How to Invest for A Hundred Years | Inigo Fraser Jenkins

In Episode 499 https://hiddenforces.io/podcasts/how-to-investor-for-a-hundred-years-inigo-fraser-jenkins of Hidden Forces, Demetri Kofinas speaks with Inigo Fraser Jenkins, a strategist at AllianceBernstein and author of the research paper "The Hundred Year Portfolio," about how investors should rethinking portfolio construction, governance, and asset management across multigenerational time horizons in a world shaped by AI disruption, climate risk, the breakdown of the post-WWII rules-based order, and the greatest generational wealth transfer since before World War I. The first hour covers the structural forces that made the post-1980 period of falling inflation and interest rates, negative stock-bond correlation, and strong real returns so exceptional, why recency bias remains the most dangerous assumption embedded in institutional portfolios, and how the convergence of AI, climate change, and geopolitical upheaval has widened the range of possible futures in ways that challenge conventional diversification frameworks. They also discuss the explosive growth of family offices and sovereign wealth funds, the erosion of the rule against perpetuities and the rise of dynasty trusts, why governance has primacy over allocation for ultra-long-horizon investors, why purchasing power preservation rather than benchmark-relative performance should anchor portfolio construction, and why diversification must shift from cross-asset correlation within the Markowitz framework to robustness across fundamentally different paths of the future. The second hour examines the specific portfolio implications of a hundred-year mindset, including: (1) Why equities should remain the core allocation, even in a lower-return environment (2) The diversifying role played by private assets, including early stage venture (3) Direct ownership of income-generating real estate, including farmland (4) The case for a meaningful gold allocation as a zero-correlation hedge against inflation, fiscal instability, and systemic risk. They also discuss the primary drivers of wealth destruction over time, from inflation and punitive tax regimes to confiscation and behavioral risk, before turning to the current macro landscape and the shift in Treasury ownership from price-insensitive central banks to price-sensitive funds and households, why US equity exceptionalism may prove more durable than dollar or bond exceptionalism, and the growing tension between global fiscal deterioration and the capital demands of the AI investment cycle. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Join our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 09/16/2026

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Demetri Kofinas?

  What's up everybody? My name is Demetri Kofinas and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest in this episode of Hidden Forces is Inigo Fraser Jenkins, the Chief Investment Strategist at Alliance Bernstein, where he advises family offices, sovereign wealth funds, and institutional investors on long horizon portfolio construction and multi-asset strategy. Inigo is also the author of a recently published paper titled "The Hundred Year Portfolio: A State of Mind Rather Than An Allocation," in which he argues that as the investment regimes

• 0:44Demetri Kofinas?

  of the last four decades break down, investors with multi-generational time horizons need to fundamentally rethink how they define diversification, risk management, benchmarking, tax planning, and the governance structures overlaying their portfolios. By the end of today's conversation, you will have a clearer understanding of why the investment frameworks that worked over the last 40 years may be inadequately suited to help investors and portfolio managers navigate the decades ahead, how governance and the psychology of long-term stewardship matter more than any single allocation decision, why purchasing power preservation should replace market benchmarks as the organizing principle for long horizon portfolios,

• 1:27Demetri Kofinas?

  how to think about the differences between risk and uncertainty when investing over long time horizons, and what the shifting macro landscape means for investors navigating a once-in-a-century transition across geopolitical, economic, and technological paradigms. Inigo and I spend the first hour of our conversation today discussing the intellectual foundations of the Hundred Year Portfolio, why investors need to strip away the recency bias of the post-1980 era of benign inflation and their antiquated assumptions about the negative correlation of stocks to bonds, how macro forces like AI, climate change, and the breakdown of the post-World War II rules-based liberal order are widening the

• 2:08Demetri Kofinas?

  range of possible futures in ways that make long-run forecasting exceptionally difficult, why governance matters more than allocation when investing across generations, and how diversification itself must be redefined, not as low correlation among assets within the Markowitz framework, but as resiliency in the face of radical uncertainty, which is what multi-generational investing truly demands. The second hour is devoted to enumerating the specific building blocks that form the core of a long horizon portfolio, the case for a preponderance of equities as the largest real asset class, the role of gold as a zero-correlation diversifier, the enduring logic of direct real estate ownership, why government bonds

• 2:51Demetri Kofinas?

  should play a diminished role in an era of positive stock-bond correlation and fiscal strain, and the primary drivers of wealth destruction over time, including inflation, punitive tax regimes, behavioral risk factors, the attendant risks of war, and the possibility of outright asset seizure and confiscation. We end the episode with a discussion about the overall macro picture, the shift in US Treasury ownership from price-sensitive central bank buyers to price-sensitive households and investment funds, whether fiscal unsustainability threatens US exceptionalism, the risks posed to dollar-based investors, and the capital flow dynamics, including the resurrection of capital controls in developed countries

• 3:34Demetri Kofinas?

  that could reshape global markets in the years ahead. If you want access to all of this conversation, go to hiddenforces.io/subscribe and join our premium feed, which you can listen to on your mobile device using your favorite podcast app, just like you're listening to this episode right now. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q&A calls with guests, discounted access to third-party research and analysis, and in-person events like our intimate dinners and weekend retreats, you can also do that on our subscriber page. And if you still have questions, feel free to send an email to [email protected] and I or someone

• 4:18Demetri Kofinas?

  from our team will get right back to you. Lastly, because this conversation deals with investing, nothing we say on this podcast can or should be viewed as financial advice. All opinions expressed by me and my guests are solely our own opinions and should not be relied upon as the basis for financial decisions. And with that, please enjoy this incredibly valuable and in-depth conversation with my guest, Inigo Fraser Jenkins.

• 4:50Demetri Kofinas?

