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The Shift In-House Continues

More and more Giants are investing on a direct basis, which I think is a very good thing… at least when it's done with proper governance.

A growing number of Giants are "flying solo" and "dodging wall street" in a bid to reduce investment related costs and fees as well as shrink the principal-agent problems that seem to drive short-termism. Everywhere I look these days in-house asset management is being lauded. Those with in-house capabilities are perceived as models, while those without in-house capabilities view their own investment operations as a "travesty".

The latest article on the subject of direct investing comes from our very own Loch Adamson and II Magazine. It’s very good; with some of the top funds weighing in on their motivation and experience with in-sourcing. As such, it’s well worth your taking the time to read it (...especially the part where I apparently say, "goodness me" in a non-joking way. Really, Loch?).

Anyway, in 2009 I gave a presentation to a handful of large institutional investors that made a fervent case for in-sourcing. I argued that in the wake of the financial crisis there was no better time to begin developing in-house capabilities because the Boards that hold the purse strings over these funds operations would undoubtedly give the managers a bit more slack.

I was taken out to the woodshed.

But I didn't give up. Instead, I launched a research project on direct investing.

So, if any of this is really of interest, you can read some of the work we’ve done at Stanford and Oxford on in-sourcing here, here, here, here, here, here, and here... oh and here too. As you'll see from all of this work, direct investing is not easy. But when it's done with the right governance, it can drive remarkable outcomes.

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