A thought on @matt_levine’s discussion of social purpose bonds (such as Pfizer’s, which offer slightly less interest than you’d expect for a 10 year Pfizer bond but promise to fund projects that... match general expenditures of Pfizer):
Some investors have mandates.
Some investors have mandates.
For example, if you are investment manager whose mandate is subject to a politics process (such as e.g. investing a pension fund which is acutely sensitive to the modes of the membership of a union, or similar), you may be straight-up required to choose other-than-vanilla assets.
And given that you have demand for this product, capitalists will happily sell it to you. Matt covers the case where Pfizer can manufacture not-vanilla bonds.
An interesting genre of this is when *others* can manufacture not-vanilla assets.
An interesting genre of this is when *others* can manufacture not-vanilla assets.
What’s a sundae if not vanilla plus some whip cream and sprinkles, after all.
The simplest possible version is, if there exists a 10 year restricted Pfizer issuance and a 10 year unrestricted one, short the first (sell it to people with mandates) and long the second. Collect risk-free spread.
Pfizer didn’t have to issue extra enhanced bonds. You just did.
Pfizer didn’t have to issue extra enhanced bonds. You just did.
You can imagine other structures which accomplish this.
For example, a lot of CSR seal of approval mechanisms which are relied upon to determine whether an asset satisfies a mandate or not basically mean “Do you respond to our questions and not give the obviously wrong answer?”
For example, a lot of CSR seal of approval mechanisms which are relied upon to determine whether an asset satisfies a mandate or not basically mean “Do you respond to our questions and not give the obviously wrong answer?”
You can imagine that AppAmaGooBookSoft probably does not, I don’t know, directly fund destruction of groundhog habitat.
If you have a mandate which says that is the most important question in the world, more than investment returns, a capitalist can help you answer the question.
If you have a mandate which says that is the most important question in the world, more than investment returns, a capitalist can help you answer the question.
“Google didn’t answer about the groundhogs? Shucks. Buy my Groundhog Friendly Tech ETF. Guaranteed no destruction of groundhog habitat. *I will happily route your questionairre to our specialist who will answer it in a routine fashion for enterprise sales.* 1.25% fee annually.”
And the people who imposed the mandate will sleep the sleep of the righteous, and collect the returns from owning Google, less 1.25% annually to continue employing someone who will tell them they’re still righteous.
Incidentally after you know this is descriptively accurate as to the operations of CSR/etc funds, does that change your understanding of where the impetus for CSR is coming from?
Grassroots demand, product innovation in asset management industry to sustain fees, or both?
Grassroots demand, product innovation in asset management industry to sustain fees, or both?
Another lens on this which I’ve always enjoyed: if you think the S&P 500 is some composition of beta plus sin, and anti-enjoy sin, you should be willing to sell the sin to someone specializing in sin.
Since plausibly you do not agree with 100% of people on values, can sin swap.
Since plausibly you do not agree with 100% of people on values, can sin swap.
“I want to be long S&P 500 short groundhog suffering.” “I want to be long S&P 500 short the color blue.” “What really?” “Ah, a bluist. Oh well, we can still use each other.”
(I am using absurd examples here out of deference to the opinions of people who have strongly held beliefs that I might or might not share who would be unhappy if I used their strongly held belief as the named example.)
