Comments on: KPMG Survey: Investors Leery of Derivatives, Yet Fund Managers Increasing Commitment to Them

By: Independent Accountant

Independent Accountant — Tue, 01 Jul 2008 20:50:00 +0000

Thank for the lead. I read the report. It looks to me like a KPMG “joint marketing piece” with the entities which were surveyed. KPMG is apparently being used to provide “respectable” cover for telling the Fed, the SEC etc., that all is well, the model makers were right and should not be faulted for the current fiasco. And of course, when they land new, better jobs to remember that KPMG facilitated their moves.
I remember about 20 years ago KPMG did a survey justifying a sports stadium in Hartford with a 1% projected IRR. Wonderful.

By: Zippy in Annapolis

Zippy in Annapolis — Tue, 01 Jul 2008 19:24:00 +0000

Ironicaly, investment banks are now hiring risk assessment managers with hedge fund experiance.

By: AnoninCA

AnoninCA — Tue, 01 Jul 2008 15:57:00 +0000

“Used appropriately, managers note, they can offset volatility in stocks and other securities and boost returns.”

As an investor the choices are simple: Do you invest in a fund that has commitment not to get involved in derivatives (or to do so under very narrow limits) and deal with market volatility in your portfolio value, or do you give somebody you don’t know and don’t trust the authority to throw your money away?

By: Anonymous

Anonymous — Tue, 01 Jul 2008 14:37:00 +0000

Let's connect some dots between this KPMG post and the Gillian Tett post, beginning with this from Tett:

"To make matters worse, the securitisation sector faces rising regulatory pressure."

The dots: Marketing and Sales. It's like a country club and all members in good standing (Tett, KPMG, WSJ... and, of course, the hedge funds, IBs, fund managers, rating agencies, monolines, traders... and, of course, the Fed, Treasury, all Bush Republicans as well as non-Republicans who enjoy money patronage from the financial sector) ... all the country club really want to do is market and sell 'financial innovation'.

Every single line of their BS reflects this basic objective: market and sell, market and sell, market and sell.

"To make matters worse".... what utter crap.

Hire IBers to make it all 'simpler" for investors... what utter crap

Create models to monitor the models... what utter crap

There's many solid reasons investors are cautious these days.. and among them is they've been CONNED in historic proportions.... by EVERYONE who stood between the investors' real money and all the crap they were sold....

But, then, the country club has an answer for that: caveat emptor

By: Kevin

Kevin — Tue, 01 Jul 2008 13:02:00 +0000

Einstein said it best:
"I'm going to make this as simple as possible ...
BUT NO SIMPLER!"

I take that apporach with medical patients.

Some people who can't or won't understand certain facts wind up having to find themselves another doctor.

By: Melancholy Korean

Melancholy Korean — Tue, 01 Jul 2008 08:03:00 +0000

The idea that you can "describe instruments in terms investors can understand" is fraught with peril. To have a real understanding of many of types of derivatives requires not merely a solid grounding in calculus"

Not your regular high school calculus either. Stochastic calculus. (shudder)

"but enough continued use of it that you have an intuitive feel for how at least the more common variants of certain types of derivatives behave.

There's the rub with these horrid things. From experience I know that brilliant quants with no market feel + genius traders without superstar math skills + management push for more exotic derivatives exposure (so much profit potential!) = many billion dollar losses.

Funnily enough, the only one who really got it was a boss I had, a very old school guy, who could smell the quant BS a mile away. Not so funny, the "largest money manger in the world" decided to get rid of him. Of course, he got another job and his still happily trading away, while our dear, fearless leaders have gone the way of the dodo. Just as the bank may soon do, too.