Strategies for wealth preservation

by on August 30, 2013 at 1:46 pm in History | Permalink

From Wikipedia:

The Fuggerei is the world’s oldest social housing complex still in use. It is a walled enclave within the city of Augsburg, Bavaria. It takes it name from the Fugger family and was founded in 1516 by Jakob Fugger the Younger (known as “Jakob Fugger the Rich”) as a place where the needy citizens of Augsburg could be housed. By 1523, 52 houses had been built, and in the coming years the area expanded with various streets, small squares and a church. The gates were locked at night, so the Fuggerei was, in its own right, very similar to a small independent medieval town. It is still inhabited today, affording it the status of being the oldest social housing project in the world.

…The Fuggerei is supported by a charitable trust established in 1520 which Jakob Fugger funded with an initial deposit of 10,000 guilders. According to the Wall Street Journal the trust has been carefully managed with most of its income coming from forestry holdings, which the Fugger family favored since the 17th century after losing money on higher yielding investments. The annual return on the trust has ranged from an after inflation rate of 0.5% to 2%. Currently the trust is administered by Wolf-Dietrich Graf von Hundt.

Someone (not me) could write a very good popular economic history book on how they managed this success.

For the pointer I thank Patrick of Singapore.

Charlie August 30, 2013 at 2:39 pm

He was certainly one clever Fugger.

Andrew' August 30, 2013 at 3:42 pm

http://www.independent.co.uk/news/brainy-sons-owe-intelligence-to-their-mothers-1339099.html
Brainy sons owe intelligence to their mothers

He owes his cleverness to a smart mother Fugger.

Andrew' August 30, 2013 at 2:59 pm

Many famous economists have already written the “Fugger the Rich” book.

Ray Lopez August 31, 2013 at 1:14 am

Once I used to read your comments for their brilliant, in-depth analysis, but now you’ve sunk to the level of one-line zingers. Bring back the Andrew’ of old. And rew’ won’t regret it.

Andrew' August 31, 2013 at 3:50 am

You seriously mis-judged me. I come here to entertain and occasionally someone says something that I just can’t let stand.

But I’ll try to live up to your mis-judgment ;)

Merijn Knibbe August 30, 2013 at 3:02 pm

HIhgly interesting – but not entirely unique. Below two somewhat comparable examples of charities keeping some kind of social housing project afloat just from the city where I live, both of them having large land holdings:

Ritske Boelema gasthuis (the first land grant to a predecessor we know about dates from 1472)
Sint Anthonie gasthuis (first grant we know about: 1425) http://www.sintanthonygasthuis.nl/info.asp?objectid=10

These institutions survived the sixteenth century protestant revolution, the money grab of Napoleon, WW II, whatever. Some of their landholdings have been in their posession for over 500 years. I do know the accounts of these charities. They survived by (1) having a clear goal which (2) alleviated well known societal evils and by having (3) an unpaid board consisting of low profile local elite which, to use a beautiful German phrase, did this ‘Ehrenamtlich’, or as a ‘honour job/occupation’. Sounds better than ‘volunteer’. And, to return to the title of the post, investments in first grade agricultural land have in the long term been pretty safe assets.

ChrisA August 30, 2013 at 9:21 pm

http://en.wikipedia.org/wiki/Hospital_of_St_Cross

Here is one similar example from the UK, dating back to 1133. In my home village, the Alms houses dating from 16C are still the aim of many poor locals after they retire.

jtf August 30, 2013 at 3:44 pm

Forestry holdings, eh. Buy land, they aren’t making any more of it.

Adrian Ratnapala August 30, 2013 at 6:22 pm

They build most forests on land.

Andrew' August 31, 2013 at 3:55 am

I sent my assistant to evaluate some forest land for investment but he came back with a negative report saying “all I could see was a bunch of trees.” “Myopia is your problem, my boy, myopia” I said.

frederic Mari August 31, 2013 at 8:24 am

Trees… Yeah, they used to say it was an awesome alternative investment…

But trees are used mostly in the paper industry and the construction industry, IIRC. How’s those doing? is what I’d be more cautious about.

Willitts August 30, 2013 at 4:04 pm

I’m having difficulty figuring out what you consider successful about it. It’s return on investment or the nature of its expenditures.

To my mind, there is nothing extraordinary about running a large endowment or foundation for many years. Is the Nobel Foundation “successful” in that it still exists or that it has achieved the goals of the founder?

Since the spending needs of the social housing complex are more or less fixed (or at least predictable), it is probably an easy one to manage.

German laws on forest preservation likely helped.

Adrian Ratnapala August 30, 2013 at 6:30 pm

In a Darwinian sense, longevity is approximately the only kind of success which counts.

