Showing papers on "Investment management published in 1997"

Islamic finance and ethical investment

Abstract: Reports that there are lessons which can be learned from the Western ethical “green” finance industry for Islamic investors. States that these are that the criteria for investment selection are different, and the modes of permissible financing may also differ, but there are screening and reporting techniques which are of potential importance to both groups of investors. First addresses ethical fund management issues, which should shed some light on the dilemmas facing Islamic investors. Goes on to consider criteria for haram and halal investment, as well as the implications of company capital gearing or leverage for riba. Covers investment specific issues, including the treatment of capital gains in Islam and the evaluation of the conduct of market participants. Finally, surveys emerging markets in the Islamic world, as these are of obvious interest to Muslim investors wishing to broaden their portfolios.

The Financial Theory of Defined Benefit Pension Schemes

Abstract: Increasingly, modern business and investment management techniques are founded on approaches to measurement of profit and risk developed by financial economists. This paper begins by analysing corporate pension provision from the perspective of such financial theory. The results of this analysis are then reconciled with the sometimes contradictory messages from traditional actuarial valuation approaches and the alternative market-based valuation paradigm is introduced. The paper then proposes a successful blueprint for this mark-to-market valuation discipline and considers whether and how it can be applied to pension schemes both in theory and in practice. It is asserted that adoption of this market based approach appears now to be essential in many of the most critical areas of actuarial advice in the field of defined benefit corporate pension provision and that the principles can in addition be used to establish more efficient and transparent methodologies in areas which have traditionally relied on subjective or arbitrary methods. We extend the hope that the insights gained from financial theory can be used to level the playing field between defined benefit and defined contribution arrangements from both corporate and member perspectives.

Desirability bias among professional investment managers: some evidence from experts

Abstract: Desirability bias is the tendency to overpredict desirable outcomes and underpredict unwanted outcomes. Previous research suggests that this bias is quite pervasive among non-experts but there is very scant evidence of its intensity among experts. For at least twenty years, financial academics and, to a lesser extent, practicing investment managers have claimed that the financial markets are among the most efficient and bias free in existence. Therefore, this paper examines the degree of desirability bias among expert and practicing US and Taiwanese investment managers. The empirical results suggest that desirability bias does appear to be a characteristic of these experts. © 1997 John Wiley & Sons, Ltd.

The direct and compliance costs of financial regulation

Abstract: This paper attempts to estimate both the direct and indirect costs of regulation for major sectors of the UK financial services industry. We also compare UK direct costs with those for the US and France and this provides a benchmark for assessing the effect of regulation on the competitive position of the UK financial services industry. We believe that this is the first attempt to compare regulatory costs in the UK with those of its major competitors. For indirect costs, in the absence of an international benchmark we compare our results with the predictions made at the time of the introduction of the Financial Services Act, by Lomax (Lomax, D., 1987. London Markets After the Financial Services Act, Butterworths, London) and Goodhart (Goodhart, C., 1988. The costs of regulation. In: Seldon, A. (Ed.), Financial Regulation or Over-regulation. Institute of Economic Affairs, London, p. 31). They estimated that indirect costs would be £4 for every £1 of direct costs and that annual aggregate costs would be £100 million. Our results suggest that, so far as direct costs are concerned, the costs of regulation for the securities and derivatives trading and broking sector are substantially lower for the UK than for the US and France. In contrast, for the investment management and unit trust industry UK costs are significantly higher than those for the other two countries. For the life insurance industry, UK costs are similar to those in France but markedly lower than those for the US. We also find for the securities industry around £4.1 of indirect costs per £1 of direct costs. For the investment management industry the corresponding figure is £3.2. However there is substantial variation across firms and, although our sample is too small to be definitive, the ratio appears to be related to firm size. Although these results are broadly in line with the predictions of Lomax and Goodhart it should be borne in mind that both numerator and denominator are substantially higher in real terms than those used by Lomax and Goodhart.

