Paternalistic Overreach

Bill Ackman has been in the news lately for all sorts of things he has opinions about, including the Harvard Management Company's (that the endowment) returns lately. Bloomberg noted that the HMC has only annualized at 8.2% over the last ten years which was almost at the bottom of the Ivy endowment "league tables."

Meb Faber has an ongoing bit poking fun at CalPERS and CalSTERS for how much harder they make managing their respective funds for themselves by allocating a large percentage to very expensive alts and changing their benchmarks far more frequently than you'd expect. Harvard and the other endowments do similar things allocating to expensive alts. The returns used to justify the expense and complexity and I guess Ackman is saying that is no longer the case. 

Managing money that has an infinite time horizon is different than managing for a person's lifetime. I don't know all the differences because that isn't what I do but I know enough to know it is different. That doesn't mean these pools of capital couldn't allocate more than they already do to a few ETFs and chill as I think Meb has put it before. 

If HMC, CalPERS and CalSTERS do have infinite time horizons then I'm not sure why they couldn't allocate to two or three broad based equity ETFs with 90 or 95%, maybe 85%, of their respective funds and leave the rest for cash needs. Usually there is a certain amount that must be paid out every year. As perpetual funds, they would be far less sensitive to market volatility than individuals trying to ensure their money lasts for the duration of their retirement. 

Pivoting, Vanguard is not going to allow its customers to access Bitcoin ETFs. As of this writing, Merrill Lynch was waiting and seeing and UBS thought about it and decided to allow it. This part of today's post has nothing to do with being pro or against Bitcoin. 

Brokerage firms, not Schwab Fidelity or TD that I am aware, used to have a much heavier hand in restricting access to ETFs especially leveraged products. When I side-gigged at AdvisorShares this was an ongoing issue. One of the jobs that the senior people had to take on was trying to make AdvisorShares funds available at what used to be called wirehouse firms like Merrill. I think this is far less of an issue now than it used to be but please comment if I have that wrong.

Based on comments left on various articles and Tweets that I have seen, there are two camps on the Vanguard news. "I'm transferring to Fidelity" but not Schwab per the comments (?), or I agree with Vanguard because it is a Ponzi. There was one comment somewhere that captures my reaction, calling it paternalistic overreach. I commented in a couple of places asking if they also limit access to 2x and 3x ETFs. Did they restrict access to the futures based Bitcoin funds? What about options? Again if you know please comment. 

I am totally on board with an ETF provider (one of many hats Vanguard wears) not wanting to get into this fray as an issuer, the Bitcoin ETF terrordome as Eric Balchunas has been calling it. To the extent Bitcoin does not align with Vanguard's values, which was part of their reasoning for not allowing access to Bitcoin products, then by all means, stay out. There is reputation risk here, Bitcoin could turn out to be complete bullshit and companies like Blackrock (client holding), Invesco and Fidelity (we custody at Fidelity if that needs to be disclosed) would take some hits. Smaller companies like Bitwise and Valkyre, well this is the business they've chosen to paraphrase Hyman Roth.

The portion of my makeup that is Libertarian thinks investors should be free to invest or speculate in whatever they want and own the consequences. Brokerage firms should provide education to those who seek it out and attempt to save people from themselves, like going 100% Bitcoin back when it was above $65,000, but ultimately once the brokerage is insulated from liability, the responsibility falls to the end user. They could put a one sentence disclaimer page up before placing the order, "click yes to acknowledge you understand that Bitcoin could be complete bullshit that goes to zero faster than you can sell." That oughta do it. 

I will be very curious to see if Vanguard can stick with this policy. 

There is nothing wrong with properly sized speculations. Properly sized for your situation. My almost 93 year old mother putting 10% into Bitcoin? No. 5%? I don't know. That seems like a lot but assuming at 93 someone does not have another 20 years, they still have a lot of money and the primary objective at this point is inheritance, maybe. 93 and being borderline running out of money, no percentage. If they have intellectual curiosity, they can spend $20 buying on an app of some sort. 

Someone who is 60 and has enough for their retirement wants to let $5000 ride, sure why not, as long as they realize it might go to zero faster than they can sell. 60, with $1 million will still be able to retire even if tomorrow it drops to $995,000. 

Provide education and then disclaim their liability, yes, repeated for emphasis. Denying access, no, also repeated for emphasis. 

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