Can Catastrophe Bonds be Purposively Included in Strategic Asset Allocation?

2020 had around $16 billion of catastrophe bond and insurance linked-securities issuance. Around $47 billion capital remains outstanding. And No, there were no Covid-19 Cat bonds issued prior to the pandemic! I have concluded that these instruments indeterminate payouts have huge optionality which cannot be correctly modelled and therefore this security is not amenable to purposive inclusion – despite their non correlated characteristics – with the strategic asset allocation process. Certain other insurance linked securities may be, but even those are a stretch and should reside within the realm of tactical and opportunistic play.

Capital Structuring Opportunities in the Post Pandemic Global Supply Chain

What role can the financial system play in improving post pandemic global supply chains?

The pandemic has distorted and disrupted global supply chains. Shelves stand empty and inventory to sales ratios plummet. Manufacturing, construction, retail and wholesale trade are especially hit. Business activity is likely to reduce and prices are increasing in lumber, in consumer goods and other sectors.  Scarcity in semiconductors and the auto sector is now very evident.

I have been dabbling off and on trying to properly frame and then answer a perplexing question : What role can the financial system, and in particular global banks, play in improving post pandemic global supply chains? I conclude that the biggest opportunity lies in capital structuring opportunities.

To support my conclusion I explain how i went about it.

UNCTAD has excellent reports and statistics on global and regional trade flows which provided a wonderful sense of magnitude and context. I also examined literature suggesting that supply chains have become global, fragile and sophisticated ever since China joined the WTO. The basic economics literature and bargaining theory outlines conflicts of interest in trade.

With this background, I now am able to demonstrate that there is a huge opportunity for capital structuring & cost of capital arbitrage within international trade. I explain this with a customer view and financing cost of supply chain perspective and then conjecture on the value-add a global bank (or financing institution) can bring. This value-add can be through participating in supply chain financing cost of capital arbitrage, providing as yet undiscovered financial solutions, creating new mechanisms for driving working capital, driving down cost of goods sold, as well as providing the lubricant to immunize supply chains – which in turn will drive more sales and promote global trade growth.

Tax Optimized Strategic Asset Allocation – Why Taxes Do Not Matter?

Managing taxes are clearly an important part of any investment strategy for taxable investors. Harvesting losses, timing decisions, deferring gains can certainly add value to a portfolio. But what impact, if any, do taxes have on arriving at long term strategic asset allocation?

Our conclusion: Having tested over 100,000 randomly generated unbiased portfolios with unbiased tax rates, we discovered that taxes have an impact not only on return, but also on risk. This fact mediates the impact of taxes on asset weights, as the relative efficiency of assets is roughly the same before and after tax. Tax optimization is important and adds value to tactical asset allocation, to asset location, but is largely irrelevant for determining ex- ante long term strategic asset allocation. On a risk-adjusted return basis taxes do not matter.

Download pdf:

U.S. Debt Ceiling: We’ve Kicked the Can Down the Road to December —-

It has long been and remains my view that the US Treasury will not default upon its debt obligations- not even for a very brief period of time. Yet markets have been on edge for the past month as the date (October 18) by which the Treasury would have exhausted all extraordinary measures approached. Senate Majority Leader Chuck Schumer just announced a temporary agreement reached on increasing the debt ceiling through December. This is good for unless a political compromise was reached, the US Treasury would have been forced to switch to cash-only management in order to continue operations i.e. after October 18 the Treasury would have to operate on a cash-only basis.

The market implications from a technical Treasury default – a default in which bondholders would be paid in full but with some type of delay – are both wide-ranging and hard to anticipate. There are, however, two potential developments that would most seriously threaten the stability of financial markets: (i) a credit freeze in the short-term repurchase agreement (repos) market where Treasuries are used as collateral to secure short-term borrowing; and (ii) severe disruptions to the money markets since most money market funds (MMFs) invest heavily in US Treasury securities. The credit markets would freeze, if a handful of MMFs were to “break the buck” (where the net asset value (NAV) per share falls below USD 1. Even if the immediate impact was not dramatic, if a short-term default led investors to question the willingness of the US government to honor its obligations in a timely manner, then the impact could be both more far reaching and long lasting.

When the $480 billion debt hike is exhausted, the political gamesmanship from both parties will renew. Negotiations in Congress will likely heat up again towards the end of the year, as they renew attempts to forge a long-term deal. I think that the negotiations will continue and bleed into 2022 with rigidity on both sides to prove to their respective constituents that they stood their ground and boost their reelections chances at the next primaries. Congressional representatives have a strong incentive to fight until the last minute. Therefore, I again expect a last-minute deal to emerge, possibly as late as in late February or early March, when the Treasury will once again cease to be able to use book-keeping measures to operate under the ceiling. However, I don’t expect a drastic government shutdown.

Should India Have Fiscal Spending Rules and a Debt Ceiling?

In the U.S., the debt ceiling is once again making headline news. Government shutdowns and the thought of U.S. defaulting on its debt could have devastating consequences both for the U.S. and for the global economy. Meanwhile, India is a completely different story.

The Covid-19 pandemic after effects will test how much debt developing countries can bear. The attitude within OECD of course has been “don’t worry about government deficits so much and continue to spend”. Last year the U.S. Federal Reserve and other counterparts moved aggressively with sweeping emergency rate cuts and offers of cheap dollars, to help combat the pandemic. Emergency policy easing by central banks in UK, New Zealand, Japan and South Korea, Australia, too had provided further stabilization. But can non-OECD or developing countries pump ample liquidity into the markets too, and support fiscal stimulus?

Which brings me to India. India has around $540 billion FX reserves.

India’s overall fiscal deficit- the gap between expenditure and revenue for 2020-21 was 9.3 per cent GDP, a very high number which complicates the task of monetary policy. A fully discretionary fiscal policy framework will likely worsen this.  India has had the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 which sets a target for the government to establish financial discipline in the economy, improve the management of public funds and reduce fiscal deficit.  The FRBM has in the past incentivized the government to reduce the fiscal deficit by a percent of GDP each year, and gradually move to a position where current spending matched current revenues. The government would need to explain to Parliament any breaches of the Act. The discipline of this law was in part responsible for a significant improvement in government finances in the first decade but after the 2008 GFC, the general government’s deficit rose sharply from 4% of GDP to 8.3%. A pause in the FRBM and an expansionary budget thereafter contributed to the large increase in the deficit. Once the discipline of the FRBM was obviated, the urgency of imposing fiscal limits was no longer clear. After the stimulus, the economy did recover from April 2009 onwards, but the fiscal stimulus was not rolled back, and deficits remained high. Ever since, the government has continued to borrow. The lack of a rules-based system due to escape clauses in the FRBM has come alongside a sharp deterioration in government finances. A fiscal rule spending rule would increase the accountability and transparency of fiscal policy. A rule could be a variant of an “Expenditure Rule, or Revenue Rule, or Budget Balance Rule or a limit on Debt Rule”.

