Sunday, March 18, 2007


New RSS Feed for Pension Risk Matters

We're delighted to have a new blog home with Lex Blog. We hope you enjoy the improved functionality. If you currently have us included as part of your RSS (Really Simple Syndication) feed (and we hope you do), please don't forget to change the URL. Otherwise, you will no longer receive new feeds and it will look like we've stopped adding items to our blog. Nothing is further from the truth. We have lots more to say!

Let me share some history with you. When we started the blog last year, we used Blogger.com to build a customized blog template. We hosted the resulting blog on our sister company's website. Until last week, when you typed www.pensionriskmatters.com, the display line immediately changed to www.bvallc.com/pensionblog. For a few more weeks, you may come across BVA links (i.e. older blog post URLS embedded in newer blog posts). They still work so click away. However, we are changing everything over so that all Pension Risk Matter links (old and new blog posts) have a URL that includes www.pensionriskmatters.com as part of the address. (Note that BVA, LLC is still a viable valuation company but no longer the owner of the blog, Pension Risk Matters.)

To change your feed address for Pension Risk Matters, click here to access the appropriate code. To learn more about RSS, click here for an overview.
posted by Susan Mangiero at 3/18/2007 08:03:00 PM | 0 comments | links to this post  

Wednesday, March 14, 2007


Pension Governance, LLC Sponsors Research Sites



Pension Governance, LLC (our sister company) is pleased to announce the sponsorship of two sections of the Social Science Research Network. Check them out and see for yourself. You'll find interesting research papers and announcements about forthcoming events in the areas of employee benefits law and corporate governance, respectively. At a time when so much is happening in these two areas, we're delighted to encourage cutting edge analysis by top scholars. Click here to learn more.

Section One: Employee Benefits, Compensation & Pension Law
Edited by Pamela Perun with the Urban Institute, "Employee Benefits, Compensation and Pension Law Abstracts is a forum for the exchange of ideas by policy makers, practitioners and researchers on current employee benefits issues. It publishes abstracts of working papers and recently published and forthcoming articles on the full spectrum of employee benefits, both in the U.S. and abroad, such as healthcare, pension and savings arrangements, cash and equity compensation, and Social Security."

Section Two: Corporate Governance Law
Edited by Bernard S. Black with the University of Texas at Austin Law School, "Corporate Governance Law publishes abstracts of working papers as well as articles accepted for publication in corporate governance law, and related fields of scholarship.."
posted by Susan Mangiero at 3/14/2007 12:25:00 AM | 0 comments | links to this post  

Sunday, March 11, 2007


New Look for Pension Risk Matters



We are going offline for a few days and will be back in business late next week. With users in mind, a newly designed www.pensionriskmatters.com will feature archived posts by both topic and date. If a reader wants only posts written about hedge funds let's say, he or she clicks on the hedge fund folder instead of having to comb through hundreds of archived items. Commenting on blog posts will likewise be much easier. As always, we welcome your feedback.

We continue to make the blog available for no charge. Steady growth in readership tells us we are on the right track. Our goal is to provide transparency about critical topics such as fees, risk management, valuation, accounting, disclosure and hedge funds. Always important but especially now, defined benefit and defined contribution plan sponsors are under significant pressure to demonstrate procedural prudence. Regulators in the U.S. and abroad, legislators, shareholders, plan participants and taxpayers are asking tough questions about the management of plans. The spotlight is not going away and is arguably shining more brightly than ever before.

For more information about the blog, please email Dr. Susan M. Mangiero, CFA, Accredited Valuation Analyst, Accredited Investment Fiduciary Analyst and certified Financial Risk Manager.

Here's to full sunshine about pension governance!
posted by Susan Mangiero at 3/11/2007 10:04:00 AM | 0 comments | links to this post  

Friday, March 09, 2007


Are Pensions Ready for Property Derivatives?



David Oakley reports the imminent launch of a U.S. commercial property derivatives market trading platform as early as this week. (See "Property derivatives poised for US launch", Financial Times, March 5, 2007.) Estimated at $26 trillion in value, Oakley writes that "property is one of the few major asset classes without a developed derivatives market in the U.S."

Four banks have signed with the National Council of Real Estate Investment Fiduciaries to license their index data for three years - Bank of America, Credit Suisse, Goldman Sachs, and Merrill Lynch. Click here to read the NCREIF press release.

This type of financial instrument has already taken hold in the UK with a property derivatives market that has grown to nearly $10 billion in the two years since inception. No surprise then that US banks will plan to follow suit, especially with respect to the use of good data (cited as a driving factor behind the UK experience).

Note that the NCREIF Property Index (NPI) is self-described as "a unique property valuation and performance metric. It is the largest, oldest, and most recognized measure of institutional quality, privately owned commercial real estate in the U.S. The benchmark represents (as of Fourth Quarter 2006) marked-to-market valuations on 5333 U.S. properties reported quarterly by a large number of institutional owners and fiduciaries. It has a total market value of $247 billion. The NPI includes sub-indices by property type, and location."

