Very interesting Economist article on the roots of China’s success – and why China must change to achieve future prosperity. However, the “China Unbalanced” debate is far from over, and countless arguments have been laid out for each side of the debate. Why does it matter to us? Surely, as Brazilians, because of the undeniable impact of China in our economy. But more importantly, as global citizens and asset managers, because of the uncertainty that comes from such a wide range of possible outcomes.
We’re still digesting the MF Global collapse, and we’re guessing it will be the case study for the intersection of risk management and culture/ incentive systems – not that it could ever be separated, but this was the case that really drove it home because of the inconceivable use of client funds… We highlight several articles on counterparty risk, fraud and MF Global inside.
DLD 2012 has started today in Munich and runs until Jan. 24th. In it, people as diverse as Sheryl Sandberg, Arianna Huffington, the Dyson family and Hiroshi Mikitani share their views on what matters to them. The themes are varied and the program is packed with interesting talks and panels. In the age of multi-disciplinary events, this is one of the best.
It would be easy to dismiss anything coming from Citigroup, not exactly the bastion of sound risk management practices. And it does appear like Vikram Pandit’s main suggestion here is, at first glance, simplistic yet hard to implement. Anyway, moves in the right direction are welcome, but on risk management issues, we tend to defer to Taleb (new talk inside).
Today’s post is just an image, a scan of an Isaac Asimov 1971 short note to kids apparently getting a new library somewhere. It’s brilliant. We complement it with our post citing “anti-libraries”.
Researchers have not been able to find a link between banker compensation and short-term performance metrics. In their words, their finding “refutes the suggestion that incentive structures in banks could be blamed for the crisis”. As we were reading the study’s description, we were alarmed that the professor equated “short-term performance” with the short-term movements in share prices, which is not usually how compensation is set in banks. Then we found a post by the Epicurean Dealmaker that destroys the study precisely on these arguments.
Just as in our September 2011 post called “How to spot a fraud”, a Wall Street Journal piece tells another story about returns that look too good to be true – but in this case, “too good” means “low volatility”. The point here is the ages-old trap of equating “risk” with “volatility” and assuming that a low-volatility fund is less risky. Even ignoring the possibility of fraud, it’s a bad move.
Great thought-provoking article, called “The Dumbest Idea In The World: Maximizing Shareholder Value”, sent by our most loyal reader. As the sender himself said, the discussion isn’t new but it’s always interesting. The real point of it is the power of incentives. The “too-simple” conclusion would be that “the road to hell is paved with good intentions” – but that would be wrong.
We were initially skeptical because, as Buysiders.com readers are probably well aware by now, we view risk management as a matter of knowledge gathering/sharing and corporate culture. The excerpts inside this post explain our satisfaction with the video. It’s not enough for us to judge whether this course is a great investment for you or your company, but we have attended classes with Bob Kaplan (and other) at Harvard and we certainly got more than our money’s worth.
Two recent stories highlight the current moral double standards regarding defaults and indebtedness in general. The first article uses American Airlines’ Chapter 11 filing, lauded as a “smart move”, and contrasts this reaction to the stigma surrounding personal bankruptcies by home owners. The second article tries to tack the same “double standards” theme onto Germany, but it doesn’t work nearly as well.