be free to decide how we want to spend it. All important concerns, that need to be given voice and expression. But if emotion is allowed to carry the day, will all the voices get heard?
As a self-described "non-credential economic thinker applying the methods of other disciplines" (Institute for New Economic Thinking, "30 Ways to Be an Economist"), I think there is a less politically charged, more analytically based method for framing the discussion that might move the debate into a more congeal, less hostile, direction. To be sure, we can never remove the political energy of such a personal and emotionally charged issue, but maybe we can at least discuss it without resort to arguments based on demonization, and what the Ancient Greeks (who invented popular democracy) diagnosed as the logical fallacy of ad hominem attacks.
My point is this. Wealth is created through the concentration of some subset of the collective resources of a community/society (the difference being only of scale) to provide choices to a larger subset of that community/society about how it wants to live, and be well. This wealth must circulate through the community/society, if its economy is to remain prosperous and vital.
The question is, or should be, then, What is the proper way for our wealth to be circulated, in order to keep our economy prosperous?
Reasonable minds can differ as to the answer to this question, and in the end, it will likely have to be decided by popular vote, as science probably cannot give us a mathematically correct, objective answer.
Hopefully, most of those votes will be cast by people as an expression of their considered view of what is best for them and theirs, in the context of the larger community and economy of which we are all a part, and on which we all depend, each for our own personal prosperity.
Consideration means "side by side". We cannot consider rightly if we are not shown all sides.
Tim
Nick is apparently a wealthy man who wants to be heard to say that he, as a member of the class we would call rich, does not believe that the rich should not be taxed because they create jobs. His argument, as I follow it, is that jobs are created when money gets spent in the economy to buy goods and services, and that if wealth is not spread out broadly enough, then there is not enough energy in the economy to support the vigorous buying and selling that makes us all, more or less, rich.
TED has declined to publish Nick's talk, claiming that it is too "political".
The issue of collecting taxes to support public expenditure is always fraught with emotion. First, there is the sense of invasion by the government into our personal lives. Then, there is concern about waste, inefficiency, even tyranny, in the governmental expenditure of private wealth. Always, it is supposed to be for the common good, but reasonable minds can differ about what is "common" and what is "good". Then, there is the sense that we earned our money, and we should be free to decide how we want to spend it. All important concerns, that need to be given voice and expression. But if emotion is allowed to carry the day, will all the voices get heard?
As a self-described "non-credential economic thinker applying the methods of other disciplines" (Institute for New Economic Thinking, "30 Ways to Be an Economist"), I think there is a less politically charged, more analytically based method for framing the discussion that might move the debate into a more congeal, less hostile, direction. To be sure, we can never remove the political energy of such a personal and emotionally charged issue, but maybe we can at least discuss it without resort to arguments based on demonization, and what the Ancient Greeks (who invented popular democracy) diagnosed as the logical fallacy of ad hominem attacks.
My point is this. Wealth is created through the concentration of some subset of the collective resources of a community/society (the difference being only of scale) to provide choices to a larger subset of that community/society about how it wants to live, and be well. This wealth must circulate through the community/society, if its economy is to remain prosperous and vital.
The question is, or should be, then, What is the proper way for our wealth to be circulated, in order to keep our economy prosperous?
Reasonable minds can differ as to the answer to this question, and in the end, it will likely have to be decided by popular vote, as science probably cannot give us a mathematically correct, objective answer.
Hopefully, most of those votes will be cast by people as an expression of their considered view of what is best for them and theirs, in the context of the larger community and economy of which we are all a part, and on which we all depend, each for our own personal prosperity.
Consideration means "side by side". We cannot consider rightly if we are not shown all sides.
Tim
Thursday, May 17, 2012
Rage Against the Machine
A one-time frequent commenter on a blog I follow rejoined the discussion yesterday, with apologies for being away. Several reasons were given for this hiatus, including weariness from trying to engage people in changing the way they think.
They then went on to post a long list of quotes from various sources that added up to, what?
This gave me pause, and reminded me that innovation is dangerous work, not to be undertaken lightly.
We cannot step boldly into the new without first letting go of the old. When the constraints of the old are thus released, all manner of eccentricities are unleashed. Ideas and opinions that long ago were discussed and discarded get resurrected, and have to be rebuffed all over again. Not because we do not like them, but because we know they will not work. We've been through it all before. This is tiresome, but avoidable. We must proceed with patience.
The path to innovation begins with disappointed expectations that build to frustration, at which point, we stand at a critical juncture. On the one hand, we can channel our frustration into quiet contemplation and reflection that leads to inquiry that yields the insights that drive invention, innovation and the evolution of knowledge, work and wealth. This is the true story of our history, and the real engine of our prosperity. On the other hand, we can let frustration built to anger, and anger build to rage.
Albert Einstein teaches us that insanity is doing the same thing, and expecting to get a different result. That explains the rage thing.
Sanity, then, is trying new things, in an effort to get a different result. This is not easy.
