Arctic Imperative: Scott Minerd, CEO – Guggenheim Partners Asset Management

The speech that follows was presented by Scott Minerd, CEO and Chief Investment Officer of Guggenheim Partners Asset Management at the Arctic Imperative Summit in June at Alyeska Resort in Girdwood, Alaska.

In the coming weeks, will feature a number of the presentations from the Summit. For more details of the event, including video of each of the speakers, check out

In the 17th and 18th centuries there was an economic model that became very popular called mercantilism. Under mercantilism, the nations of Europe expanded their territories into new regions and used those regions as an opportunity to extract resources and bring wealth back to their homes.

While mercantilism is generally thought to have benefited the European nations at the expense of their trading partners, there were certain benefits that accrued to the partner regions under the mercantilist system. For example, in the areas where the mercantilist invested, there was population growth, expansion of the rule of law, and development and diffusion of science and technology.

But there were also disadvantages that came with mercantilism. Mercantilism tended to foster a sense of dependency. Regions were often exploited for their natural resources with minimal investment in infrastructure and little commitment to the development of local human capital.

One of the greatest success stories of the mercantilist era is the emergence of the United States from the colonies of the vast British Empire. The early American colonies succeeded as a nation because they focused on the development of education, they invested in their human capital, they encouraged and rewarded entrepreneurialism, and they developed sources of domestic capital to supplement capital from foreign sources. Not only that, they fostered the development of local industries, they invested in technology, and they encouraged ownership and control of the factors of production, in addition to the ownership and control of natural resources.

For other post-mercantilist partners there was a darker path. These regions mistook job creation supported by natural resource extraction as economic growth and permanent industry. To put it in accounting terminology, they mistook the proceeds received from the sale of their natural resources as revenues, when in reality they should have been accounted for as the proceeds received in exchange for the disposition of assets. Unwittingly, their balance sheets were deteriorating over time, rather than growing in health and strength. These nations failed to invest in local capital, infrastructure, and human capital development. They failed to foster local sources of capital and did not share in the private sector profits that accrued to foreign entities. They substituted the development of bureaucratic systems for the development of free enterprise.

In these darker examples of mercantilism, a high sense of dependency among indigenous people was fostered through the provision of excessive government support. In general, they failed because they failed to incent economic independence and to support the development of human capital along with the development of domestic monetary capital.

There needn’t be shame in participating in the mercantilist model. Indeed, some of the greatest nations of the world, whether it is the United States or Canada or India, emerged from this system. For these nations, mercantilism was the spark that ignited the fire of local economic development.
Nevertheless, there are those yet to successfully transform from mercantilistic dependency into vibrant, healthy societies. A quick look at sub-Saharan Africa provides a glimpse of how bleak the post-mercantilist era can be.

Today, Alaska, and indeed the entire Arctic, stand at a crossroads. Alaska has benefitted greatly from its vast resources. The Arctic nations to a greater or lesser extent have provided a foundation on which to build a successful post-mercantilist society. As for Alaska, the benefits of U.S. security, the pre-supposition of the rule of law, and the protection of intellectual property are among many factors that make a comparison to an emerging market country a distortion at best. Yet for Americans, Alaska is in many ways her emerging market. In that sense, Alaska remains her final economic frontier.

Winston Churchill referred to the resource-rich colony of India as “the jewel in the crown of the British Empire.” Yet today, India represents one of the most vibrant and rapidly growing economies in the world. Similarly, I would propose that Alaska today could be referred to as America’s crown jewel. Within our lifetime, Alaska has the potential to become the most dynamic growth engine among all the states of the Union. As I have mentioned, I believe that today Alaska stands at the crossroads, and in many ways the work undertaken here at the Arctic Imperative Summit is a call to action. The challenges ahead are great, but so are the resources already at hand.

It is a time like this, a pivotal moment in history with the favor of good circumstance that can define the future. Now is the time for Alaska to develop the strategic relationships that will open the door to tomorrow. Do not mistake money for friendship. Capital will flow where returns are attractive. There is plenty of monetary capital in the world and there is plenty of it here in Alaska already. Instead, find capital that will work with you. The genius of the sovereign wealth funds lies not in the monetary returns to invested capital, but in the returns that accrue to their societies through the transfer of human capital skills from those who promote and manage the funds.

The best capital partner for Alaska is the one that will share their talents as well as their money. Look for fund managers and capital sources that understand this dynamic of value, and actively promote the mutual flow of knowledge and experience in the context of long-term partnership. Candidly, you don’t need their money, but you do need their talent. Anyone will invest their money for an attractive return. The key is to make sure you’re getting more than money. Tap into their experience. Get their knowledge. Acquire their skills. Make them your own. Do not be fooled – you cannot do this alone. You need the help of the world, but not necessarily their money. Their money will help, but their human capital skills are the real resources that are to be traded for the rich natural resources of Alaska.

Make their human capital your human capital. Involve your universities. Involve your native corporations. Develop your local financial institutions. Partner with your fellow citizens in the lower 48. Make sure that their knowledge becomes your knowledge. It will not be easy and it will not be fast. But at the end it will be yours and it will become yet another great asset of the Arctic. Then, Alaska truly will be the jewel in the crown of America, which will rightfully take its place among the many splendid jewels of the Arctic nations. Thank you.

Scott Minerd is a Managing Partner of Guggenheim Partners. He is also CEO for Guggenheim Partners Asset Management, where he functions as chief investment officer, overseeing more than $25 billion in client assets. Minerd previously worked as a managing director for Morgan Stanley; at Credit Suisse, he was responsible for overseeing fixed-income credit trading in the United States, Europe and Asia. Early in his career, Minerd made significant contributions to the development and use of derivative securities in the global capital markets. During the 1993 European exchange rate crisis, he orchestrated the restructuring of Italy’s Eurobond debt. By employing the largest debt exchange offer ever executed by a G7 country, Italy was able to reestablish itself as a credible capital markets borrower. Minerd began his career as a CPA and worked for the public accounting firm of Price Waterhouse. He has completed graduate work at both the University of Chicago Graduate School of Business and the Wharton School at the University of Pennsylvania. He holds a bachelor’s degree in economics from the Wharton School at the University of Pennsylvania.

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