Investment management : meeting the noble challenges of funding pensions, deficits, and growth PDF
Preview Investment management : meeting the noble challenges of funding pensions, deficits, and growth
(continued from front flap) WAGNER $135.00 USA/$162.00 CAN Part IV offers insights on client-side challenges Investment Management RIEVES and provides professionals with a better under- T Praise for oday’s investment professional faces the for- standing of what the business is all about midable challenge of funding the retirement Part V describes the transactional aspects of port- of millions of workers as well as meeting the folio management—from understanding the tech- I capital formation needs that sustain businesses nology to executing cost-effective trades “A compelling analysis of the challenges of investment management, and why n around the world. During these extremely volatile Part VI focuses on the attributes and characteris- investment management fi rms require innovation to succeed.” M times, the rate at which changes are occurring in tics necessary to sustain the growth of a fi rm— —Blake Grossman, CEO, Barclays Global Investors e v areas directly impacting the practice of investing from substantiating policy and building a profes- e sional team to utilizing emerging technology “Great investment managers understand that positioning portfolios for clients tin e has forced individuals in this fi eld to “think about g their thinking” and reexamine some of their long- As a professional in the investment industry—and sfuhnodualmd ennotta lbs ea nadn oapctin oiof nc. oWnafoyrnme iatyn,d b Ruat lpraht hberirn ga tchoisn sftaacnt tt ojo luifren beyy aodf dsrheisfstiinngg th s standing assumptions. e steward of the world’s assets—you need to adjust some of the key challenges to serious investment thinking, using top-level N t Wayne Wagner—a leading fi nancial thinker whose accordingly to changing markets, as well as reas- researchers in their respective fields. For those investment managers and o sess the way you manage money. Investment clients who want to go beyond the ordinary.” b m Investment work on investment management effi ciency has le saved investors billions of dollars—and Ralph Management will put you in a better position to do —Jeff Diermeier, former CEO of CFA Institute and retired CIO of C Rieves—an experienced fi nancial editor and advi- this, and much more, as it offers practical guidance UBS Global Asset Management h e a sor, who’s worked with some of the best minds on navigating an ever-evolving fi nancial landscape. l l in the business—understand the issues affect- e “The essays in this book provide an invaluable reference point of serious read- n n ing investment managers, fi duciaries, trustees, WAYNE H. WAGNER is the founding and lead ings for money managers. The works provide the analyst with the most recent g principal of OM NI and a founding principal of scholarship in a single book, presenting ideas and philosophy that will lead me es t Management and regulators striving to meet the challenges of Wilshire Associates. He is known for his pioneer- back to its various sections time and time again.” o funding pensions, defi cits, and growth. Now, with ing work in designing balancing algorithms for —Kenneth S. Hackel, CFA, President, CT Capital LLC f Fu M Idnrveessst mtheenste M isasnuaegse mthernotu,g Wh atghnee rc oanntdr ibRuietivoenss aodf- the world’s fi rst operational index fund, and later n d acknowledged authorities from various investment developed methods to deal with the hidden de- “The crash of 2007–2009 brought a harsh conclusion to a quarter of a century in management companies, consulting fi rms, profes- lay and opportunity costs of trading. Wagner has of unprecedented growth and prosperity for the investment management g a authored, coauthored, or edited many books and industry, which faces no less a task than reinventing itself. Rieves’ and P sional associations, and universities. e articles, and is a frequent writer and speaker on Wagner’s contribution to the way forward couldn’t be timelier.” n n s Current turmoil in the capital markets has made global investment management and fi duciary duties. He i —Richard Ennis, Principal, Ennis Knupp + Associates o a Meeting the Noble Challenges of Funding fi nancial stewardship a diffi cult endeavor, but by holds two Graham and Dodd Awards from the n s facing reality, focusing on clients, and reexamining Financial Analysts Journal for excellence in , “This book uniformly focuses on the best practices to which investment D g Pensions, Deficits, and Growth assumptions, you can continue to succeed, and fi nancial writing. management professionals should commit. I highly recommend this book to e Investment Management will show you how. Divided f RALPH A. RIEVES is the managing director investment managers, sales people, and trustees of pensions, endowments, ici e Foreword by Joel Chernoff, Executive Editor, Pensions & Investments into six comprehensive parts—with contributions trusts, and mutual funds.” t of Farragut Jones & Lawrence. He was the fi rst s, m from a roster of top professionals and academics editorial director of the Dow Jones-Irwin imprint —Jack Clark Francis, PhD, Professor of Economics and Finance, a including Peter Bernstein, Richard Bookstaber, n and was one of the founding