“No one can serve two masters, for either he will hate the one and love the other; or else he will be devoted to one and despise the other.
-Matthew 6:24
I remember well my first meeting with Chuck Feeney, the accomplished entrepreneur and prolific philanthropist who died several days ago at age 92.
We met for lunch at an upscale eatery in London, near the building that doubled as Chuck’s London residence and the UK office of the Bermuda-based foundation he’d founded 15 years earlier, The Atlantic Foundation or AF. Arriving at the designated but unfashionably early hour specified by Chuck’s secretary, I found the place empty but for my presumed host, a casually dressed bloke reading papers yanked from a Ziploc bag serving as his briefcase. As our waiter placed the obligatory breadbasket on our table, the host about whom I knew little—this was 1997, pre-Google or other easy means of screening strangers--pointed to the bread and asked pointedly, “What’s this?”
Not long after the lunch in question—more on which below—Chuck’s foundation underwrote my move to London, where I took a desk in AF’s office and dove headlong into the work that catalyzed the move: helping Chuck pursue his goal of donating as much money as possible to charitable causes over the remainder of his actuarially determined life span of 85 years.
In pursuit of this long-held ambition, Chuck and a college classmate turned legal wiz (NYU law professor Harvey Dale) had earlier retained a well-known consultancy to craft a plan for investing AF’s endowment, which became bigger and at least temporarily more liquid via the late 1996 sale of AF’s crown jewel, a large stake in the highly cash-generative private company Chuck had co-founded in 1960, Duty Free Shoppers (DFS).
Unbeknownst to anyone outside his small circle of confidants, Chuck had secretively gifted his stake in DFS to AF in 1984, a remarkably selfless act that induced Chuck’s authorized biographer to label him The Billionaire Who Wasn’t.
Unbeknownst to Harvey when he encouraged Chuck to invite me to lunch in London, I thought the consultant-devised plan AF had already begun implementing when I first met Chuck was worse than useless.
Why? For multiple reasons, all of which I spelled out in intriguing suffocating detail over dinner with Harvey in NYC; at its end, having downed even more wine than me, Harvey asked me to produce a memo codifying what I’d told him.
I did, and the rest is happy history, including the UK stint alluded to above, 15+ years as a member of AF’s investment committee, publication of an appropriately redacted version of the memo I wrote up for Harvey, and immense gratification rooted in AF’s adoption and successful implementation of the game plan outlined in the memo (available HERE).
Back to the Global Macro Grind …
What was this game plan? More to the point of this Early Look, what aspects of it might readers usefully apply in their ongoing deployment of their own wealth or capital entrusted to them by others?
A few such elements come to mind, the most important being the adoption and faithful implementation of policies comprising two and ideally just two things: one, a rank-ordered list of mission-critical risk parameters; and two, a return goal consistent with such limits.
For AF (later d/b/a The Atlantic Philanthropies or AP), the mission-critical parameters were (1) avoid drawdowns exceeding specified bounds (initially 25%, later reduced as AP’s neared the end of its planned life) and (2) maintain liquidity sufficient to avoid the cardinal sin of investing, namely forced selling to generate needed cash.
AF’s return goal? Simply and perhaps obviously: maximize returns without violating the risk parameters just referenced, with return maximization assessed over sensibly long periods and with due regard to AF’s distinctive willingness to do two things: (1) “go anywhere” in pursuit of investment opportunity; and (2) not go certain places with its capital merely because peer institutions or investors as a group were doing so.
Putting the same point differently, AF and ultimately its grantees benefited hugely (>$8 billion in total gifts!) from its leaders’ conscious decision to serve one master rather than two: to compound AF’s capital at a pleasing rate without regard to relative return risk or tracking error.
Does the mindset just described sound familiar? I’d certainly hope so, given what Keith has preached repeatedly and IMHO rightly via countless Early Looks and other media since Hedgeye’s founding.
To their credit and my delight, subscribers to the new service @Hedgeye I’m privileged to head--Capital Allocation (CA)--are increasingly walking Keith’s talk, stewarding wealth in a drawdown-centric manner entailing a “go anywhere” approach to portfolio construction.
Are they all doing so? No—at least not yet. But many are, relying more or less heavily at their discretion on regularly refreshed Appraisals of longer-term return prospects for several dozen potential exposures.
(Ping if you’d like to know how these Appraisals get fashioned. Ping if you’d like to learn more about CA, mindful that it’s available to institutions only.)
What would a savvy asset owner like the late Chuck Feeney make of our current Appraisals, the overwhelming majority of which are signaling caution or extreme caution for potential buyers? I can’t say for sure, but I spent enough time with Chuck to believe he’d push hired guns managing his or more accurately his foundation’s money to exploit aggressively opportunities spawned by the shrinkage in luxury goods consumption documented in the Chart of the Day.
As noted by Hedgeye’s superb Retail Team, the trend depicted in the Chart is no friend of luxury goods powerhouse LVMH—the firm that eagerly purchased DFS when Chuck and his fellow shareholders put DFS up for sale in 1996, not long before the Asian currency crisis of 1997 created headwinds for luxury goods sellers comparable to those faced by them today.
I believe too that Chuck would lean very heavily toward cash under current conditions, consistent with his overriding goal of preserving capital while awaiting choice opportunities to compound it at attractive rates.
That was surely what Chuck had in mind when he asked the waiter alluded to above how much the bread being placed on our table would cost. When the waiter replied unsmilingly that the bread was free, “the billionaire who wasn’t” replied smilingly, “Then we’ll take it.”
RIP, Chuck. Yours was a life truly well lived.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 4.58-4.88% (bullish)
High Yield (HYG) 72.08-73.25 (bearish)
SPX 4 (bearish)
NASDAQ 13,159-13,699 (bearish)
RUT 1 (bearish)
Tech (XLK) 164-172 (bearish)
Energy (XLE) 85.25-92.18 (bullish)
Utilities (XLU) 55.90-60.97 (bearish)
Shanghai Comp 3048-3112 (bearish)
Nikkei 30,510-32,886 (bullish)
BSE Sensex (India) 65,329-66,780 (bullish)
DAX 14,996-15,508 (bearish)
VIX 16.20-19.98 (bullish)
USD 105.41-106.91 (bullish)
Oil (WTI) 82.95-90.60 (bullish)
Nat Gas 2.97-3.52 (bullish)
Gold 1 (bullish)
Copper 3.51-3.69 (bearish)
Silver 20.75-23.40 (bearish)
David Salem
Managing Director-Capital Allocation