Market Timing and Short-Term Interest Rates

Abstract: Investment Management Inc. in New York (NY 10036). 0th practitioners and academics have devoted considerable time to study of the effect of market timing for returns of different asset classes in asset allocation strategies.' By now, few would disagree that returns are at least predictable, although there is generally no agreement on the reasons for or sources of predictability. There are many different ways to predict returns, including fundamental analysis built upon financial theory; technical analysis; or newer developments in computing technology applying to financial trading, such as fractal analysis, neural networks, genetic algorithms, and fuzzy logic; or a combination of all these techniques.2 A common belief in all market-timing techniques, however, is that patterns in financial markets will repeat themselves, at least in the near fkture within a forecast horizon. Consequently, one of the final steps in buildmg market-timing models is verification of out-of-sample performance. There is also no generally accepted principle for selecting input variables to predict returns. Computer and quantitative-driven techniques, such as genetic algorithms, instead look through several hundred variables in search of a "best" model.3 One of the most commonly used input variables in all techniques is the short-term interest rate. Wall Street Journul articles frequently cite short-term interest rates as reasons for a market move on a given day. The short-term interest rate is clearly a widely followed asset class return indicator.

Probability and Statistics Applied to the Practice of Financial Risk Management: The Case of J.P. Morgan's RiskMetrics™

Abstract: This work describes applications of probability and statistics in RiskMetrics™, J.P. Morgan's methodology for quantifying market risk. The methodology implements an analytical approach to financial risk in trading, arbitrage, and investment based on the statistics of market moves in equities, bonds, currencies and commodities. The public unveiling of RiskMetrics™ in October of 1994 attracted widespread interest among regulators, competing financial institutions, investment managers, and corporate treasurers, while the available technical documentation offers us a unique opportunity for informed statistical research on the theory and practice of financial risk management. For the purpose of identifying problems for further research, this discussion focuses on five applications of statistics in RiskMetrics™, which range from data analysis of daily returns and locally Gaussian processes to stochastic volatility models and Ito processes for the term structure of interest rates. Another important theme of this discussion, however, is devoted to attracting statisticians to the study of financial risk management and developing the foundations for collaborative work with financial economists and practicing risk managers. For this reason, this is also an expository document that touches several areas of active statistical research with applications to problems of risk management.

Securing employer-based pensions : an international perspective

Abstract: As the world's population ages, millions will rely on their pension plans as the mainstay of retirement income This book asks whether supply will meet demand in the new economic order Pension systems in Germany, Japan, Canada, and the US are compared, along with those in many developing nations This volume is intended for employees and managers, pension policymakers, actuaries and lawyers, and benefits consultants, all of whom are busy changing their pension structures to meet global challenges Sensible tax, insurance, and funding policies-as well as investment management and actuarial oversight-are central to building and maintaining a successful public and private pension system Tracing the interaction of these factors across a variety of environments, Securing Employer-Based Pensions explores the immediate need for increased pension security in retirement systems in both developed and developing nations

The historical performance of Singapore property stocks

Abstract: Investigates the investment performance of listed Singapore property companies over the past 21 years. Risk‐adjusted performance for the companies remained inferior to stock market performance. There is some evidence that the companies’ investment performance was not consistent over time. Also finds that property companies’ performance is tied to the stock and property markets. Finally, property stocks failed to provide hedges against observed, expected and unanticipated inflation.

Pension reform and private pension funds in Peru and Colombia

Abstract: The author examines the performance of the new private pension systems in Peru and Colombia during their first years of existence. Peru and Colombia were the second and third Latin American countries to implement a systemic reform of their pension systems. The reforms experienced difficulties in both countries, partly because of deficiencies in the design of the new systems and partly because of shortcomings in implementation. Both countries, especially Peru, took several additional measures to rectify the design problems of their reform programs. The systems now in place differ in several important respects from the systems initially introduced. This shared experience suggests that athough flawed reform programs incur inefficiencies, the flaws can be removed and the reform programs significantly strengthened--if the authorities have a strong long-term commitment to a successful systemic pension reform. Peru's private pension funds suffered unfair competition with its public pillars, which required lower contribution rates and lower retirement ages. They suffered poor financial results partly because of low salary levels and partly because they were not given permission to defer their high start-up costs, resulting in substantial capital losses. Private pension funds in Peru have become increasingly diversified, with 25 percent of assets invested in equities by the end of 1996. But a big share of investments is in the banking sector and other financial institutions, giving the funds significant exposure to a sector that in most countries is highly leveraged and exposed to financial crises. Those investments should be more diversified sectorally. Development of Colombia's private pension system was also limited because it coexisted with the public system. Competition with the public system was not as unfair as in Peru, but the slow pace of reform in the public system and the disincentives for older workers to join the new system were a significant obstacle to faster growth. Despite using a preexisting fund management infrastructure, Colombia's private pensions funds incurred high start-up costs and suffered heavy losses. Although Colombia's financial sector was far more developed than Peru's when reform started, Colombia's portfolio has been much slower to diversify than Peru's--mostly because of high returns on fixed-income securities in Colombia and low trading in the stock market. The author discusses the public pension systems only in terms of their relationship with and impact on the private systems' functioning.