  Inigo Fraser Jenkins, welcome to Hidden Forces.

• 4:54Speaker 01

  Thank you very much for having me on the show.

• 4:56Demetri Kofinas?

  I'm stoked, stoked. I was telling you to have you on the show because this has been a personal obsession of mine, what we're going to talk about today for the last five years. But also, we'll have a chance to broaden the discussion beyond just portfolio construction, risk management, and how to invest for 100 years, to talk about the economy and financial markets. Before we do that, I was doing a little research into your biography and I see that you have a bachelor's in physics, which is maybe not all that surprising, given that you work in finance. But you also have two master's degrees, one in history and philosophy of science and the other in finance. Tell me a little bit about your background. Let's start first with the degrees in physics and philosophy of science and history. Tell

• 5:40Demetri Kofinas?

  me a little bit about that background. What led to your interest there? And how did that eventually lead you into finance?

• 5:44Speaker 01

  Yeah, if you're asking about it's why I hang around the university for so long, it's mainly to have a clue of what I want to do next. So staying in university is not a better option. But also, I've always been interested in, I guess, these kind of questions that are more fundamental, hence spending that time doing history and philosophy of science. And finishing that as a master's, I kind of realized I wanted to move to something at least a little bit more practical, hence moving to finance. And so, that time spent doing history and philosophy, I found fascinating. But also, I think it does, in the background, at least to a little extent, inform some of the work we still do now, particularly in some of the essays that prompt questions to go out beyond some of the bare minimums of portfolio construction.

• 6:27Demetri Kofinas?

  What history did you focus on?

• 6:29Speaker 01

  That was very much history of science, so the development of modern science, and particularly on the philosophical linkages that that provokes, some of which is relevant to finance, I'd argue. Some of it's interesting also in the context of, I guess, this big force we all face now in terms of AI and some of the deeper epistemological questions that AI raises that we don't really have answers for yet.

• 6:53Demetri Kofinas?

  Do you feel like empiricism and the ability to tie prices back to some objective reality has become less relevant than investing over the course of your career?

• 7:05Speaker 01

  That's a very good question, and one that's really hard to answer. I mean, I guess you could take that in different ways. I mean, there's always the hope, I guess, there is some fundamental value attached to asset prices that may be not directly observable. And I guess the market is this very efficient system, tries to get you towards that price. And the question is, is that distorted by, let's say, flows into passive assets or particular horizons that investors might have? I think that force is always a work. I guess one of the things that's interesting is, because the marketplace is a meeting of people with very different horizons, very different objectives, but that can be clouded

• 7:48Speaker 01

  for a long period of time. I mean, in principle, there has been this great democratization of access to systems, be it trading or informing research decisions now that simply didn't exist 20 years ago. But at the same time, there are other clouding forces perhaps that prevent people from acting on these.

• 8:09Demetri Kofinas?

  I ask this question because I imagine that you studied the work of people like Carl Popper, who George Soros has often cited when giving credit for his theories on reflexivity. And for a long time, this is more or less how I imagined that markets worked, that there was some relationship, albeit at times tenuous, between the subjective price of an asset and the objective value that we assign to it using commonly agreed-upon valuation metrics. And those two things can diverge substantially, but eventually, they would converge. And while that's still probably true, the duration over which those two things

• 8:49Demetri Kofinas?

  can remain out of equilibrium is much greater than I ever imagined it could be when I was young.

• 8:57Speaker 01

  Yeah, I think there is some truth in that. I mean, particularly when we have forces at work today, which seem like they're very different from ones that have been around for multiple decades, where people still operate for good reason, on rules of thumb formed over the course of their working experience. That can be really hard to change. And also, I think it's relevant in terms of the way people think about theory formation in finance. And as you mentioned, Popper, and I think against that kind of background, we have to be really humble in the finance industry about the nature of the theories that we're going to come up with. I mean, I certainly take the view that finance and social science in general is not a science.

• 9:40Speaker 01

  You don't have this access to universal statements, but often people think that we do, and that can be dangerous in times of regime change.

• 9:48Demetri Kofinas?

  So what prompted this conversation today is a paper you recently published titled "The Hundred Year Portfolio: A State of Mind Rather Than an Allocation." Just give us a basic idea of what this paper is about, and how long have you been working on or implementing some version of what you detail in it?

• 10:06Speaker 01

  Yeah, so I guess this paper is trying to take a step back from the kind of time horizons that dominate most conversations of most people in the industry and think about the longer horizon. I mean, we've often been writing about longer horizon views, been our research in recent years, but this goes a step beyond those horizons. And one of the prompting forces is the idea that we need to be very careful of recency bias in the way that people approach markets. And I think there are different kinds of recency bias that one can point to. There's the recency bias of the post-1980 period of benign inflation, high growth, stock bond correlation being negative, et cetera.

• 10:50Speaker 01

  There's also a much longer recency bias of the post-World War II US-led, rules-based order. And as these regimes seem like they don't apply in the same way anymore, we have to think very carefully about how we strip away that kind of recency bias and what we're left with afterwards. So on the one hand, there's that kind of force. At the same time, I'm very aware that it seems almost absurd to be writing a paper talking about 100 years forward when there is so much fundamental change happening in the world. Now, I want to be very careful of not falling into the trap of saying, oh, the future looks very uncertain, because you could always say that at any back through time.

• 11:34Speaker 01

  But when you think strategically, I think there are a few things that stand out that do look very different from the kinds of unknowns that we've faced in recent decades. And I guess the few that stand out, number one is AI and the prognosis for that, both economically and socially. And the other is climate change. And perhaps I'd add on to that, maybe the geopolitical change I referenced earlier. So you have these forces that are incredibly disruptive, and it makes it very hard to make long-run pronouncements. So on the one hand, you have that. But at the same time, I do get routinely asked in meetings about forming long horizon views. And some of that is to do with the emergence of more investors who do genuinely have a

• 12:17Speaker 01

  multi-generational time scale to their investments. So this paper is trying to address the needs of those kinds of investors.

