Pffft….it’s only $275 million

When a sovereign wealth fund or something that resembles a similar description loses (writes down) $275 million in crypto related (FTX) investment, why doesn’t the investment team involved in that decision, CIO and perhaps all lose their jobs?

Maybe they should pay as much of it back from their personal funds?

Of course that wouldn’t happen, for no one will work for any investment fund along with a bunch of other sensible reasons and arguments, including they wouldn’t take any future risk at all.

But I want to ask why do we then laud them as extraordinary investors or exemplary stewards (irrespective if it’s public or government) money?

Partly, because their returns tend to be quite good and sheer size affords them better terms than the rest, which is an advantage that any of us would gladly accept.

Is it because they can hide behind the idea that it only accounts for 0.05% of their total assets under management?

Is it because of one’s size that allows you to produce better returns than many because a (potential asymmetric) bet of $275 million is only 2 days worth of return which is recoverable over one year.

And it’s only equal to 1 day worth of your average annual return spread it out over 2 years.

Can you imagine championing an investment which loses $275 million?

It just doesn’t seem to matter…..

it doesn’t matter if a Swiss wealth management firm posts a $4 billion loss yet people entrust them to manage their money, when they can’t manage their own company…..

nor does it matter when a investment bank blows $744 million backing a hedge fund called Archegos…..

or when an Australian bank is ordered to pay $1.3 billion in fines and the other is penalised $600 million over breaching anti-money laundering rules.

We just all accept this as OK……because none of the people involved own the business nor is it their money.

November 17, 2022

by Rob Zdravevski

rob@karriasset.com.au