And in this case, it is not just the Fuggerei institution which is long lived, but also it’s purpose as social housing. This is impressive considering the various political evolutions and revolutions which have swept through Bavaria in this time.

A Darwinian will then ask whether social-housingness is somehow a selective advantage (much more data is needed to settle this question).

Nadav Manham August 30, 2013 at 4:44 pm

Much of the personal fortune of Chancellor Otto von Bismarck was invested in timberlands (see Fritz Stern’s very good popular economic history “Gold and Iron”). I believe that his descendants still own some of this land a century and a half later.

What’s the Germanic word for “carefully managed”? Do they consider the English version confusingly redundant?

affenkopf August 31, 2013 at 2:13 am

Well since English is a Germanic language the Germanic word for “carefully managed” is (among others) “carefully managed”.The German expression would probably be “sorgfältig verwaltet” and would not be seen as redundant.

prior_approval August 31, 2013 at 6:38 am

‘sorgfältig verwaltet’ – or ‘sorgfältig gepflegt,’ as ‘pflegen’ tends to apply more to living things, though at a more human level – ‘Der Garten ist sorgfältig gepflegt’ is extremely hard to translate when the focus is on ‘pflegen.’ Of course, the term does not merely apply to the living – ‘Datenpflege’ is also hard to translate into English, as neither ‘data maintenance’ nor ‘data adminstration’ quite approach the idea. Much the same way that though forests are certainly managed, the long term approach is likely better encompassed in the (possibly southern German oriented) term ‘gepflegt.’ (‘Cultivated’ is another perspective to ‘pflegen’ though often tending to apply more to things like relationships or maintenance – or even presentation, such as having a ‘gepflegt’ appearance – again, with a sense of a longer time frame.)

Adrian Ratnapala September 2, 2013 at 5:33 am

‘Der Garten ist sorgfältig gepflegt’: “Well tended” or “carefully tended”.

But I agree, “pflegen” confuses me.

dearieme August 30, 2013 at 7:39 pm

I once googled around for long-lasting trusts, charities or companies. I started with an old British company (Aberdeen Shore Porters, 1498), and found that there was (or had been) a Trust for Aberdeen Harbour founded long before that. I didn’t pursue the question of ancient English schools and colleges because I stumbled on the claim that there were Japanese companies that were 2000 years old.

Andrew' August 31, 2013 at 3:57 am

So, write the book!

Why don’t those Japanese companies own the world by now, compounding interest and all?

Mark Thorson August 31, 2013 at 11:13 am

I don’t see any companies 2000 or even 1500 years old on this list.

http://en.wikipedia.org/wiki/List_of_oldest_companies

Jeff August 30, 2013 at 7:53 pm

Sounds like Tyler wants someone to write another book to add to his stack.

Sunset Shazz August 30, 2013 at 8:11 pm

Jeremy Grantham often makes the point that forestry has been the best performing asset class since, at least, the 1st industrial revolution. Has beaten equities handily, with lower sigma.

Nadav Manham August 31, 2013 at 8:06 am

And I think the Oxford Encyclopedia of Economic History made the point that among the greatest beneficiaries of the Industrial Revolution in England were urban landlords, who (as Ricardo would have predicted) captured much of the returns from productivity growth in the form of higher rents. The 1870s onward were a disaster for English rural landlords, forcing the breakup of most of the great aristocratic estates, but to this day much of the prime real estate in London remains in the hands of the same (very wealthy) families that owned it in the 18th century:

The Grosvenor Estate (Duke of Westminster)
The Crown Estate (The Royal Family)
The Cadogan Estate (Earl of Cadogan)
The Howard de Walden Estate (heirs of Howard de Walden)
The Portman Estate (Viscount Portman)

I won’t live long enough to find out, but I wonder what will ultimately happen to Berkshire Hathaway in 200 or 300 or 600 years?

Tom T. August 31, 2013 at 12:27 am

It’s perhaps worth noting that the foundation seems to have only achieved a level of success that permits it to support elderly widows in rather Spartan conditions. The best thing that the Wikipedia page can find to say about the apartments is that they have electricity and running water; the WSJ article further notes that many of them lack showers and central heating. The Fugger trustee on the board, by contrast, lives in his family’s castle.

dan1111 August 31, 2013 at 5:08 am

On the other hand, rent is less than 1 Euro per year. I’m pretty sure it is good value for the money.

Silas Barta August 31, 2013 at 5:01 am

WOW, a long-term real return of 0.5 to 2 percent??? They must be practicing some black magic there!

NNM4 August 31, 2013 at 7:46 am

How has your family’s nest egg performed these last 600 years?

It’s not the rate of return per se that is astonishing, it’s the ability of the trust to keep the capital assets that produce the return intact and a going concern for so long.

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