That new pension investment paradigm

This is at the P³, not by:

It is a mistake to seek to understand a new paradigm with reference to concepts belonging to another. The current paradigm concerning investment places “valuation of assets” at the centre of its thinking. No investment is undertaken without first trying to calculate what it would be worth when sold at some future point. It is built on the foundations of asset trading – in other words “investment” as speculation on the future value of an investment as a “financial asset”. Our pension funds and how their capital is invested are governed by this failing paradigm.

The EDP investing paradigm is not in the least bit concerned with calculating a value of the investment as a tradable asset since the motivation for it is not to sell it – the motivation is to maximise the cash flow generated by the investment and liquidate it only where the enterprise which is the subject of the partnership fails to deliver the revenues that were planned for at the outset. Whatever can be realised by liquidating the enterprise in such a scenario cannot be calculated in advance – it is just a factor within the overall risk profile attached to this form of investing. The EDP proposition does not pretend that there is no risk – of course there is – but it is enterprise based risk rather than financial market and tradable asset price risk – such risks are generally well understood by folk who know how to run a business. That means that the current population of “asset manager” and other financial intermediaries are not equipped to fulfill the roles that EDP investing will demand.

The value of the asset is that net present value of the future cashflows. So what is this about new paradigms?

Although, of course, the P³ is going to have problems accepting the net part there.

3 thoughts on “That new pension investment paradigm”

  1. The Murphy fan does not know what he is talking about (what a surprise!). The strategy of well-managed Pension Funds has always been (and that of Financial Advisers with individual clients’ pension funds increasingly is) to invest in assets so as to, as far as is possible, match cash outflows by anticipated (“expected”) cash flows from investments, ignoring any future short-term volatility in asset prices.
    Buying and selling individual investments when their prices have become misaligned with subjective valuations is mere tactics.

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