Notes
1 Parts of this chapter were originally published as Greycourt White Paper No. 32: The Challenge of Identifying Managers Who Will Outperform (2004), coauthored with my partner, Gregory R. Friedman. The paper is available at www.Greycourt.com.
2 A better way to work with a manager like Hapless would be to give Hapless only 5 percent of the money we want to invest in a U.S. large-cap portfolio and to index the other 95 percent.
3 Voltaire supposedly remarked that a lottery is simply a tax on stupidity.
4 New York: Basic Books, 2003. Paulos's other books are also well worth looking into, especially Innumeracy: Mathematical Illiteracy and Its Consequences (New York: Hill and Wang, 2001), and A Mathematician Reads the Newspaper (Norwell, MA: Anchor Press, 1997). On the subject of innumeracy, see Chapter 4.
5 Looking at the manager-client relationship as a problem of principal-agent theory, David Swensen (CIO at Yale) has acutely analyzed the problems investors face in trying to align manager interests with their own. See David Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment (New York: Free Press, 2000) 4–6, 197, 248–292.
6 One of the best summaries of desirable and undesirable manager characteristics was produced by The Investment Fund for Foundations. See TIFF's website at www.TIFF.org.
7 See Mina Kimes, “Bob Rodriguez: The Man Who Sees Another Crash,” Fortune (June 6, 2011).
8 David Stein, Paul Bouchey, Timothy Atwill, and Vassilii Nemtchinov, “Structured Active Portfolio Management,” Parametric White Paper (Summer 2011).
9 Most commonly, mezzanine financings are used in connection with a leveraged buyout to reduce the amount of equity capital the PE firm must invest. Mezzanine capital is subordinated to other debt of the borrower and is senior only to the common stock.