Practical Investment Management

Abstract: PRACTICAL INVESTMENT MANAGEMENT is intended for learners studying investments for the first time Very practical and applied, it is comprehensive enough for those who plan to become Certified Financial Analysts, but remains user-friendly due to its clarity of explanation and its pedagogy The book contains all standard topics found in the typical modern investments text, but in addition, several chapters of Practical Investment Management are unique In addition to being an increasingly important asset class, mortgage-backed securities provide some thought-provoking questions on fixed income valuation Bob Strong has an engaging writing style along with practical experience making this a very solid, yet very friendly, book for readers

Evaluating office environments using tenant organization perceptions

Abstract: Operational property is increasingly recognized as an important asset capable of effective management. Indeed, premises can play a significant role by affecting organizational productivity and supporting corporate mission. Many organizations occupy leased properties owned by investment institutions which aim to benefit from their assets through capital appreciation and rental return. The achievement of these objectives can be related to the facilities value of an office building as determined by design/quality and tenant organization characteristics. Reports the results of a post‐occupancy evaluation survey carried out in the City of London. The results illustrate the variability of tenant characteristics, their property requirements and their perceptions of functional performance. The use of building performance appraisal techniques within the investment management function is necessary for the creation of value for both parties. Suggests that facilities management professionals with expertise in the mea...

Wealth Management: The Financial Advisor's Guide to Investing and Managing Client Assets

Abstract: Concerned with the management of assets, this work outlines methods for attracting new clients, managing their expectations and establishing workable investment plans. The book provides financial professionals with the tools and information to run a financial asset management business.Feat ures of the book include: identification of the different approaches to portfolio management; collection of client data including their goals and attitudes toward constraints; measurement of client expectations and risk/reward selection; establishment of an effective investmernt poloicy; and the implementation and management of philosophy, performance and process.

Business Reporting: What Comes Next?

Abstract: Where is financial reporting heading? The 21st century holds many surprises, but the model for business reporting in the future may already have been created. A little more than two years have passed since the American Institute of CPAs special committee on financial reporting (the Jenkins committee) issued its report, Improving Business Reporting - A Customer Focus. In that short time, it has become apparent that some of the committee's recommendations are critical and deserve the attention of everyone who has an interest in business reporting. The Jenkins committee extensively interviewed investors and creditors - both important users of financial information - and heard good and bad news. The good news was that financial statements were an important component of the information users needed to make investment and credit decisions. The bad news was that financial statements apparently were not meeting some key information needs. In short, the users' message was: "Don't scrap the financial reporting system, improve it." Because of what it heard, the Jenkins committee made many recommendations to enhance financial reporting or, more broadly, business reporting. Its key recommendation was for standard setters and regulators to develop a comprehensive model of business reporting to better meet users' information needs. (See the exhibit on page 61 for the proposed model.) To ensure the Jenkins committee recommendations were not left on the shelf to collect dust, the AICPA formed a financial reporting coordinating committee to follow up. For now, standard setters and regulators have addressed, or are in the process of dealing with, many of the committee's recommendations. For the future, momentum is building to act on its comprehensive model recommendation. BUILDING MOMENTUM Standard setters took their first formal action on the proposed business reporting model in February 1996, when the Financial Accounting Standards Board released an Invitation to Comment (ITC), Recommendations of the AICPA Special Committee on Financial Reporting and the Association for Investment Management and Research. (The report by the Association for Investment Management and Research [AIMR], Financial Reporting in the 1990's and Beyond, is not covered in this article.) The ITC's objectives were to (1) get respondents' views on the recommendations and (2) generate information to help the FASB decide how best to address them. The ITC emphasized the Jenkins committee's proposed comprehensive reporting model because the FASB considered it the most challenging of all of the recommendations. While some criticized the ITC as unnecessary since the Jenkins committee had already gone to great lengths to solicit users and preparers' views, others believed the invitation was a wise first step to allow standard setters to hear directly from their constituents before proceeding. The coordinating committee, sensing the ITC was not enough of a first step, thought all parties with a personal stake in business reporting should be brought together to discuss the merits of the proposed comprehensive model. In the spirit of the call made by Commissioner Steven M. H. Wallman of the Securities and Exchange Commission for the accounting profession to improve the relevance of financial reporting, the committee organized a business reporting symposium that was held in October 1996 (see JofA, Dec.96, page 14). The symposium brought together approximately 100 users and preparers of business information, CPA public practitioners, academics, standard setters and regulators from the United States and Canada to discuss the elements of the proposed comprehensive model. Panelists from the user, preparer, standard setter and regulator communities gave their views on the model and answered audience questions. In addition, many of the attendees participated in breakout groups to decide what future courses of action, if any, should be taken on the proposed model. …

