Monday, December 19, 2005

 

BWC overreacting?

Warning - this is for investment wonks.

We've been meaning to post on this for a while, but in reaction to the Noe and MDL problems, we think BWC is about to make a big mistake that will cut it off from future investment opportunities. BWC needs to be making wise, responsible investment decisions and not swinging from one extreme to the other. But that's exactly what is getting ready to do in a few days.

This is not about being good stewards of assets BWC is intrusted with. This is about weak-need leadership and looking for the easy way out. Hey - if you don't want to be on the BWC board and your can't stomach the fiduciary responsibilities that come with it, the answer is simple. Resign.

This writer nails it:
So imagine my surprise when I looked through the nursery window at the Ohio Bureau of Workers’ Compensation, and found only one crib filled. It seems that smart reform was stillborn; while only dumb reform survived, staring intently at the glint off a rare coin.

In six days, OBWC will release enough sensitive information that it will never again receive access to a private equity fund. Not a venture capital fund, not a buyout fund, not a mezzanine fund and not a fund-of-funds. In fact, I’d be surprised if it even received much detailed information for the 68 funds in which it already has invested.

. . .

So if this is intentional strategy, then it is simply a case of political cowardice. Sure that’s bad, but imagine the alternative: OBWC leadership will release the information because it doesn’t know any better. This second scenario is significantly worse, because it means that incompetents will be investing beneficiary dollars for years to come.
BWC's problem, per se, wasn't that some of its managers made stupid investments. It's problem was that it didn't have a set of policies and procedures with sufficient independent checks to catch these stupid investments.

Investment operations, whether its PERS or BWC or even the one in BankOne, have to be structure to assume it's managers are making bad investments (ironically, the most import time to be looking over their shoulders is when the returns on the investments are good) and that they have a way of detecting these bad or crooked bets early.

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