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" Over the last 56 years, I’ve spent a lot of time making suggestions to clients regarding their investment processes and portfolios, and I’ve been on the client side as a member of various investment committees. But seldom have I been able to bridge the two, serving as an active participant in clients’ investment processes. I had an opportunity to do just that the other day, when I met with the board and senior staff of a U.S. state pension fund. I was asked to listen in and provide feedback on the results of a board-member survey their consultant had recently conducted and would be reporting on during the meeting.


The content of the consultant’s session impressed me so much that I decided to write a memo about it. I’m not disclosing the names of the state and its consultant, for obvious reasons, but I’m very pleased that they agreed to let me use the content of the meeting as raw material for this memo.


In the meeting, the consultant covered many of the things I consider “the most important thing” and often came down on the same side I would (admittedly, that might’ve contributed to why I was so impressed!). I’m going to sum up below the consultant's assessment of the board survey and my reaction. My hope is that this is as informative for you as it was for me."


https://www.oaktreecapital.com/insights/memo/a-loo...

" I’ll make a controversial statement here: in pure investment terms, there’s no intrinsic reason for long-term investors to be concerned with volatility (as distinguished from the risk of permanent loss). Warren Buffett famously says he’d “rather earn a lumpy 15% return than a smooth 12%.” Why wouldn’t everyone?


In my opinion, the main reasons for concern over fluctuating market prices are situational, institutional, political, career-related, psychological, and emotional. I call these things “externalities,” and because they’re external to the investment process, a potentially volatile investment can be risky for some investors and not for others. For example:

An AI stock can be a risky holding for the manager of a mutual fund that’s priced daily and subject to daily withdrawals – or for an investor who’s likely to panic during a market crash and sell at the bottom – but much less so for a sovereign wealth fund where the money is unlikely to be withdrawn and there’s no requirement to publish financials and satisfy public opinion.

An investor whose compensation is based on metrics that penalize volatility may consider a publicly traded bond riskier than a private loan from the same issuer that doesn’t mark to market, even though the risk of default is the same for both.

If it’s true that an asset’s volatility can bring risk for some investors but not others, then clearly the risk doesn’t lie in the investment, but in something in the investor’s environment."

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