Despite colorful tales of medieval historians disputing its shape, most people then and now realize that the earth is not flat. We won't get to the end and fall off. Indeed, we're arguably more interconnected than ever before. So it's not surprising that a galaxy of international speakers convened in Sydney with many of the same problems, challenges and concerns as US peers. A recurring theme emerged for everyone in attendance at the Asset Allocation Summit 2008 - Investment management is all about risk. Identification, measurement and control are important,. regardless of plan design and country of origin. In fact, the similarities as to what keeps folks up at night are eerily striking, whether voiced by a plan sponsor from Europe, Asia, Australia or North America. Here are a few concerns that resonated with all in attendance.
1. How can investment fiduciaries minimize their liability exposure, especially when investment strategies are becoming more complex and diverse?
2. What is the responsibility to defined contribution plan participants, knowing that many will retire without ample means to maintain a particular lifestyle?
3. How can one avoid paying "excess fees" to managers?
4. What is the proper way to separate beta from alpha?
5. What is the role of infrastructure investing?
6. Should allocations to 130/30 strategies (and equivalents) come from equity or alternatives?
7. Will a recession be global in nature?
8. How much oversight is required by internal fiduciaries who delegate manager selection to consultants?
9. Is ESG (Environmental, Social, Corporate Governance) investing a plus or minus in terms of fiduciary duties?
10. How should derivatives be properly used and by whom (the plan, the money manager or both)?
Sound familiar? If so, perhaps we should be thinking about how to operate within a flat pension world. Credit Thomas Friedman for pointing out the oneness that pervades global thinking. In his best-selling "The World is Flat," he emphasizes the connections among seemingly disparate markets. Should we care about the governance of pension funds outside our borders? In a word, "yes." What is done elsewhere impacts an increasingly "flat" network of capital which in turn influences the investment opportunity set within our borders..
Isolationism is over for most everyone. What about you?