Pension funds and urban investment: four models of financial intermediation

Abstract: It has been often suggested that public and private pension funds should be, and could be, mobilised to invest in urban infrastructure, housing, and community development. In fact, given the apparent decline in government funding of such areas of concern, it has been suggested that pension funds may be the only 'new' sources of finance in the near future. In this paper, I assess the current state of play in the pension fund investment management industry, noting the conservatism of many fund trustees with respect to alternative investment products (AIPs) as well as noting that standard models of asset allocation hardly ever allocate significant resources to such products. It is argued that the rate of adoption and the level of funding of AIPs depend upon solutions to two basic interrelated problems associated with AIPs: the high costs of imperfect information and the lack of adequate measures of product providers' veracity. A set of four institutional solutions to these problems are reviewed, with a focus put upon the design and implementation of AIPs in relation to conventional financial markets. This leads to a consideration of the proper role of government policy with respect to AIPs and the long-term potential of AIPs with respect to product innovation in financial markets in general.

The Value of Purchasing Information to Reduce Risk in Capital Investment Projects

Abstract: Successful investment management of capital-intensive, long-lived energy projects requires an understanding of the economic uncertainties, or risks, as well as the mechanisms to resolve them. Industry traditionally manages these risks by purchasing information (seismic, well testing, appraisal drilling, reservoir simulation, market capacity and price studies, etc.) about the project and making incremental investments as new information reduces the uncertainties to acceptable levels. Traditional discounted cash flow analyses cannot readily deal with valuing information. We suggest that the purchase of information about a project has considerable value and can be treated as purchasing an option on the project. As with options on equities, if the information leads to the expectation of a positive investment outcome, the project should be funded. Similarly, options on capital investment projects also have a time factor dictating value and the proper time to undertake the investment. This article discusses the application of option pricing techniques (OPT) to valuing information. We show how OPT is used to value the information surrounding a production capacity decision for an offshore gas field development. In the example, we value the field development alternatives and the acquisition of incremental information for the alternative selection process. As a further extension of OPT to capital investment projects, we create a dynamic model to identify investment alternatives to capture additional value over the project's lifetime. The dynamic model uses information acquired in development drilling and field operations to maximize the investment outcome.

China's Non-Bank Financial Institutions: Trust and Investment Companies

Abstract: China's Trust and Investment Companies (TICs) developed as providers of credit and services not offered by the banking system They enjoyed more flexibility in lending terms, and had access to financing from a variety of sources. Their range of activities had been wide, encompassing deposit taking, merchant banking, investments in industrial companies, real estate, securities brokerage services and underwriting. Many were offshoots of banks, and many were closely affiliated to local government, where their key role was local development project financing. Some of the largest, the International TICs, were authorized to borrow from overseas, on behalf of local governments, or later, on their own account. Following the Commercial Bank law of 1994 and its principle of bank and non-bank separation, regulatory concerns grew about the TICs, and their links to the banking system. While the government has made significant moves towards removing the affiliation of such companies to banks, the question remains, how is their future role to be defined? The present paper traces the development of TICs and their links the banking system and interbank market. It describes the legal and regulatory framework in which these companies operate, and the regulatory framework for securities companies and mutual funds; fiduciary financial activities which TICs also undertake. It evaluates proposed new legislation in this area, and assesses present supervision practices.

The Structure of the Investment-Management Industry: Revisiting the New Paradigm

Abstract: Will a new paradigm of investment management lead to concentration of the money management business? Will the merger trend continue? Will fees decline? And what accounts for product proliferation in an industry that struggles to deliver on the implied promise of its products? Answers—some that may surprise—to these questions and more.

