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Page 1 of 3  On May 25th, 2010, respected academic and ex-financier Paul Woolley gave a seminal lecture at the London School of Economics. He laid out policies designed to dramatically increase investment returns of the world’s biggest public pension and charitable funds combined with such social gains as more financial system stability, faster economic growth, and a less bloated and less exploitive banking and financial system .Although targeted at giant funds, you should become familiar with the manifesto since, in our opinion, several aspects could also help individual investors in managing their own portfolios.
Introduction
Dr. Wooley (Ph. D. from York University) is a former head of the International Monetary Fund’s investment and borrowing activities, founder of the UK arm of the investment management firm Grantham, Mayo, van Otterloo & Co., a former Barings Brothers executive and currently the Senior Fellow at the London School of Economic. A man of convictions, Woolley is investing £4m of his personal fortune into the Paul Woolley Centre for the Study of Capital Market Dysfunctionality at the London School of Economics (LSE) and Toulouse University. http://www.lse.ac.uk/collections/paulWoolleyCentre/
His May 25 speech, characterized by the presenter as nothing but controversial, is titled ‘A manifesto for giant funds: resolving the dysfunctionality of finance’.What follows is a summary prepared after listening to the mp3 broadcast (it can be heard by clicking here, or by going to the podcasts section of LSE site ).
The 10-point Manifesto
The heart of the presentation is a 10 point memorandum targeted at what he calls giant funds, the custodians of social wealth, which he defines as sovereign funds, corporate and public pension funds and university foundations and endowments. Woolley’s thesis is that these giant funds have become unwittingly complicit in the creation of a vast unstable monster that the global financial system has become.
The 10 points for giant funds are as follows:
- 1
Adopt long-term investment approach (future dividend flows), rather than momentum (short-run price change)
- 2
Cap annual turnover of portfolios at 30%
- 3
Understand that all tools now used to manage risk and return are based on the discredited theory of efficient markets
- 4
Adopt a stable benchmark such as growth of GDP plus a risk premium
- 5
Not pay performance fees
- 6
Not engage in alternative investments – Hedge funds, Private
 equity, Commodities
- 7
Insist on total transparency of agents' strategies
- 8
Ensure everything in the portfolio is traded on a public exchange
- 9
Secure full transparency of banking service costs incurred by companies you invest in
- 10
Provide full disclosure of compliance with these policies
Emphasis has been added above to highlight those points of most relevance to individual investors. Before analyzing them, here is an overview of Woolley’s presentation. Readers not interested in Woolley’s analysis can skip the next section.
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