In one of my earlier posts I commented that in the years I have worked in the field of investment I have never stopped learning. Discovery happens in fits and starts, but there has never been any length of time when I have not come across something new and occasionally challenging to comprehend. Opening the door on a new topic will often bring me into a different world full of experts who have very esoteric knowledge, most of which is beyond my immediate need – although I am often curious to understand more than perhaps my immediate need requires, but limited time and intellect often places a bar on how far I probe.
This week’s new learning was into the field of insurance linked securities (ILS). I had prior knowledge of the basics of the asset class and many years ago had carried out research on catastrophe bonds which form a large part of the subject, but either my knowledge was stale or too superficial given the very different nomenclature I came across this week. The investment industry is often criticised for over-complicating matters by using different language or lingo which may serve as a useful short-cut for those in the know, but a barrier to entry for those not familiar with the underlying basics. Perhaps not helped by the use of the Greeks – alpha, beta, delta and so on – to describe a state of investment activity.
I am pleased to say that those creating new labels in the world of ILS are far more visual in describing what they get up to. I was introduced to the world of the ‘sidecar’ (an ILS linked to a proportional reinsurance arrangement) and, my favourite, ‘cat-in-a-box’, although the definition of this is more complicated than the name, suffice to say here that it involves catastrophe events linked to a specific geography (the ‘box’). More disappointing was ‘Rule 144A ILS’ which, as the name suggests, reflects the requirements of 144A of the US Securities Act – the creative naming team were perhaps on a lunch-break when that one hit the ILS lexicon.
The observation of this post is not about the merits of a particular investment but rather the curious way in which a specific language is built up, used and accepted within a system. As I mentioned earlier it would be a common feature of meetings that Greek letters were used as a short-cut to explain a particular objective. Of course, it was assumed that all the people in the meeting were familiar with the term and the context within which it was being used. Sometimes; usually in post-meeting debriefings, that assumption was found to be flawed. Therein lies the challenge – ensuring that all the people are familiar with the terminology and if unsure, losing the jargon and replacing it with more usual vocabulary. Sometimes the language is used specifically for the purposes of excluding; you need to be in our club and understand our syntax to be one of us, otherwise you’re on the outside. Or if you do speak our language, you’re one of us – which can cement a sense of belonging; or perhaps used as a foil against imposter syndrome – if you speak the lingo, people will assume you know your stuff!
I started this post observing how the industry always seems to be offering me something new to learn and a key part of that education is understanding the definition of the terms adopted. Whilst the process would be more straightforward in a world without jargon, I suspect it would be a little less colourful, a little more dull!