What institutional funds should stop doing (If they’d like to make money, not excuses)
Institutional funds manage other people’s futures.
Pension funds manage retirements.
Insurance portfolios manage promises.
Sovereign funds manage national wealth.
Which makes it mildly alarming how often they resemble nervous day traders in better tailoring.
Here is what they should not be doing—if positive, durable returns are the objective.
1. Stop hugging the index like it’s a life raft.
Tracking error has become scarier than actual error.
So funds hug the index:
- Buying the biggest names because they’re big
- Owning everything a little
- Calling mediocrity “risk management”
Beating a falling index by 0.8 percent is not a strategy. It’s a consolation prize.
If the Philippine Stock Exchange index dictates your portfolio, you are not investing. You are shadowing.
2. Stop buying because “flows”.
“Foreigners are buying.”
“Liquidity is back.”
“It’s breaking resistance.”
That may be interesting.
It is not a valuation.
Institutional capital should not chase price momentum without asking:
What must be true for this price to make sense?
When funds buy simply because others are buying, they become liquidity—not stewards.
3. Stop paying for growth that doesn’t pay you back.
Growth is exciting. So are fireworks.
Both are brief.
Revenue growth without returns above the cost of capital is just expensive enthusiasm.
If a company earns 8 percent and its cost of capital is 12 percent, expanding it does not create value. It multiplies the problem.
Paying 30x earnings for that math is not optimism. It is a charity.
4. Stop pretending earnings equal cash.
Earnings can be curated.
Cash flow is stubborn.
If your investment thesis doesn’t include:
- Free cash flow durability
- Reinvestment needs
- Capital intensity
…you are valuing narrative, not economics.
Dividends are paid in cash. Debt is repaid in cash. Markets forgive stories—until cash runs out.
5. Stop reaching for yield like it’s on clearance.
When returns disappoint, institutions often stretch.
They overweight volatile sectors.
They reach for yield in crowded trades.
Risk rarely announces itself. It accumulates politely.
Protecting capital is not defensive. It is what makes long-term compounding possible.
6. Stop letting liquidity choose your ideas.
“Yes, it’s attractive — but can we deploy P3 billion into it?”
Liquidity is a constraint, not a philosophy.
When funds restrict themselves to only the largest, most liquid names, they guarantee:
- Crowded exposure
- Limited mispricing
- Shared drawdowns
Liquidity should make execution easier. It should not replace thinking.
7. Stop ignoring supply and demand.
Fundamentals determine value.
Supply and demand determine timing.
If a stock is under persistent institutional distribution, you can be right about value and wrong about price—for a long time.
Ignoring ownership dynamics is not purity. It is ignorance disguised as conviction.
8. Stop managing optics.
Window dressing before quarter-end.
Performance chasing before reporting cycles.
Short-term repositioning to avoid uncomfortable questions.
That is career risk management.
It is not capital management.
Institutional funds are supposed to optimize long-term returns, not short-term impressions.
9. Stop diversifying until nothing matters.
Owning 30 stocks does not reduce risk.
It reduces accountability.
Over-diversification:
- Dilutes confidence
- Mimics the index
- Preserves fees
Diversification protects against ignorance. It should not institutionalize it.
10. Stop operating without a clear target.
If a fund cannot clearly state:
- Its required return
- Its acceptable volatility
- Its drawdown tolerance … it will drift.
And drifting portfolios always feel busy. They just don’t compound.
The real issue
Institutional underperformance is not about intelligence.
It is about compromise.
- Compromising valuation for momentum
- Compromising capital preservation for yield
- Compromising accountability for conformity
Institutions are large.
But size does not produce returns.
Prudence does.
And prudence—unlike momentum—compounds.
(The author had worked for big financial institutions as a professional fund manager for 25 years before retirement. He can be reached at juniebanaag@gmail.com.)
