April 1967 — The roots of the current economic crisis may be traced back to the late 1960s. That’s when the financial industry’s emphasis on capital preservation gave way to a new credo of risk and reward. The shift was captured in the second issue of II in a story by one of the magazine’s first editors, George Goodman, the journalist, author and public television personality better known as Adam Smith. In “Performance: The New Name of the Game,” Goodman wrote that the term “performance” has “come to mean a kind of investment policy that seeks rapid appreciation, leaving dividends, safety and diversity behind. . . . The effect is to downgrade the preservation of capital as a goal.”
As Richard Jenrette, a founder of investment bank Donaldson, Lufkin & Jenrette, noted in the same article, this trend away from capital preservation included pension funds “so large that only a small fraction [of them] has to change direction to give a whole new tone to the investment scene.” How many dollars have been sacrificed at the altar of performance over the past 42 years? Too many, at least for such market players as New York–based Cantillon Capital Management, a $4.5 billion asset manager that told its clients on June 17 that it was closing two hedge funds and shifting assets into safer long-only vehicles.
