Our friend Carl Lingenfelter passed along the item below about how the California State Teachers’ Retirement System has established a devil’s advocate system to improve their decisions on how to invest their $131 billion of assets. It seems that the fund made a series of bad choices that left it vulnerable during the Great Recession. The fund hopes that more robust debate will prevent similar problems in the future.

We’re skeptical that appointing internal devil’s advocates will prevent all the problems. When someone wins an argument, that means someone else loses–often complicating the dynamics of relationships in ways that can lead to political posturing and cloud decisions. Better to have someone from the outside present the negative case, because he won’t have to worry about maintaining a long-term relationship with the rest of the team.

Still, this is a step in the right direction. Anything that increases debate makes it more likely that people will catch bad decisions before they cost you tens of billions of dollars–a lesson that the teachers’ pension fund learned the hard way but that needn’t cost the rest of us anything.

CalSTRS Plays Devil’s Advocate on Investments
FundFire
01 March 2010

…

[update 3-8-2010: The folks at Fundfire asked us to remove the originally posted article, which you can access if you have a subscription.  Instead, here is a link to a BusinessWeek article from 4-9-2009 that describes the CalSTRS devil's advocate and the context in which it became necessary.]