Reliable and Responsible
Every month. Forever. Like clockwork. Without fail.
That is the promise.
People rely on it.
Society depends on it.
It’s your job to keep it.
What powers do you have with which to keep that promise?
What choices are you making in the exercise of those powers?
What choices can you be making?
What choices should you be making?
The Real Purpose of
Pensions & Endowments
of the World
that we make for ourselves through our transactions in technologies, out of the world of Nature into which we all are born
A safe and dignified house for humanity
Authenticity & Integrity
Architecture & Design
Development & Construction
Maintenance, Renovation, Innovation
Current Fiduciary Practice
Asset Owners Peer Benchmarking Asset Managers
loyalty is to the markets, and the market’s need for Growth and Liquidity so the markets can make money, not to the dignity and security of individuals and society
financing a cascading cavalcade of social failings
- Climate change is dangerous
- Biodiversity loss is dangerous
- Soil death is dangerous
- Booming and busting is dangerous
- Short-termism is dangerous
- Economic elitism is dangerous
- Corporate gigantism is dangerous
- Financial system instability is dangerous
- Retirement system unreliability is dangerous
- Social and environmental unsustainability is dangerous
- Dark Money capture of politics and public discourse is dangerous
- Political divisiveness degenerating towards violence is dangerous
- Institutional inaction is dangerous
The NEW Fiduciary Way
Institutional Fiduciary Owners of Intergenerational Fiduciary Money
Fiduciary minimum cash flows, plus upside, through direct financing of enterprise to shape the economy
Reckoning with the impacts of present choices on future possibilities for living our best lives through technological sufficiency, social equity and habitat longevity in the 21st Century and beyond…
Large + Programmatic + Ongoing = Size + Purpose + Time to use Technology to Negotiate.
WHO can, should and will you use technology to negotiate with?
WHAT can, should and will you use technology to negotiate for?
“current and future retirees [grantees], both, equally”
retirement income security in the future,
in a future that will be worth retiring into
Deploying Fiduciary Money as financing for fiduciary grade social contracts between enterprise and popular choice through fiduciary minimum equity payback/earnback financing agreements negotiated with enterprising visionaries, directly.
The “S” Curve is the pattern that every social contract between enterprise and popular choice traces, from the initialization of positive cash flows to the stabilization of cash flows at scale.
This is a common sense acknowledgement of the universal pattern of flourish and fade that every social contract between enterprise and popular choice manifests, as times change, and humanity innovates prosperous adaptations to life’s constant changes, making new choices, and the enterprises organized to bring those choices to the people, more popular as better fit to changing times (the flourish), while letting previously popular choices, and the enterprises organized to bring those choices to the people, fade into history as a good fit at an earlier time.
This common sense conception of enterprise and the economy is overwritten in the Neoliberal social narrative by The Growth Imperative, that renames the flourish as GROWTH and posits a normal function for enterprise in the economy as endless exponential growth along an historical trend line. Since this function is not at all normal, and is, in actual experience, impossible to sustain, Neoliberalism drives the economy through alternating cycles of boom that always go bust, where the booms get normalized, as Growth, and the busts get exceptionalized as Recession, or when extreme enough a Depression, both of which are rationalized as anomalies that must be corrected so the economy can return to its normal state, of constant Growth.
This theory is held despite the unvarying, universal proof from experience that booms follow busts as night follows day: if there is a boom, then there absolutely will be a bust; every boom is just a bust that has not happened yet.
This irrational belief in Growth as the normal state of enterprise and the economy fills the needs of Market Makers Making Money Making Markets for share price trading, because those markets require growth in share price in order to deliver liquidity to market participants which is essential for the markets to be, and for market makers to make money making markets: no growth, no liquidity; no liquidity, no market participants; no market participants, no markets; no markets, no opportunities for market makers to make money making markets.
It is faithless for Pensions & Endowments to finance enterprise in loyalty to The Growth Imperative, and to market makers making money making markets through The Growth Imperative in reckless disregard for the facts of history, that show us that every boom sooner or later becomes a bust, and that workers and society, to whom Pensions & Endowments owe their loyalty under the law, suffer, sometimes catastrophically, every time a boom goes bust.
Financing an economy of booms-and-busts is a breach of Fiduciary Duty by Fiduciary Money.
Financing fiduciary-grade social contracts between enterprise and popular choice, as they flourish for a time, before fading in the fulness of time, is The Fiduciary Way.
Let’s begin with what is in it for you, as the fiduciary of a pension or endowment, with plenary authority to decide where and how the fiduciary money aggregated into your actuarial risk pool, or endowment equivalent, can, should and will be deployed as financing for enterprise to shape our economy, and the fiduciary duty to exercise that plenary authority prudently, in undivided loyalty to The Pension Promise, or its Endowments equivalent.
The short answer is cash flow.
In sufficient quantities to meet the minimum assumptions made by the actuaries in their design of our actuarial risk pool, or the tax law requirement and other design parameters of your endowment.
The equity payback/earnback method of The Fiduciary Way uses formulas for sharing in free cash flows, after agreed allowances for the reasonable and necessary costs of doing business, applied to modeled expectations for enterprise cash flows to deliver fiduciary minimums within an agreed Base Case, and ongoing participation thereafter as “upside”, to compensate for the flexibility built into the sharing formulas that automatically adjust to actual experience, if and as it deviates from modeled expectations in the Base Case.
The risk in this approach is that the enterprise being financed will not flourish long enough to support the repayment of at least a fiduciary minimum level of cash flows to the financiers. This is a risk that can, of course, be managed by changes to business strategy and operations over time, and form time to time, by the enterprising visionaries organizing the enterprise, in collaboration with (or at least with the concurrence of) their fiduciary financiers (which may include you!).
