Shervin Pishevar argues that all financial innovation boils down to increasing hidden risk
Shervin Pishevar is one of the nation’s leading venture capitalists. With his specialty in the tech sector, Shervin Pishevar has financed some of the top brands in the tech industry today. Some of the companies that he and his firm, Investment company, have been responsible for creating include such names as Uber, Airbnb and Virgin Hyperloop. Shervin Pishevar has also formed a number of companies as a solo entrepreneur, including Social Gaming Network and Ionside.
When he isn’t fully consumed with creating some of the top companies in the world, Shervin Pishevar often takes to the social media sphere, tweeting to his more than 100,000 followers on everything from baseball to the state of the U.S. economy. Many of Pishevar’s tweets contain highly valuable insights. And as one of the most successful entrepreneurs and venture capitalists in the country, his opinions on subjects that he knows well are always worth considering.
One of the topics on which Shervin Pishevar has expounded at length is the area of finance. In particular, Pishevar has discussed the fact that innovation in the financial space doesn’t mean the same thing that it does elsewhere.
With many of the projects on which Pishevar has worked in the tech industry, innovation usually refers to the creation of new and groundbreaking technologies that create huge value in the marketplace and solve real-world problems. However, Pishevar says that innovation in finance often reduces to little more than creative ways to repackage debt. Restated, financial innovation is about hiding risk because debt always entails risk. And Pishevar says that this hiding of risk can be hugely useful to fund managers who are able to participate in upside earnings while not putting any of their own funds at substantial risk.
Pishevar likens such payment schemes, which prevail throughout Wall Street, to simple principal-agent scams. He says that fund managers have every incentive to maximize risk so that their chance of a big payoff is also maximized. He says that these fund managers have little incentive to mitigate downside risk because there are few consequences for them personally if a fund loses huge.