The Country HOA and other Control Stories

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Mark Kahn
Mark Kahn
10 months ago

Several years back – “Go Anywhere” bond funds were popular (management companies were bringing them and wire-houses were approving them). On Rusty’s list, I see a “Go Anywhere” bond fund hitting #1 and #2 perfectly and scraping #3.

The problem large firms with robust due diligence processes had was not with the funds, but finding a way to fit them into their assets allocation models to get approval (the FAs wanted them and the committees – they can only buck the FAs, who make the money, so many times – wanted to approve them).

Since the FAs wanted them, the asset allocation and risk committees found a way and shoved them into an alt or opportunist bucket – or similar gimmick – even knowing that most FAs would use them more broadly for their clients’ fixed income exposure, which, owing to the wide variety of investments in the funds, didn’t really meet the asset allocation model’s fixed income bucket’s requirements.

So, one, “Go Anywhere” funds are “Control Stories.” But also – and maybe more interesting / revealing – how “Go Anywhere” funds got approved shows how firms’ oh-so-important “due diligence” processes and “asset allocation” models are like the gates at Rusty’s parents’ HOA – effectively, firms’ due diligence processes and asset allocation models are just more Control Stories.

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