X-Message-Number: 1152
Date: Mon, 17 Aug 92 12:34:08 EDT
From:  (Perry E. Metzger)
Subject: CRYONICS: Money


>First a little background so Eric and Perry have some idea of why 
>board members (well, me anyway) feel very uncomfortable with the 
>decisions we *must make* investing patient funds.  

Any decent fiduciary should feel cautious about dealing with other
people's money. The feeling is only natural. However, just as with a
surgeon, feeling so cautious that one is unable to make needed moves
because of fear is not a good situation.

>The endowment fund is a lesser concern.  (We could lose it, and 
>no one would thaw out.) 

Alcor's long term survival depends on having adequitely funded overall
operations. If it ends up just being a single caretaker and the
existing patients, the long term survival of those patients may be
called into question.  Given this, its important that the organization
have as much funding as possible for all purposes; no money is
"loseable", ever. This does not mean that an occassional trading loss
will not occur, but it does mean that all money is very important.

>None of the people involved in founding Alcor were investment 
>gurus, and this is true of almost all the people deeply involved 
>since then.  It is even worse than that.  Most of us have been 
>doers with either an engineering or medical slant.  While I fully 
>understand that there is a need for people to make investments 
>and for others to spend their lives managing them, a lot of the 
>doer class of folks considers investment managing to be a low 
>class of parasite feeding off the doer's labor.  This attitude 
>is dead wrong:  we need bean counters and folks who can make 
>rational decisions as to where to put the beans.  But the 
>attitude is hard to shake entirely. 

I understand this concern. We are deeply indoctrinated in our society
to believe that "making money off of money" is somehow evil. However,
given that the board members have a fiduciary responsibility towards a
large fund that will eventually get huge, its very important that they
rid themselves of this feeling. I am not saying one should not be
cautious; the investment community attracts its share of con men.
However, the way to avoid con men is not to be frightened of all
investments but to do good due dilligance on all investment decisions.
Occassionally, one must expect some fraud to occur, but provided one
is well diversified and has done good due dilligance, it is likely
that the associated costs of these frauds will be minimal. One of the
reasons for wanting professionals running the ship is to make sure
that good due dilligance is exercised; the board likely will not have
time to do good dilligance work for all investments. Given that many
board members would not know how to do this sort of thing on their
own, a fund manager would be safer, not riskier, in this regard,
provided that the board only made sure he was of reasonable competance
and that no embezzlement was going on; naturally, these considerations
apply even if the board is managing its own money.

>Now, the effect of "overfunding" and the flow of money from Alcor 
>general revenues into patient care funding makes it unnecessary 
>to get maximum performance out of the patient care fund.  Right 
>now, the rate on 30-year T-bills would be just fine to pay for 
>LN2 and keep ahead of inflation.  Heck, we could do it on three- 
>month T-bills! 

No, you couldn't. The reason is this: over long periods (20-50 years),
treasury securities fairly consistantly fail to keep up with
inflation; over time, the losses can be significant. Furthermore, long
term treasury securities are not "safe" in the sense that a rise in
interest rates (almost inevitable in the longer term as we are near
minimal interest rates now) means a loss in the value of one's bonds;
longer term bonds naturally lose much more money. (For those not in
the know, bonds trade such that at the price they are purchased on the
open market they will achieve a particular interest rate in the long
term; thus, bonds with coupon rates below current market rates trade at
a discount and bonds with coupon rates above current market rates
trade at a premium.) Given past behavior in the bond markets, bonds
cannot be considered a low risk investment. Furthermore, many
people, such as myself, are of the opinion that high inflation,
possibly even hyperinflation, will eventually hit as the government
desperately trys to pay off the national debt by printing money. This
would drive the price of fixed income securities into the ground.

There is no safety this side of the grave (to cryonicists, I suppose
its "there is no safety this side of information theoretic death").
There is no such thing as a safe capital preserving investment that
requires no supervision, period. If you want to avoid watching
something, you hire people to watch it for you, but you can't leave
things alone, especially not in the long run. Even gold drops badly at
times; the current price of gold is at multi-year lows and is even
lower if you take inflation into account.

>Incidentally, I think I know what I would look for in a person to 
>put in charge of patient care funding investments.  First, they 
>would have to be an Alcor member of *long* standing, 5-10 years 
>for a starter.  Second, they would invest as if they were dealing 
>with the *only* money they would ever have for their own 
>suspension funding.  Even so, when that time comes, it is going 
>be soul-searching time for the board to turn over large chunks of 
>the fund, because *we will still be the responsible ones.* 

I know what I'd look for. I wouldn't pay any attention to whether the
guy was involved in cryonics; that leaves a tiny pool of people. You
wouldn't only buy dewars from cryonics people, you wouldn't only buy
land from cryonics people, why only buy advice from cryonics people?
This is a job, a profession, not a hobby; I would want to buy services
from the best people around; devotion to cryonics is not a criterion.
I'd look for a set of good fund managers who have survived at least
two business cycles (most fund managers and other professional
investors only survive one business cycle, not understanding how to
invest in different phases of the cycle), have had good track records
throughout business cycles, and who invest in a sensible manner. Good
diversification, both within a market and between markets, is, as
always, the best way to insure against significant losses.

>Re Perry E. Metzger's note, when Alcor gets so large that it is 
>investing in private offerings, I am sure it will have plenty of
>managers who can sign off on a tens of millions deal in an 
>afternoon.   Who knows, he might be one of them! 

I wouldn't trust anyone to sign off on a ten million dollar deal in an
afternoon. Maybe to place orders for ten million dollars in fungible
securities of some sort based on prior knowledge of the market, but
with private placements even if you are knowledgable it does take a
few weeks between the time that you see an offer and decide its good
and the time your private investigators have made sure the data you
are working off of isn't fraudulent.

>>When Alcor starts managing funds in the tens millions of dollars,
>>which must of needs happen if Alcor grows sufficently, professionals
>>will be needed to watch the money day to day. There will simply be no
>>other way to deal with the volume of decisions that will need to be
>>made. Assuming Alcor grows enough to become a professional
>>organization with hundreds of patients in suspension, the patient care
>>fund will grow to this size range and the board will have a fiduciary
>>responsibility to relinquish day to day control; it will have no other
>>choice, period.

>I agree.  It is correct to educate us on this point, but expect 
>that it is going to take years for this situation to come about.  

Why should it? We are only talking about a factor of 10 in terms of
numbers of patients in suspension. If current growth curves continue,
we are talking about something to worry about in only a few years;
certainly all the mechanisms have to be in place to deal with that
well in advance if the trends continue.


Rate This Message: http://www.cryonet.org/cgi-bin/rate.cgi?msg=1152