Five Trends in Investment Management from the CFA Annual Conference

Published by Marshall Smith, CIPM, Managing Director - General Manager, Products
April 28th, 2015
Impact society by putting client’s long term objectives first. The new CFA Institute CEO Paul Smith made this point clear, making it the driving charge of the CFA Institute under his watch. He suggests that managing client investments is a noble profession which has positive societal benefits when done through adhering to a radically client centric model. See What Does Stewardship and the Fiduciary Standard have in Common. Greece has no friends and European QE blues. The near unanimous consensus among the speakers and audience is that Greece will default and will likely be forced to leave the European Union. Hans-Werner Sinn was a particular advocate of this argument as well as saying the only way to fix Greece is for them to reduce their income to match their economic output. That would be a heck of a campaign slogan. The likelihood of a Greek default is only delayed by the minimally effective European version of American QE (Quantitative Easing) which keeps cost of restructuring massive debt low. Goal based investing is about likelihood to meet client goals. Jean Brunel argued the best way to get clients to describe their goals is to separate which are wants and which are needs. With this in mind, investment managers can determine the percentage likelihood to achieve them (higher for needs, lower for wants). The output of the analysis is a minimum required return to provide this likelihood. Using these inputs, the goals can be aggregated to be managed in a similar to an institutional portfolio. It’s great to see a goals-based approach gaining steam across the globe. See First Rate Whitepaper on Goals Based Reporting. Short-term investment outlook is like the plague – Based on an audience poll, the industry is getting worse and not better when it comes to having a long-term focus. Some suggested that the monthly and quarterly reporting encourages short-term based actions by institutional board members without adequate investment expertise. Investment Industry should learn from Medicine – Cambridge Professor John Coates gave a compelling argument for how biological responses to stress drive decision making amongst investment managers. His argument, make decisions purely based on data and results of research and not based on intuitive or gut feel. On another note, the annual conference is located in Frankfurt, Germany. It’s funny that no matter how far you travel, it’s always refreshing to hear “Hey, First Rate, I love you guys!”
About the Author: Marshall Smith CIPM, Managing Director of Service Bureau, has been with First Rate since 2006. In this role he oversees Service Bureau, the business line responsible for clients that outsource their performance processing function, develops and maintains client relationships, and develops strategic planning for all Service Bureau operations. In addition, he leads First Rate’s Marketing team. You can follow Marshall on Twitter @1stRateMarshall, or connect via LinkedIn.

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