Two new ventures - Ibbotson/Harty Derivatives Consulting and The Woodward Group - seek to develop a consulting niche by offering analysis and evaluation of derivatives uses and policies.
Ibbotson/Harty is a venture formed by Ibbotson Associates Inc., Chicago, along with Emmett J. Harty, a pioneer in developing structured securities, and his Parallax Group Inc., Stamford, Conn.
Structured as a mutual marketing and consulting relationship, Ibbotson/Harty will target pension funds and corporations. It hasn't any clients yet. Ibbotson and Parallax, which will continue to operate independently, sought the relationship to boost their derivatives consulting to pension funds and corporations.
Ibbotson will draw on Parallax for its derivatives pricing models and also to expand its own expertise in broad derivatives issues, including investment policy and allocation. Parallax is a derivatives broker and dealer negotiating on behalf of institutional clients to obtain the optimal structure and pricing of fixed-income and equity derivatives and structured instruments, said Mr. Harty, Parallax president.
"When the Procter & Gamble problem came up," Mr. Harty said, referring to the company's derivatives losses last year, "I approached Roger (Ibbotson) about the potential" in derivatives consulting.
In addition, The Woodward Group, a new firm based in Northbrook, Ill., will draw on some prominent names in the field of derivatives risk analysis and management to offer independent derivatives consulting for senior-level corporate management, including treasury, finance and pension funds, and corporate boards of directors, and state and local governments.
Woodward will be led by Donald L. Horwitz, managing director, who has held key positions at Options Clearing Corp., the Securities and Exchange Commission, and Merrill Lynch & Co.
Robert J. Mackay, professor of finance and director of the Center for the Study of Futures & Options Markets, Virginia Polytechnic Institute, and Christopher L. Culp, an independent financial risk management consultant, will work on a project basis for Woodward, depending upon the expertise needed for each client. In particular, Mr. Horwitz said the new firm will evaluate or help develop, derivatives needs, risk, policy, procedures and internal oversight authority. Woodward doesn't have any clients yet.
In addition, Mr. Horwitz said he is talking with several Big Six accounting firms to offer Woodward services to their clients as a formal subconsultant or through indirect relationships.
However, many of the Big Six firms already have been offering derivatives analysis, or audits, for clients. Among them, Price Waterhouse Co. completed an audit of Amoco Corp.'s $2.5 billion pension fund's derivatives use, finding it met industry standards and recommending minor changes in procedures.
Also, he is targeting banks or other institutions offering derivatives to help them assess the suitability, in terms of compliance standards, of their clients to use derivatives.