Of course, implementing any such fiscal rule would be much more difficult, as it involves the government and opposition coming together on spending issues.

But shouldn’t India have fiscal rules that outline its fiscal policy?

Non-Traded REITs: Physician Heal Thyself

We spent a few years as active participants in the Non-Traded REIT industry. We now offer some insights, gleaned hopefully with the wisdom and humility that only comes with reflection and hindsight.






Life Cycles

Acquisition Strategies

Distribution Coverage

Reasonable Leverage

Affiliated Transactions


ActiveAllocator Highlights Summarized Conclusions of Inter Sovereign Wealth Funds 2021 dialogues

This year we were pleased to convene a series of conference calls, surveys and promoted serious deliberations across policy makers, representatives from Ministries of Finance, academics and multiple Government and Sovereign Wealth Funds. This led to rich nuanced dialogue, encouraged introspection and self-assessment, and hopefully when put to action will help formulate improved best practices. I have sanitized specifics and am delighted to provide a peek into salient takeaways.

SWFs to Revisit Mission Statement
SWFs to Re-examine Charter
SWFs to Revisit Objectives
SWFs to Re-examine Established Investment Guidelines
SWFs to Re-examine Established Investment Process
SWFs to Improve Monitoring and Reporting Functions
SWFs to Re-examine Manager Investment Mandates
SWFs to Re-examine External Manager Selection Criteria
SWFs to Re-examine External Manager Monitoring
SWFs to Revisit Role of the Benchmark
SWFs to Re-examine Post Covid-19 Benefits & Concerns
SWFs to Improve Risk Management Function
SWFs to Revisit Build Inhouse or Outsource Decisions



This report discusses various privatization best practices. We address key issues including:

The Public Sector as Stakeholder

Why do Governments Privatize?

Privatization Best Practices

Determine Privatization Objectives

Determine Privatization Strategy

Institutional Framework

Efficiency Factors

Corporate Governance


Role of Board of Directors

International Examples

Monetization Of Public Sector Real Estate: Why Sell The Family Silver?

Global Privatization Trends


Acquisition of a Minority Interest from Financial Sponsor—-

Much is spoken about private equity and financial sponsors making minority investments, but very little is known about the other way around – when firms or other funds acquire interests in financial sponsor portfolios.  I had participated in such deals and summarize my general thoughts in this deck. I discuss the rationale, structuring considerations, the types of securities will have impact on ownership, governance and pricing. I talk about governance conditions and willingness to accommodate minority investor’s requests, liquidity and exit considerations along with pathways to exit. I also provide examples of transaction diagrams for visual clarity. I conclude by highlighting timing considerations and typical process followed.

As always the devil lies in the detail. If you are considering making one such investment and need help do contact me.

Excerpt from “Global Financial Crisis : – The Eye of the Storm Oct ’08” by Sameer Jain

My book examines over 1.2 million data points to take the reader into the eye of the storm. It explores financial markets & conditions prevailing during Q4-2008. It highlights government actions, economic outlook, and policy implications during the period and brings attention to government rescue measures and the state of European banking as the contagion spread from the United States. It concludes with historical lessons and case studies in financial sector restructuring. My findings are presented by way of charts, graphics, data points and are devoid of opinion. I bring a fact based, data driven approach to explaining conditions as they exactly existed during the height of the financial crisis and do not rely on the benefit of twenty-twenty hindsight.

Check it out on Amazon:

Excerpt from “Global Financial Crisis : – The Eye of the Storm Oct ’08” by Sameer Jain

My book examines over 1.2 million data points to take the reader into the eye of the storm. It explores financial markets & conditions prevailing during Q4-2008. It highlights government actions, economic outlook, and policy implications during the period and brings attention to government rescue measures and the state of European banking as the contagion spread from the United States. It concludes with historical lessons and case studies in financial sector restructuring. My findings are presented by way of charts, graphics, data points and are devoid of opinion. I bring a fact based, data driven approach to explaining conditions as they exactly existed during the height of the financial crisis and do not rely on the benefit of twenty-twenty hindsight.

Check it out on Amazon:

Excerpt from “Global Financial Crisis : – The Eye of the Storm Oct ’08” by Sameer Jain

My book examines over 1.2 million data points to take the reader into the eye of the storm. It explores financial markets & conditions prevailing during Q4-2008. It highlights government actions, economic outlook, and policy implications during the period and brings attention to government rescue measures and the state of European banking as the contagion spread from the United States. It concludes with historical lessons and case studies in financial sector restructuring. My findings are presented by way of charts, graphics, data points and are devoid of opinion. I bring a fact based, data driven approach to explaining conditions as they exactly existed during the height of the financial crisis and do not rely on the benefit of twenty-twenty hindsight.

Check it out on Amazon:

Excerpt from “Global Financial Crisis : – The Eye of the Storm Oct ’08” by Sameer Jain

My book examines over 1.2 million data points to take the reader into the eye of the storm. It explores financial markets & conditions prevailing during Q4-2008. It highlights government actions, economic outlook, and policy implications during the period and brings attention to government rescue measures and the state of European banking as the contagion spread from the United States. It concludes with historical lessons and case studies in financial sector restructuring. My findings are presented by way of charts, graphics, data points and are devoid of opinion. I bring a fact based, data driven approach to explaining conditions as they exactly existed during the height of the financial crisis and do not rely on the benefit of twenty-twenty hindsight.

Check it out on Amazon:

Excerpt from “Global Financial Crisis : – The Eye of the Storm Oct ’08” by Sameer Jain

My book examines over 1.2 million data points to take the reader into the eye of the storm. It explores financial markets & conditions prevailing during Q4-2008. It highlights government actions, economic outlook, and policy implications during the period and brings attention to government rescue measures and the state of European banking as the contagion spread from the United States. It concludes with historical lessons and case studies in financial sector restructuring. My findings are presented by way of charts, graphics, data points and are devoid of opinion. I bring a fact based, data driven approach to explaining conditions as they exactly existed during the height of the financial crisis and do not rely on the benefit of twenty-twenty hindsight.

