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Home > Library > Stable Times > Volume 4, Issue 1  The quarterly publication of the Stable Value Investment Association First Quarter 2000 • Volume 4 Issue 1 Performance Measurement Task Force UpdateBy Victoria Paradis, J.P. Morgan Despite a proliferation in the number of task force members, we have come to solid consensus on many key performance measurement issues. Following is an update on the issues resolved and those still in progress. Conclusions to date Performance measurement does not threaten the stable value industry. The idea of this project is to allow plan sponsors to "look under the hood" at the underlying portfolio results for all stable value fund assets. It does not jeopardize the book value returns that participants continue to earn. For example, performance measurement has always been possible with wrapped bond portfolios with no concern about whether the book value accounting on those assets is in jeopardy. Plan sponsors can ensure that a manager's objectives do not stray from those of the participant during the fund design process, which includes tailoring benchmarks and investment guidelines to participant objectives. AIMR Endorsement of our methodology is a clear objective. AIMR involvement will help ensure the legitimacy of our methodologies and support stable value as a credible vehicle for the long term. We will present our final conclusions to the new AIMR IPC Committee for comment and inclusion along all other asset categories addressed in AIMR's Performance Presentation Standards. In addition, it is believed that it is quite possible for managers to comply with AIMR PPS standards today. This requires marking GICs to market and applying all other AIMR standards for stable value assets. The final outcome of the task force will be an adoption of AIMR-PPS with noted exceptions and additions to reflect the unique aspects of stable value assets. The task force will not reproduce standards and language of AIMR that is applicable to all asset classes. Our document alongside the existing AIMR-PPS materials will be a complete guide to general performance measurement standards. This document will be distributed within the industry and AIMR IPC for review. We will enhance this document with more detailed "how to" articles to be published in Stable Times. Open issues remain There is no controversy about whether to value traditional GICs, but rather, we are still addressing to what degree the task force should provide detailed methodology. A majority of respondents prefer disseminating detailed information about how to value GIC portfolios. Some even favor creation of rules. Others feel that this is beyond the scope of the project, because AIMR does not typically take a prescriptive approach and most financial professionals can figure out an approach that is reasonable and consistent. Likewise, methodology for valuing the benefit responsive insurance component GICs and wraps has been subject to extensive technical debate by task force members. You can expect to see specific 'how to' steps distributed for this unique aspect of stable value asset valuation. Effective dates are tricky. Not everyone can start as of 1/1/2000 with an AIMR-compliant performance reporting system. Re-creation of past history is a heavy burden. We will probably start off as up to each manager to decide their chosen strategy, but AIMR may proclaim an effective date requirement or an acceptable time frame for relief. There was discussion about establishing a centralized resource for performance measurement issues. There will inevitably be questions from managers and plan sponsors. Guidance on gray areas may be necessary. Mediation of disputes could become an issue. Most task force members favor a role for SVIA but the specifics are unclear. On the other hand, in other industries, there exists no such centralized resource and standards ultimately develop naturally. Appropriate disclosures is a big topic that is the center of the most active discussion today. In general, the task force will present required disclosures that are most significant for fair and accurate presentation of performance results. We will also provide guidance on recommended disclosures that are particularly relevant to stable value funds.
Read Next: Tracking Stable Value Yield Spreads, March 1999 to February 2000
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