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Mormon News Podcast Episode 3 – 5.31.18
John Dehlin, Ryan McKnight, Sean Carter, and John Hamer discuss:
This does not surprise me. Back in 1981 & 1982 I worked for a subsidiary of the LDS Church called Deseret Mutual Benefit. This was before they became the insurance administrator they are today. Our investment portfolio was very similar to the Church, just on a smaller scale. My job was to post the dividends received from investments which included stocks, bonds, and mortgage loans. The income from these investments helped to pay for the retirement and spousal benefits of general authorities and their widows. At the time I was surprised by the investments but over the past 30+ years I’ve learned to not be surprised the the billions that the Church chooses to invest in the stock market and not in their own people and the world outside of the LDS Church.
It’s a shame to hear about the Church hording all that money when we need so much help in our community with opioid addiction and homelessness. What do they spend the money on instead….City Creek Center.
Nice of them to own Sturm Ruger RGR in the midst of our nationwide shooting epidemic .
At 138K USD, this is one of their smaller investment and statistically insignificant. But the moral implications are greater for an organization that prides itself in “righteousness”. Still, I am more troubled by the Walmart investments.
The reason they hide this type of money is because of this one main reason I think, what do you think would happen with the rank and file Mormons when they find out church employees or managers make 500 grand to 10 million a year. Its the main reason I quit believing and paying tithing over 5 yrs ago, it had nothing to do with church false history. That knowledge came later and just made it all the better to know what a scam this business is, but then again most religions are in it for the money. If it was widely known that the 100 plus GAS and 100 plus employees make even 500 grand plus a year most educated people would realize this is big business and thats it. If it was a christian based church then it would do as most others do and give back to the poor etc, give back over half but that doesn’t happen, this church is so far from Jesus Christ that they should drop his name from the title. NEW NAME the church of the latter days saints.
I looked it up.
The for-profit corporate holdings (LLCs) together, and apart from any income-generating real estate holdings that it owns – just these LLCs – make the Corporation of the Presidency of the Church Of Jesus Christ of Latter-Day Saints into a Fortune 100 company. It comes in just behind Conoco-Phillips, and just ahead of 3M Corporation.
It would be interesting to see where the church would come in if ALL of it’s assets and/or income could be included in such an analysis.
I heard mention that the church might possibly be managing other’s money such as donors or associates. And that some of this money is not church money. Maybe I can shed a little light.
In order to manage anyone’s money but your own, by law, the companies (ie: Ashmore Wealth, etc… ) must be investment advisors registered with the SEC. They would be found on the SEC website for registered investment advisors. They have to file a public document called the ADV which documents all of their managers, employees, investment strategies, assets under management, etc. I looked and saw no such companies registered with the SEC, so I would conclude that they are managing their own money in these companies not any money that doesn’t belong to them. That is the only way they could manage that much money, without registering with the SEC.
For example. You can go to this link: https://www.adviserinfo.sec.gov/IAPD/default.aspx and search any advisor that has more than $100 million under management. It will bring up their ADV and you can read all about their company, employees, etc. It is very transparent.
One thing to be aware of is that having a $32b portfolio is not the same as having $32b in capital. Many alternative investment managers use leverage: loans from brokers to boost returns from safe-ish investments (incurring extra risk of course). To make an analogy, suppose you bought a $250,000 home and put down 20%. That means you’ve tied up $50,000 in the home and you owe the bank $200,000. Assuming you have no other savings or debt, your net worth is $50,000, not $250,000. In this case, you’re 4x levered: for every 1 dollar of your own money in the house, you’ve borrowed 4 dollars.
* Mutual funds don’t use any leverage and are “long only”.
* Fiscally conservative institutional investors often have 30-50% leverage (0.3x to 0.5x) in what’s called a 130/30 or 150/50 fund.
* Other types of investments commonly have 3x to 10x or even more leverage.
I personally know that Ensign Peak has looked into investment strategies that use those higher leverage ratios, but I suspect that most of the investments are of the very conservative style. From the few rumors I’ve heard over the years, my understanding is that Ensign Peak has been traditionally extremely conservative but has been trying to branch out. I’d guess that if the $32b number is accurate, then they actually have around $20b-$25b in capital, but it could be as extreme as them only having $3b.
One way to get a feel for what a firm is doing is to look at their 13F filings over time. See if they’re holding investments for the long term versus churning a lot.
For stock holdings, I’d guess that EP has at least half in the US. Many non-US markets are less mature, are difficult to trade in, and come with a lot of extra risk.