• 12:25Demetri Kofinas?

  So you kind of preempted one or a couple of my questions, which is, are there certain periods in history where having an ultra-long-term approach to portfolio management is especially important? And is it harder to invest for 100 years today than it was 100 years ago, even though that statement is kind of ridiculous in and of itself? Because the whole concept of 100-year portfolio is that it captures sort of the totality of all the potential risks that an investor could face over time.

• 12:54Speaker 01

  But that's a fantastic question. And I certainly don't know how to answer a question about whether it's more relevant now than 100 years ago, because you can't avoid looking back and thinking, but gosh, some really big adjustments happened over that timeframe. But it does point to at least some of the biases we need to be aware of when we're thinking about long-horizon data that we may come back to. Yeah, I think that when you look over really long horizons, it's evident there are long sweeps of history when regimes apply. So I'd say that there's been this period since the early 80s, as I mentioned, when inflation's come down, bond deals have come down, returns have been good in real and nominal terms. There have been periods, say in the post-war period, up until that period, when, again,

• 13:36Speaker 01

  there was a long period of growth, although ended by a period when bond deals did move higher over the course of that time. There's also the period of the Pax Britannica period in the late 19th century, when, again, there was a period when it was possible to achieve long-run positive real returns from low-risk assets. And outside those periods, often investing was much, much harder, much more turbulent. So yes, if one's willing to say, I'm in a certain regime and invest for that period, then that allows you access to certain kinds of return streams and a way to build a portfolio in a way that can be very profitable. But I guess the key thing is here, though, is the idea of needing to be robust across

• 14:17Speaker 01

  different paths, because there are times in history when the range of possible paths open to one seem very broad indeed. And again, so getting away from the idea of just saying that the future always looks uncertain, but something more fundamental than that, maybe the one things that we can kind of get into is the idea that what counts as diversification changes if you're in that kind of environment? Because suddenly, rather than talking about diversification in a sense of trying to find things that have a low correlation amongst themselves, we're talking about diversification across different possible paths of the future. And that is subtly different, I think.

• 14:54Demetri Kofinas?

  Well, we're going to have a chance to get into that. One more question about, one more broad question about portfolio construction in the context of investing over multiple generations for the ultra-long term. Have you spent any time researching how, well, actually, let me rephrase the question with adding this additional context, which is that we are living through the greatest generational wealth transfer in, what would you say, 100 years? When was the last time that we saw a period like this? Was it in the first quarter of the 20th century?

• 15:28Speaker 01

  You'd probably have to go to that kind of period to go and find something similar. I mean, comparisons are very hard, of course, because obviously you had huge regional disparity back then in a way that perhaps we don't have now in quite the same way. But yes, there has been this extraordinary buildup of wealth at the top end distribution. And some of the academic works that have been done over time shows that those sort of inequalities can build up over time for host of reasons. And the thing that tends to destroy that or compress it is times of sort of huge social and political unrest. So you have to go back to, I guess, probably before World War I to go and see a similar period, when there'd been this apparently benign period and the ability to pass on wealth in a big way.

• 16:12Speaker 01

  Of course, that's skirting over the fact that views on what counts as an equilibrium level of tax policy have shifted enormously since that period.

• 16:21Demetri Kofinas?

  So the reason I ask the question is because what I wanted to know is, have you done any research into how the robber barons attempted to structure or overlay governance onto the portfolios that they handed over to their children? Of course, there were not as many financial products back then, there weren't the same financial frameworks, the whole process was less sophisticated. But to the extent that it's relevant, were there any important lessons that you were able to learn by viewing how the successful families of the past that have been able to shield and protect and pass on wealth from generation onto generation were able to do it? And what lessons can be learned from that?

• 17:00Speaker 01

  Yes, we have gone back in time and looked, but I mean, we didn't include much of that in the paper, simply because the answer is those portfolios tend to be dominated by real estate in a way that hasn't been true for a long period of time. So yes, there are examples of either families or quasi-institutions that have existed for long periods of time, so some endowments have, for example. But those have tended to be just very dominated by real estate. I mean, the other thing that makes it hard to compare is that, since the 70s, there's been this huge outperformance of financial assets versus real-world assets in a way that is very unusual compared to history. And that's always part of the reason why both economies are more financialized, but portfolios are more financialized now.

• 17:43Speaker 01

  So a lot of those lessons are not necessarily directly applicable, except, I mean, I think one of the things we'll come back to is the notion of real returns being important is one thing that does sort of feed through that. So again, pre-World War I, for a long time, inflation hadn't been a huge issue. And one of the theses that we can put forward is that actually inflation is a big problem now. So again, that does change the way one thinks about what is it that destroys wealth over long periods of time? And we would point to, I guess, the risk of inflation now, at least, being certainly one of those risks in a way perhaps wasn't quite in the same way back then.

• 18:20Demetri Kofinas?

  And presumably also, asset values have become a bigger driver of wealth than the reinvestment of income generated from the assets themselves.

• 18:31Speaker 01

  I mean, that's been true in the last 40 years, yes, in a way that's been unusual. Again, partly because you've seen this financialization, this levering up in various ways, the levering up of government balance sheets probably most obviously, and something that's very pertinent now when we think about the bond market. But also more subtle levering up, too, like the whole process of corporates buying back stock and the stock market shrinking in terms of number of shares over a long period of time. I think that counts as a levering up as well, and these things have boosted asset prices. And so that has indeed become a larger part. And I guess that's reflected now in a world where we would say that in a cross-asset perspective, most asset classes are fully valued slash maybe expensive. That doesn't mean it should be interpreted as a bearish statement.

