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.
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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.
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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.
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What’s a sundae if not vanilla plus some whip cream and sprinkles, after all.
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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.
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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?”
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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.
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“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.”
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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.
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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?
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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.
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“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.”
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(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.)
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End of conversation
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