The person that shows up in the 13F filings often isn’t the person making the investment decisions. I work in finance and looked up a 13F for my firm. The person on record there is someone who deals with the legal stuff, for example making sure that the filings are done exactly correctly.
You need to educate yourself about what a Charitable Remainder Trust (CRT) is. Here’s a start: “A charitable remainder trust is a tax-exempt irrevocable trust designed to reduce the “taxable income” [emphasis mine] of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to the designated charity. This is a “split interest” giving vehicle that allows a trustor to make contributions, be eligible for a partial tax deduction, and donate remaining assets.” (for a more in-depth explanation go to https://www.investopedia.com/terms/c/charitableremaindertrust.asp).
There are tax advantages to the person funding the trust, and like any trust, the trustor designates how the funds of the trust are distributed after their demise. There’s nothing nefarious about a CRT. I have a friend who set up a CRT for the tax advantages it offers. His only son, an irresponsible, drug addicted, abusive person, will get nothing. No parent has to give any of their estate to their children! Warren Buffett’s children and grandchildren will not get his billions; his billions will go to the Bill and Melinda Gates Foundation. Every person who has wealth is free to give their money to whomever they want.
As for the Church having billions in investments: SO WHAT! No one has to stay in the club. Anyone can leave, just like I did, at any time. The money I gave in the past was given freely; the money I no longer give to the church is withheld freely.
You may want to hire a professional fund raiser to invest some of the Open Stories Foundation’s money so that it can do more of what it does. Hell, hire someone away from the church’s investment department – they seem to do a good job of growing money.
This thread provides interesting speculation into what the church might be worth:
Along the lines of what Ryan said in the episode with the $400-500b estimate.
Chosenottoworkatensignpeak – from what I read online the only investments on schedule 13F are long equity positions. So I don’t believe the leverage angle would fully apply here…
Ryan and/or John or Anyone
* * I have asked this before and never received an answer, so I am guessing that it is super secret and folks do not want to answer. * *
Who or what is the: © 2018 by Intellectual Reserve, Inc. All rights reserved. – Intellectual Reserve? Who owns it, or runs it, officers, owners, location, office, etc?
@A: You’re correct that 13F filings only show long positions. The catch is that they show the entire long positions, and that’s the sum of capital-backed plus leveraged-backed investments, not just the capital-backed.
For one example, suppose funds A and B both like company Y and both are big enough to file 13Fs. Fund A buys $10m using only its own capital. Fund B spends $1m of its own capital and borrows $9m more to purchase $10m total. Both A and B would report a $10m position in their 13F filings.
The relationship to 130/30 and 150/50 funds is how they use short positions to get leverage. Let’s consider a 150/50 fund since it makes the numbers simpler. We’ll change the scenario a little. Suppose EP decides that the CoJCoLdS’s messages about the evils of gays are sinking into the wider public. They believe that GaysRUs will go out of business soon and ContactFreeDanceClub is the next big thing. They could get someone to let them borrow $5m of GRU stock and then sell that borrowed stock to someone else. They could then use that $10m in cash along with $5m of their own capital to buy $15m of CFDC. If GRU goes bankrupt, they can buy back the shares for free and give them back to the person they borrowed them from. If CFDC doubles in price, their shares are now worth $30m because they used the funds they got from selling the GRU shares they borrowed. Now they profit $30m-$10m=$20m. They had 0.5x leverage that came from the borrowed GRU shares. If they hadn’t used any leverage from GRU, they would have only bought $10m which would double to $20m, profiting them only $10m. If they filed 13F forms right after making the original transactions, they would have reported $15m (their total long position), not $10m (the amount of their own capital that backed their long positions).
There are plenty of strategies that have similar risk to a 150/50 fund that use much higher leverage ratios.
The point here is that it’s possible that EP actually has substantially less than $32b in capital. If they liquidated (sold off) their whole portfolio, they might only keep a fraction of it because they need to pay back broker loans and/or buy back stock they’ve shorted so they can give the shares back to the original owners. It’s hard to say how much leverage EP has without knowing more about what trading and investment strategies they use. So it’s worth being a little cautious about drawing strong conclusions about how much money they have.
I swapped two numbers in the 150/50 scenario.
They could then use that $10m in cash along with $5m of their own capital to buy $15m of CFDC.
IT SHOULD READ:
They could then use that $5m in cash (from selling the borrowed shares) along with $10m of their own capital to buy $15m of CFDC.
Look at the SEC’s response to question 41 here:
Their answer is pretty vague. Do you still believe that 130/30 and 150/50 strategies would appear on the 13F?
