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Cerberus Makes Hasty Exit From Freedom Group

 December 20, 2012 10:15 AM

Investment decisions should always take fundamentals into account.  I say "should" because sometimes a portfolio manager's fiduciary duty to satisfy a client's whims take priority over a sound investment in a healthy, market-dominant company.  Cerberus is selling its stake in Freedom Group because that will satisfy CalSTRS' demands.  This decision has nothing to do with whether the investment in question has been a winner.  The chief product of this particular sector has seen record-breaking sales in 2012.  Cerberus is a middle step between institutional investors and the capital markets.  It has to pay as much attention to future rounds of fundraising as it does to the performance of present holdings.  Satisfying CalSTRS now assures a future audience for Cerberus' fund offerings.

[Related -Savings Glut and Financial Imbalances]

Some investors let emotions rule their thinking.  Big news events that hit close to home have an impact that financial models can't measure.  Bad news about one school can upset teachers anywhere, and their plan sponsors' money managers are paid to listen.  A state pension plan forcing its money manager to leave a healthy firm should be able to explain to its pensioners why it won't be able to pay their benefits if it can't achieve its target discount rate.

Full disclosure:  No positions in entities mentioned.

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