The Mandate Comes First

One of the more enduring rewards of this year’s ALTSLA, once again, was the people.

The quality of the conferences is usually assessed by the quality of their panels, the relevance of the themes, or the prominence of the speakers. All of that matters. But what stays with me most is usually the less formal part — the conversations between sessions, the chats over coffee, the passing comments that turn into more substantive discussions. For all the attention this industry gives to ideas, it is people who ultimately shape them.

That was on my mind as I rode the train from Los Angeles to San Diego after the conference, enjoying the improbably warm weather compared with the East Coast. Over time, ALTSLA has become something of an annual ritual, and the two days of rest that follow it have become part of that rhythm as well — an opportunity to step away from the noise, reflect, and reset.

Looking out at the ocean, I found myself returning to a question that strikes me as basic, but not basic enough in practice: where does institutional investing actually begin?

The obvious answer might be with markets — with valuation, opportunity, dislocation, or some new source of return. But I think that is often where confusion begins. Institutional investors are surrounded by persuasive narratives: compelling opportunities, fashionable terminology, and the ever-present pressure not to miss what others appear to have already seen. In that environment, it is easy to begin with what looks attractive rather than with what is appropriate.

And yet the true starting point of institutional investing is not the opportunity set. It is the mandate.

Before discussing what makes a good investment, it is worth asking a more fundamental question: what is the fund for? Investment philosophy should be shaped by institutional purpose. Strategy should follow from the mandate. A pension fund exists for one reason, an endowment for another, a foundation for another still. Even within insurance, life companies and property and casualty insurers are solving for different obligations, time horizons, and risk tolerances. These differences are not technical footnotes. They are the foundation of sensible portfolio design.

I sometimes tell colleagues that they should meet — or at least actively think about — the beneficiaries they serve. That is particularly true in pensions. The purpose of a pension fund is not simply to earn returns in the abstract. It is to provide retirement security, so that beneficiaries can get on with their working lives without carrying unnecessary anxiety about the future. In that sense, many defined benefit pension plans, particularly public ones, are among the clearest examples of purpose-driven institutions.

And yet much of the language of investing remains benchmark-driven rather than mandate-driven. Benchmarks are useful, necessary even, but they are ultimately tools. A mandate determines the institution’s real risk: what matters, what can be endured, and what cannot. It is the mandate that gives meaning to asset allocation, liquidity management, and risk-taking. A risk that is relatively unimportant for a pension plan may be central for a property and casualty insurer. The same asset can play a very different role depending on the institution that holds it.

Not long after, that thought came back in conversation with one of my fellow panellists. We ended up talking about the mandate and why it matters to start with the institutional purpose. It is surprisingly easy for investment conversations to move straight to opportunities without first asking what the institution is actually there to do. I was struck by how quickly the conversation moved beyond markets and into first principles. That, in itself, felt reassuring. It suggested that beneath the noise of the industry, there remains a serious appetite for asking the right questions in the right order.

So perhaps the train ride, the ocean view, and the time spent thinking were not a detour from the conference at all. Perhaps they were a continuation of its most worthwhile part.

If there is a conviction I return to more and more, it is this: institutional investing should not begin with the question, ‘What is a good opportunity?’ It should begin with the question: “What are we here to do?”

This is probably where the blog begins for me: institutional investing makes the most sense when it starts with a mandate, with a purpose, and with a clear sense of who the money is there for — not with whatever happens to be in vogue.