Below is an Investor Benefit Schedule that illustrates the way in which a formula for sharing may be designed to work within a given set of modeled expectations.
In this illustration, the model runs out 30 years (because this illustration assumes the acquisition of an existing enterprise out of public markets ownership, so that it can continue to operate is a stewardship mode). See Column A.
The financing is modeled as beginning in 2021. See Column B.
The total amount advanced in the financing is $85 Billion. See Column C.
Expected annual revenues are not reflected on this model (Column D), but expected annual cash flows after expenses as modeled are presented in Column E.
This model assumes no debt in the capital stack, and so no allowance for interest (Column F) or principal amortization (Column G).
That leaves Column H, Free Cash Flow to Equity, equal to Cool,e E, Bas Case Cash Flows.
Amounts reflected in Column H as Free Cash Flow to Equity are swept over to the financing at descending percentages as certain pre-agreed performance milsteonse are met. In this illustration:
95% of Free Cash Flow is sept to the financing until a Priority Payback of the orginal amount advanced is realized (a simple return or 1xMOI). See Column I. After that milestone is reached the percentage drops to
90% of Free Cash Flow to a First Preferred Return of 8% (see Column J), then dropping again to
85% of Free Cash Flow to a Second Preferred Return of 9% (Column K), then dropping to an
80% Post-Preference Residual Sharing, that just keeps going, beyond the modeled 30 year terms, indefinitely (see Column L). NOTE this 80% residual share is high, normally we would expect the residual sharing to drop to something more like 20%, and continue at that level indefinitely, as “upside” to the financing.
Column M shows the total amount of cash modeled as being paid over to the financing in each year, as a sum of all amount paid out in the different tranches.
Column N shows the actual sharing in Free Cash Flow each year, stating at 95% and declining as pre-agreed milestones are passed, to 80%.
Column O shows a running total of benefits received less amounts advanced as Cumulative Net Benefits that start out negative and turn positive over time, and agreed financing performance milestones are passed.
Column P report the IRR of cumulative cash flows as of the end of each period, which are negative in the early years and turn positive in the later years, as agreed financing performance milestones are passed, growing to 11% by Year 29, showing an “upside” above the assumed 8% fiduciary minimum from ongoing Post-Preference Residual Sharing (Column L).
Column Q shows a Multiple of Investment (MOI) for each year that starts near zero and grows over the Base Case to 3.91.
To the right of the Investor Benefit Table, detailed above, is a Sinking Fund Calculation that tests for delivery of fiduciary minimum cash flows each year, and full return of the original amount advanced once contributions to the sinking fund total the original amount advanced.
You can see from this how the numbers in a modeled base case can be designed to meet the numerical requirements of the actuarial risk pool for a pension fund, or the endowment equivalent for a university, foundation or other civil society institution.
The physical impacts on the Economy, Nature and Society that these numbers represent can be seen through the physical analysis of the enterprising vision and it operational strategies as reflected in the Dashboard, that summarize where in the physical world of transactions in technologies these numbers are expected to come from.
The analysis begins with a scan of the current structure of the economy, to identify the changes taking place in the changing times that are creating the need on the part of people the represents the opportunity for the enterprise to flourish,
We then proceed to an articulation of the vision of the enterprising visionaries, and their strategy for becoming and remaining popular in the commercial markets they are targeting.
Next, we assess the completeness and cohesiveness of the enterprise in three cardinal dimensions:
- Knowledge – what the enterprise need to know, institutionally, in order to execute its vision;
- Network – who the enterprise needs to be connected to, institutionally, in order to execute its vision; and
- Routines – how and where the enterprise executes the work it needs to execute, institutionally, in order to execute its vision.
Then, we look at the expected pattern of future flourishing based on the popularity of the enterprise in its targeted markets.
This brings us to agreement on line-item allowances in enterprise cost-and-revenue budgets, mediating the tensions between opposites within the enterprise for fiduciary-grade prioritization of cash flows for the six fairnesses:
- Fair Trade in the supply chains;
- Fair Engagement with law, government and community;
- Fair Reckoning with the impacts of business infrastructure and operations on Nature and Society;
- Fair Working conditions and compensation;
- Fair Dealing with customers and competitors in all distribution channels; and
- Fair Sharing between the enterprising visionaries and the continuum of capital.
This agreement on budgeting is where the physical fiduciary duties of Fiduciary Money are honored through these financings.
Budgets feed into modeled expectations that produce Investor Benefits in an Assumed Base Case, as discussed above.
A corollary of the fiduciary minimum equity earnback agreement modeled in the Investor Benefit Schedule is an equity earnback by the enterprising visionaries, as agreed financing performance milestones are passed, and more of the Free Cash flow remans in the enterprise, to be used as the enterprising visionaries may decide, in their discretion. This serves as an incentive and a reward for the enterprising visionaries to pass their agreed financial performance milestones on or ahed of schedule.
An ancillary benefit of this payback/eanback architecture is that it keeps Fiduciary Money focused on the fitter of the economy as right for the changing times, and mot invested in the perpetuation of some out-of-date status quo.
The final step is to write the private laws of negotiated agreement that will give legal meaning and consequences to modeled expectations. These agreements will usually include:
- a legal form of ownership of the enterprise suitable to the investment;
- legal rights to land and other property necessary or appropriate to the conduct of the business;
- commercial contracts appropriate to the enterprising strategy;
- governmental licenses and other permissions, as appropriate;
- required consents from any non-governmental third parties; and
- various opinions of experts on engineering, accounting, legal and other similar matters, as appropriate to the financing.