If we set this up well, we might get $100 million in investments, and the value added would be ~1% excess certainty equivalent rate, i.e., a certainty equivalent of $1 million per year.
If setting up such a DAF takes a year of labor, maintaining it takes 0.25 FTE, and labor has an opportunity cost of $3 million per year, it would take 3/(1-3*0.25) = 12 years to break even (with a plausible range from two years to ‘never’).
Over a period of ten years, it would return around 10/(1+10*0.25) = $3 million per person-year (with a plausible range from $500k to $5 million).
That seems pretty good, but perhaps slightly less valuable than other things EA Funds could be doing.
I’d be keen to hear if you think this seems like a reasonable overall takeaway.
labor has an opportunity cost of $3 million per year
This seems really high. You could hire an experienced investment manager for a lot less than that. But the general structure of your analysis seems sound.
Another consideration is that you can probably reduce correlation to other altruists’ investments (I wrote about this a bit here, and I’m currently writing something more detailed). Uncorrelated investments have much higher marginal utility of returns, at least until they become popular enough that they represent a significant percentage of the altruistic portfolio. And leveraging uncorrelated investments looks particularly promising. So you could get more than a 1% excess certainty equivalent return that way.
Thanks, I look forward to your analysis of uncorrelated investments! In particular, I’ll be keen to see to what degree they rely on the same assumptions as value/momentum strategies, or if there are opportunities that are independent of that.
Thanks, very helpful.
If we set this up well, we might get $100 million in investments, and the value added would be ~1% excess certainty equivalent rate, i.e., a certainty equivalent of $1 million per year.
If setting up such a DAF takes a year of labor, maintaining it takes 0.25 FTE, and labor has an opportunity cost of $3 million per year, it would take 3/(1-3*0.25) = 12 years to break even (with a plausible range from two years to ‘never’).
Over a period of ten years, it would return around 10/(1+10*0.25) = $3 million per person-year (with a plausible range from $500k to $5 million).
That seems pretty good, but perhaps slightly less valuable than other things EA Funds could be doing.
I’d be keen to hear if you think this seems like a reasonable overall takeaway.
This seems really high. You could hire an experienced investment manager for a lot less than that. But the general structure of your analysis seems sound.
Another consideration is that you can probably reduce correlation to other altruists’ investments (I wrote about this a bit here, and I’m currently writing something more detailed). Uncorrelated investments have much higher marginal utility of returns, at least until they become popular enough that they represent a significant percentage of the altruistic portfolio. And leveraging uncorrelated investments looks particularly promising. So you could get more than a 1% excess certainty equivalent return that way.
Edit: Published Uncorrelated Investments for Altruists
Thanks, I look forward to your analysis of uncorrelated investments! In particular, I’ll be keen to see to what degree they rely on the same assumptions as value/momentum strategies, or if there are opportunities that are independent of that.