Money would only be deployed when there is a strong case that allocating to a funding opportunity is higher-impact from a longtermist perspective than keeping the money invested. This could happen, for instance, if our estimate of the expropriation rate rises greatly, legal and/or market changes make investing much less attractive, or we identify a truly extraordinary funding opportunity that we don’t expect to be filled by others.
I think this fund is an intriguing idea. But I think there’s an argument that current market conditions would suggest deploying funds now rather than investing them. Interest rates are at extraordinarily low levels, which suggest lower than normal expected future returns not only for fixed income instruments but also other asset classes that compete for capital with fixed income. To put into context how low current rates are, a 2015 analysis found that “rates remain at the lowest levels in the last 5,000 years of civilization.” Since then, rates have gone even lower. As of August 2019, “About $15 trillion of government bonds worldwide, or 25% of the market, now trade at negative yields, according to Deutsche Bank.”
To be clear, I think this argument applies to the general class of “donate now vs. invest and donate later decisions” EAs make, not just the proposed longtermist fund (where it might apply less due to the especially long time horizons). But my impression is that EAs are often too quick to assume they can always achieve investment returns in line with historical long-term averages, when they should only expect to do so over very long time horizons or when starting valuations are also in line with historical long-term averages.
Of course, it’s also worth noting that the “valuations are currently high so on the margin EAs should give more now” argument could have been made several years ago, and those years have generally been good ones for asset prices…
The risk-free interest is unusually low across the developed world and the US equity market looks expensive, but equity valuations in the non-US developed market are close to historical averages, and equity valuations in emerging markets are below average. So IMO it is reasonable to expect near-historical equity returns by investing outside the US. See https://mebfaber.com/2019/01/25/the-biggest-valuation-spread-in-40-years/
The case for giving sort-of-later depends on the current interest rate, but the case for giving much later only depends on the difference between the long-run interest rate and the long-run discount rate. As Phil Trammell argues in the post linked by OP, the long-run interest rate most likely exceeds the philanthropic discount rate, which means we should give later.
1. Agree that equity valuations outside the US are much less extreme. But if you’re building a diversified portfolio, global fixed income and US equities are probably going to play a large part. So avoiding lower expected returns in those asset classes would require an element of active management, which I think raises the hurdle for this project significantly since active management is both expensive and hard to do well. Given the goals of this fund, I would think a passive Risk Parity strategy (which includes a lot of fixed income) would make a lot of sense.
2. Good point. I would still argue that if there’s an intention to deploy money when “market changes make investing much less attractive”, it makes sense to try and define those types of conditions ahead of time. And if you were going through that exercise a couple of hundred years ago, I’m pretty sure “widespread negative real yields” would have made the list.
I think this fund is an intriguing idea. But I think there’s an argument that current market conditions would suggest deploying funds now rather than investing them. Interest rates are at extraordinarily low levels, which suggest lower than normal expected future returns not only for fixed income instruments but also other asset classes that compete for capital with fixed income. To put into context how low current rates are, a 2015 analysis found that “rates remain at the lowest levels in the last 5,000 years of civilization.” Since then, rates have gone even lower. As of August 2019, “About $15 trillion of government bonds worldwide, or 25% of the market, now trade at negative yields, according to Deutsche Bank.”
To be clear, I think this argument applies to the general class of “donate now vs. invest and donate later decisions” EAs make, not just the proposed longtermist fund (where it might apply less due to the especially long time horizons). But my impression is that EAs are often too quick to assume they can always achieve investment returns in line with historical long-term averages, when they should only expect to do so over very long time horizons or when starting valuations are also in line with historical long-term averages.
Of course, it’s also worth noting that the “valuations are currently high so on the margin EAs should give more now” argument could have been made several years ago, and those years have generally been good ones for asset prices…
The risk-free interest is unusually low across the developed world and the US equity market looks expensive, but equity valuations in the non-US developed market are close to historical averages, and equity valuations in emerging markets are below average. So IMO it is reasonable to expect near-historical equity returns by investing outside the US. See https://mebfaber.com/2019/01/25/the-biggest-valuation-spread-in-40-years/
The case for giving sort-of-later depends on the current interest rate, but the case for giving much later only depends on the difference between the long-run interest rate and the long-run discount rate. As Phil Trammell argues in the post linked by OP, the long-run interest rate most likely exceeds the philanthropic discount rate, which means we should give later.
1. Agree that equity valuations outside the US are much less extreme. But if you’re building a diversified portfolio, global fixed income and US equities are probably going to play a large part. So avoiding lower expected returns in those asset classes would require an element of active management, which I think raises the hurdle for this project significantly since active management is both expensive and hard to do well. Given the goals of this fund, I would think a passive Risk Parity strategy (which includes a lot of fixed income) would make a lot of sense.
2. Good point. I would still argue that if there’s an intention to deploy money when “market changes make investing much less attractive”, it makes sense to try and define those types of conditions ahead of time. And if you were going through that exercise a couple of hundred years ago, I’m pretty sure “widespread negative real yields” would have made the list.