Friday thoughts – Out of date portfolio theory/ Pension fight pen / China’s misselling risk

Chris Gilchrist has slated modern portfolio theory in Money Marketing this week because it can’t cope with financial crises which is, obviously, a slight problem at the moment. But it is the following point which catches our eye at the Money Debate.

“I regard it as unfortunate that the exam creators at the CII and elsewhere continue to regard MPT as holy writ. More than 10 years of increasingly sceptical academic commentary has yet to make it into the exam syllabus.”

Er quite. But isn’t it time the CII justified itself? If the papers are behind the curve or worse just propounding something that is wrong, then surely it is time to adapt things or if not to explain why not. “Theory used as basis of much investment advice is out of date” is not a great headline for the sector. Last thing it needs in fact. Views welcome.

At the Money Debate we can’t help but refer readers to a rather fiery pensions argument on Henry Tapper’s linkedin group/website/plan for world domination, the Pensionplaypen. It really is too good to miss.

On several occasions, in the last few months, John Lawson pension expert at Aviva has been hitting back at advocates of the Dutch solution which has suddenly got much more timely now the pension minister is also making noises in that direction.

It’s worth reading if only for John’s views of the Royal Society of Arts. It’s the biggest pension row in the neighbourhood at the moment.

Finally, it looks like China is having a credit crunch of its own, but one significant reason is the existence of a shadow banking sector running off the balance sheet (or on another balance sheet!) in many of China’s banks. There may be $2trillion in shadow banking according to Fitch but some of it is in the form of short term ‘wealth management’ products which circumvent centralised controls of lending. Could this be the first time something akin to retail misselling and misbuying has threatened the global economy?