Impartial Investing

Abstract:
A trustee charged with investing trust assets without favoring one beneficiary over another must choose a portfolio that balances divergent interests. Other than in the rare circumstance that beneficiary risk tolerances exactly coincide, portfolios chosen by trustees cannot be fully satisfactory to all parties. Due to the nature of risk aversion, the preferences of the most risk-averse beneficiaries should strongly influence the resulting investment choices, in some circumstances making trust portfolios very inefficient. One way to address the inefficiency introduced by common trust funds is to permit or even encourage trustees to divide trust assets and invest the parts separately.