Using Market Prices to Guide Sector Rotation

Abstract: Economic analysis is based on certain assumptions about human behavior and the operation of markets. It can add value to the work of investment managers, but only if it provides a consistent conceptual and analytical framework that is based on realistic, not conventional Keynesian, assumptions. Market prices contain forecasts; thus, they can reliably anticipate the economy and the performance of asset classes, investment styles, and sector rotation. This presentation comes from the Economic Analysis for Investment Professionals conference held in Toronto, Ontario, Canada, on November 19, 1996.

A Universal Fully Funded Pension Scheme

Abstract: I. INTRODUCTION Economists around the world are by now quite familiar with the pitfalls of a pay-as-you-go pension system. An aging society coupled with the prospect of increasing longevity is causing financial strains in public pension schemes from Europe to America (see table 1). In his 1993 Nobel lecture, Professor Robert Fogel presented evidence that the mortality and disability rates for the elderly had fallen for longer than expected, with the result that the Census Bureau likely has underestimated the projected U.S. elderly population in 2050 by about 36 million. Calls for pension reform are heard everywhere. In the industrial world, quite a few analysts are talking about privatization of public pensions (Roberts, 1995; Dornbusch, 1995). A favorite model of pension reform is privatization Chile style. Actually, however, the Chilean system is more properly represented as based on "an intermediate form of funding." The Chilean government guarantees a minimum benefit payable irrespective of the performance of the funds invested (Mitchell, 1993, pp. 27-28). Another well-known system, the Central Provident Fund, which is in operation in Malaysia and Singapore, is privately and fully funded but publicly administered (see Asher, 1994). The recent report of President Clinton's Advisory Council on Social Security considered the Chilean option (dubbed "personal security" in contrast to "social security") (Business Week, January 20, 1997, pp. 26-27). Yet, the superiority of this model is subject to question. Note, for example, MIT economist Peter Diamond's (NBER Working Paper no. 4510, 1993) conclusion: We have come to think of privatization as a route to greater efficiency and lower costs. Thus, perhaps the most surprising aspect of the Chilean reform is the high cost of running a privatized social security system, higher than the "inefficient" system that it replaced. James and Palacios, (1995) point out that the administration costs of public pension plans are likely to be under-reported. However, under-reporting is unlikely to account for the huge gap between the administration costs of public and private plans (Mitchell and Zeldes, 1996, p. 11). The U.S. Social Security Administration reported administration costs at less than 1% of annual benefits while those of the life insurance industry are known to range from 12% to 14% of annual benefits (Diamond, 1993, p. 7). Scale economies of management, and economies of supervision, as well as economies arising from eliminating much of marketing costs, are likely to provide important cost savings attributable to the central administration of public pensions. (Central administration does not necessarily mean government management of the pension funds. It does mean, however, that there may be a monopsony (sole buyer) for fund management services. A board of trustees charged with administration of a public pension may "farm out" funds for management by private pension funds. Under such a setting, the private pension funds would be in a weaker position to pass along marketing costs to consumers.) TABLE 1 Public Pension Expenditure as a Percentage of GDP in OECD Countries Country 1960 1975 1980 1985 Austria 9.6 12.5 13.5 14.5 Canada 2.8 3.7 4.4 5.4 France 6.0 10.1 11.5 12.7 Germany 9.7 12.6 12.1 11.8 Italy 5.5 10.4 12.0 15.6 Japan 1.3 2.6 4.4 5.3 Sweden 4.4 7.7 10.9 11.2 U.K. 4.0 6.0 6.3 6.7 U.S.A 4.1 6.7 6.9 7.2 Source: Table 1 in Mitchell (1993). Equally important, a "private social security system" is a contradiction in terms. Under such a system, each worker has his own account. Each worker and his employer are to contribute a percentage of the monthly salary into this account, the funds accumulated are managed privately, and the total amount inclusive of investment returns is repayable upon retirement. …

