Accounting precepts

These are the 11 Precepts of the IASB and the FASB, which I've picked up during a recent meeting. They are very reasonable and appear applicable beyond accounting.

Concentrate on converging and fixing what's broken.

Reason from "first principles".

Don't confuse concepts with conventions.

Focus on the underlying real-world economic phenomena.

Weigh alternatives comprehensively and evenhandedly.

Press naysayers for better alternatives.

Be clear what the concepts mean - and don't mean.

Resist the temptation to "peek ahead".

Remember the consequences of diverging.

Acknowledge that changing thinking will take time.

Don't "Paper Over" Real Differences.

150 years of volatility

Researchers at the Bank for International Settlements have come up with 150 years of financial market volatility history of stock and bond returns for Australia, Canada, France, Germany, Italy, Japan, UK and the US, starting in 1850 to 2005. Their main conclusions are of interest to investors with a long investment horizon such as pension funds:

First, volatility is dominated by large, temporary increases that appear correlated with episodes of economic weakness, political instability and financial turmoil.

Second, volatility has been much higher from the 1970s onwards than it was previously. This finding appears surprisingly robust across countries and financial instruments. Seeking to explain it would be an important topic for future research.

Third, the movements in volatility that have been observed in recent years are small from a historical perspective. These findings suggest that financial institutions and policymakers alike would be well advised to note that a sharp increase in volatility from the level observed in the last few years would not be unprecedented.

An inconsistency between bullet points 2 and 3 is only apparent in so far as volatilities have risen considerably above their long term historical averages since 1970, but have come off their peak levels in recent years, which suggests that a rekindling might not at all be out of the question.

Pensions reform extremely urgent

This is the assessment of Jean-Claude Trichet, President of the European Central Bank, in an interview with L'Espresso. This assessment is important because despite of the problem's long time horizon, we're dealing with a compound interest issue, which renders an early solution implicitly less expensive than a later one.

Pension (asset) pooling

Dpn has an excellent story about pension asset pooling which looks into how to achieve pooling efficiency gains without going all the way to a pan-European pension fund (i.e. pension pooling). Based on the results of Deloitte & Touche's 2005 Pension Pooling Survey for Multinationals, the article addresses different approaches to asset pooling as well as available vehicles and issues, such as fiscal transparency and the complexities of Double Taxation Treaties. Finally, it looks at case studies with Shell, Unilever & Suez-Tractabel. Good stuff!

Commodities in Pensions

NRPN has an good story about pension funds' investments in commodities. It displays the strategic benefits of the asset class, but also questions the timing of entering the asset class at this point, given its recent bull run.