Structured as a type of interest rate swap, one counterparty receives a cash flow tied to real estate market performance. A second counterparty receives a variable rate-driven cash flow every few months, tied to LIBOR (London Interbank Offered Rate).

For a pension fund unable to buy property and/or allocate monies to a real estate investment trust or real estate private equity fund, this new derivative may be a good workaround. Suitability will depend of course on many factors such as terms specific to the derivative instrument contract, what the plan is seeking to achieve and whether exposure to real estate makes sense.

The Baltimore Sun reports continued good performance as recently as two months ago. (See "Commercial real estate funds continue to thrive" by Andrew Leckey, originally published January 7, 2007.) On the other hand, valuation and liquidity must be taken into account. Future expected risk-adjusted returns and correlation patterns with other assets are similarly important.

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posted by Susan Mangiero at 3/09/2007 12:10:00 AM | 0 comments | links to this post  

Thursday, March 08, 2007


The 2007 Pig Book



In case you missed it, Citizens Against Government Waste (CAGW) released their 2007 Pig Book on March 7. Reminding us all that insane spending of tax dollars DOES occur, a companion report rightly points out that waste likewise diminishes the competitiveness of the U.S. marketplace. Given the work of the Paulson Committee and other advocates of deregulation, excessive outlays should make news beyond CSPAN.

CAGW president Tom Schatz applauded some restraint but urged lawmakers to keep tightening their belts before spending other people's money. Here are a few of the goodies he cites as part of the "2,658 pork projects at a cost of $13.2 billion" included in the Defense and Homeland Security Appropriations Acts for fiscal 2007.

<< 1. $1,190,000,000 for full funding of 20 F-22A fighter jets, which the Government Accountability Office criticized as unnecessary and out of date;

2. $5,500,000 for the Gallo Center to study the effects of alcohol and drug abuse on the brain;

3. $1,650,000 to improve the shelf life of vegetables;

4. $1,350,000 for the Obesity in the Military Research Program; and

5. $1,000,000 for a telescope searching for extra-terrestrial intelligence. >>

Click here to download the 2007 Pig Book in its entirety. As you read, don't forget the words of British historian Lord Acton - "Power tends to corrupt; absolute power corrupts absolutely."

At a time when programs like Social Security and Medicare represent behemoth unfunded liabilities to taxpayers (not to mention more than a few state and municipal pension and health care programs), do we really need a space alien telescope or vegetable research? Decide for yourself next election cycle.

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posted by Susan Mangiero at 3/08/2007 10:00:00 PM | 0 comments | links to this post  

Monday, March 05, 2007


The F Word for Pensions



In a recent presentation about pension risk management, I asked the audience to jot down a dozen words that started with "F" - Failure, Feeble, Felony, Fiduciary, Financial, Fit, Flee, Focus, Folly, Fondness, Freedom and Fun.

I then offered a story based on the twelve words (shown below).

<< Before I realized the importance of being a fiduciary, work was fun. I have a fondness for the good old days when I had more financial freedom. That was before the failure of our high risk portfolio. What folly! Now the lawyers tell me our strategy is not a good fit, our process is feeble and breach may be a felony with personal liability not far behind. I wish I could flee! >>

Perhaps a bit too gimmicky, my goal was to get the audience to think about the ultimate F word - FIDUCIARY - and the related consequences associated with a job poorly done. My contention? We're all risk managers now.

Think about what's happened in the last few days. Volatility is up. Assets that typically move inversely with one another are moving in the same direction - down, more than a few investors are liquidating positions to meet margin calls, credit problems are rearing their ugly head in the form of sub-prime loan losses and there is overall nervousness about how risk is priced.

Is this the tipping point that compels pension fiduciaries to examine their risk management policies and procedures - and those of their appointed money managers - or do they instead shrug off bad times as short-term and likely to reverse? If not market turbulence, what will get fiduciaries to focus on risk-adjusted return in a more meaningful way?
posted by Susan Mangiero at 3/05/2007 09:20:00 PM | 0 comments | links to this post  

Friday, March 02, 2007


SEC Alleges Insider Trading - Should Pension Investors Care?



Former U.S. Senator Alan Simpson is said to have claimed "If you have integrity, nothing else matters. If you don't have integrity, nothing else matters."

After reading the SEC's March 1 press release about insider trading, these words ring loud and clear.

If you haven't seen it yet, click here for details about charges against fourteen individuals "in connection with two related insider trading schemes in which Wall Street professionals serially traded on material, nonpublic information tipped, in exchange for cash kickbacks."

Efficient markets are crucial for the pension funds which invest over $10 trillion in global assets. Trust, integrity and internal controls are the lifeblood of a system that works.

If there is a silver lining attached to these allegations, it is to remind fiduciaries of the importance of a due diligence process that goes beyond financial risk management. Credit checks, questions about oversight of traders and continued verification of trades are just the beginning.

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posted by Susan Mangiero at 3/02/2007 06:08:00 AM | 0 comments | links to this post