Will Success Spoil Investment Management

Abstract: The temptation to buy: instant breadth, stable earnings, and brand recognition Before you move, answer some tough questions about sales, marketing, and distribution Even when the potential is there, you can give it away with an unsound deal structure Investment management is the ticket to success in financial services today. Everybody wants a piece of the action - and for good reason, it seems. The US mutual fund business has grown by 19 percent per year over the past five years, while the white-hot 401(k) market has expanded at 14 percent a year. Even the supposedly mature defined benefit market continues to grow at an annual rate of 6 percent, despite negative real cashflow. And just look at the returns. Management fees in mutual funds have risen rather than fallen over the past decade, in spite of massive inflows to the industry. Successful institutional managers enjoy ROEs of over 40 percent. Is it any wonder that so many companies want in? The desire to enter or grow has led to unparalleled M&A activity. In 1995, over 80 deals were completed in investment management, at an estimated total value of $6 billion. In 1996, more than 70 deals worth in excess of $10 billion were completed. For many established players and for those seeking to build a position in investment management, the pressure to acquire is intense. It applies to players across the whole spectrum of markets - retail mutual funds, individualized investment management, and traditional institutional and defined contribution - and to the full range of firms, from diversified financial institutions to conventional stand-alone investment houses. While many look to acquisition to meet a genuine need, there is no guarantee that the expected gains will materialize. Many obstacles stand in the way of value creation, not least of which is the difficulty of managing a combined entity effectively. However, the likelihood of success can be increased by several measures: a well-articulated strategic rationale, a creative deal structure, and the pursuit of organizational excellence. The pressure to buy Competitors cite many reasons to acquire: "We need to be in this game" Demographic trends in most developed countries, the privatization of pensions, and the increasing acceptance of investment products among consumers suggest that strong - if not blistering - growth should continue in the investment management business. Many traditional diversified financial institutions crave the stability of earnings and high returns on equity with which it is associated. As banks and insurers run out of ways to generate substantial earnings growth, the high fee-based incomes of investment management will seem more and more attractive. "We must be big to survive and thrive" The retail mutual funds and 401(k) sectors of investment management are becoming increasingly dominated by large players. The need for scale is driven by spending requirements - primarily in the areas of brand building and advertising, technology capability, and product depth. Together, the three largest mutual fund complexes that also compete heavily in the 401(k) business are estimated to have spent in excess of $500 million on advertising in 1995. As the demand for international product grows, the cost of supporting the research, information, and portfolio management capabilities of an international operator is raising scale requirements even for traditionally defined benefit players. "If we don't buy it, somebody else will" Now that many principals or founders of first-generation investment firms are preparing to cash out, something of a "prevent our rivals buying it" mentality has developed among prospective acquirers. This tendency is being exacerbated by the arrival on the market of larger, more branded firms whose current owners are trying to take advantage of the sellers' market. …

The analysis of portfolio management performance : an institutional guide to assessing and analyzing pension fund, endowment, foundation, and trust investment performance

Abstract: The Analysis of Portfolio Management Performance is the first and only book to provide an all-encompassing treatment of the knowledge and policies necessary to evaluate the performance of professional money managers, investors and others charged with overseeing your organization's investments Experienced financial professionals Tim Haight and Steve Morrell examine the many duties that fall to financial committee members and discuss strategies for selecting the right money manager, establishing a meaningful and useful investment policy statement, setting and monitoring investment approaches of outside money managers, and fairly evaluating investment of performance based on organizational guidelines

Fund management performance, trend-chasing technical analysis and investment horizons: a case study

Abstract: The paper investigates the usefulness of trend-chasing technical rules for portfolio management in the Hong Kong stock market. It provides strong evidence that some rule-based portfolios have a consistently and significantly superior market timing ability than the usual benchmark portfolio, regardless of different investment horizons (2–5 y).

Financial Services in the Future

Abstract: Before we turn to the qualities required by future financial leaders, we provide in this chapter some thoughts on the parameters of the financial services market place in which they will operate. Any such vision risks falling into the usual boring categories: a simple restatement of today’s environment; a linear projection of this environment; or a fantasy world which ignores human reality. Having spent over three decades in the business with the last half devoted to making such projections, however, we hope that what follows will be a useful blend of experience, imagination and realism.