• 19:14Speaker 01

  It just means that it's very hard to make any claim about the future being one based on asset valuations. I'm going out further than here.

• 19:23Demetri Kofinas?

  So I have a few more clarifying questions, and this may come across as a bit pedantic, but bear with me, please. What type of individuals and institutions would want to invest for the ultra-long term? And what is the minimum net worth that you've seen or that you imagine someone would need to meet in order to even consider investing this way?

• 19:42Speaker 01

  I don't think there's a minimum level, per se. I think it's more just decisions around what investment is for and how focused people are on that. So I guess the most obvious categories investors are going to be family offices, endowments, sovereign wealth entities in various ways. But those are all investors that arguably need to think about a multi-generational approach. So clearly, they are a very significant part of global wealth at the moment, and family offices in particular have grown in number enormously in recent decades.

• 20:17Demetri Kofinas?

  And that's actually one of my next questions. But how is investing for the ultra-long term? And when we say ultra-long term, what do we mean? Like, three generations or more? How do we define that?

• 20:27Speaker 01

  Yes, I mean, I put 100 years in the title of the note, just a notional number. I mean, of course, it becomes somewhat arbitrary. I guess the point is, it's longer than one person's lifetime is the key thing. And also, it's long enough so that it's detached from business cycle risk, detached from near-term political views that people might have. And so it's just a horizon that's longer than that. There is also, though, a methodological element to it as well, in terms of what are the forces or variables we need to focus on here? Because over horizons of, say, 10 years and 20 years, I would argue that valuation matters a lot. And there's always a case made for mean aversion having a role to play.

• 21:08Speaker 01

  But over really long horizons, our research suggests that becomes somewhat less important. So you have to really think about things like real growth rates, for example, as mattering much more.

• 21:17Demetri Kofinas?

  Okay, so that was going to be my question, essentially, which is how does investing for the ultra-long term differ from investing for the short term or even investing with a horizon spanning 20 or 30 years? Because I imagine it isn't just about the philosophy, but it's also about the legal structures that you seek to implement in doing so. So what would you say are the really key distinctions here?

• 21:37Speaker 01

  Yeah, I guess you could always think of investing of different horizons. Firstly, some people would claim that the long horizon is simply a concatenation of short-term periods. I don't think that's necessarily the case, because there are certain investment techniques that you would be able to bring to bear over long horizons, but that you wouldn't in a series of short horizons, although it prompts all kinds of agency problems if that's being outsourced to other investors, for example. So over short horizons, horizons less than a year, things that are to do with more technical considerations and momentum and flows matter a lot. Over horizons closer to the 10-year mark, as I mentioned, I think that valuation plays a very important role, obviously along with that considerations around growth rates.

• 22:22Speaker 01

  And as the horizon becomes much longer than that, I think that the probability of defending purchasing power becomes critically important. So the ability to deliver real return. Now, I guess you might say that many investors can care about the inflation-adjusted value of their assets, and so are more about hedging inflation risk, if you like. But what people mean by that varies a lot depending on their horizon. So, for example, if you take an investor who has a horizon of rolling one year, and they worry about inflation risk, what they have to do in their portfolio is buy assets or construct it in a way that actually correlates with inflation. So they have to buy things like commodities or TIP securities, et cetera, that actually correlate with inflation.

• 23:06Speaker 01

  If you worry about inflation, but you have a long horizon, I would argue you don't actually care about the correlations of assets with inflation, per se. But what you care about much more is what is the probability that this asset will deliver a real return over an extended period of elevated and potentially volatile inflation? And that's not necessarily the same kind of asset. It could be equities, it could be farmland that has no correlation in short-term with inflation, et cetera.

• 23:30Demetri Kofinas?

  So you argue in the paper that with the increased share of invested assets managed by family offices and wealthy individuals, and also by sovereign wealth funds, more assets will be invested with a view toward genuinely long horizons spanning more than a single generation. What share of global investable assets sit in vehicles with ultra-long, multi-generational structural horizons? And how has that share changed over time and over the course of your career?

• 23:56Speaker 01

  Yeah, it's very hard to get really good numbers on this, but it's a small minority of assets at the moment. So it's on numbers we've looked at, it's sort of high single digits percents of assets at best. It depends a lot on how you count it. But I think also that's reinforced somewhat by shifts that are happening elsewhere. So, for example, there's a much larger pool of assets that underpin the global pension system, and that's undergoing its own slow change over time, away from being dominated by defined benefits, shifting towards defined contribution, which happens in parallel to be shifting investors' concern away from normal assets to real assets. So there's some other pools of assets that are operating on still long but shorter horizons

• 24:40Speaker 01

  that happen to be moving in the same way, and that perhaps amplifies even more some of the issues raised in this note.

• 24:45Demetri Kofinas?

  Well, it seems that the percentage of each marginal dollar is increasing. And it's really, I don't have a way to, I don't have a number to put on this, I've read different reports, but it feels to be very true. I mean, there feels that there's been really an accelerated growth in the concentration of wealth at the very highest levels of society. And I'm curious, we're somewhat deviating a bit here from the portfolio discussion, and we'll come back to it, but how do you think about how this impacts the structure of economies in terms of where demand goes and price signals and market prices? And how does it impact the democratic process, so to speak?

• 25:26Demetri Kofinas?

  And one area where we see this, I think, right now is in the AI debate and concerns about concentration risk, et cetera.