Check it out on Amazon:

Excerpt from book “Global Financial Crisis” by Sameer Jain

My book examines over 1.2 million data points to take the reader into the eye of the storm. It explores financial markets & conditions prevailing during Q4-2008. It highlights government actions, economic outlook, and policy implications during the period and brings attention to government rescue measures and the state of European banking as the contagion spread from the United States. It concludes with historical lessons and case studies in financial sector restructuring. My findings are presented by way of charts, graphics, data points and are devoid of opinion. I bring a fact based, data driven approach to explaining conditions as they exactly existed during the height of the financial crisis and do not rely on the benefit of twenty-twenty hindsight.

Check it out on Amazon:

Portfolio & Risk Management for Central Banks and Sovereign Wealth Funds

My Chapter on “Portfolio & Risk Management for Central Banks and Sovereign Wealth Funds” published by Palgrave Macmillan ——

Attached my piece published by Palgrave Macmillan in a book as part of proceedings of the World Bank, Bank for International Settlements, European Central Bank Public Investors Conference.

This will be of interest to those seeking original readings on Reserves Management for central banks and sovereign wealth funds. It aims to outline best practice in respect of strategic asset allocation, facilitating knowledge-sharing across organizations and encouraging collaboration and dialogue between reserves and asset management specialists.

An Earnout is a Useful Tool to Bridge a Valuation Gap

  • An earnout is an acquisition where the purchase price is partially contingent on the future performance of the target
  • Bridge a valuation gap
  • Used when possible, to measure target’s performance post-closing
  • Retention and incentive mechanism for owners/operators to stay past closing
  • Typically used in smaller deals (less than $500 million)
  • Usually tied to an accounting metric
  • Revenue, gross profit, EBITDA, EBIT, net income
  • Accounting metrics need to be able to be verified and audited
  • Earnouts are highly customized for each situation
  • Typically negotiated later in the M&A process
  • Structure can have tax and accounting implications
  • Time period can range from 1-5 years
  • Shorter time is more common (3 years and less)

Bridging the Value Gap

There are three key issues that will drive the value gap:

  • Expected operational performance of the asset
  • Valuation multiple to be applied to the operational performance
  • Buyer and/or seller requirement for a “headline” value for various relevant constituencies (i.e. limited partners, shareholders, banks, bondholders, etc.)

Two of the mechanisms that can be used to bridge value gaps are:

  1. Earn-Outs: Potential future cash or stock payments based on achieving pre-determined operating/financial targets
  2. Contingent Value Rights (CVRs): Potential future payment (usually of stock) based on stock price performance


  • The successful execution of an Earn-Out agreement requires simple and measurable criteria:
  • Careful selection of criteria and structuring of the pay-out formula
  • Agreement on accounting methodologies so neither party can manipulate base data
  • Agreement on who controls the business during the Earn-Out period
  • An arbitration system to resolve any future arguments


  • Reduces risk of overpaying if poor operating performance post-acquisition
  • Only structure that “tests” Target Parent’s convictions of Target’s potential
  • Could help Target Parent state a higher headline value for the sale


  • Not a common structure for public companies
  • Adds complexity to deal
  • May result in Acquirer paying for value that it creates within Target
  • Potential for manipulation in areas of management (short-term gains) and accounting
  • Potential for litigation if future value not achieved

Understanding Long Term Capital Management Failure Using Minsky Model

Long Term Capital Management (LTCM), a hedge fund, was an investment structure for managing a private, loosely regulated investment pool that invested in both cash (physical securities) and derivative markets on a leveraged basis. My essay analyzes the failure of LTCM in September 1998 using the Hyman Minsky model and provides recommendations for policy makers to avert similar future crisis.

According to a Wikipedia entry “Minsky proposed theories linking financial market fragility, in the normal life cycle of an economy, with speculative investment bubbles endogenous to financial markets. Minsky stated that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. As a result of such speculative borrowing bubbles, banks and lenders tighten credit availability, even to companies that can afford loans, and the economy subsequently contracts.”

LTCM is a case study in exceptions — extreme, undiversified portfolio exposures in extraordinary market conditions. It did not, and does not, represent the hedge fund industry in general. The main reason for LTCM’s debacle was a lack of control of liquidity risk. Hedge funds can fail either because they are insolvent, or because an aggregate shortage of liquidity can render them insolvent. LTCM’s failure could itself have caused liquidity shortages leading to a cascade of failures and a possible total meltdown of the system. This risk of contagion could lead to a contraction in the common pool of liquidity. Therefore, there is a possible role for government intervention. Unfortunately, liquidity problems and solvency problems interact, and can each cause the other. It is therefore hard to determine the root cause of a crisis from observable factors. 

LTCM was founded in 1994 by John Meriwether, a former Salomon Brothers trading star, along with a small group of associates including Nobel Laureates Robert Merton and Myron Scholes. It became an immediate success. By the end of 1997 it had achieved annual rates of return of around 40 percent and had nearly tripled its investors’ money. 

The main strategy implemented was fixed income arbitrage. It is a market neutral hedging strategy that seeks to profit by exploiting pricing inefficiencies between related fixed income securities while neutralizing exposure to interest rate risk. Managers attempt to exploit relative mispricing between related sets of fixed income securities. One example is to long relatively cheap off-the-run treasury bonds and short relatively expensive on-the-run treasury bonds of the same maturity at the same time. Supposedly both bonds will have the same future cash flows and their price will converge and the arbitrager can make a profit when that happens. Normally the spread between on-the-run and off-the-run treasury bonds are small, so LTCM used leverage to amplify the returns. By early 1998, the leverage ratio (asset-to-equity ratio) reached 16:1, which is extremely high.

First, in terms of the Minsky model, there was an exogenous shock when Russia defaulted and there was a flight to quality – to mostly on the run US Treasury bonds. In the summer of 1998, the market deteriorated and LTCM began to suffer losses in July. One month later, Russian government devalued the ruble and declared a moratorium on future debt repayments. Those events led to a major deterioration in the creditworthiness of many emerging-market bonds and corresponding large increases in the spreads between the prices of Western government (especially US treasury bonds) and emerging market bonds. And immediately a massive “flight to quality” by general investors ensued, with investors flooding out of any remotely risky market and into the most secure instruments. Trades that were expected to converge did not do so. 