editors of the Journal Bernard Baruch College d Robert Jaeger, Arnold Wood, and Francis Gupta, of Investment Consulting. He is a recipient of the G e among others—this well-rounded resource: r book industry’s Bowker LMP Award for editorial o w n Part I explores the turbulence and changes within achievement. t h the industry, and suggests what it might take to Jacket Design: Loretta Leiva t fulfi ll your investment obligations moving forward Jacket Photograph: © Alamy Part II details some attitudinal challenges that the fi nancial world will always face wileyfi nance.com Part III addresses the “town and gown” aspects of the investment process through discussions of theory and practice Edited by Wayne H. Wagner and Ralph A. Rieves (continued on back flap) EAN: 9780470455944 ISBN 978-0-470-45594-4 E1FDED 04/14/2009 10:44:59 Page6 E1FFIRS 06/06/2009 15:29:11 Page1 Investment Management E1FFIRS 06/06/2009 15:29:11 Page2 Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia,andAsia,Wileyisgloballycommittedtodevelopingandmarket- ing print and electronic products and services for our customers’ profes- sionalandpersonalknowledgeandunderstanding. TheWileyFinanceseriescontainsbookswrittenspecificallyforfinance and investment professionals as well as sophisticated individual investors andtheirfinancialadvisors.Booktopicsrangefromportfoliomanagement to e-commerce, risk management, financial engineering, valuation and financialinstrumentanalysis,aswellasmuchmore. For a list of available titles, please visit our Web site at www.Wiley Finance.com. E1FFIRS 06/06/2009 15:29:11 Page3 Investment Management Meeting the Noble Challenges of Funding Pensions, Deficits, and Growth WAYNE H. WAGNER and RALPH A. RIEVES, Editors John Wiley & Sons, Inc. E1FFIRS 06/06/2009 15:29:11 Page4 Copyright#2009byFarragut,Jones&Lawrence,Inc.Allrightsreserved. PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey. 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Wileyalsopublishesitsbooksinavarietyofelectronicformats.Somecontentthatappearsin printmaynotbeavailableinelectronicbooks.FormoreinformationaboutWileyproducts, visitourwebsiteatwww.wiley.com. ThisdevelopmentofthisbookwasfundedbyFarragut,Jones&Lawrence,Inc.FJL underwritesthewritingofreferencesourcesforinstitutionalinvestors.FJLalsoadvisesabout bestpracticesinfiduciaryoversight. LibraryofCongressCataloging-in-PublicationData Investmentmanagement:meetingthenoblechallengesoffundingpensions,deficits,and growth/WayneH.WagnerandRalphA.Rieves,editors. p.cm. Includesindex. ISBN978-0-470-45594-4(cloth) 1. Investments–UnitedStates. 2. Businesscycles–UnitedStates. I. Wagner,WayneH. II. Rieves,RalphA. HG6041.I582009 332.6–dc22 2009005642 PrintedintheUnitedStatesofAmerica 10 9 8 7 6 5 4 3 2 1 E1FDED 04/14/2009 10:44:59 Page5 ToSumnerandCarolineLevine,withenduringregard. —RAR ToLarryCuneo,for40yearsoffightingthegoodbattlestogether. —WHW E1FDED 04/14/2009 10:44:59 Page6 E1FTOC 06/08/2009 15:50:48 Page7 Contents Foreword xvii Preface xix Acknowledgments xxv EditorialAdvisoryBoard xxvii INTRODUCTION: ASeaofChangesandWavesofOpportunity 1 JacquelineCharnleyandChristineR(cid:1)stvold The2008–2009creditcrisisroiledthealready-turbulent environmentinwhichassetmanagersconfrontedtheir stewardshipchallenges.Theauthorscitesevenmajor elementsofthe‘‘pre-crisis’’turbulence,andremindreaders ofDarwin’sdictumofsurvival.Proactiverelationships withalltheplayersarethekey. PARTONE: TheChallengesofChangesandCrises CHAPTER1 TheDiscontinuityChallenge 27 WayneH.Wagner Thetwistsandtanglesofthe2008–2009creditcrunchwill longberemembered.Thischapterdoesnotaddressthat specificdiscontinuity,butdiscussesdiscontinuitiesin general.Fromalongertimeperspective,weseethatthese discontinuitiesoccurfrequently,suggestingthatinaddition toapplyingourexperienceandrunningourmodelsin ‘‘normal’’times,weneedtopreparetofacetheinevitable vii E1FTOC 06/08/2009 15:50:48 Page8 viii CONTENTS discontinuityenvironments.Thisisthefirstchapterof severalinwhichwereflectonTaleb’sBlackSwan. CHAPTER2 TheSub-PrimeCrisisasa‘‘PredictableSurprise’’:Strategic LessonstoBeLearned 44 KeithAmbachtsheer Thefalloutfromtheeventsof2008–2009hasengendered severalmillionwordsofcriticism,constructiveand otherwise.Yet,verylittlerelevantappraisalhascome fromtheinvestmentmanagementindustry.Anenduring championofpensionreformdescribesthecollective actionsthatcanbeeffectivelymarshaledwhenconfronted withanotherthreatofasseterosion.Why,inthiscase, BazermanandWatkinsaremorerelevantthanTaleb. CHAPTER3 TheSolidarityChallenge 58 DavidG.Tittsworth,Esq. Comparedtomanyotherlaws,thestatutoryframeworkofthe InvestmentAdvisorsActof1940isrelativelysimpleand straightforward.Thefiduciarycultureithasfostered distinguishestheadvisoryprofessionfromotherfinancial services.Now,thebasiclegalandregulatorystructurethat hasgovernedinvestmentadvisorsfordecadesisbeingdebated. Well-organizedandwell-financedgroupsseektochangethe lawsbasedonthe1940Act,chargingthattheyare‘‘outdated’’ and‘‘losingrelevance.’’Theauthorsuggeststhreeactionsto ensurethatinvestmentadvisersworktogethertopreserve whatisgoodabouthowtheadvisoryprofessionisgoverned. PARTTWO: KeepingtheChallengesinPerspective CHAPTER4 TheFailureofInvariance 81 PeterL.Bernstein Whenpublishedin1996,AgainsttheGods:TheRemarkable StoryofRisktookitsplaceasoneoftheseminalhistorybooks
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