Solving the Principal-Agent Problem: the Endurance Advantage

Picture this: a CEO who opts for a hefty salary increase at the expense of the company's overall performance, a real estate agent pushing for a quick property sale rather than the highest possible price, an insurance company focused more on safeguarding profits than honouring policies, or a politician veering towards lobbyist influences over the needs of their constituents. These distinct scenarios, as varied as they are, share a common denominator: they're all textbook examples of the principal-agent problem.

The principal-agent problem surfaces when a principal (a person or organization that hires another to represent their interests) and an agent (the party hired to act on behalf of the principal) have conflicting interests. It happens when the agent is motivated to act in their own best interests rather than those of the principal, typically due to asymmetry of information or misaligned incentives.

The above examples, from the areas of corporate management, real estate, insurance, and politics, might already be on your radar. But there's another common yet lesser-known example of the principal-agent problem that impacts investors worldwide. This occurs when institutional investors like banks (the agents) receive a management fee based on the total assets under their management, rather than the performance of those assets.

This fee structure encourages institutions to pursue a strategy that maintains asset value with minimal risk, leading to steady but slow growth over time. This approach often prioritizes short-term stability over the potential for greater long-term returns, which may involve more volatility year to year. In the long-run, institutional investors may make their clients less money than more strategic, and patient strategies.

I founded Endurance Capital to bridge the principal-agent gap in the investment world, to ensure a perfect harmony between my interests as the agent and those of my clients, the principals. At Endurance, we don't levy a management fee. Instead, we charge a performance fee—and even then, this is only applicable if the fund generates a return of 6% or more within a year. More than that, I am significantly invested in the Endurance fund myself. The long-term growth of Endurance is our shared goal as principal and agent.

This approach ensures that our objectives as a company are perfectly aligned with our investors —we only make money when you do. This forms the foundation of our commitment to trust, transparency, and ultimately, your financial growth.

- Brendan Storey, Endurance Capital CEO