Just before I took a week off, I was down in Santiago, Chile for Institutional Investors’ Latin American Government Funds Roundtable. It was a great event; even worth the early ‘80s aviation flash back -- complete with in-seat ashtrays and centralized, ceiling-based projection equipment for general movie viewing -- provided by a certain U.S. airline on my trip down (sigh). Anyway, big props to my colleagues at II who organized the event. It was a ton of fun, and Santiago was lovely.
In terms of over-arching take-ways, I was truly struck by the conservatism of the investment strategies of many of the government funds in the region. For example, who would have thought a discussion about the need to diversify portfolios could inspire so many different views? It did. Who would expect conversations about benchmarks (of any kind) to inspire so much debate. They did. Who would think a fund with 15% of its portfolio invested in equities could be characterized as “aggressive”. One was.
It seemed to me that the government funds in the room were incredibly well designed from a fiscal and monetary perspective; that the rules and frameworks governing the funds’ relationships with their sponsoring governments were remarkably sound.
However, these funds, it seemed to me, were not designed with investing in front of mind. This aspect of the funds’ operations appeared to be secondary considerations, which (I confess) was a bit odd for me (given I spend all my time trying to help institutional investors improve their investment capabilities).
As such, what I left Santiago thinking was that the “Chilean Model of SWFs” (which is a model that is often lauded by other countries) isn’t really a model of institutional investment; it’s instead a model of fiscal prudence and planning.
I’d thus characterize the Chilean Model as a model for how SWFs should plug into governments. But it’s not a model for how SWFs should plug into financial markets and the world of investing. In my humble opinion, that latter model is still best found elsewhere.
Anyway, I do look forward to my next trip down to Santiago. The city is remarkable....