In terms of Hyman Minsky’s model, the boom created by the profit opportunities after the shock is fed by increasing money supply. LTCM’s fund presented new opportunities for even higher returns. Actually, it meant an opportunity for LTCM if it did not have the high leverage they were using. Given panicking investors and “flight to quality”, the most secure instruments’ prices were driven artificially high and the spread became larger as the models would suggest. If the market prices finally converged to the underlying value, the wider initial spread would indicate higher profit. So even though LTCM’s portfolio was down 44 percent for the month of August, there was potential opportunity for it to recover. It led to speculation that initially had positive feedback; speculators earned money and invested more, which encouraged more people to invest. In a letter CEO Meriwether wrote “On the other hand, we see great opportunities in a number of our best strategies, and these are being held by the Fund”. He also reminded that investors to keep in mind that the Fund’s relative-value strategies may require a long convergence horizon.

Minsky emphasized the inherent instability of the credit system and attaches importance to the role of debt structures in causing financial difficulties. This happened in the LTCM case for it was highly leveraged. After having had returned capital to its limited partners its leverage ratio went even higher to fund the acquisition of speculative assets for subsequent resale. LTCM’s deterioration was dramatically exacerbated by its high leverage ratio. By early September, the leverage ratio had climbed to 45:1. Considering high volatility due to the market instability, that’s an extremely high number by all standards.

Minsky stresses the role of pure speculation and excessive gearing. LTCM often took the opposite ends of the trade and was a provider of liquidity to the market. Minsky’s model is limited to single country, but in this case speculators were overtrading in London and other overseas markets too. The panic fed it until the prices became very low and trades were cut off. The actions of distressed parties attempting to reduce the size of their balance sheets had an impact on the value of others’ assets. Weakened balance sheets generated further forced sales, feeding the vicious circle. The liquidity squeeze generated by such forced sales exacerbated the crisis.

The models used by LTCM, although complicated, did not give liquidity risk the importance it deserved. Two bonds might have the same underlying cash flows, yet they can be priced differently exactly because they have different liquidity risk. So in the short run, the market value doesn’t simply reply on fundamental values. Most of the assets LTCM longed were illiquid and the assets they shorted were liquid ones. As “flight to quality” happened, more liquid assets were priced even higher and the spread widened instead of narrowed as the long-run expectation. Because of consecutive losses, the Fund had increasing difficulty meeting margin calls and needed more collateral to ensure that it could meet its obligations to counterparties.

The Fund was running short of high-quality assets for collateral to maintain its positions, and it also had great difficulty liquidating its positions: many of its positions were relatively illiquid (i.e., difficult to sell) even in normal times and hence still more difficult to sell—especially in a hurry—in nervous and declining markets. To preserve and raise the cash needed for operation, LTCM limited investors’ withdrawals and encouraged them to put more cash into the Fund. But it did not get the positive response that it much needed from the investors. The situation continued on deteriorating in September, and the Fund’s management spent another three weeks looking for assistance in an increasingly desperate effort to keep the fund afloat. However, no immediate help was forthcoming, and by September 19 the fund’s capital was down to only $600 million. 

Hedge funds should continue to have the flexibility they have for they bring liquidity, take speculative positions, serve as diversification classes and bring efficiency to the markets. The case for regulating hedge funds and possibly prevent another LTCM debacle should be seen from a perspective of a) protecting consumers b) protecting market integrity c) preventing systemic risk.

Since hedge funds are allowed to solicit investments only from high net worth individuals, protecting retail consumers is not a very important issue. However, the regulatory framework should ensure that hedge funds do not abandon the risk profile investors have been led to expect. While it is unjustified to ask for full disclosure as mutual funds do, more transparency, especially in explaining the risk involved, should be required. Hedge fund managers should disclose the underlying risks involved for each specific fund and explain the driving forces of the risks so that investors are better prepared to understand and manage their portfolio risk. In this case had LTCM provided more disclosure to its investors on the nature of its trades, its leverage ratios etc. it might have led to greater confidence in its operations

LTCM was able to borrow such large sums of money and leverage itself up by using collateral to borrow. It bought more assets, and these were used as collateral to borrow more money perpetuating a vicious cycle. This could have been prevented if there was one coordinated agency keeping track of its leverage. Many prestigious banks and influential individuals had lent to LTCM. Government policy can be enacted to monitor the interconnection between banks, hedge funds and other participants.

In the LTCM case we see that potential losses need not have arisen from direct credit exposures to the LTCM, but from the proprietary trading positions of banks, similar to those of the LTCM. This made the creditor banks similarly exposed to market movements that would have followed a forced liquidation of the LTCM. Government regulation were enacted after the global financial crisis to set limits on proprietary trading positions. 

With the wisdom of hindsight subsequent waves of crisis could have been prevented from happening was by acute awareness that there are limits to how much risk can be hedged away. Aggregate risk is there in the financial system even though each individual hedge fund may have hedged its own risk away. The risk as we see in LTCM’s case is increased co movement of prices, increased correlation between credit risk and counterparty risk.

Lastly liquidity risk can have a devastating effect on a highly leveraged financial system. As LTCM attempted to dispose its own assets, the negative price impact of this action impacted on the balance sheets of all others. First of all, LTCM’s counterparties would incur direct losses as their contracts remained unfulfilled. Secondly, and this was a much more serious threat, a disorderly unwinding of LTCM’s positions would have led to an even stronger downward movement of asset prices, which would affect even those banks who did not maintain direct relationships with LTCM. These dangers were amplified by the fact that many other firms had followed very similar strategies as LTCM and were, thus, subject to the same risks. And as per Minsky’s Model the market stabilizes after intervention from a lender of last resort intervenes (the Fed here) or orchestrates a resolution. When the New York Fed organized LTCM’s rescue by its creditors, it was for fears of systemic repercussions, rather than bailout perse.

Reasons Why Retail Investors Ought Not Copy the Endowment Model —–

The legendary David Swensen took over Yale University’s endowment in 1985 when it was worth $1.5 billion and grew it to $31 billion. He revolutionized endowment investing and recently passed at the age of 67. Is there a place for the retail implementation of an endowment investing approach? 