• 25:32Speaker 01

  Yeah, these are great questions. So I mean, I guess a lot of this goes back to the seminal work that Piketty did and published in, I think it was 2015, Capital in 21st Century, and his exhaustive documentation of the shift in wealth inequality over time. And of course, it's interesting, a few things can come out from that. So one is that, as I said, there's always some degree of wealth inequality, but if there are strong increases in asset prices, then that tends to increase inequality because it's the rich that own the most assets. But then the strange thing that happened is that you also got this shift in income inequality driven by a shift in wage structure across societies. And so you've had these two forces which have driven inequality.

• 26:15Speaker 01

  And then, as you say, it's front and center of the AI debate, where often this question is raised, does the path of AI which we happen to be going on, which is a choice, this hasn't got to be this way, one whereby there is a risk for jobs for many people, but a small group of people end up being much richer as a result? Now, again, I don't think there's anything inherent in AI that means it has to be that way, but that seems to be the social and political path that we're on as a result. So you see this inequality, but you also see it in willingness of voters to have systems whereby corporates take an increasingly large part of the pie. That's certainly been happening in the US.

• 26:57Speaker 01

  And so there's a separate podcast story, really, but there's a whole story around US exceptionalism, why that exists and why I'd want to defend it. But one part of that is the profit share of firms in the US is as high as it's been in decades, and it seems to be higher in the near term. And rather remarkably, perhaps, so far, these voters haven't pushed back on that. Now, I do think there has to be some kind of limit, both to profit share and to inequality. There's this very interesting, large work done by Luke Kemp in recent years called Goliath's Curse, where in the book, he goes back through the long sweep of human history and shows that one key predictor to societal collapse is an increase in inequality, with

• 27:40Speaker 01

  not too subtle references to, I guess, the issue that we face today. So I do think it does prompt really quite important questions about the level of social acceptiveness, but that's something which I guess we're beginning to see perhaps in some of the backlash against AI at the moment.

• 28:00Demetri Kofinas?

  So you're based out of the United Kingdom. I don't know what the laws are there or in other European countries, but over the last 30 or 40 years, a majority of US states have either abolished or effectively gutted the rule against perpetuities, which is essentially a common law doctrine that for centuries forced dynastic wealth back into individual hands within roughly 100 years, where it would be subject to estate taxes and the normal entropy of generational wealth transfer. The result is the dynasty trust, which allows wealth to compound inside a tax-sheltered structure essentially in perpetuity. When you think about this shift toward longer investment horizons and more concentrated

• 28:44Demetri Kofinas?

  pools of capital, how much of what we're seeing is a structural change in the legal architecture that now makes dynastic wealth preservation more possible in a way that it maybe wouldn't have been either for, even for the wealthiest families like the Rockefellers?

• 28:58Speaker 01

  I see this as mainly driven by just the shifts in wealth creation rather than necessarily legal choices. Now, obviously, legal choices can come along and disrupt this, accelerate it, counteract it in some ways. And as I said, I think that there will be some political pressure and social pressure against big increases in inequality. But no, I see this mainly as a function of the process we've gone through for a long time, which is this huge generation of wealth and the obvious desire to set up structures that allow that to exist in perpetuity. But it does go beyond that as well, though. So again, if you think about the role of sovereign wealth funds as well, and there's a gray area between a sovereign wealth fund and a national pension system that is funded

• 29:41Speaker 01

  in some way, and I think there is a gray area there, then there is a recognition of the idea that there are savings needs and that are truly long-term, and critically are inflation-linked in nature, that have to be met through bigger structures.

• 29:57Demetri Kofinas?

  So, as I mentioned probably a number of times already, the subtitle of your paper is "A State of Mind Rather Than An Allocation." What is the mindset that someone needs to have to create the conditions under which a portfolio will be successfully managed for 100 years? And how does this mindset relate to governance?

• 30:15Speaker 01

  Yeah, so I guess the first obvious point to make is that people are allowed to rebalance their portfolios in a 100-year horizon. But there isn't one allocation that we end up with at the end of the note and say, buy this and hold it for 100 years. Clearly not.

• 30:30Demetri Kofinas?

  Does that also imply that governance is more important than allocation?

• 30:33Speaker 01

  I think it implies that if one's thinking of long horizons, then governance has a primacy, which I guess probably always the case, but it has a really important role to play if you want to think in truly long-term ways about your portfolio. I mean, for example, it affects the target return that one wants to achieve. So presumably, it pushes one towards... A target phrased something in the terms of needing to preserve purchasing power far into the future, you know, maybe that's a real return target, maybe it's phrased in terms of a percentage probability of not losing money in real terms over ten or 10 years in the future.

• 31:16Speaker 01

  I think all comes down to other definitions of risk as well. So for example, it's quite common to think of risk in a shorthand way as a volatility of returns in a certain year, but that might not be the right way to go and think about it. And so there's a section in the paper where we show that, you know, if you think of the volatility of multi-year holding periods, then the relative volatility of equities and bonds actually looks very different once you extend the time horizon out. And, you know, if you look at the volatility of 20-year holding periods, then essentially the vol of stocks and bonds are equal. Or phrased another way, the probability of a real loss on bonds becomes greater than the probability of a real loss on equities once you extend out beyond a few business cycles. So that implies there's a governance need there in thinking about particular kinds

• 32:00Speaker 01

  of definitions of risk. I think it comes out also in attitudes towards illiquidity. I mean, unsurprisingly, if you're having a very long horizon, then putting a huge weight on a need for liquidity at a certain point in time is probably less likely. I mean, obviously beyond certain set considerations of spending needs phrased in a particular way. And also, you know, if some element of the returns are delegated out, it implies that the time horizon of which you assess the success or otherwise of those delegated returns should be made a timescale that's appropriate to kind of return the generating process involved. So, you know, to extremes, you can imagine a kind of cross-asset momentum investing

• 32:45Speaker 01

  process where the success or failure can be measured over short horizons and a cross-asset value-driven process where it should probably be years.

