Capital Allocators – Inside the Institutional Investment Industry WTT – The Impermanence of Permanent Capital
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Jun 24, 2023 Dive into the intriguing world of permanent capital vehicles! Discover the advantages of closed-end funds for asset managers, while uncovering the paradox of their supposed permanence. The discussion highlights how organizational dynamics and market changes can challenge the stability of these investment strategies. It's a fascinating exploration of how even the most seemingly solid concepts can face unexpected hurdles.
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Yale's Bond Portfolio and GVT
- In 1994, Ted Seides managed Yale's bond portfolio and sought discounted securities like the Morgan Stanley Government Income Trust (GVT).
- GVT, a closed-end fund with U.S. government-backed securities, traded at a 10% discount, exemplifying permanent capital vehicles.
Permanent Capital Vehicles: A Manager's Dream
- Closed-end funds, a type of permanent capital vehicle, offer no redemption rights; investors trade shares on exchanges for liquidity.
- Permanent capital is ideal for managers, allowing long-term focus without liquidity concerns, unlike other strategies.
Permanent Capital and Institutional Investors
- Permanent capital vehicles align with long-term institutional investors like universities, foundations, and pension funds.
- Matching asset duration with long-term liabilities optimizes return potential for these investors.