European Pensions //iorp.eu

Sunday, March 07, 2010

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Tuesday, January 19, 2010

The defenestration of Prague

Last week, the ECJ passed an interesting judgment in the case C-343/08 EU Commission vs Czech Republic. The Czech Republic argued that there wasn't any point in transposing a number of provisions of the directive as IORPs were not provided for in the Czech retirement system which only knows the first and the third pillar. The Court however did not share that existentialist line of argument and took the constructivist view that a second pillar may be introduced at any time, in which eventuality the rules required by the directive already need to be in place.

While the Czech position appeals to a layman's common sense rather better than the somewhat fundamentalist approach taken by the Court, one important aspect has escaped IPE's attention: The judgment includes a thinly veiled hint (paragraphs 63, 64) that the Court may find the Czech prohibition on IORP establishment in the country in breach with the Treaties' rules on free circulation. That in itself is a valuable signal.

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Sunday, January 17, 2010

It has barely begun

On Thursday, I attended a Goldman Sachs investment conference in Lucerne. Jim O'Neill, the firm's chief strategist, gave the keynote presentation containing an outlook for the world economy, which was surprisingly optimistic (this year's global growth rate is expected at 4.4% vs 3.9% consensus). To my question where deleveraging was in that picture, he answered that it wasn't because there is no reliable information about leverage available, and that we shouldn't trust anyone who claims to have it.


It appears to be more than a little cavalier to ignore a presumably major phenomenon simply because it is hard to measure. It is therefore very timely that MGI has just published a major report on debt and deleveraging. MGI looks at the buildup of debt at a per country and per sector level and distills four archetypal deleveraging scenarios from past episodes: Austerity, Inflation, Default and Growth. Unsurprisingly, they find that deleveraging has only just begun in a quite moderate way, as private sector debt reduction is compensated by increasing public sector debt.

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Monday, December 21, 2009

Responses to CESR

The responses to CESR's call for evidence on the use of standard reporting formats are in, and they contain a mixed bag of answers. Of the 33 responses listed, only 31 appear to be valid (one was obviously misplaced, one materially empty). Furthermore, the categorisation of respondents used by CESR looks arbitrary, which is why we've applied our own.

Essentially, we were curious whether respondents supported standard reporting (Q1), and if so, whether XBRL would be fit for the purpose (Q2).

  • Q1: Respondents were mostly in favour of standardisation (74%), although a sizeable part (7) of those favourable answers came from the XBRL community. Without them, 67% of responses are still in favour, notably investors, exchanges and service providers. The most outspoken opposition to standardisation comes from the issuers camp, especially (and unsurprisingly) from banking institutions.
  • Q2: Respondents were overwhelmingly in favour of XBRL as the most appropriate format (90%, or 88% without XBRL community). Surprisingly, this even holds true for those respondents who were sceptical about standardisation in the first place. 

The responses from issuers (EAPB, EBF, ZKA, DAI) are remarkable in that they focus on the lack of effective standardisation (and thus comparability) in today's corporate accounts across countries and industries, in spite of those accounts being prepared under IFRS. They quote local laws and regulations as inhibitors to effective standardisation, which could not be overcome by simply applying the IFRS taxonomy because it did not provide the necessary local concepts, nor could it be ascertained that nominally identical concepts are materially identical in practice. In my view, these issues are known and need to be addressed by means of an appropriate system of standardised extensions of the IFRS taxonomy.

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Monday, December 07, 2009

Eight good reasons to keep tags on XBRL


Likemind has produced a nice write-up of the breakfast meeting to which I was invited to present the investor perspective on XBRL to a group of corporate communications professionals on 24 September in London. The event itself was very pleasant with a lot of questions and discussions among participants, and I think this comes across nicely in the conversational style of the paper.

Here are the slides that you see sitting on the table:



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Tuesday, November 24, 2009

Extreme risk

Watson Wyatt has just published a short paper on Extreme Risk with an assessment of impact and possibles hedges. Interesting stuff - I particularly liked the reference to Extreme Value Theory and the Association Matrix. The Association Matrix gives hints as to how some reverse engineered risk scenarios might have looked like if the team would have taken some more time to formulate them.

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Friday, November 20, 2009

CFA awareness and usage of XBRL up

The results of CFA Institute's 2009 update of its XBRL survey are in! Most importantly, global awareness has inched up from 41% to 45%, and similarly has usage. Here is the summary comparison of the 2009 numbers with the earlier version. On top of the summary, the detailed report allows for a number of interesting observations (margin of error is 2.5% at a 95% confidence interval):

  • Awareness has crossed the 50% threshold (52%) for the first time in the Americas. Interestingly, it is highest among the most experienced Charterholders and lowest among new and non-Charterholders. 
  • Highest impact of the usage of XBRL continues to be expected from uploading company data and from comparing companies.
  • There was a marked shift in the types of assurance expected from an integrated to a separate audit for XBRL instances. Unfortunately, we don't have a regional split of that information. It would be interesting to see whether the shift originated mostly in the US, where sensitivities about XBRL specific audit issues are rising.
  • Against my expectations, direct information extraction from source documents is rising at the expense of third party sources. This is consistent with the increased usage of XBRL documents. Too bad we don't have a more detailed analysis of this item.
Those of you who read German may be interested in an article I've written for nspublish INSIDE.

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