Investment Fortune Telling?
In response to my November 19, 2008 blog post ("Pension Report Card - Process, Not Point in Time Numbers"), ERISA attorney Steve Rosenberg refers to me as a financial Cassandra. Indeed, many times of late, I've felt like shouting - "Didn't I warn about risk a hundred years ago?" While I like to think of myself as a relatively smart person, many adverse outcomes were not particularly difficult to predict. Bad process begets bad results. There has long been a plethora of red flags to signal that risk management was either AWOL or far from an independent exercise at certain organizations. I've copied and pasted Steve's commentary below. Check out his thought-provoking blog at http://www.bostonerisalaw.com/.
<< There’s an old saying that nothing focuses the mind like an execution date; all trial lawyers have heard judges rephrase it as nothing focuses the mind so much on settlement as an imminent trial date. I thought of this saying when I read this article, in which of Pension Governance, whose Cassandra like warnings that companies need to focus on improving quality and other aspects of retirement plans - including their handling of hard to value assets - predates the utter disaster that has befallen such plans in the past several weeks, discusses the fact that, having now fallen into the abyss, pension plans and fiduciaries must focus their efforts on how to respond to the market collapse, which may have a larger impact on the pension plans than the market collapse itself. If there was ever a metaphorical execution date for plan fiduciaries and administrators, it’s the upcoming and ongoing storm of litigation risks, government investigations and intervention, and need to respond to the market volatility by tightening up investment strategies. If it may be hard, in hindsight, to defend the kind of alleged problems in investment management that occurred in the past that are at the heart of the “stock drop” type suits that are being filed against 401(k) and pension plans, it will be doubly hard to defend any continuation of the same types of errors in future cases, given the extent to which the world has changed over the past several weeks, both in terms of the environment in which such cases will be litigated and the expectation that fiduciaries should have learned from past mistakes. >>
