US - The US assistant secretary for financial markets has urged pension plans to go back to basics.
Calling for a return to some of the fundamentals of investment management, Anthony Ryan said both private and public plans were continuing to diversify their investment portfolios, which frequently meant increasing their allocation to alternative investments.
Although these allocations are supposed to complement other investments, Ryan said an increasing number utilised complex and opaque investment strategies and instruments.
Ryan said: “Given the characteristics of many of the strategies and securities defining our markets today, fiduciaries must return to some of the fundamentals of investment management. They must seek to excel in risk management as much as return management. Risk management is not some part-time responsibility – it's a fundamental obligation of a fiduciary's duty.”
A decade ago, Ryan said investors would receive holdings statements and performance reports from their custodians who simply relied on having actively-traded securities priced off of independent pricing feeds.
However, today, he explained: “Assets are often priced by complex quantitative models, in many instances built by the asset managers themselves. In the most disconcerting cases, assets were priced to rating where, in just a few weeks, they went from priced to perfection --- to priced to rejection.”
As a result, Ryan has called on the pension industry to acknowledge the variety of investment risks to plans, such as valuation, volatility, credit, and operational risk.
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