Avoiding complexity

My last couple of posts on LinkedIn have been related to the finance industry explaining things better to clients. The phrase “complexity” always comes up (the first point in Dan Mikulskis’s post) so it got me thinking about what complexity actually is and how do we avoid it? It turns out that trying to work…

Not all brakes are the same

Many followers will be familiar with our analogy that brakes actually make you faster. The thinking goes that when you have brakes available to you then you drive faster for two reasons: You have something at your disposal to slow you down if things go wrong; And having this knowledge gives you the confidence to…

Derivatives and Farming

Every day on my drive to the station, I listen to Farming Today on Radio 4. Most days it is a nice, calm introduction to the day, transporting me to a more romantic (more difficult) life in the countryside. But this morning, I was struck with a story that brought me back to my actual…

The challenge with conventional de-risking

The majority of schemes we come across are worried about market falls. This is truer now than ever with markets at, or near, all-time highs but with worrying events on the horizon. Funding levels are better than they were a few years ago, and governance standards are higher meaning that trustees know that no decision…

Is this how Trustees feel when faced with something new?

Just before Christmas a colleague and I hired a car to travel to a client education session. However, the journey actually turned out to be an education for us. As with most hire cars, this one was new and consequently had all the latest gadgets. One of those gadgets was “Adaptive Cruise Control”. We were…

Derivatives misconceptions week

Last week started with Halloween and ended with fireworks. A week that begins with doing something scary and ends with an explosion. Maybe we should rename this week and have an annual event called “national derivatives misconceptions week”? Most people who are new to derivatives will have two worries: They are “complicated” and scary They…

Diseconomies of scale

It is often assumed that small schemes (those less than £500m) will always struggle, due to their limited resources, to compete performance wise with their bigger counterparts. Recently published research by Goldman Sachs Asset Management has shown that the big difference in performance (given the fall in interest rates) is due to whether a scheme…

Complexity is a perception

Many readers will be familiar with the challenge of office temperature. Some team members think the office is too hot, and others too cold. It suggests that our experience of temperature is based on perception rather than reality. As an experiment, try the following: Fill a bowl with tap water Put one hand under a…

LDI Takeaways from the FCA Market Study

It would be difficult to write something at the moment without talking about the recently published FCA Asset Management Market Study. I have tried to pull out three key messages which I believe are of particular significance for LDI managers. Focus on client outcomes The core message from the FCA was that everyone should be…

Learn to love leverage

Apologies for the provocative title. Many schemes that are looking at, or that already have, LDI inevitably come across the word ‘leverage’. Scary, right? In the context of LDI it is often defined as the amount of liabilities you are hedging, against the (off-risk in Cash or Gilts) capital you have to commit to that…