The Memo by Howard Marks A Look Under the Hood
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Oct 28, 2025 Howard Marks delves into the complexities of investment decisions faced by a state pension fund's board. He explains the balance of risk attitudes and real-world preferences. The discussion highlights the importance of long-term actuarial goals over short-term comparisons. Marks challenges the emphasis on volatility, suggesting true risk lies in permanent loss. The episode also covers the significance of assessing performance across entire market cycles, and how staff turnover can signal issues within investment operations. Engaging insights wrapped in rational inquiry!
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Risk Posture Is Two-Dimensional
- Board risk posture equals a mix of financial capacity and willingness to bear risk.
- The consultant's two-by-two matrix clarifies trade-offs between ability and willingness.
Choose Risk Intentionally
- Decide explicitly how much of the plan's allowable risk you will take instead of drifting into implicit positions.
- Accept that choosing conservatism sacrifices some upside but reduces exposure to wide outcome ranges.
Penn Endowment Decision In 2000
- Marks recalls chairing Penn's investment committee in 2000 and resisting a late shift into tech and venture exposure.
- He argued the risk of chasing late-cycle gains outweighed catching up after the fact.