The demonstrated outperformance of some endowments, especially Yale, naturally begs the question of its applicability in a retail setting. Although some aspects of endowment style investing are transferable, there are factors unique to retail investors that we need to be aware of while considering implementations of this approach. A financial endowment is a transfer of money or property donated to an institution, usually with the stipulation that it be invested, and the principal remain intact for a defined time period. Endowments have limited liquidity needs, significantly long investment horizons and the ability to pursue less liquid asset classes more aggressively. In contrast, individuals have higher liquidity preferences and a finite investment horizon that is closely linked to one’s particular unique circumstances.

The goal should not be to simply copy the leading university endowments for these differ from individual investors in many important respects. Here is why.


Liquidity needs for traditional endowments are vastly different than for individual investors. Endowments and the institutions they benefit are managed on the basis that they will exist in perpetuity. As a result, liquidity is not a major priority as the endowment is tasked to provide enough inflation-adjusted annual income to support operations. These distributions are determined by very specific spending policies. Because these limited spending policies dampen the consequences of portfolio volatility, portfolio managers gain the freedom to accept greater investment risk with the expectation of achieving higher returns without exposing the institution to unreasonably large probabilities of significant budgetary shortfalls. Individuals do not operate in this manner. They have a limited life span and spending needs can be highly uncertain, thereby resulting in very different liquidity preferences. In a retail application, advisors tend to address individual liquidity needs through four, and perhaps more, mechanisms:

a) An increase in allocation to investments in liquid absolute-return alternative mutual fund and hedge fund like vehicles;

b) Use of a tender process to control and dampen the volatility associated with uncontrolled redemption pressures;

c) Letters of credit to meet temporary shortfalls in liquidity in the case of private bank sponsors; and

d) Utilization of subscriptions to offset redemptions.

These mechanisms are not needed in a traditional endowment, but are essential components in a retail setting.

Asset Allocation

Traditional endowment portfolio fiduciaries place asset allocation at the heart of the investment process, emphasizing policy portfolio decisions over market timing and security selection activities. Satisfaction of long-term institutional goals depends in large part on the underpinnings of successful asset allocation: an equity bias to provide high returns, and diversification to produce an acceptable level of risk. In a retail setting, however, individual client needs necessitate the re-tooling of the purist endowment model to meet liquidity preferences and finite time horizons.

Pricing & Valuation

Another major issue in a retail platform is pricing. Endowment trustees do not manage their portfolios on a month-to-month basis. As such, the reliability of an NAV in any given month is not of critical importance. However, in a retail solution, the need to produce reliable NAVs is crucial if one is to drive a successful client experience. Even when a reporting procedure is decided, fund sponsors are burdened with the challenge of striking a reliable NAV each month. Retail investors and their advisors would rightfully ask questions such as “are they averaging up or averaging down? How will the NAV be adjusted to reflect this and at what intervals?” These are very practical questions that one must be prepared to answer. Unreliable, pro-forma NAVs undermine the client service experience so essential in the retail segment.

Valuations of portfolio assets also present another hurdle. The combination of liquid and illiquid asset classes in the traditional endowment make accurately valuing such assets very difficult and costly. Traditional endowments have vastly different investments across an unlimited time horizon with different risk and return characteristics. Trustees are well aware of this fact as policy portfolios are constructed to take this into account. In contrast current and precise valuation is of particular importance when the retail investor has to undergo tax and/or estate planning – issues endowment trustees do not have to grapple with.


A corollary to the pricing and valuation issue is investor transparency. Because of the highly illiquid and proprietary nature of endowment portfolio investments, it is exceedingly difficult to ascertain precise allocations. Underlying manager secrecy, in the retail world, can create information asymmetry between investment advisors and their clients – something that is frowned upon. 

Taxation and Tax Reporting

Endowments do not pay income tax. Taxation and tax reporting are concerns that retail investment advisors and their investors are not only tasked to do, but obligated to perform under state and federal laws. Folks invested in alternatives already accept a delayed K-1 due to private equity investments. The addition of real assets, such as land and timber, oil and gas, would delay this mandatory reporting even more which has the possibility of eroding valuable client relationships. Of particular importance in regards to taxation is the generation and subsequent reporting of income sourced via investments in multiple states. A high level of transparency is needed, especially in regards to real estate and private equity investments, to identify income earned for nonresident partners. Investors need to know two seemingly basic facts: a) do they need to file a composite return? and b) are multiple state filings required? This issue is not a significant concern to educational endowments due to their tax exempt status, but can have major operational implications for investment advisors that have to determine this in the most timely and efficient way possible. 


Endowments, given their large size can negotiate special arrangements with investment managers. Retail investors, unless they are part of aggregated pools in feeder vehicles cannot usually have access as well as strike preferential agreements with product sponsors.

Longer lives

In theory, universities can live forever and therefore have a much longer investment horizon than an individual. Harvard, for instance, has been around since shortly after the Pilgrims landed on Plymouth Rock. Because of that longer view, elite endowments typically depart from the traditional liquid stock and bond mix by allocating a significant portion of their assets to less liquid, often non-publicly-traded alternative investments such as venture capital, private real estate, managed futures, natural resource partnerships as well as oil and gas.  


This piece explored the applicability of an endowment style approach to investors in the retail investing space, discussed specific issues unique to retail and suggested how multi-asset class model portfolios may be constructed. Understanding the differences between endowments and individual investors allows discerning advisors to determine the tools, vehicles and techniques that can successfully translate the success of endowment investing down to the household level – thereby better addressing retail investors’ special investing needs. In general, for the reasons outlined earlier the endowment approach is not easily transportable to retail investing. 

Author: Sameer Jain

Lightly excepted from a previous article by the author “The Household Endowment Model – Adopting Lessons Learned from the Nation’s Top Education Endowments”

Inside the Mind of Supreme Leader of North Korea, Great Successor & Divinely Perfect Kim Jong-un

Summary: This essay makes the case that North Korean leader Kim Jong-un is a rational actor. However, everything about his background and unique perspective will cause him to see the world differently from the way Westerners do. His actions are motivated with his regime’s survival & state control, economic sustenance, domestic stability as well as international legitimacy (right to exist). It offers a flashback to the early 2000’s to illustrate with a hypothetical, the regime’s decision-making process. And with historical perspective explains why in 2021 the situation in North Korea is what it is.