• 32:54Demetri Kofinas?

  So I'd like to stay with this part of the discussion a little bit because I feel like this is the most wicked problem related to this entire problem set, which is essentially... Now, first of all, how many of the folks that come to you are... Who are your typical clients? Maybe we'll start with that. Who are the people that typically come to you and seek your advice to solve this particular problem?

• 33:17Speaker 01

  Yeah, so I guess I'm quite lucky. I speak to a very broad range of clients. So, I mean, the clients who are asking these kinds of questions tend to be family offices, sovereign wealth funds, et cetera. Whereas I guess the broads who the clients I speak to involves pension systems, insurance companies, et cetera.

• 33:33Demetri Kofinas?

  So for me, as I said, this is a problem that I've been trying to solve for several years slowly. And it seems that one of the central problems here is control. You know, if you're in charge of managing your family's portfolio and you're the one that's created the wealth and et cetera, et cetera, and you want to set the conditions such that your heirs and their heirs will be able to successfully manage the responsibilities associated with the gains that they will accumulate as a result of the fortune that will be bequeathed onto them. You can only do so much to sort of control it from the grave. You have to increasingly create the conditions by which they will be able to manage it over time.

• 34:17Demetri Kofinas?

  And so essentially, my question is, what does that conversation look like when you're speaking with, let's say, a patriarch or a family office where this is the problem that they have? And again, they won't live forever. So what are the key mechanisms that can be put in place to increase the probability that wealth will be handed down successfully? And let's put aside for a moment the important things that need to be done within the family to prepare the children and their children to be responsible, to have the right values, et cetera.

• 34:50Speaker 01

  Yeah, so my colleagues who spend time working in a family, working in individual families, spend a huge amount of time on these kinds of questions and helping with to tell them with that. I mean, that's one of the reasons, I guess, why we have the focus on governance in the note and instilling a structure around governance, which is kind of focused on an appropriate time horizon. I think it comes matched with questions around, you know, education and sort of thinking around the role that, you know, has in setting that up. And also, it can also stretch to, you know, and thinking about these longer horizons, thinking about, you know, other needs or spending requirements that are going to be kind of set up along the horizon, which could be issues that matter to the family or matter to a sovereign wealth entity, for example, in some way.

• 35:32Demetri Kofinas?

  So if you're investing for 100 years, by definition, you're making a conscious choice to forego the consumption of products, services and resources today. Is it important, therefore, to have a clearly articulated reason for why you're doing that other than just, I want to invest for 100 years?

• 35:52Speaker 01

  Yeah, I think being articulate about the reason why investing is always important, but that's true frankly over one-year horizon and over 100 years, but perhaps it becomes even more important over longer horizons since you, you know, have a greater freedom of choices made.

• 36:09Demetri Kofinas?

  And a greater fortune that you could spend. So do certain reasons matter more than others? Are certain reasons better or more aligned with wealth preservation and success over long horizons than others in your experience?

• 36:21Speaker 01

  I'm not sure. I think that people, you know, can set their reasons upfront and should be as explicit about them as they possibly kind of can. And then one can try and respond to that in the best way kind of possible. And if people have particular, for example, kind of payout needs or particular requirements in mind, those can set up front. I mean, in the same way, that's similar, not quite the same, but it's similar to other asset allocation decisions that we help people with over more normal horizons, which, you know, often come down to set your liquidity requirement at first and then other requirements to fit around that. It's just in this case, with that liquidity requirement is presumably very small.

• 36:56Demetri Kofinas?

  I'm really glad you mentioned liquidity because presumably for the strategy to work, the portfolio manager must avoid becoming a forced seller at any point for any reason. What are the optimal liquidity needs of such a portfolio?

• 37:10Speaker 01

  Yes, I think avoid being a forced seller is obviously kind of key in this. There is an interesting question mark about, you know, how much liquidity backstop is needed. So I guess number one, obviously, any, you know, needed payout has to be set outside of this structure. So that's sort of set sort of ex ante, if you like.

• 37:29Demetri Kofinas?

  Can you elaborate on what that means?

• 37:30Speaker 01

  Well, I mean, in the case of either some national entities or families, there'll be some suspending requirement that is required each year. And the key thing is to be overt about that and not let that drift upwards in good times, for example, and be more kind of focused on it as being really a hard, long-term kind of set number. And if it is going to be changed, that requires some due deliberation, again, not just because it happens to be a run of five years or 10 years of good numbers. But then beyond that, there's a question of, you know, is there a need for holding liquidity back to be opportunistic at certain points in time? Now, there are two sides to this. One is making sure there's enough liquidity to not be a forced seller, and that comes front and center.

• 38:13Speaker 01

  But the value of having liquidity that's held back kind of depends on are you actually going to use it? And are you going to use it to invest in broad asset class decisions or single assets that might be trading at very dislocated prices? Now, if you are going to be the kind of investor who is willing to jump into those kind of opportunities, then the value of that extra liquidity held back will be greater. If you're less certain about it, or if the opportunities you're looking for are only at the asset class level, then that can be an opportunity cost and drag on the portfolio, in which case you end up with a portfolio that's closer to being fully invested.

• 38:52Demetri Kofinas?

  So I have a doubt, I have a section in my outline labeled risks of wealth destruction. So we might end up actually touching on that later, but are there certain periods where having discipline around liquidity management is especially important? When I say periods, I mean regimes. For example, high tax regimes, you know, where you have highly punitive capital gains taxes, where selling assets from the portfolio will devastate your long-term returns. How do you think about the fact that these cycles themselves can be generational? And so one generation may have to be very different in how it manages its liquidity needs than a different generation?

