This page has been archived and commenting is disabled.
An Open Letter to Pension, Endowment, and Other Institutional Trustees and Investment Committees
Dear Pension/Endowment/etc Trustees and Investment Committees: I understand you enjoy your secure, relatively well-paid job, and your forgivable desire to maintain this status-quo for as long as possible. Insofar as you possess the capacity, experience, and inclination to comprehend the following, please, enlighten me: So long as you like your job and want to keep it, don’t you think its in your best interest to get rid of nonsensical, self-defeating policies like the following (from CalPERS)?
Counterparty creditworthiness, for non-exchange traded Derivatives (Anal_yst: substitute any asset/asset class here), shall be at a minimum of “A3” as defined by Moody’s, “A-” by S&P and “A-“ by Fitch...?"
First of all, why the hell are you investing pension money in OTC derivatives? Do you really think that’s the most suitable investment? Second, and more importantly, considering your no-doubt negative answer to the former, why, after witnessing first-hand the epic failures at S&P, Moody's and Fitch do you insist on such unwarranted over-reliance, or hell, any reliance, on them whatsoever? These guys & gals have proven, beyond a shadow of a doubt, that their “work” rests precariously on the fine line between rank incompetence and criminal negligence. Or, as Zero Hedge's Marla Singer so succinctly put it:
Isn't saying "We can't survive on subscription revenues," admitting that the real source of their revenue is a skim off of the delta between unrated securities and rated securities? If they said that out loud by saying "We take a percentage of the value we add by rating securities" people would flip. But they did just say that. Except, they put it through a PR filter first.
So, let's be honest with each other, k? You don't really give a shit unless/until shit hits the fan, and in a failed and mostly-futile effort to avoid such circumstances, came up with a set of blanket arbitrary investment criteria, as quoted above. Now, to be clear, if you absolutely insist on such poorly-conceived, ass-covering tactics, why not start using Egan Jones Ratings? You know, the firm who has actually added value - at least relatively speaking - to investors (that’d be you, fyi), instead of to the issuers? Can’t afford them? Oh, but you CAN afford to trust S&P? How much money did you lose in 2008, again?
Stop blaming the Government and their asinine NRSRO regulations, stop blaming "the market," and take some damn responsibility for actually doing your job, not just keeping it. If you’re going to set arbitrary and self-defeating rules, then don’t let your traders enter-into OTC/bespoke derivatives. Otherwise, let your PMs do their job, just exercise prudent risk management, which you claim to do anyway (in several places, actually). Stop focusing so much on CYA window dressing and work on the actual practice. This is Finance 101 stuff here (did any of you even take that?) If you aren’t willing or able to conduct your own thorough analysis, you are setting yourself up to get raped. Period, end of story.
How about actually doing your own diligence for a change, instead of just taking the Ratings Agencies' word for it? Some of you will no-doubt make claim you lack the staff or resources to do so, however given the massive supply/demand imbalance for financially savvy talent this is little more than a BS excuse. Also, as I touched-upon earlier, should you really be concerned with activist investing and OTC swaps when you can’t even hire a core staff of fundamentally sound, experienced investment professionals?
Really, you have two distinct choices: maintain the status quo and keep making investment decisions by proxy (and taking the attendant risk associated with so doing), or actually conducting your own analysis, and (hopefully) understand(ing) that in which you mean to invest.
Since shit started to hit the fan in late 2007 (and earlier), supposedly sophisticated institutional investors such as yourselves, and your poor, unfortunate beneficiaries have pointed the (middle) finger at the Ratings Agencies for their role in the credit crisis (or whatever you want to call it).
I say fuck that. YOU relied on the Ratings Firms for impartial, expert advice. All the while, even Congress - hell, even the SEC - knew both they and the underwriters/issuers relied on your laziness and indifference to be their “greater fool.” Ultimately, the only party you have to blame is yourself.
If you can’t stand the heat, get the fuck out of the fire, or at the very least, STFU.
Peace (Bitches),
Anal_yst
»
- advertisements -
"How about actually doing your own diligence for a change, instead of just taking the Ratings Agencies' word for it? Some of you will no-doubt make claim you lack the staff or resources to do so, however given the massive supply/demand imbalance for financially savvy talent this is little more than a BS excuse. Also, as I touched-upon earlier, should you really be concerned with activist investing and OTC swaps when you can’t even hire a core staff of fundamentally sound, experienced investment professionals?"
As they say in Manila: I am having arousal for this (logic and writing style). I'd pay to see even a "clean" version of this 'reality factor' given on CNBC to the CalPERS rep.
Nice post. You remind me of someone I know.
They won't stop taking risk until they are not paid handsomely (either upfront or in some greasy back room) to do so. You chip away nicely at the iceberg's tip but there is a whole ugly underworld surrounding pension funds worth searching out and destroying.
Interesting point, perhaps we'll have to dig a bit further and see what we uncover. If you have any suggestions as to where we should look, let one of us know!
Agree 100%. Those useless fuckers used to parade in front of my B-school class talking about alternative investments and stuff, like they had any clue what they were doing.
Get a clue - invest in short term Treasuries, you will do a lot less damage.
Excellent letter! Would you consider adding, for your next letter "and for all you SRI's, why are you still invested in any of the TOOBIGTOFAIL banks?"
Glad to have your support ya'll.
If you're feeling ambitious the SEC website (linked-to above) and the document from their 2003 SarBox report on the Rating Agencies documents the epic fail we're dealing with in pretty good detail.
These guys just are there to CYA until they can move up/onto more lucrative/powerful positions (goes for Ratings guys, institutional "managers," regulators, and politicians), they aren't "risk takers" in the sense of wanting to make waves, unfortunately.
Sigh...
Nice post Anal_yst ! Liked it very muchly. :-)
Nice work. Also worth mentioning that CALPERS now runs some fixed income money in-house -- but apparently can't do credit research (as per above)..... Hope to see more of you at ZH!
This is so right on. Saw CALPERS guy on CNBC last week mention how they have a position in "every company in the world listed on an exchange." WTF? I mean, they are all buys? Every single stock on the planet?
I think he might mean they bought a stake in VT. It's a pretty sophisticated system. They have ETFs.
Anal, always love your commentary.
Keep it coming.
CALPERS bought billion$$$ in now worthless property. I wonder if any of the CALPERS people even went and LOOKED at the crap.
Anal_yst:
Nice to see you here instead of DB; too much scatology
and genitalia there - more intelligent thought here.
Blame exists on every level:
CDO/S issuers: Greed and criminality
Ratings agencies: Lazy, and conflict of interest
Pension etc. funds: Laziness and cupidity
Regulatory: Underpaid, incompetent, and asleep
Epic fail all the way round.
Nice letter. Pension ... AND...IT'S GONE 401K.... AND...IT'S GONE Why don't the fund managers just buy lotto with clients money ? They invest a bit in each states lotto