In trying to understand North Korea’s foreign policy, it is easy for a Westerner to slip into systematic difficulties which lead to misinterpreting North Korean intentions. We may say “Oh Kim Jong-un ….. he’s really just like us… only Asian….” On the other hand, we may say “he’s just plain crazy!”. Both approaches are not without their merits, but they also carry the danger of naivete. It is important to also consider a third approach; that Kim Jong-un is quite rational, but that everything about his background and perspective will cause him to see the world very, very differently from the way we do.

His reasoning may well be “Regarding lives lost due to famine/inefficiencies and the corona pandemic: We greatly honor and respect those who’ve perished to preserve the nation in these perilous times. Our mortal enemies are gathering around, led by the U.S., which has invaded our country …supported by Japan, which has invaded our proud nation many, many times”.

We must hark back to the time after WWII when ideas, words, ideology mattered. In important ways, North Korea is more a feudal state rather than a socialist one. The brutal Japanese occupation of Korea was preceded by the home-grown Yi dynasty; 500 years of the purest Confucian state the world has ever seen. North Korea has inherited that style of filial loyalty, and allegiance to ‘Dear Respected’ Kim Jong-un is strong. That is the background for North Korea’s present actions – occupation by Japan until 1945, hard-won independence, a devastating war which has never officially ended, and a world of hostile enemies. Kim Jong-un is still at war in his own mind. Some U.S. allies have said he is crazy because of his human rights deficiencies or apathy to the number that languish and die every year. But remember, in times of war, as they view them, standards are different. Sacrifices for the nation are to be expected. Kim Jong-un rules in a country which has had 600 years of Confucian order and loyalty to authority. Regardless of his problems, we should not expect that he is about to fall from power.

Kim Jong-un is a rational actor. While North Korean citizens may be insulated from world affairs, his regime has similar access to information as any other nation. His approach to interpreting world affairs should be no different than others’, but North Korea has quite different national and regime interests. These interests include the regime’s survival & state control, economic sustenance, domestic stability as well as international legitimacy (right to exist).

The world has changed much in the last 20 years and yet extraordinarily little has changed in North Korea. North Korean objectives in the early part of this century, as in 2021, included steps to enhance external and internal security, to deter U.S. aggression and to maintain South Korean, Chinese, Russian opposition to a U.S. attack. It wanted then as it does now to acquire tools and resources for economic development including food and fuel, technology transfer, removal of economic sanctions and to receive infrastructure aid. It also wanted then, as it does now to expand trade, investments and normalize relations with key powers without intrusions on its sovereignty. Faced with an increasingly hostile U.S. it then had to make tradeoffs between continuing nuclear development, whether to publicly declare its nuclear status (which it did subsequently), to negotiate and decide between which concessions to seek and those to make. It also needed to make the difficult decision that in the event an agreement was reached – ought it to cheat or not? Deep down, it makes sense to assume, North Korea still wants a true, ratified peace treaty which a) commits signatories to non-aggression, especially nuclear, b) commitments to forswear clandestine interference in its internal affairs, c) formally ends the Korean War, d) includes apology and reparations from Japan for a brutal colonial regime.

Flashback to Early 2000’s

Flashback to where our story begins. In January 2002, President Bush included North Korea in his “axis of evil” and left little doubt that his policy included serious thought to unprovoked attack, if needed as was rumored with small nuclear weapons. The North Koreans then moved away from their commitment to negotiating a solution to collective security issues, towards accepting that “Bush invades those who don’t can’t defend themselves; especially, those without nuclear weapons” as a confidante advised the late Great Leader Kim Jong-il. In short, the North Koreans felt insecure, unsafe, and scared. In their own way, they felt they were reduced to begging to negotiate for years; to come in from the cold; to end the war unilaterally. We should be aware that Korea’s own priorities were based on their concept of the Three Foundations; Ideology, Military and Economy, and attention since has always been paid to support pillars embodied in self-reliance, security, sovereignty.

In arriving at multiple options to inform a viable future course, one approach then was to develop robust deterrence. This entailed continued nuclear weapons development, to buy time for 18 months without intention to agreeing in the end, and when a more formidable deterrent was built, to retain option to negotiate. All the while, driving a wedge between South Korea and its key ally the U.S. while negotiating separately for food and fuel with China, South Korea, Iran and Japan. The benefits, they reasoned, preserved leverage and augmented defense capability, at the small price of foregoing aid. A second suggested course was to speed up its nuclear program but at the same time enter good faith negotiations with six parties China, Japan, North Korea, Russia, South Korea, and the U.S. The idea then being to seek stepped agreement of concessions in exchange for nuclear scale-back. This course entailed no cheating and implementing any agreement reached faithfully. The benefits were the possibility of obtaining real concessions. But the cost was lower defense capability and excessive reliance on trustworthiness of counterparties, especially on the U.S. at a time when trust was especially low. The hawks advising the late ‘Dear Leader’ Kim Jong-il, father to the present ‘Great Successor’ Kim Jong-un, had other ideas which may crudely be characterized as ‘negotiate & cheat’. This meant continued nuclear weapons development, reaching negotiated agreement with six parties while retaining the option to continue clandestine weapons development at any point. They reasoned that the benefits were the possibility to obtain concessions without permanent loss of defensive capability, though it did run the risk of the U.S. detecting cheating.

At that time, as in present times in their minds, there was considerable confusion about U.S. resolve and intentions. The U.S. was widely seen as an uncontainable mortal enemy bent on trying to topple the regime no matter what. A hawkish General may well have remarked in a national security meeting “U.S. foreign policy doctrine will not stop short of removing us. Nuclear controls are not enough – they see us as inherently threatening. No agreement we could make would be secure. Our strategy must be to deter attack, not hope for agreement”. He may have reasoned that the North Korean response ought to be primarily in terms of renewed military enhancement “Develop more fissile material, speed up Taepo Dong and No Dong missile development, ramp up missile mating technology”. Some moderates though, advising Kim Jong-il saw the U.S. as a containable strategic enemy, unlikely to attack if they played their cards well. The doves, and their voices were muted, saw the U.S. as a reasonable rival, one likely to be satisfied with nuclear de-escalation.

Situation circa 2000-2005

The world in the early 2000’s was concerned with Kim Jong-il’s machinations. Little is known about how the secretive Dear Leader viewed the world, as well as how he may have assessed choices facing North Korea, or how he might have viewed negotiations with the U.S. North Korea’s national interests were never publicized and neither was much known about how his actions might best achieve them. Condoleezza “Condi” Rice an American diplomat, political scientist, civil servant, and professor who served as the 66th United States Secretary of State from 2005 to 2009 and as the 20th United States National Security Advisor describes one nightmare scenario in a private conversation: “We get distracted, negotiations drag out, and North Korea suddenly conducts a nuclear test, declaring itself a nuclear state . . . . It will be much easier to prevent this from happening than figuring out what to do, once it does.” 