• 39:32Speaker 01

  Yes, I mean, that I think is points to questions of both liquidity, but also tax arrangements in general. I mean, sort of slightly set from this and running through the whole paper. You know, I have this view that, you know, at least for foreseeable decades, we probably face somewhat a lower return future. And it's evident that government debt to GDP is a very high level. So whatever the current crop of politicians say across many countries, my view is tax rates are going up, you know, at some horizon. And so the combination of the two views imply that the value to a taxable investor of the tax planning actually becomes

• 40:13Speaker 01

  a larger share of the taken returns than they've had for many years. Now, again, that applies over short horizons as well. But that's certainly a consideration that runs through the note. You know, I think, though, that in the section note, where we do talk about, like, what damages, you know, wealth in the long run, just to bring that in, because I think it's relevant at this stage, inflation's a key one. I mean, yes, at certain points, obviously, impunitive taxes can be a problem, or social dislocation can be in a very acute problem, it's very hard to diversify against, but we're making sure that you are generating those real returns over longer periods of time. And that is the critical, you know, long run theme that kind of runs through constructing portfolios, these kind of horizons.

• 40:55Demetri Kofinas?

  So again, I'm glad you brought up inflation, because you, in the paper, you advocate abandoning market-based cross-asset benchmarking and other institutional financial frameworks in favor of purchasing power preservation. Can you elaborate on this? What do you mean by that purchasing power preservation?

• 41:10Speaker 01

  Yeah, I really mean that the reason why most people invest, and hasn't got to even for long horizons, is to meet some need in the real world. I mean, I guess it was obviously retirement, but it could be educational needs or-

• 41:21Demetri Kofinas?

  Potential healthcare needs-

• 41:22Speaker 01

  Exactly.

• 41:23Demetri Kofinas?

  Starting a business.

• 41:24Speaker 01

  But these are things that are clearly, you know, real spending requirements, and they have an inflation number attached to them. So, you know, investing, you know, for most people, you know, has to involve achieving an ability to, you know, at least preserve and ideally kind of grow your ability to spend on real terms. So, you know, hence inflation, I think, is a more, you know, natural, long-run benchmark for many people. Now, it happens to be the case, we've been through, you know, at least in the, you know, 20 years prior to COVID, anyway, a period where inflation had been very benign, asset class returns are very, you know, strong in real terms. So people kind of perhaps were lulled into full senses of security, their ability to outperform inflation while

• 42:08Speaker 01

  taking a relatively low level of risk. And I think that is probably different in future. Again, it's not a bearish message, it's just a more complicated message. So I guess that's the second reason why I think inflation matters. And the third is, you know, I think in the finance industry, we have become a bit over-obsessed by benchmarks. And this whole kind of cottage industry of just kind of growth and benchmarks in all kinds of ways. I mean, we showed in the paper a while ago that the number of equity indices in the world was already measured in the millions, whereas there only are about 45,000 stocks all in in the world, including small caps. But the idea there being at least 60 or 70 times as many buckets to put things in as there are individual assets seems a bit ridiculous,

• 42:49Speaker 01

  yes. And so that raised some questions around the, in about the risk of, you know, being overly focused on benchmarks, even within an asset class. And then if you think cross asset, and the problem becomes much worse. Now, I would argue that there is no such thing as a default, natural cross-asset benchmark. I mean, some people would say, oh, well, surely it's 60-40. Well, yes, 60-40 is often the default allocation people use, but it happens to have done well in the last 40 or 50 years. But there's no theoretical basis for it, really. It just empirically happened to work well in this kind of time period. And I'd argue that there isn't a natural way to weight assets across asset classes. You have to

• 43:30Speaker 01

  think about it in a more risk-based approach, you know, or think about targeting inflation. So that becomes the thing that is an, you know, exogenous level, you know, over which you have to achieve a return.

• 43:43Demetri Kofinas?

  What does that look like in practice? I mean, even targeting inflation is hard to quantify. You could target CPI, but even that doesn't necessarily capture what we're talking about. And it's also arbitrary. It can be adjusted by the government, depending on the regime. So how would you describe the most sort of prudent way of approaching this in practice?

• 44:02Speaker 01

  I mean, I guess it just means, especially over long horizons, that the assets you're buying are going to be biased much more towards real assets, assets that either by the legal nature underpinning the return stream, or empirically through the return distribution that they generate, that these are assets that deliver a return in excess of inflation. And that ends up being there's a dominant sort of asset that one has exposure to. One thinks about the risk metrics that you use, you know, probably more geared towards the risk of a real loss over time horizon, but that's appropriate. So if you have those two things that I would point to, there's always a question mark about what level of inflation to go and use, because, you know, everyone actually in practice faces a different

• 44:47Speaker 01

  level of inflation. But it becomes very cumbersome to go and think about that for many, many people. So I guess for, you know, a shorthand approach, you'd say, well, I want to outperform, you know, an ex-year forward view on inflation, you know, in the domicile that one's based in. Obviously, one can come up with something much more specific than that if people have very particular needs.

• 45:08Demetri Kofinas?

  What are some examples of assets that aren't real?

• 45:11Speaker 01

  I guess nominal bonds is the obvious. So obviously, you can guarantee a return stream set in nominal terms. You know, also, I'd argue there are elements of the equity market that are not real. I mean, overall, I say in the note that the equity market is the biggest real asset out there. And the basis for that is the ability of corporates to pass through inflation by increasing prices and passing it through dividends. But there are other elements of the equity market, such as issuance versus buyback activity and levering up of corporates, which are financial activities rather than real activities.

• 45:43Demetri Kofinas?