Six minutes and twenty seconds are not statistically significant in the grand scheme of things either, unless of course you are one of the 17 Parkland victims.
@A: Hopefully a new example will help illustrate what question 41 on the SEC website is talking about. We’ll start with a new contrived example, I’ll then assert that I’ve looked at real data from real funds and 13F filings and it’s consistent with the explanation in the contrived example, then we’ll briefly look at why 13F filings work they way they do (spoiler: it’s about voting rights). Finally, we’ll tie these points back to the discussion about Ensign Peak.
A NEW SCENARIO
We need a slightly more complicated scenario now. One thing that’s important to know is that 13F filings give per-stock information. The focus is *not* on the total value of a fund; that’s not what 13F filings are for.
Let’s say fund F has three portfolio managers: MA, MB, and MC. Each of those portfolio managers makes independent investment decisions, even if they contradict other managers. Each manager has his own separate accounts. Yes, some funds actually work this way. To avoid making this post even longer, I’ll just assert this is somewhat common with large investment management firms. Returning to our example, we’ll assume all portfolio managers always trade directly and independently with the public stock market, even when they disagree.
Manager MA thinks company Y and Z are both good and buys $10m of each.
Manager MB thinks they’re both bad and shorts $5m of each.
Manager MC thinks Y is great and Z is terrible so he buys $20 of Y and shorts $20m of Z.
Then fund F simultaneously has
* a $10m+0+$20m=$30m long position in Y,
* also a 0+$5m+0=$5m short in Y,
* a $10m+0+0=$10m long position in Z, and
* also a 0+$5m+$20m=$25m short in Z.
As a fund, it has a net exposure of $30m-$5m=+$25m in Y (a net long position) and $10m-$25m=-$15m in Z (a net short position). The net portfolio across all of fund F’s positions in both Y and Z is $25m-$15m = $10m long. For 13F purposes, we don’t care about any of these net numbers.
For 13F purposes, the SEC wants to know the total long position across all managers, ignoring the shorts. This means fund F must report $30m in Y (bullet 1) and $15m in Z (bullet 3). For 13F purposes, the SEC doesn’t want to know about the $5m and $25m short positions. Also, they don’t want the fund to net the short and long positions, e.g. the fund would get in trouble if they reported $25m for Y (instead of $30m) and/or $0m or -$15m for Z (instead of $5m). Furthermore, for 13F purposes, the SEC doesn’t care about leverage ratios.
Aside 1: the SEC does care a lot about short positions, but they get reported in other ways. There are a bunch of extra rules that come into play for shorts, but also less transparency.
Aside 2: the SEC does care a lot about the total size of funds, but these also get reported in other ways.
Aside 3: simultaneously holding a long and a short position in the same stock is called having a “boxed position.” All else being equal, boxed positions held by the same investor are inefficient because they cost extra brokerage fees (and neither the investors nor the investment managers like paying brokerage fees). When boxed positions happen, it’s often to make accounting and auditing easier. Simple and clear accounting helps everyone be sure nobody else is cheating (and helps catch the bad apples when they do show up), even if sometimes it results in paying otherwise unnecessary fees.
VERIFYING WITH REAL DATA
I spot checked a little data from some real life funds where I know the positions, leverage ratios, and 13F contents. I looked at a mix of long-only, 130/30, 150/50, and high leverage funds. The 13F filings were consistent with the fund F example above: short positions were ignored and the report included the sum of long positions, ignoring shorts and ignoring how much leverage was used to buy those shares.
WHY DOES IT WORK THIS WAY?
A lot of stock regulations exist so so investors have can understand who controls a company. This lets them guess what decisions the company will make and thus can help them decide whether and how much to invest in the company. 13F filings help with this.
Suppose that the top boss of all the portfolio managers at fund F decides he wants to force companies Y and Z to merge, regardless of what MA, MB, and MC think. Let’s say that both Y and Z are worth a total of $100m each. F gets voting rights proportional to its long positions, ignoring its short positions. F has a total long position of $30m in Y and $10m in Z. So it controls 30% of the votes for Y and 10% of the votes for Z. It doesn’t matter that fund F is simultaneously holding short positions in both, making their net position in Y smaller and and giving them a net short position in Z. Only the sum of long positions matters. This is one of the reasons why 13F filings are for only the long part of the investments.
