I recently shared some details about this year's PMAR XI. I touched on a fraction of our speakers and topics. Today, I want to candidly share with you two things I didn't like.
First, we learned that there will not be a GIPS 2015. I previously mentioned that I had heard a rumor to this effect, it was confirmed. I am very disappointed, as I firmly believe that a new edition is warranted and necessary.
Second, we learned that the reporting standards we've been hearing about these past couple years would soon be available on the CFA Institute's website. Well, a colleague pointed out the location, so you can have a look yourself. They're titled Principles for Investment Reporting (first edition).
You'll quickly discover that it isn't a draft, as we've come to expect; rather, it's a final version. If you're like me, you'll have thoughts and opinions about this document. Please feel free to send them to me. I'll share them in our newsletter (just let me know if I can use your name).
In addition, we would like to hear whether you think there is a need for a GIPS 2015 edition. We will soon launch a short poll for you to express your opinion; we'll share these results in our newsletter.
I'm a little late in posting, as PMAR Day 2 was last Friday, but I've been recovering from a busy and exciting event. I think there was little doubt that this year's program was the best, yet! It makes it difficult to continue our goal of always getting better, but we'll try.
This year's conference was held on a Thursday and Friday; in the past, it's been on a Wednesday and Thursday. The shift was done for me, as I "walked" at the Pace graduate-level degree class commencement at Radio City Music Hall (in NYC) Wednesday evening. While I haven't yet earned my doctorate, I was permitted to "walk," given that I anticipate defending my dissertation shortly and earning the degree in August. I had never participated in a college commencement before, even though I have three degrees (a bachelor's and two master's), so wanted to participate in the experience. Next year's PMAR will again be on a Wednesday and Thursday.
Now, back to PMAR. I will briefly comment on just a few of Friday's great speakers and topics.
Friday began with two professors from Rutgers University (New Jersey's state university): John Longo, PhD, CFA and Ben Sopranzetti, PhD. This was John's fourth appearance and Ben's second; both did an exceptional job.
Jose Menchero, PhD, CFA of Barra also joined us once again, to deliver a great talk dealing with risk and return attribution.
We announced the theme for 2014:
It will be labeled as "Casino Royale," and thus have a "James Bond" feel to it (black tie optional).
The feedback has been tremendous and we are very pleased with how everything turned out. Now, we are doing the final prep work for PMAR in London! Please join us if you can!
Yesterday was the first day of the 11th annual Performance Measurement, Attribution & Risk Conference at the Ritz Carlton Hotel in Philadelphia. As expected, we had great speakers who provided a wealth of information and insights.
The session kicked off with our omnipresent Stephen Campisi, CFA, who continues to push us into thinking of better ways to provide information to our clients.
For me, the highlight of the day was Brian Singer, CFA, this year's recipient of The Journal of Performance Measurement's(R) annual Dietz Award, which is given to the top article of the year, as judged by the journal's advisory board. A well regarded industry veteran of roughly three decades, much of it with the legendary Gary Brinson, Brian shared not only key points from his article, but also his insights into how macro economics affects our capitalistic world, and thus our investments. His delivery, like Steve's, is one that not only keeps the attendees' attention, but also provides well timed levity.
We introduced, for the first time, Performance Jeopardy. Our contestants (Larry Campbell, Richard Mitchell, and Kathleen Seagle) competed for fame and fortune, and Richard, the former ball room dancing instructor, was victorious. It was a great way to end an exciting day and lead us to the awaiting cocktails.
Last night The Spaulding Group held a dinner, at which we celebrated anniversaries, accomplishments, and an announcement.
Chris Spaulding, my older son and our firm's EVP (Strategy & Business Development) has been with our firm for 10 years (as of last December; we're a bit tardy on recognizing this event); Douglas Spaulding, my younger son and a firm VP and Editor of The Journal of Performance Measurement(r) reached his 10 year mark this month; and Patrick Fowler, our firm's COO, will mark 15 years next month!
As for accomplishments, Doug was recognized for earning his MFA in Creative Writing and Jessica Laffey, a Production Assistant, earned her Bachelors Degree. A surprise acknowledgement (for me) was that I was recognized for my earning my doctorate, which I will do in August (I "walk" tomorrow!).