Are You Selling Trust Short

Abstract: "I see a stampede of banks out of the trust business, and a stampede of nonbanks into the trust business," says attorney, Roy Adams, who is concerned by what he sees. This stampede is part of the charge of banks onto what was once the turf of others -- brokers, mutual funds, and money managers -- as the nonbanks encroach on what was formerly bank turf. Deregulation facilitated this activity, but what's causing the traffic is the question, Is Trust part of asset management or is asset management part of Trust? Traditional trust advocates, like Jayne Lipe, executive vice-president of Fort Worth-based Overton Bank & Trust, say that asset management has always been part of Trust, though subsumed by its fiduciary aspect. Experience of Trust, better relationship management and, often, "ownership" of the customers others covet are among the banks' advantages in the marketing battle for the wealthy, sources say. Lipe, who is also chairman of ABA's Trust and Investment Management Committee, emphasized banks, expertise in the labyrinthine business of trust as their major advantage. For instance, trust assets can be beyond the ken of most brokers, she says. "In my part of the country -- in Texas -- a lot of trust assets are in oil and gas," Lipe explained. Fiduciaries also can offer clients financial agreements that will survive the incapacitating disability or the death of the investor, whereas "agency arrangements [simple asset managementl do not." The new school, on the other hand, says the market for asset management -- which has no estate planning implications and which requires far fewer investable assets -- is far bigger than the trust market and relatively more lucrative. Although there is some disagreement with the new school, most see it taking hold, starting in the late eighties, and lately assuming critical mass. Unprecedented alliances have been struck by banks and their former competitors, such as Comerica Bank's and Bank of Boston Corp.'s separate client-sharing arrangements with PaineWebber Inc. Other banks are keeping things in-house, combining, at least on the marketing level, the formerly discreet areas of Trust, investment management, and private banking. The emergent "wealth man agement units," typically offer clients a single contact for all bank services, the "relationship manager." The "Chinese Wall" which used to separate the trust department from the rest of the bank, has not come down, but it is lower, sources say. As this provides for functional integration of wealth management, the breakdown of the Glass Steagall Act, which separated commercial banking from investment banking, allows banks to flesh out their product offerings to the wealthy. Everyone identifies a shifting in the relative balance of trust business inside banks and between them and their competitors. Internally, the shift is hard to gauge since trust departments don't have to report income by type. Adams estimates more than half of banks now emphasize asset management over Trust, while James Philips, a Portland, Conn.-based consultant asserts that, "a majority of trust assets are now in lifetime asset management." However, David Hall, chairman of Financial Services Associates, Niles, Mich., says its last survey found "40% of trust departments' revenues came from personal trust, and only 12% from investment advisory." (FSA's 1996 survey reflects 1995 data on 200 trust operations, mostly within banks.) Why all this worries Roy Adams, and others, is because he sees a neglect of Trust, which, he argues, is ultimately the more important business. Trust allows banks to grow wealth and to keep it over generations; simple asset management is fated to lose most of the investment gains to taxation when the investor passes on, his side says. Besides the shrinkage of assets, there's the specter of future lawsuits, he adds. …

The Evolution of Financial Services

Abstract: To understand fully the leadership challenge facing the financial services business in the mid-1990s, one must take a few steps backward in financial history. What follows does not pretend to be an authoritative guide to the history of banking, insurance and other sectors which now make up financial services. It does reflect, however, a search through the English language financial bibliography to identify the role played by individual leaders and the environment in which they worked. Perhaps understandably, there is little rich detail on the role played by these leaders before the fourteenth century in Western Europe, and even subsequent material tends to focus on their achievements and failures rather than how they led their institution. We would love, for example, to know more about Phormion, acknowledged by his peers to be the most outstanding Athenian banker during the city state’s Golden Age in the fourth century BC.

The Role of the Business Officer.

Abstract: The primary responsibilities of chief financial or business officers at community colleges include attending to business and financial affairs, dealing with the physical plan and real estate, handling legal affairs and auxiliary enterprises, providing leadership for policy matters, and acting as a financial advisor. Due to the significant supervisory responsibilities, it is recommended that as a job qualification chief business officers be trained and skilled in staff management and organizational development. With respect to the roles of financial advisor, investment manager, and legal affairs manager, officers should protect the college president by ensuring that all expenditures are legal and play the role of conservative spender. Because officers must handle funds that are a public trust, all members of the office must practice high standards of ethical behavior. Business officers, like other members of the administration, are faced with rising concerns over resources and revenue in postsecondary education and should be able to provide some knowledge of the economic outlook and specific legislation that may affect the institution. Officers must also work with other administrators to develop an effective institutional plan, taking into account academic priorities, enrollment projections, and potential sources of funds, as well as to prepare a balanced budget to implement institutional priorities. Contains 10 references. (HAA) ******************************************************************************** * Reproductions supplied by EDRS are the best that can be made * * from the original document. * ******************************************************************************** The Role of the Business Officer