Just pay for what you want and you have a slightly better chance of getting it.

Sir John Coates makes quite a disservice by giving a way too simplistic version on the problems with rewarding the much needed risk-taking in “Time to tackle this culture of rewarding the risk-takers” May 5. He sets us up to choose between the hare and the tortoise forgetting completely that the hare can produce tortoise results and vice versa. Those tortoises that have only been able to produce the $20 million in profits the first 4 years can be those giving us the $500 loss in the fifth year.

There is really nothing like a perfect incentive plan though for an investor who is looking for a five year return he should clearly be better off paying an incentive based on the five years results as easy as that. Diversity is also good... if the whole world starts looking for five year results that will be just as bad as the current one year structures... you see humans, and especially traders, they do adapt.

Which bring us to the most important part of all... knowing what the incentives are. Coates refers to the traders but perhaps more important yet is to refer to the trader’s bosses.

Private or informal?

Sir when looking to analyze “Private equity’s risks and rewards” July 7, it might be useful to always differentiate between what could happen when someone goes into private practice from what could be the results from hiding out, going informal. The freedom to be private must always be defended, just as the forces that drive the growth of the informal sector must always be opposed.

There’s just been a change of shackles.

Sir, Martin Wolf writes so intelligently about the “Risks and rewards of today’s unshackled global finance”, June 27, that I almost feel ashamed about raising the question of whether the global finance really has been unshackled, as I believe that it has only had a change of shackles.

We have shackled much of the market to the opinions of some few credit rating agencies; we have shackled the market into the belief that risks can actually be derivated away and will not reappear elsewhere; and we have shackled the financial reward structure to something more akin to the time-share industry, rewarding those that are in fact restructuring the long term realities of our portfolios with success fees paid out immediately, based on the vendors own valuation models, and which most certainly do not bear much relation to our true long term results; and finally, the mother of all the shackles, the mind-boggling financial positions that have been built up around the world without really knowing how to get out of them, in an orderly way.

If only we could share into the loser’s bless

Sir, John Kay while explaining interestingly why frequently sensible investors willingly exchange very tangible money for unknown financial intangibles, “Why the winner’s curse could hit complex finance”, January 23, he might have underestimated the role of the advisor and the intermediary, whose normal incentive structure is based on deals completed and not deals avoided. As a financial advisor I have many times wished for that I could receive even a millionth part of the losses I have helped my clients to avoid, so as to be able to share the loser’s bless.