The ten year fast track to asset and liability management success

Citation

Bruce, R. (2003), "The ten year fast track to asset and liability management success", Balance Sheet, Vol. 11 No. 2. https://doi.org/10.1108/bs.2003.26511baa.001

The ten year fast track to asset and liability management success

Earlier this year the great and the good gathered for the 10th Annual Conference of the UK Asset and Liability Management Association (UK ALMA). There was much entertaining reminiscence from those who, despite their comparative youth, now regard themselves as the grey beards of their profession. There was much to ponder in presentations which looked at ALMA now and where it was likely to be moving in the future. There was also a pervading feeling that the disciplines of ALM were still seen by many in the financial services world as a specialism which could be marginalized as if it were just the province of the back-room boys. But banking people have always suffered from a culture in which the left hand rarely has much of a clue what the right hand is up to. This is where the full understanding of the work of the ALM profession founders. And yet as we move through a bear market, when all elements of banking risk are under the most extreme of pressure, it is obvious how important the benefits of ALM are.

So this issue of Balance Sheet takes the 10th anniversary of the UK ALMA as its theme. We asked two of the founders of the Association to put together some tales of the past and some lessons for the future. But we took care to ask them to focus on the value of ALM and where its role may be taking it in the future. John Ashenhurst took first crack at the task and, reflecting the nature of the man, his contribution is, by turn, wittily anecdotal, pointedly analytical and then bashing the enemies of ALM most firmly on the nose. It makes for very entertaining reading and no one will be surprised to find that he takes the biggest swing with his baseball bat at those who promulgate the current proposals for accounting standards on financial instruments.

Next up in this celebration is Peter Hanlon, another veteran in this field. He looks more at the way that the banking business has adapted during those ten years of ALM and he comes to a conclusion which many hold. He finds that banking still undervalues the contribution of the ALM profession and prefers, when it suits it, to characterize them as specialists rather than people with a message which the whole of the banking organization could well profit from.

Our columnists in this issue cover, as we would hope they would, a wide range of challenging issues in the financial world. Bill Robinson, a man who has advised Chancellors of the Exchequer in his time, takes a look at the position of equity risk premiums. He makes a clear assessment of the state of the market and, as good economists do, finds what he describes as ''gloomy implications''. Any one who does not is mistaken, he suggests, ''which would be a triumph for the optimists''.

Kari Hale of Deloitte & Touche assesses the way the wind is blowing on regulation in the financial services markets and finds that, even though this may seem to many to be a paradox, it would be perfectly possible to increase the scale of governance procedures and find that the relevant regulatory burden was falling. This should cheer the heartland of financial services.

Next we welcome back an old friend of ours, Yen Yee Chong, whose new book we hope to bring you extracts from later in the year. In the meantime, by way of a taster, he has put together an article summing up his current thoughts on investment risk. He reckons that the current methods for rating investment risk are seriously flawed. He expands upon this argument and in the end suggests that number-crunching is better than listening to analysts.

Sam Dibb, who was intimately involved in the process, then describes how PricewaterhouseCoopers carried out the survey which focussed the world leaders in banking in their efforts, as the Group of 30, to put forward far-reaching proposals for reform, particularly in the fields of settlement and clearance. Then, taking a look at another set of controversial proposals, Chris Taylor looks at the difficult and complex history of how Europe, and parts of the rest of the world, is moving closer to using international accounting standards by a deadline of 2005. There are enormous implications for the banking world in these rules, which no one fully agrees with, and Taylor draws out the subtleties involved.

Meanwhile a trio of experts from Algorithmics conduct a guided tour around the nature of ALM today and suggest that as the disciplines of the profession become more and more sophisticated this in turn creates a broader function for the future.

And finally, in his ''Last Word'' column, the delightfully iconoclastic Michael Mainelli of consultants Z/yen, looks at the UK Government's favorite off-balance sheet manoeuvres in PFI and PPP and suggests that the financial sector, far from being exuberant about these ploys, should be deeply pessimistic about the implications for future years.

That brings this issue of Balance Sheet to perhaps too worried a conclusion. This issue celebrates the achievements of the ALM profession, particularly in the UK, but also all around the financial world.

Robert BruceEditor