“Pension trustees of the world, unite!” could be the rallying cry of a “radical finance manifesto” hot off the presses at the London School of Economics' Paul Woolley Centre for the Study of Capital Market Dysfunctionality.
In a lecture at the school last month, Mr. Woolley — who founded the center in 2007 following a stint as an economist for the International Monetary Fund and two decades as an executive at Grantham, Mayo, van Otterloo & Co. LLC — called on the world's biggest pension funds to adopt his manifesto's 10-point action plan, aimed at making the world a safer place for long-term investors.
Among its recommendations: capping annual portfolio turnover at 30%; limiting investments to publicly traded securities; and eschewing “alternative strategies” such as hedge funds and private equity, as well as all “structured” or “synthetic” products.
Mr. Woolley said his program's radical tone shouldn't suggest affinities for fellow manifesto writer Karl Marx. “I'm not a Trotskyite. I'm a free-market man,” he said in a recent interview.
Even so, free markets have their discontents, and — particularly following the technology bubble of the late 1990s and the market's recent extreme volatility — Mr. Woolley is happy to be counted among them.
If capitalists were the principal target of the Communist Manifesto, Mr. Woolley's critique aims some of its biggest salvos at the financial “agents” managing money for pension fund “principals,” and the academic proponents of the efficient-market hypothesis who enable them.
The efficient-market hypothesis' central flaw might be its failure to examine and understand the relationship between pension clients and those agents — with the latter's superior information allowing them to reap the lion's share of benefits from the pension money flooding into opaque strategies such as hedge funds and private equity, Mr. Woolley argues.
That flawed relationship also tips the scales in favor of short-term momentum investing over long-term value, he says.