Praying for a market miracle

The revelation that the Church of England is relying almost exclusively on returns from equities to pay vicars’ pensions in the future raises an interesting question: which institutions can afford a sufficient time horizon to be able to rely on the expectation that equities will outperform bonds over the longer term? Continue reading "Praying for a market miracle"

Despite the academic hours put into debating whether active fund managers outperform, no one has definitively won the argument it seems.

The debate has been fuelled recently by papers from Eugene Fama and Kenneth French (Luck versus Skill in the Cross Section of Mutual Fund α Estimates) and Laurent Barrat, O. Scaillet and Russ Wermers ( False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas).

Neither make good reading for active managers. Continue reading "Active managers: lucky, skilful, or useless?"

Hewitt risks raising expectations too high

Most days I can rely on a communication from some investment consultant or other landing in my inbox bemoaning something about pensions.

Today it is Hewitt Associates, which quotes some nice round figures about the danger of 15,000 people in the UK losing at least 20 per cent of their pension benefits if trustees of defined benefit schemes do not “take control of investment strategy”. It says £150m of pension benefits are at risk over the next two years. Continue reading "How to invest your way out of a deficit"

Bedlam Asset Management is worried about ETFs. Our colleagues on FT Alphaville have already noted their concerns so I won’t go into detail. Suffice to say that Bedlam thinks parallels can be drawn between the evolution of ETFs from simple low cost product to complex sophisticated product with hidden costs and the expansion of securitisation that eventually led to the sub prime debacle.

Bedlam is an active manager so doesn’t use ETFs. But the possibility of a fraudulent operation being discovered and causing a run on gold, for example, as people sell out in a panic would have wide repurcussions. So it is alerting the market to this possibility. Continue reading "Why ETFs are dangerous"

It seems the European Commission has vanishingly few supporters of its proposed directive on alternative investment fund managers.
Reporting back from a Eurofi conference in Sweden, at an Efama one in Brussels, Eddy Wymeersch, chairman of Cesr, says eight of ten people on the panel discussing the issue in Sweden thought the draft needed major revision. There is particular concern about its scope. It appears sovereign wealth funds could fall within the remit of the AIFM - which would be nonsensical, according to Mr Wymeersch.
There should be different regimes for different types of funds, he says.
Will the Commission accept it has got this one wrong? Or is it determined not to back down?
When it was just the alternative investment industry complaining and threatening to leave for friendlier shores, the Commission perhaps took the view this was vested interests talking and who cared if the hedgies left for Switzerland?
With a growing chorus of dissent from investors and regulators, does the case for re-examining the proposed legislation get stronger?

The arrival of really expensive funds in the Ucits space, notably those being launched by hedge fund managers, makes the funds run by traditional long-only managers look quite reasonable. Continue reading "Cost competition is going the wrong way"

Pension saving is too expensive. According to a report from the Royal Society of Arts, up to 40 per cent of pension savings disappear in fees and costs under the UK’s current system of private pension provision.

Personal accounts, the national scheme to be rolled out in the UK from 2012, are designed to tackle this problem. People will be automatically enrolled into the scheme, removing the marketing and selling costs that have helped make personal pensions so expensive.

But the £3,600 annual limit on contributions to personal accounts is too low, says the RSA report. Continue reading "Low costs crucial for pension savings"

Poul Nyrup Rasmussen, self-styled bogeyman of alternative investment managers

It seems the discussions on the European Commission’s much reviled draft directive on alternative investment fund managers are taking place after the event rather than before, as is usually the case with EU legislation.

The Financial Services Authority, the UK regulator, is focusing on this one topic in its asset management conference tomorrow. This follows last week’s debate, held in London’s Guildhall, between Poul Nyrup Rasmussen, self-styled “bogeyman” of alternative investment managers, and Lord Myners, the UK’s City Minister. Continue reading "Hedge funds missed the boat on directive debate"