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Fiduciary Matters blog

Insights for institutional investors

April 18, 2014
Author:

Risk monitoring: What the cool kids are doing #4

Times have changed when it comes to risk monitoring. What used to pass as risk monitoring has been improved upon, expanded, and should now play a vital role in the decision making process. Since the Global Financial Crisis, investors have become much more focused on understanding and managing their risks. Investors need to be sure that they are monitoring the risks and tied to their end goals.

Categories: Categories: Governance & risk management
April 10, 2014
Author:

Hibernation for frozen pension plans: the benefit of patience

There’s a new word being used in the context of frozen pension plans: hibernation. My colleague Jim Gannon has written recently on what it is and how hibernation compares to termination.

Categories: Categories: Defined benefit strategy
April 7, 2014
Author:

To reduce the High Frequency Trading debate to yelling “Good” or “Evil” is to miss the point

Unless you live under a rock, you now know that HFT stands for High Frequency Trading. Michael Lewis’ new book Flash Boys: A Wall Street Revolt can be loosely summarized as “HFT is evil.” He describes, for example, how some traders systematically exploit the milliseconds of difference in the time it takes signals to reach

Categories: Categories: Execution-related
April 3, 2014
Author:

Retirees are living longer. That shouldn’t take anyone by surprise.

The Society of Actuaries recently released a draft version of new mortality tables for pension plans, with the catchy title RP-2014. My colleague Justin Owens has described how these new tables will affect defined benefit plans in various ways: from lower funded status to higher contributions to possible implications for investment strategy. Current indications are that the IRS will mandate the use of the new table for funding purposes from 2016 or thereabouts. Many plan sponsors will probably start using the new tables for accounting purposes by the end of this year.

Categories: Categories: Defined benefit strategy
March 26, 2014
Author:

How do your investment committee meetings measure up?

Investment committees play a key role in the deployment of the $18 trillion¹ or so of institutional assets in the U.S. More often than not, it is an investment committee that establishes strategy, oversees critical asset allocation decisions and selects the people who take day-to-day responsibility for running the money. But how effective are investment

Categories: Categories: Governance & risk management
March 20, 2014
Author:

When averages lie: Why investors need to recognize more than one possible outcome

Like the proverbial actuary with his feet in the oven and his head in the fridge (“on average, I’m just right”), it’s easy for investors to make too simple an assessment of the world. Often, it’s not the average that really matters, but the range of possible outcomes. Averages can sometimes disguise the most important

Categories: Categories: General
March 10, 2014
Author:

Why pension plan asset allocation is becoming more and more tied to funded status

The idea that pension plan asset allocation should be tied to funded status is surprisingly young. It was not common practice before 2008: when Jim Gannon and I wrote our paper on liability-responsive asset allocation in April, 2009, it was (as far as we are aware) the first time this approach was formally described in any detail.