The World through Pyongyang’s Lens

After six-party negotiations in Beijing over the future of North Korea’s nuclear program, which included the U.S., Japan, Russia, China, and South Korea, Kim Jong-ilwanted to reexamine his strategy for survival as a state with a nuclear deterrent. Little was resolved at the Beijing summit beyond agreeing to further multi-party negotiations. The Great Leader, however, was particularly worried about issues that threatened security and integrity.

  • The Bush administration reiterated its “hostile policies” demanding the “complete, verifiable and irreversible disarmament” of both North Korea’s nuclear programs—civilian and military. Privately the Bush administration also called for an end to all missile sales—a measure that would virtually cripple the economy. 
  • China was less willing to defend Pyongyang than it had been in the past. North Korea would be in trouble if China scaled back economic and political support. 

At the Beijing talks North Korea declared it had “no alternative but to equip and strengthen itself to survive with a nuclear deterrent force.” Privately in Pyongyang, Kim Jong-ildemanded a wholesale reevaluation of North Korea’s strategic position and best options. He asked to be provided with strategic options assessing how to deal with the U.S. before negotiations resumed. Kim Jong-ilsaid that while survival with a viable nuclear deterrent was his preferred outcome, he would consider all options including a negotiated settlement, identifying the most effective carrots and sticks that each side may use.  

The Four Questions

The Dear Leader also said that if he knew the answers to four questions, he would know exactly how to handle the Evil Empire.

·       Under what circumstances would the U.S. be willing to attack North Korea?

·       What price would the U.S. be willing to pay in attempting to de-nuclearize North Korea—Would it risk losing Seoul or Tokyo? Would it spend as much as it did in oil-rich Iraq?

·       Could the U.S. be trusted to follow through with economic and security guarantees?

·       How important was North Korea to China?

Important Facts

  • The Bush administration had been split in dealing with North Korea. Its policy began as “ABC”—anything but Clinton. It was unwilling to offer carrots but was unwilling or unable to use serious sticks either.
  • The A.Q. Khan nuclear proliferation affair with Pakistan and President Bush’s tough talk on non-proliferation gave renewed emphasis on containing the further spread of nuclear weapons. 
  • AEIOU – Afghanistan, Elections, Iraq and Osama bin Laden provided enough cover for North Korea to operate Under theU.S. foreign policy radar. The correctly reasoned as one General put it “When these issues are resolved more attention and pressure will be applied to North Korea and Kim’s freedom to maneuver will diminish”
  • After South Korea’s partial rapprochement with the North under its Sunshine Policy and its tenuous relations with the Bush administration, the South did not appear willing to support a hardline Washington position, which ran a high risk of war.
  • North Korea was already close to becoming a real nuclear weapons state. In 1994, U.S. intelligence estimated that North Korea reprocessed enough plutonium for two bombs. Since the breakdown in 2002 when IAEA inspectors were evicted, North Korea had been reprocessing an additional 8000 fuel rods which provided enough plutonium for an additional six weapons. North Korea was refurbishing reactors, enrichment, and reprocessing facilities that would allow it to produce enough fissile material for an additional dozen weapons a year. And North Korea’s missile program continued apace which soon indeed posed a credible threat to Japan.

 Conflict History


North Korea signed the Nuclear non-proliferation treaty (NPT) in 1986 but did not permit inspections until 1992. Inspections went poorly leading to suspicions that the Yongbyon nuclear reactor was being used to produce plutonium. In 1993 North Korea warned that it would leave the NPT but pulled back at the last minute. In April 1994 North Korea announced that it would move used fuel rods from Yongbyon without permitting international monitors, threatening to reprocess the fuel. During negotiations with the U.S., a North Korean representative threatened to turn Seoul into a “sea of flames” if the U.S. provoked war. With tensions at the boiling point and the U.S. contemplating surgical air strikes, Jimmy Carter persuaded Pyongyang to return to negotiations and permit inspectors to monitor the nuclear fuel transfer. 

In late 1994, Kim Il Sung died and was replaced by his son, Kim Jong-il, known to the West as a film loving playboy. The ensuing negotiations produced the Agreed Framework. North Korea agreed to shut down its Yongbyon nuclear complex and cease plutonium production. In return, a U.S.-led consortium including South Korea and Japan promised to finance the construction of two modern light-water reactors and providing 500,000 tons of fuel oil annually until the reactors were completed. Clinton’s Congressional critics were outraged, accusing him of appeasement. 

Sunshine and Daydreams

In 1998 South Korea initiated its Sunshine Policy designed to lure the hermit kingdom into the international fold through openness, engagement, and economic incentives to modernize the economy. Late in 1998 it unsuccessfully tested a long-range Taepodong 1 ballistic missile. After mild threats to terminate inspections due to delays in the construction of reactors, the Agreed Framework was reaffirmed when Madeline Albright visited Pyongyang in late 2000. 

Thorny Bushes

Upon taking office, the Bush administration reversed the Clinton-era policy of engaging North Korea—much to the shock of South Korea. When North Korea threatened to restart the Yongbyon reactor, Bush branded it as a “grave and growing danger” in an “axis of evil.” As relations deteriorated between the U.S. and North Korea in 2002, North Korea admitted to a uranium enrichment program, but refused to terminate it. The U.S. and South Korea cut off fuel shipments. North Korea restarted plutonium reprocessing and evicted IAEA inspectors.

Economic Shambles

1989 when the USSR ended its patronage, North Korea’s shriveling economy had grown dependent upon China’s munificence. North Korea progressively become an impoverished state unable to feed its population.  Agriculture then accounted for 25% of GNP yet was unable to prevent a famine during the 1990s. 60% of all children suffered from malnutrition.  

North Korea: Armed to the Teeth

Conventional Forces

North Korea had 500,000 troops on high alert poised on the DMZ and Seoul is just an hour’s drive south. Thousands of artillery pieces embedded in hills near the border were trained upon Seoul and dozens of Scud missiles were also aimed south. 37,000 U.S. troops were stationed along the DMZ to deter the North. Any pre-emptive attack by the United States—even a surgical air strike—could be met with a full-frontal assault that would kill several hundred thousand South Koreans. 


