Financial Engineering, Forensics and Pension Shareholders
My dad was an aerospace engineer who later switched to mechanical engineering. My sister is an electrical engineer. My husband was an electrical engineer until he earned his PhD in finance and became a professor. They have each advised me in their own way that every problem has a solution. It is a question of digging deep for answers, assimilating sometimes massive amounts of data and then applying a big dose of common sense.
Influenced by these important persons in my life (and many others who have a similar "can do" attitude), I use a building block approach to financial engineering. Having worked in two treasury departments, on four trading desks, as an expert witness, fiduciary trainer and consultant, I know that it is important to ask many questions, understand the context and attempt to connect seemingly disconnected dots.
Applied to pension risk management, what you see is not what you necessarily get. It is critically important for institutional shareholders to understand whether and how much their portfolio companies (either through direct or indirect investing) use leverage (possibly in the form of derivative financial instruments) and how related risk is managed. (I was recently interviewed by a major broadcasting company on this very topic, given some of the lawsuits being filed against companies that allegedly did not do "enough" in the area of risk management. The piece will air in the next several weeks.)
In the meantime, these articles I authored several years ago may be of interest to readers of www.pensionriskmatters.com. The principles still apply today.
"The Role of the Financial Expert in Valuation of Derivative Instruments" (Expert Evidence Report, February 2004)
"Derivatives valuation: One size does not fit all" (Shannon Pratt's Business Valuation Update, December 2004)
"Derivatives and their impact on company value, part 1" (Shannon Pratt's Business Valuation Update, March 2005)
"Derivatives and their impact on company value, part 2" (Shannon Pratt's Business Valuation Update, April 2005)
