from the executive director
Looking Back, Going Forward
Our Second Issue Examines Past and Future
I am delighted to report that the inaugural issue of the Investment Professional was published to a highly positive response. Our subscribers responded to our requests for feedback by confirming that the journal had met its goal of providing practical, engaging content with immediate application. As Barack Obama continues in his first 100 days as president, we can evaluate the predictions about his economic platform that our expert sources made in our Fall 2008 cover story, “Wither the Economy?” Now, with our second issue, we focus on the causes of the recent financial collapse and counsel readers on how to cope with the ensuing stress. Our cover story examines why traditional risk assessments failed to anticipate the global financial meltdown. Reasons include the misapplication of VaR forecasts, inattention to critical risk factors such as defaults, miscalibration of models, lack of discipline, and flawed compensation structures. Neil O’Hara points to a future in which risk reporting and regulation are consolidated, risk management lies at the core of strategic planning, and counterparty risk receives more consideration.
In an interview by Lori Pizzani, former SEC chairs Arthur Levitt and Harvey Pitt explain how the course of deregulation, the failure of the SEC to enforce its own rules, and the rapid expansion of the credit market led to the current crisis. They also offer their differing views on the federal rescue plan, which, for Pitt, is “neither a long-term solution nor a short-term Band-Aid,” but a mere confidence booster. In contrast, Levitt feels that Paulson did a “heroic job in the midst of a tsunami” and that parts of the plan will be constructive. Both men are proponents of fair-value reporting and of the creation of a task force that is free of White House influence.
International convergence of accounting standards is another key issue facing the investment community. Amy Buttell explains the rationale behind the creation of IFRS and unravels the differences between IFRS and US GAAP. Leading accountants, academics, and policy analysts weigh in on the debate over whether adoption of IFRS in the US is advisable, given the philosophical, political, financial, and operational implications.
No one is immune from anxiety in this economic climate. Clinical psychologist Brett Steenbarger explores the origins of stress among professionals, the effects of stress on performance, and nontraditional methods of counseling, including exposure-based techniques like those developed to address post-traumatic stress disorder. He also joins executive coach Stuart Schneiderman in a dialogue, conducted by Adam Sterling, that presents specific advice on how to overcome the lack of confidence brought on by the economic downturn, and how to eliminate handicapping emotions during the job search. Author and career coach Vicky Oliver describes three personality flaws common in the workplace—blindness, defiance, and vengefulness—and encourages a self-audit to ensure that you are not sabotaging your chances for success.
We also take a historical perspective on the profession of securities analysis. Charles Ellis, founder of Greenwich Associates and author of The Partnership: The Making of Goldman Sachs, traces the evolution of securities analysts from the “green-eyeshade-wearing, slide-rule-toting, underpaid, inconsequential statisticians’” of the 1950s, to the “highly respected, well-paid, recognized experts” of today. Ellis depicts the insular information-sharing of the early days, Benjamin Graham’s fight to raise standards, the conversion of the big investment banks from naysayers to strong proponents of research, the growing glamour of the field, and the shocks felt by the industry when corruption cases began to headline the news at the start of the millennium.
John MacKessy, founder of Prism Risk Advisors, recounts the history of compliance programs, stemming from the public safety movements of the early 20th century, encompassing the shift in responsibility to private industry that was prompted by Watergate and the foreign corruption investigations of the 1970s, and culminating in today’s focus on compliance risk management. MacKessy notes that compliance and ethics programs, long considered a hindrance to business, can provide multiple rewards, including risk mitigation, reputational enhancement, and business strategy development.
Those who missed our first issue can read the content online. Check back often for information on our upcoming issues. We will continue to offer relevant, thought-provoking articles for the practitioner, and we are confident that the Investment Professional will become a valuable resource.
