During any year, dozens of books flow over an editor's desk. I glance through most of them, and read closely a few of them - all that time permits. Two of the books I read in the past year should be read by most of our readers who are involved with pension fund investment.
The first is "The Portable Financial Analyst: What Practitioners Need to Know" by Mark Kritzman (Probus Publishing, Chicago). Mr. Kritzman is a founding partner of Windham Capital Management and past president of the Society for Quantitative Analysis.
This slim, 206-page book is an incredibly useful one that most money managers, pension executives or investment officers for any pool of assets will want to keep on their desks, even carry in their briefcases.
It is, in effect, a refresher course on investment concepts and techniques. It covers the kinds of subjects that most MBA programs cover in their investment courses or are covered in the chartered financial analyst program.
Most of us forget any concepts or techniques we don't use regularly. This book will remind you of those you have forgotten, or are in danger of forgetting.
The book is actually divided into three sections. The first covers concepts such as the capital asset pricing model, uncertainty, utility (including risk aversion and indifference curves), log normality and serial dependence. It explains the concepts clearly, discusses their usefulness, and shows how to calculate such items as dollar and time-weighted rates of return, duration and convexity.
The second section deals with methodology, explaining how to use and how to calculate such useful mathematical tools as regression, future value, factor analysis, Monte Carlo simulations, etc.
The final section of the book deals with strategy, including optimization, hedging, option replication, commodities futures contracts and currencies.
While the book is clearly written, in most sections it would be over the head of the beginner and not complete enough without previous exposure to the subjects.
The second book is "Pensions in Crisis: Why the System is Failing America and How You Can Protect Your Future," written by Karen Ferguson and Kate Blackwell (Arcade Publishing, New York). Ms. Ferguson is director of the Pension Rights Center, Washington.
Few Pension & Investments readers will agree with the thesis spelled out in its title. After all, it's a voluntary system, and whether in defined benefit or defined contribution plans, it does cover about half of the eligible workforce and it is well funded. So how can it be in crisis?
But the book serves a useful purpose in pointing out the weaknesses in the system, the cracks through which employees can fall through no fault of their own, the flaws in the regulations that unscrupulous employers can take advantage of to deny their employees pensions. The system might not be in crisis, but individuals denied pensions might be.
We may believe the private pension system is a good system. But improvements in the system may be possible, and this book should make all involved consider the possibilities for improving it without destroying it.
