Flash: Investment firms don’t want to lose their money

Posted by Marc Hodak on July 7, 2010 under Regulation without regulators | Be the First to Comment

The WSJ comes up with a story about a novel idea;

Even before a financial-regulatory overhaul takes effect, some big investors are imposing their own rules on risk.

Several public and corporate pension funds are curtailing or revisiting their use of derivatives out of concern for hidden risks they may carry. In Oklahoma, a public pension fund replaced Pacific Investment Management Co., led by well-known investor William Gross, as one of its bond-fund managers, citing the risks of its use of derivatives whose values couldn’t be cross-checked in audits.

In other words, big investors are actually looking for ways to account for risk as well as returns in their investing strategy–without the government forcing them to do it!

For those of us with finance training, which you’d think any major fund could afford and would consider a prerequisite to opening their doors, accounting for risk seems like a logical step rather than a great leap.  Reviewing one’s risk management in the aftermath of a financial crisis would seem like something your parents wouldn’t need to remind you about.  If the Okies don’t understand what Bill Gross is doing, they should get out of his fund (or hire a Wharton grad who gets this stuff, or both).

In my mind, the real headline would be, “Major investment fund does not change its M.O. after financial crisis.”  The would be the story of the only two financial firms not affected by the pending financial reform bill.