Rockhouse Capital captures long term Total Return through consistent monthly cash flows. This strategy should insulate investors if (when?) the current asset bubble deflates.
it may, under some circumstances, be possible to characterise the coordination problem faced by asset managers as a prisoner’s dilemma. That stems from two factors. The first, relates to the high degree of concentration of the asset management industry – which results in potential spillovers from the actions of one asset manager to the payoffs of others. The second, relates to incentives arising from the practice of using peer comparison across individual asset managers to monitor performance – which make relative payoffs important.
The combination of these two features of the market could give rise to a situation in which, in period of financial stress, when there are concerns about falls in asset prices, rather than hold one’s nerve and stand pat, individual asset managers might reason that it is preferable to sell instead. If all asset managers reason thus, the resulting rush for the exit – and downward pressure on asset prices – could result in considerably bigger losses for everyone, than if asset managers had coalesced on the cooperative outcome.
By holding investments in individual investor accounts, we protect investor’s from premature sales decisions driven by other investors or the manager.
The question then, is how to align the incentives of the asset manager with those of the investor?…Mechanisms which lower the probability of ‘sell’ might help to nudge players towards the jointly preferred outcome.
Read the whole article at Economist’s View: When Asset Managers Go MAD