Investment actuaries in the future

IMG_0781Tomorrow evening (Thursday 6th June 2013) I have been invited to facilitate a ‘blue sky’ thinking session at Staple Inn with some of the brightest thinkers in the city of London to come up with the subjects and themes that should drive the Finance & Investment research agenda for the Institute and Faculty of Actuaries (IFoA) over the next decade.

Whilst a career as an actuary* was recently ranked as the best job of 2013** I think identifying the right research directions is really important to ensure that the actuarial profession remains relevant, forward looking and at the cutting edge of the finance and investment thinking in the future.

I have 3 questions for you (both actuaries and non-actuaries are welcome to respond):

  1. What is the most important thing people gain from the actuarial qualification?
  2. What are the biggest challenges and opportunities facing actuaries in finance and investment firms?
  3. What do you think should drive the Finance & Investment research agenda for IFoA over the coming decade?

Please reply to this post or email me on [email protected] with your answers, as well as any other ideas or suggestions by 3pm GMT tomorrow (6th June).

Many thanks in advance,

Mitesh

 

* Actuaries put a financial value on risk – for instance, the chances of a hurricane destroying a beachfront home or the long-term liabilities of a pension.

** The best job of 2013 – CareerCast.com, a career website owned by Adicio Inc., recently ranked 200 jobs from best to worst based on five criteria: physical demands, work environment, income, stress, and hiring outlook. Based on these criteria, a career as an Actuary came out on top. You can find the full ranking here

One thought on “Investment actuaries in the future”

  1. Here’s the output from our brainstorm:

    (1) Social Finance & Impact Investing – measuring non-financial returns
    • The nascent Social Finance and especially “Impact Investing” market involves pursing outcomes other than simply maximising return for a given level of risk
    • Much work is needed to measure these non-financial outcomes arising from this type of investments – e.g. reduction in re-offending rates, reduction in poverty, decreases in infant mortality, other healthcare improvements, etc…
    • Actuaries are well placed to apply our skillset to evolving current work in this space and leading on developing new and standardising existing metrics
    • Related research could include the role of Social Finance/Impact Investing as an asset class in institutional/retail client portfolios
    • Actuaries can also add value both in promoting these allocations and developing due diligence procedures to identify initiatives which give the most effective use of capital (using both financial and non-financial measures)
    • This work could be extended to consider how social finance investments and related philanthropic allocation of capital could be benchmarked

    (2) ‘Disintermediation’: the likely rise of Peer-to-Peer Investing and Alternative Financing Models
    • Improvements in technology and the internet are likely to support increasing disintermediation in the world of investments, already visible in the development of peer-to-peer lending and savings as well as micro-finance/philanthropy (e.g. kiva.org)
    • Research could focus on how this market may emerge, what challenges it may face and what tools could be put in place to address these
    • Trust will be a key requirement to convince consumers to invest peer-to-peer and research could explore how social-networking and related tools (like ‘crowd-sourced’ reliability ratings) could be used to differentiate between investment opportunities
    • Related to this is the idea of firms raising capital directly from consumers rather than via intermediaries like investment banks/IFAs (e.g. Hotel Chocolat’s bond issue to their loyalty club which paid coupons in kind as boxes of chocolates)
    • Research could focus on whether this type of alternative financing model is likely to be scalable and again on how trust issues could be dealt with

    (3) Why Retire? Alternative models to pensions
    • The concept of pensions can be seen as outmoded in current times of increased longevity and paltry annuity rates
    • Research could focus on alternatives building on the existing notion of ‘drawdown’ pensions for those with large pension pots and considering what could be done for other consumers
    • Ideas could also include moving away from the notion of an individual to that of family or other groups supporting each other inter-generationally
    • Research could consider what sorts of investment ideas / vehicles could support alternative models, including possibly resurrecting ideals like mutual associations

    (4) Designing Investment Vehicles to Mitigate Agency Risk
    • Acknowledgment that current investment structures in both retail and institutional space present agency issues
    • Issues include governance and fee structures which could result in needs of investment managers not being aligned with those of the ultimate beneficiaries
    • Shortcomings in current structures could be analysed with proposals for alternatives to mitigate agency risk
    • Alternative ideas include mutual structures where beneficiaries are also owners

    (5) How and Why to Get Actuaries into the Wider Fields – especially Education
    • Actuaries could be adding value in a much wider range of fields than is the case today
    • This research could focus on why it would be of benefit to individuals, the IFoA and wider society for actuaries to do so
    • Research could include case studies of actuaries working in wider fields and their stories as to how they got there + how they add value
    • Recommendations could include how existing syllabi could be revised to promote this
    • A good model is “TeachFirst”, the highly successful organisation which takes top graduates from across the UK to work as teachers in underperfoming schools before starting their professional career (http://www.teachfirst.org.uk)
    • Recommendations could also include how to make a career in actuarial education attractive to highly performing individuals

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