Vatican used charity funds to bet on Hertz credit derivatives

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White_Tree

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The title of the article is somewhat incendiary, and I admit, the optics are bad, especially since Pope Francis had condemned these specific types of investments just a few years ago. However,
  1. It appears Pope Francis had no knowledge of the investments, and the cardinal who did was stripped of his position
  2. There are valid financial reasons to use credit default swaps (CDS), other than simply gambling, and it appears these CDS were components of structured notes, suggesting they might have been a hedge for another part of the portfolio (though it is impossible to tell without seeing the whole portfolio).
So my initial take is this is really bad for publicity, but maybe not so bad financially. It raises the question of how charitable funds should be held.

If the Vatican has funds earmarked as donations for the poor, is it acceptable to invest that money in risky investments with the goal of increasing their value? Or are low-risk, low-return investments (such as holding the money as cash or AAA bonds until it is needed) the only acceptable way to safeguard money that has been entrusted to the Church?

Thoughts?
 
Gee whiz! I never thought about it but now that I am I have this questioning frown on my face…
 
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My thought is that any such strategy should only be used for funds in a long enough process to grow, and the Church should not have any investments that long term.
 
Petra202 said:
Gee whiz! I never thought about it but now that I am I have this questioning frown on my face…
Click to expand...
🤣

Yeah, I feel similar kinds of emotions.
pnewton said:
My thought is that any such strategy should only be used for funds in a long enough process to grow, and the Church should not have any investments that long term.
Click to expand...
Yes, it’s an interesting quandary.

On the one hand, one could argue that the Church is an institution that expects to exist for a fairly long time, and the time horizons on its investments should be similarly long.

However, once you start down that path, you get into similar moral quagmires as those faced by the endowment funds of American universities. Many universities in America are tax-exempt non-profits, and they justify holding multi-billion dollar endowments (which enjoy completely tax-free growth) by saying the endowments would be used to help the university maintain normal operations during troubling times.

However, when the troubling times actually arrived, during the covid-19 pandemic, many universities chose to cut staff or suspend services, rather than use their endowments for the purpose they were originally intended for. It’s made many people question whether the universities are actually dedicated to public service, or if they have somehow lost their way, and are now primarily tax shelters for their endowments.

Having truckloads of money with a functionally infinite time horizon can tempt people into believing that protecting the money is an end in itself, rather than the purpose the money was originally intended to serve.

Whether the Church would fall prey to that temptation is another question. (Maybe it has already. Who knows?) But it is definitely an issue that has caused other supposedly charitable organizations (like universities) to lose their way. And at the end of the day, all of us are human, and subject to the same temptations and potential moral failings.

Perhaps having time limits on when the money must be spent, as you suggest, would address that.
 
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