  Are growth stocks less real than value stocks or value stocks that issue a healthy dividend, even though they're both real companies? Is there something-

• 45:54Speaker 01

  That depends, I guess, on the nature of the return streaming generator. So for example, there are, you know, kind of growth stocks, say, in the, let's say, the healthcare sector, where there's, you know, a good long-run ability or a good long-run evidence that one can raise prices in line with or in excess of broader inflation. So they count as delivering a real growth in the long term. Likewise, if there are, you know, upward shocks in discount rates, then perhaps it moves one more towards short-duration stocks. And by that, I mean, in the value companies. But then, even with them, there are differences between them. So for example, one could think about companies linked to the commodity

• 46:39Speaker 01

  complex. So, I mean, energy being the most obvious example, where the dividend streams are linked to some kind of exogenous real asset, I mean, albeit indirectly, the link is there though still.

• 46:49Demetri Kofinas?

  So I have a couple more questions before we move into the second hour. And again, let's go back to diversification. So you argue in the paper that investors need to reconsider, and you did so in this interview as well, reconsider their definition of diversification, moving away from cross-asset correlation within the Markowitz framework toward one informed by different global conditions. So here, we're really talking about risk versus uncertainty. What are those different conditions? And how should the portfolio adjust accordingly?

• 47:16Speaker 01

  Yeah, so I guess a few things to unpick here. So firstly, we're putting less weight on simply diversification, we can't measure this correlation, partly because there's a, you know, risk that the last 20, 30 years has been this period that's been very special. And that is correlations we've observed over that period don't necessarily apply in future. I think one particular thing from that that I would pick out above all others is the, you know, observation that up until 2022, the correlation of stock returns and bond returns was negative. And that's been somehow embedded into people's kind of thinking. I would argue that that shift since 22 to the correlations asset classes being positive is firstly, a return to normality. So if you go back over the 200 years prior to the

• 48:01Speaker 01

  last 30 years, that correlation was positive most of the time. And secondly, that's more consistent with a world where we face inflation shocks, be it from climate or from deglobalization or from risk of debt monetization, which are not growth-linked. And so I think there are the reasons why those correlations, which have been super helpful for investors in a cross-asset class sense in recent years, aren't there anymore. So they need to do something different. And the second, you know, aspect which pulls us towards a slightly different process is this idea of, of the uncertainty about the future. And again, I really want to stress, you know, I don't want to just take the view that the future's always uncertain. There are a few things we can point to now, particularly AI, climate,

• 48:41Speaker 01

  geopolitics, and the breakdown of the rules-based order, that mean we have some, you know, extreme divergence in future forecasts or where paths could take us. So one wants to build a portfolio that is robust across some different examples of those paths, and especially when we have a very poor ability to model- What policy and growth looks like across them?

• 49:04Demetri Kofinas?

  Is this what you mean in the paper when you talk about the need to adopt a total portfolio approach that looks across public and private risks?

• 49:11Speaker 01

  It's linked to that. I mean, the total portfolio approach is a specific approach to constructing portfolios. It's become much more popular and talked about much more in recent years, although it's by no means new. Certainly something we're talking to clients about, you know, say a decade ago, but it's become much more popular recently. In essence, a total portfolio approach is thinking about risk in a holistic sense across the portfolio. So what that means is kind of denying the primacy of asset classes in the way you partition and allocate to risk in a portfolio and think more freely about that. So I think in terms of the more fundamental factors that drive portfolios and it leads to, you know, perhaps

• 49:53Speaker 01

  a, a more efficient way of allocating risk that I would argue is helpful in an environment where diversification is hard to achieve. Now, it's not for everyone because it requires a big shift in governance and these kind of shifts in governance are things that should be done very humbly and slowly over time, particularly for large organizations. And, you know, some organizations have moved in this direction, but for organizations, it can be difficult to, you know, implement that kind of governance change. But this is an example of where a response to a slightly different kind of regime, you know, is helped by a total portfolio approach because you could think of, well, I want to build a portfolio

• 50:35Speaker 01

  that has returns to use that can survive in a world where temperature increases, say more than two degrees and there's geopolitical change and there's an unexpected shift in the way AI changes job creation, say.

• 50:49Demetri Kofinas?

  So Inigo, I'm going to move us to the second hour. There are three categories of conversation that I would like to dissect. One is allocation, looking at equity, real estate, gold, bond allocation. Also, what constitutes a risk-free asset or how does one manage risk in a world where bonds do not play that role consistently? I also want to discuss risks of wealth destruction. As I mentioned earlier in the conversation, what are the primary drivers of wealth destruction over time? How important is tax planning? What role do war and confiscation play in changing legal regimes? Also, climate change, which you mentioned. And then I want to get into a broader macro discussion really about the current climate, you know, and we can have a chance there to discuss equity, US

• 51:30Demetri Kofinas?

  equity versus US dollar exceptionalism, the effect of the fiscal picture on equities, the Fed and Treasury credibility, and a number of other timely topics. For anyone new to the program, Hidden Forces is listener supported. We don't accept advertisers or commercial sponsors. The entire show is funded from top to bottom by listeners like you. If you want access to the second hour of today's conversation with Inigo, head over to hiddenforces.io/subscribe and sign up to one of our three content tiers. All subscribers gain access to our premium feed so you can listen to the rest of today's conversation on your mobile device using your favorite podcast app, just like you're listening to

• 52:11Demetri Kofinas?

  this episode right now. Inigo, stick around. We're going to move the second hour of our conversation onto the premium feed.

• 52:20Demetri Kofinas?

  If you want to listen in on the rest of today's conversation, head over to hiddenforces.io/subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, you can also do that through our subscriber page. Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter at Kofinas and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.