Thomas Edison tried 10,000 different solutions, before inventing a light bulb that worked. When asked about all those failures, Edison replied that they were not failures. They they were 10,000 ways in which he successfully learned how not to make a light bulb.
If you pick a new goal, but keep doing the same things, that leads to rage, which is crazy. If you pick a new goal, and then start trying new things, that leads to innovation that is inspiring.
Sometimes, along the way, we have to re-consider some of the ways that we already know will not work.
Tedious, but unavoidable.
They then went on to post a long list of quotes from various sources that added up to, what?
This gave me pause, and reminded me that innovation is dangerous work, not to be undertaken lightly.
We cannot step boldly into the new without first letting go of the old. When the constraints of the old are thus released, all manner of eccentricities are unleashed. Ideas and opinions that long ago were discussed and discarded get resurrected, and have to be rebuffed all over again. Not because we do not like them, but because we know they will not work. We've been through it all before. This is tiresome, but avoidable. We must proceed with patience.
The path to innovation begins with disappointed expectations that build to frustration, at which point, we stand at a critical juncture. On the one hand, we can channel our frustration into quiet contemplation and reflection that leads to inquiry that yields the insights that drive invention, innovation and the evolution of knowledge, work and wealth. This is the true story of our history, and the real engine of our prosperity. On the other hand, we can let frustration built to anger, and anger build to rage.
Albert Einstein teaches us that insanity is doing the same thing, and expecting to get a different result. That explains the rage thing.
Sanity, then, is trying new things, in an effort to get a different result. This is not easy.
Thomas Edison tried 10,000 different solutions, before inventing a light bulb that worked. When asked about all those failures, Edison replied that they were not failures. They they were 10,000 ways in which he successfully learned how not to make a light bulb.
If you pick a new goal, but keep doing the same things, that leads to rage, which is crazy. If you pick a new goal, and then start trying new things, that leads to innovation that is inspiring.
Sometimes, along the way, we have to re-consider some of the ways that we already know will not work.
Tedious, but unavoidable.
Tuesday, May 15, 2012
Tomorrow: Today, only Later
When I was young, my parents taught me not to waste time
worrying about things I can’t really do anything about. Focus on today, and take
care of tomorrow, tomorrow.
As I grow older, I am learning that like all good advice, this should not be taken too literally.
We live today in a large, complex economy that delivers a
tremendous diversity of choice to an enormous number of people as to how we
want to construct our lives to live well, as we each define "living well".
In such a large economy, “today” sometimes extends out over many, many
tomorrows. Decisions made in the
short term can have important consequences in the long run, not just for some
distant posterity, but for ourselves, as well.
Moreover, our modern economy spans the Globe. We have traveled to the ends of the
Earth, and found that they close back in upon themselves. We have left the Earth, and traveled
into Space, where we have found that there is pretty much nothing out there for us,
at least not within the limits of Space and Time that we can travel using
technologies that are available to us today (or can reasonably be expected to
become available over any number of nearby tomorrows).
So, our economy has to operate on a global scale, but also within global limits, at least until we can invent technologies that will allow
us to cross the vast expanses of Space and Time that right now separate us from
any other possibilities that might exist elsewhere in the Universe.
This raises questions that are to a large extent without
historical precedent; questions we are confronting for the first time in history, about: sustainability in our supplies of
Energy; the adverse impact our activities have on the Environment; and the sustainability of our prosperity and the proper working of our Economy,
generally.
It is beyond my mandate to persuade others that these
concerns are important challenges for today
that cannot be put off until tomorrow.
But for those who agree with me that will be better if we do
not wait, it is my mission to show the way to making a new choice that is
better adapted to building sustainability and shared values into the connection
between Enterprise and Investment.
This, in itself, won't solve all the issues surrounding sustainability, but it will enable us to more effectively pursue the many other innovations and adaptations that will.
Tim
Monday, May 14, 2012
A Challenge to Institutional Investment
In a prior post, I offered a challenge to Economics to develop a reliable set of tools that can provide an early warning when the effervescence in the Capital Markets is getting too far removed from the underlying value creation in the commercial markets.
Such tools would support regulation to prevent the financial system from episodically crashing our economy.
Today, I want to look at the other possible solution to this vexing problem of booms-that-always-go-bust: competition.
Here, the people in the best position to take meaningful action are the Institutions that have emerged as the new stewards of our private wealth: Insurance, Endowments, Pensions and Annuities.
The challenge offered to these Institutions is to construct new choices for directing Investment directly into Enterprise; new choices that can provide a real alternative to investing indirectly, through the Exchanges that are popularly referred to as the Capital Markets.
This does not need to be a high-risk leap into a New Frontier. It can be a measured extension of the tried and proven architecture of Institutional Investment Partnerships into new domains.