Aside: yes it would be silly for a fund to have massive boxed positions in a some company, especially when it’s doing something akin to a hostile takeover. In all these examples, we’ve pretended shorting is free, but it’s pretty far from free. Also, there are a lot of extra regulations and reporting requirements that kick in with large long and short positions.
WHAT DOES THIS HAVE TO DO WITH ENSIGN PEAK?
We’ve drifted off a bit from Ensign Peak here. The main point is that a 13F filing doesn’t actually tell us that much about how much capital a fund actually has. The reason we can’t make strong conclusions about their capital base is because we don’t know their leverage ratio. Leverage comes from two major sources: direct leverage via loans from brokers (in something called a margin account) and implicit leverage coming from using the funds from shorting some stocks to increase how much you can buy of another stock. The short positions aren’t reported in the 13F filings. The long positions are reported as total longs, regardless of how much of those positions were purchased with investor capital and how much were purchased with leverage (from loans and/or proceeds from shorts that are never reported on a 13F).
Growing up, I distinctly recall the prophet frequently and proudly declaring in General Conference that the church has zero debt … sometimes with a caveat that for business reasons it would sometimes take out loans but it always set aside an equal amount of cash (a bit like using a credit card but never spending more than you already have as cash in your bank account). If that is still strictly true and if Ensign Peak’s investments are considered part of the church for such declarations, this would imply that no leverage is being used. For example, if you short a stock, you don’t *have* to use the proceeds of the sale to buy some other stock; you could just lock it up in a bank account. I suspect that the church’s investments have been long-only and completely unlevered until recently. Being debt free has just been too important of a bragging point. If Ensign Peak is unlevered and long-only, then the $32b number should be pretty accurate as the amount of capital it has in US stock investments.
That said, I would be very surprised if Ensign Peak isn’t using at least some leverage. I know they’ve looked into investment strategies that only make sense if you allow for shorting and/or leverage. My guess is that most of the people there work with zero or little leverage, but I suspect they have one or two small groups that do use shorting and/or leverage in non-trivial ways. The first part of that guess is compatible with what I see in the LinkedIn profiles associated with EP.
Bloomberg describes Ensign Peak as investing in equity (stock) markets (see https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=12632780). As far as I know, we don’t have information about whether they also use derivatives like options and futures (which don’t show up on 13F filings). I’ll assume that EP doesn’t handle their real estate and private business ventures. They might also have non-US investments though. The US, Canadian, and Mexican stock markets account for about 40% of all the world’s stock value (https://www.visualcapitalist.com/all-of-the-worlds-stock-exchanges-by-size/), so it’s possible that the US stock investments are only half of their worldwide investments.
So the extremes are:
* if they’re US-only and highly levered they might only have $3b in capital or
* if they’re balanced across the world and don’t use any leverage whatsoever then they might have $60b in capital.
The $32b figure is informative, but without knowing more about what EP really does, there are pretty huge error bars around the amount of the church’s capital they manage.
Because of all of this commercial investment activity, I have stopped paying my tithing to the church over a year ago and started donating 10% tithing to organizations that are doing work more in line with the scriptures…feeding the hungry, clothing the naked, freeing the captive, taking care of the widows and fatherless. My bishop and stake president were obviously not happy my decision and as a result, have revoked my temple recommend. Mind you…I AM observing the principle of tithing, just not paying it to the LDS institution. The church does not recognize my actions as obedience to the principle. I have not been vocal about this at all, yet I’ve been given a proper “mormon shunning” by being released from my calling and have not received a calling or asked to speak or offer a prayer in over a year and a half. I am a High Priest, former HP Group Leader, Bishopric Counselor, Stake HC member, and Stake Clerk.
@CHOSENOTTOWORKATENSIGNPEAK: Thanks for taking the time to provide all that info. Super informative… On another note, do you know how much higher up folks get paid at EP? Are they competitive or do they take a discount?
@A: I’m curious about comp there too. When EP approached me about working there, I was already well into faith crisis mode, so I didn’t pursue it. I referred a few friends, but it didn’t work out for them. I don’t recall right now whether my friends said they were disappointed with the compensation ranges or not. I suspect that EP pays at a discount since that’s typical for the church. Also, SLC is cheaper to live in than NYC or Chicago. The comp range in the podcast feel right for senior staff who are strong contributors to investment returns. I wouldn’t be surprised if a few at the top make a bit more than that, at least in the good years.
As an aside, in the podcast there were some questions about whether EP does underhanded things. I would be very surprised if there’s anything shady whatsoever there, from a legal or regulatory perspective. It’d be an insanely stupid risk for the church to not be very diligent about abiding by the letter of the law.
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