Today’s column in The Times builds on the theme of how to return growth in to the UK - specifically by reassessing how we approach risk across the economy: https://lnkd.in/e84jQzhv Includes some terrific (and terrifying) data points on how Hinckley C nuclear reactor has become the most expensive in the world (h/t Sam Dumitriu). The issue is a wider one about looking at cost benefit analysis in their broadest sense - and getting better allocative efficiency as a result #economics #weneedtotalkaboutrisk Non-paywall version here: https://lnkd.in/eJZ7vb7K
Neil Blankstone
7mo
As always Simon French, thought provoking and insightful. Relating this to advising on and managing investment risk for retail investors or Pension Fund Trustees, Trustees in general to include Charities I picked up on two things in your article: 1. “Any cost-benefit analysis conducted in a narrow sense may judge that eliminating risk is beneficial.” 2. “Policymakers also need to recognise that resisting compensation for risk “gone wrong” and avoiding taxing risk “gone right” is part of re-establishing a healthy balance of risk and reward”. Fear of Regulatory consequence in how we are to advise/manage clients has stifled things. The result has been we have funneled investors down a path. Further, if investment outcomes don’t always work quite to plan, the reaction is who can I blame - with personal responsibility taken away and a right to recourse automatic. We work in an industry that is only part science. The other part is human nature. It feels as though we are trying to eliminate something in terms of the risk for the individual (or trustees) that sometimes is outside of any control. Management of expectation is paramount. To coin the phrase “past performance is not necessarily a guide to the future”…
Mark Motion
7mo
Reversing the pension fund dividend tax credit removal of 1997 which effectively kicked off the slide in UK equity investment due to much lower forward returns would be another step in the right direction: thankyou Richard Colwell for that reminder last week
Rachel Gentry
7mo
Really interesting article Simon French and a debate that is sadly lacking right now. Not all risk is bad risk - and the fault lies in many places, but not least the regulators and government. The financial crisis exposed wilful ignorance of risk and risk professionals in pursuit of market share and profit. In response governments increased regulation but also over time decreased resources and the balance has shifted into setting ever heavier requirements with little oversight and monitoring. This reduces the incentive or ability to innovate and invest, with little noticeable improvement in the impact of poor risk management on individuals. However, the economists should also shoulder some of the blame. The UK Treasury in particular has stifled all creativity out of the public sector with its narrow measures of success. If we want higher reward, we have to also accept higher risk and higher levels of failure - this requires good oversight, regular monitoring and reviews - not theoretical business cases that encourage more of the same.
🇳🇱 Arjan Verbeek
7mo
“Risk as entrepreneurs mortgage the family home” - great sentence. The impact of the structure of our short term focused on risk taking should not be underestimated. Being forced to refinance every few years means a budgetting challenge for risk takers. The Bank of England LTI flow limit is a barrier to the introduction of long term fixed rate mortgages, faciliting entrepreneurship in other countries. Perenna will help entrepreneurship through innovative product design.
Alan Green
7mo
Despite the illusional ideological bullsheet of transferring public sector services into the market through austerity, and the PopCons arguing for more of the same "Data released last Friday revealed, staggeringly, that UK public sector productivity is lower today than in 1997.".....says it all - risk decoupled from reward
Jeremy McKeown
7mo
Simon French, another great read on an important topic. The simple and fallacious equation of risk with price volatility has much to answer for. The obsession with VAR as a measure of risk prior to the GFC and the reduced exposure of pension funds to high performing but volatile equities over the last few decades are examples of how dangerous the misunderstanding of this vital concept can be. Are the actuaries to blame?
Michael Moore
7mo
Provocative in a very good way. With a welcome mention for the Mansion House Compact into the bargain…
Douglas Lawson
7mo
Read it in the paper yesterday. Superb writing Simon French
Consulting M&A and Digital transformation consultant
7moRisk is a fundamental aspect of life and business, and while it's natural to want to avoid it, embracing certain types of risk can lead to growth, innovation, and progress. While it's important to approach risk-taking thoughtfully and strategically, avoiding risk altogether can lead to missed opportunities and stagnation. By embracing calculated risks and learning to manage them effectively, you can unlock new possibilities and achieve greater success in life and business. The problem is in practice we prioritise polices and processes and ignore important innovating for productivity unless we are forced to drive by financial cuts. Depending on Lewin’s 1951 change model will not produce productivity in our current constant changing environment. We have time to “freeze” productivity.