North Korea’s missile program has been active, ambitious, successful, and popular in the global arms bazaar, contributing until sanction were clamped roughly one quarter of North Korea’s $700M in exports. The tested No Dong missile then could easily reach Tokyo though accuracy was limited. Then yet untested and only questionably operational, it was advertised that when completed and operational Taepodong 1 & 2 missiles would be able to deliver a nuclear device to the West Coast of the U.S. From a crude nuclear weapon to a sophisticated, miniaturized weapon that can be delivered by a missile is a further, serious technical feat, and the U.S. believed there was no evidence that North Korea was anywhere near this capability.


According to a declassified CIA report, “North Korea has one or possibly two weapons using plutonium it produced prior to 1992.” A bigger question was the quantity of weapons-grade plutonium it has acquired via reprocessed nuclear reactor fuel rods. Best estimates indicated that North Korea had between 25-30kg of reprocessed plutonium, sufficient for constructing 5-6 weapons. President Bush made clear: “A decision to develop a nuclear arsenal is one that will alienate you from the rest of the world.”

Other WMD

North Korea had invested heavily in chemical and biological weapons. It had weapons-grade biological agents, including smallpox, which could be used in an attack on the U.S. 


Hypothetical: Kim Jong-il’s Decision Making Process

Situation: North Korea’s National Interests

VITAL a) Ensure regime survival b) Deter U.S. attack

VERY IMPORTANT a) Secure maximum economic and food aid b) Maintain good relations with China and Russia.

IMPORTANT a) Secure economic relations with South Korea and Japan b) Eventual reunification of the Korean peninsula.


·       Secure U.S. guarantees of a) Non-aggression b) Economic and food aid c) Energy

·       Ensure China’s continued support of a) Diplomatic relations b) Food and energy

·       Secure South Korean and Japanese guarantees of aid/reparations and economic projects.

Option 1: Reach Agreement with U.S.

a) Reach a negotiated agreement with the U.S. as soon as possible b) Come to an agreement without security guarantees from the U.S. 

Pros: i) Reduces probability of U.S. attack ii) Guarantees some form of food aid, possible economic assistance iii) Gains credibility from China.

Cons: i) Leaves North Korea defenseless to U.S. attack ii) No guarantee that the U.S. will not attack North Korea iii) Looks weak internally iv) Foreign presence of inspectors v) May not get best deal

Option 2: Massive Military Build-Up

a) Developing WMD capabilities to get permanent deterrence to American attack b) Stall talks to buy more time for nuclear program.

Pros: i) 98% deterrence (if program successfully completed) against U.S. ii) Raises external/internal prestige iii) Permanent solution (if successful)

Cons: i) 90% risk of losing China’s support ii) International condemnation iii) Will worsen North Korea’s budget crunch iv) If U.S. discovers North Korea’s true intent to go hostile and use nuclear weapons, 90% sure U.S. will attack v) North Korea risks losing strategic ambiguity in talks.

Option 3: “Two-Track” Build-Up & Negotiate

a) Continue developing WMDs until all North Korea’s diplomatic needs are satisfied b) Hold genuine talks and keep North Korea’s needs clear and consistent.

Pros: i) Time favors North Korea’s diplomatic leverage ii) Low-Risk, High-Reward iii) Reduces risk of attack iv) Outcome either weapons or demands met v) Maintains international support vi) Continues useful ambiguity, deterring attack vii) Force the U.S. hand, while forcing them to operate in uncertainty about North Korea program.

Cons: i) U.S. may still attack ii) China may lose patience.

Decision Recommendation: Option 3: “Two-Track” Build-Up & Negotiate

a) North Korea’s progress toward WMD capability provides a major diplomatic edge b) North Korea should maximize this leverage — hold talks and as soon as North Korea’s interests are satisfied, STRIKE A DEAL c) If worse comes to worst, North Korea has the flexibility to fall back to Option 1 or 2.

U.S./REGIONAL PLAYERS GIVE a) Non-Aggression Pact b) Maximum economic assistance and food aid from the U.S., China, South Korea, Japan & the international community c) Normalization of relations with U.S. d) War reparations from Japan.

North Korea GIVES a) Verifiable dismantling of WMDs b) Stop missile sales in return for income-producing assets.


Stage 1: i) Continue talks ii) Communicate North Korea’s demands publicly and privately iii) Non-aggression pact iv) Food aid/economic assistance v) Normalization of relations with the U.S. vi) Work on nuclear programs secretly.

Stage 2: i) Warm relations with South Korea to keep wedge between U.S. and its key ally ii) Retransmit North Korea’s same demands iii) Continue nuclear programs secretly.

Stage 3; i) Drag out talks until all demands are met ii) Maintain ambiguity of WMD progress iii) Wrap up WMD construction secretly.

Stage 4: i) Give U.S. one last chance to agree ii) If negotiations fail, declare North Korea to be the next nuclear power. 

Answering Dear Leader’s Four Questions

1)    U.S. will attack when these conditions are met:

·       U.S. military commitment eases in Iraq, elsewhere

·       Iran, other “terrorist” nation is not more promising target

·       George Bush is reelected

·       U.S. believes North Korea nukes are imminent but not yet deployed and can be destroyed

·       U.S. believes North Korea artillery can be destroyed fast enough to minimize damage on Seoul

2)    Price U.S. is willing to pay to de-nuclearize North Korea?

·       Would jeopardize South Korea troops

·       Would jeopardize some U.S. troops

·       Would accept some artillery damage on Seoul if minimized

·       Would not accept attack on Japanese cities like Tokyo.

3)    U.S. clearly cannot be trusted:

·       U.S. violated 1994 Agreed Framework

·       Has missed deadlines for KEDO, heavy fuel oil

·       Bush has insisted military option remains open

·       Bush has shown disdain for international agreements

·       U.S. attacked another “Axis of Evil” state

4)    North Korea’s importance to China:

    (+) Keeps Korean peninsula from becoming unified, pro-American

    (+) Buffer state from U.S. troops

    (+) Old socialist ally, Chinese veterans of Korean War have pride

    (-) Potential source of border instability

    (-) North Korea nuke program is big diplomatic headache

    (-) North Korea nuke program threatens regional arms race, not in China’s interest

Author: Sameer Jain, lightly excerpted from a memo to Condoleezza Rice