Patrick, Chris and Jaime Puerschner (a company VP and our Event Coordinator) were recognized for the great job they've done in preparing for this year's PMAR Conferences, which will have record attendances. And Jaime was also recognized for coming up with the creative theme for next year's conferences ("Casino Royale").
Finally, the big news of the night was the elevation of Patrick Fowler to the position of President. As noted above, Patrick has been with our firm for 15 years. He was promoted to Chief Operating Officer two years ago. He has accomplished a great deal for our firm, is a huge contributor to our success, and is a dedicated member of our team; this promotion is well deserved. A press release will go out later today.
I don't recall being as excited in the past for a conference as I am for this year's Performance Measurement, Attribution & Risk Conferences (PMAR), the first being next week in Philadelphia. The Superheroes are all ready to meet at the Ritz Carlton, and I wanted to share with you the welcome sign that will greet the attendees:
Now, can you see why I'm excited?
We're expecting around 200 folks to join us. If you haven't yet signed up, there's still time. And, of course there's always the 4th European event that will be in London in June.
In mathematics we are occasionally confronted with the questionable applicability of the commutative law. You'll recall that it basically states that you can move (as in commuting or moving about) values around in a mathematical expression without causing the result to change; e.g., A x B = B x A (just as A + B = B + A). This law doesn't always work, right? For example, with limited exceptions A - B ≠ B - A nor will A/B typically equal B/A.
Since the commutative law applies to multiplication, there's often an assumption that it always applies; but it doesn't. For example, some folks discover problems when using percentages; or, more correctly, when NOT using them when they should! We often see firms remove the percentage sign (%) from their reports (e.g., show 3.03 rather than 3.03%), which is fine, but knowing how the number is stored is important when attempting calculations. If you multiply percentages together AS percentages you'll get different results than if you multiply the values as if they weren't percentages (e.g., 3.03% x 2.14% ≠ 3.02 x 2.14). Whether multiplying or dividing, we can get problems (usually addition and subtraction are okay). For example, the Sharpe ratio, which involves division, will be a problem if you don't treat the values as percentages.
We occasionally discover other issues. I recently conducted a GIPS(R) (Global Investment Performance Standards) verification for a client who often uses blended benchmarks (that is, their benchmarks are made up of two or more indices). They chose to link the monthly returns of the individual indexes and then take the ratios, as defined for the benchmark allocation. However, this is incorrect. That is, the commutative law does not apply.
We can look at the math from two perspectives:
1) Link, THEN take the ratios
2) Take the ratios, THEN link.
We will get differences, and they can be material. You can try this yourself or wait until this month's newsletter, when I'll have more to say on this matter. The issue is partly attributable to the challenges we often face with compounding, which deserves a fair amount of treatment itself, which I hope to provide in the coming months.
The question above might cause you to respond, "we already have certification programs for risk," and you would, of course, be correct. However, they're for a much broader view of risk than I have in mind. For example, the "FRM" covers much more than risk that those involved in investment management typically see.
During last month's Performance Measurement Forum meeting in Boston, I asked our members if having a certification for risk would be a good idea, and got very good response. The certification would cover:
- risk measures (e.g., standard deviation, beta, downside deviation, tracking error)
- risk-adjusted measures (e.g., Sharpe ratio, Treynor ratio, Information ratio, and Modigliani-Modigliani)
- risk-attribution (e.g., the work that Jose Menchero and Philippe Gregoire have done).
While the CIPM program includes risk, it doesn't to the extent that I'm suggesting.
Two names for the program have already been suggested: CRP (Certified Risk Professional) and CIRP (Certified Investment Risk Professional); others, perhaps more worthy, can be considered.
At this point we're merely floating the idea, to see what folks think.
There's no doubt that risk measurement's role has increased significantly. Many questions continue to surface as to what measures to use, how to calculate them, and how the risk team should be "married to" or "integrated with" the performance folks (or, for that matter, if they should BE the same folks).
Feel free to offer your thoughts.
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