In the markets there are many players but the ones who move the markets are the institutional players, which means you need to pay attention to them to understand what they do great and where their constraints are. Similar to any other grouping, some are more nibble, some are better but the most important aspect is every payday, money is flowing into their accounts on a very regular basis. In one of the Milken Institute’s conferences 5 of the largest funds were talking about their industry and the room was full.

The five were from Harvard Mgmt, China Investment Co, City of NY Pension Plans, Texas Teachers, and the Caisse in Quebec with the chair of California Teachers moderating the session. Together the group manages over $1.5 trillion.

Jane Mendillo from Harvard manages $33 billion with 30% of the funds managed in-house, big constraint is the fund provides 35% of the budget of Harvard University.

Seema Hingorani from NY City Pension Plans – part of it is 5 different plans with their boards and advisors which leads to many opinions. They have $150 billion under assets all the funds are run externally. Partly due to the governance issue, the fund is still run closer to the old style with large amount in bonds. Each year the withdrawls are about $7 billion.

Li Kaping of China Investment Company, the sovereign wealth fund of the China, has about $600 billion with $400 in shares; $ 200 billion in global investments. As it is essentially a reserve fund it can have a 20 year focus or on the long term.

Jerry Albright of Texas Teachers has about $135 billion is one of the more innovative funds and does 60% of the funds internally managed. Their goal is annual return of 8% and they think in 1 year, 3 years, 5 years and 25 years terms.

Michael Sabia of the Caisse in Quebec manages $200 billion in assets with 80-90% of internally managed. Their target is a 6.5% return and they try not to focus on the short term but the long term because not many firms are in that space. At the moment, one of the theories they are working on is the operations of the company creates value, as opposed to financial assets.

In terms of alternative assets:

Harvard University is 400 years old, they expect to be around for another 400 years and this allows 50 year time horizon including investment in trees.

CIC believes in having many partners to learn and grow.

City of NY before 2010 they were almost 100% in public markets, not it is 75% or 25% alternative including real estate. Working in NY, they are civil servants which means the pay is not as high as Wall Street – finding and keeping talent is an issue.

Caisse when investing are trying to tap into a knowledge network which is more than the deal flows (when you have a steady cash inflow, everyone pitches you) so the task is partner with relationships which are complimentary to the skills you have.

Private equity focuses on achieving 20% plus on their investments; the Caisse and others would be happy if achieving 11 to 15% on their equity. The most important lesson is you have to know what you do not know or you will get into trouble (lose money).

Harvard University – there are over 5,000 Private Equity firms, could we know more than they do? Their tule of thumb is if you have not achieve double digits return by year 4 or 5 you will not likely achieve it.

Looking at in the future and what keeps you up at night?

Caisse – the future – we are always recruiting people. They are looking at the energy, real estate, the food chain and upper income consumers.

concern – $ 70 billion in fixed income – what happens to interest rates?

Harvard – the future – food and agriculture, biotech and technologies,

China Investment – contrarian investments, selective real estate and looking long term

City of New York – they have $45 billion in fixed income for every 1% rise, they lose $ 2 billion.

Texas – they also have a large fixed income portfolio. Energy is good place to invest.

Linking to dividend paying stocks, the large players have or should have an advantage because the deal makers go there first, they have the money. However as it was said you have to know what you do not know, you can learn or partner, but thinking you know can easily lose money and the first rule of investing is try not to lose money. As small investor, you know and see many things which can help you make decisions on whether to hold or seek alternatives. While gaining 20% is great, the risk is also high or try to think similar to the institutions and be happy with the 8% to 15% on a long tem basis. One method to this is buy dividend stocks for the dividend and over time for the capital gain.

There are more questions than answers, till the next time – to raising questions.