Watching out for the Alligators: Risk Management for Fiduciaries

Article excerpt

Watching Out for the Alligators

Risk Management for Fiduciaries

Risk Management for Pensions, Endowments, and Foundations Published by John Wiley & Sons, Inc. www.wiley.com 2005; 268 pages; $69.95

Risk. The word itself arouses images of danger and problems, because risk inherently involves uncertainty. Thus, systems to manage risk in all fields of endeavor have become more common over the past several decades. For pensions, endowments, and foundations, the principal risk is the possibility that projected funds will not be available in the future. Unfortunately, risk management in this area has been neglected - until now.

In Risk Management for Pensions, Endowments, and Foundations, author Susan M. Mangiero puts the relationship of corporate governance and risk management into terms anyone can appreciate, but particularly those in fiduciary roles. "Watch out for the alligators," she writes. "Corporate governance is today's watchword and behaving badly can lead to lawsuits or worse. Exploring the link between the two - corporate governance and risk management - puts things into perspective."

An estimated 3 million people in the United States have a fiduciary responsibility, but their decisions have a dramatic impact on many other groups and individuals. As Mangiero notes at the outset of the book, "a fiduciary is paid to make intelligent decisions about other people's money, something that is difficult to do without full information." Lower returns on investments and weak economic conditions exacerbate the problems for fiduciaries, tempting them to authorize questionable investments. This book provides a strong justification for incorporating risk management into the corporate governance policies of such funds. It also provides the tools and concepts to put that philosophy into practice. This book can help fiduciaries be more efficient and effective in their decision making about how to spend other people's money.

Knowledge is power, so the more knowledgeable all parties are, the better. This book can be of value to everyone with an interest in, or concern about, how pension, endowment, and foundation funds are managed and invested. Anyone can readily learn the basics of performance assessment, derivative instruments, and risk measurement and control techniques.

The book is easy to read and understand. Unlike most other books on derivatives, it does not require a mathematics degree to understand its concepts. It actually makes the concepts understandable. Each chapter contains a succinct summary of the main points covered, many examples, and checklists, thus making it easy to use. The list of abbreviations at the beginning of the book facilitates understanding of the sometimes "alphabet-soup" discussion that follows.

The book is divided into four main parts. Part 1 describes the operating environment and establishes a foundation for including risk management education in the corporate governance philosophy. …