Partnerships have long been standard practice in Institutional Real Estate. They are usual and customary in the increasingly popular asset class of Energy and Infrastructure Project Finance. They are the only way to do tax benefit monetization transactions that are a highly specialized, but widely recognized and generally accepted, form of Institutional Investment. They are commonly used in large leasing deals, where multiple investors must be assembled, as co-investors, to complete any exceptionally large financing. They are even the current solution of choice by which many, if not most, Institutions direct investment into the Exchanges. Managed Funds. Venture Funds. PE Funds. Hedge Funds. All these Funds that aggregate money for Institutions to fund different trading strategies executed over different Exchanges within the larger ecosystem of the Capital Markets, are organized and operated as Institutional Investment Partnerships.
These Funds convert cash flows expected to be generated in the commercial markets into financial assets that then can be traded as commodities, at a price, over an Exchange. In some cases, these Funds even construct financial assets based on other financial assets that are many times removed from cash flow expectations at the level of commercial exchange. Having converted cash flows into asset prices on the "buy" side, they then re-convert asset prices back into cash flow, on the "sell" side, in order to pay returns to their Investor Partners (aka LPs; mostly selling to other Funds buying for the benefit of other [the same?] Institutional LPs). All of this buying and selling between Fund Managers managing money for what is essentially the same universe of Institutional Investors, is a large part of what causes the Markets to bubble, and from time to time, to burst.
Why do all this converting and trading? Why not just invest directly into commercial value creation?
This is exactly what the Institutional Investment Partnership architecture can do, if the partnership is organized directly between Enterprise and Investment, without the intermediation of an Exchange.
This would be a new choice that promises to be better-adapted to building sustainability and shared values into the connection between Enterprise and Investment. It offers more transparency, a more complete alignment of interest between Enterprise and Investment, a more programmatic strategy for realizing Investment returns that can align more programmatically with the underlying programmatic investing goals of many, if not most, such Institutions. It is more stable, and more authentic, because it is direct.
To be sure, there will be some new learning to be done, but the basic patterns are already worked out and well understood. They just need to be applied in a wider range of commercial circumstances.
As this learning gets done, and a broader experience base is built up, these Institutions will have more choice: invest directly in Enterprise; or indirectly, through the Exchanges. Which they choose will depend on where they get the better deal, both immediately and over the longer term.
But somebody has to make the first move.
Such tools would support regulation to prevent the financial system from episodically crashing our economy.
Today, I want to look at the other possible solution to this vexing problem of booms-that-always-go-bust: competition.
Here, the people in the best position to take meaningful action are the Institutions that have emerged as the new stewards of our private wealth: Insurance, Endowments, Pensions and Annuities.
The challenge offered to these Institutions is to construct new choices for directing Investment directly into Enterprise; new choices that can provide a real alternative to investing indirectly, through the Exchanges that are popularly referred to as the Capital Markets.
This does not need to be a high-risk leap into a New Frontier. It can be a measured extension of the tried and proven architecture of Institutional Investment Partnerships into new domains.
Partnerships have long been standard practice in Institutional Real Estate. They are usual and customary in the increasingly popular asset class of Energy and Infrastructure Project Finance. They are the only way to do tax benefit monetization transactions that are a highly specialized, but widely recognized and generally accepted, form of Institutional Investment. They are commonly used in large leasing deals, where multiple investors must be assembled, as co-investors, to complete any exceptionally large financing. They are even the current solution of choice by which many, if not most, Institutions direct investment into the Exchanges. Managed Funds. Venture Funds. PE Funds. Hedge Funds. All these Funds that aggregate money for Institutions to fund different trading strategies executed over different Exchanges within the larger ecosystem of the Capital Markets, are organized and operated as Institutional Investment Partnerships.
These Funds convert cash flows expected to be generated in the commercial markets into financial assets that then can be traded as commodities, at a price, over an Exchange. In some cases, these Funds even construct financial assets based on other financial assets that are many times removed from cash flow expectations at the level of commercial exchange. Having converted cash flows into asset prices on the "buy" side, they then re-convert asset prices back into cash flow, on the "sell" side, in order to pay returns to their Investor Partners (aka LPs; mostly selling to other Funds buying for the benefit of other [the same?] Institutional LPs). All of this buying and selling between Fund Managers managing money for what is essentially the same universe of Institutional Investors, is a large part of what causes the Markets to bubble, and from time to time, to burst.
Why do all this converting and trading? Why not just invest directly into commercial value creation?
This is exactly what the Institutional Investment Partnership architecture can do, if the partnership is organized directly between Enterprise and Investment, without the intermediation of an Exchange.
This would be a new choice that promises to be better-adapted to building sustainability and shared values into the connection between Enterprise and Investment. It offers more transparency, a more complete alignment of interest between Enterprise and Investment, a more programmatic strategy for realizing Investment returns that can align more programmatically with the underlying programmatic investing goals of many, if not most, such Institutions. It is more stable, and more authentic, because it is direct.
To be sure, there will be some new learning to be done, but the basic patterns are already worked out and well understood. They just need to be applied in a wider range of commercial circumstances.
As this learning gets done, and a broader experience base is built up, these Institutions will have more choice: invest directly in Enterprise; or indirectly, through the Exchanges. Which they choose will depend on where they get the better deal, both immediately and over the longer term.
But somebody has to make the first move.
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