27 May 2011

Libyan Investment Authority - How not to structure a portfolio

This revealing snapshot demonstrates that all investors - however (un)sophisticated they may be - should pay more attention to the importance of designing a portfolio that is consistent and not just a random collection of holdings that are the result of uncoordinated input received from news or financial product salespeople. Any investor employing more than one money manager has the problem that he may harbour holdings that are in essence based on contradictory assumptions and therefore expensive and inefficient. At the same time the Libyan holdings also underline the riskiness of 'structured investments' that are at best only understood by those who sell them (and sometimes not even by these mathematical wizards themselves). Anyone without a PhD in Mathematics would do well to give these 'structures' a wide berth.