I walked away from the university careers counselling service because their idea of ‘alternative careers’ was teaching. Even journalism was too imaginative a career – or possibly those alumni of that particular university didn’t need to rely on formal processes to get a job at Daddy’s newspaper.
The fund management community, in contrast, is more imaginative. It harbours a number of people with surprising alternative careers in their past or even in parallel to their current jobs.
The pension buy-out market is in hibernation, but the specialist insurers are keen to keep the subject warm even if there is no business to be done.
They all aim for a slot at the top table of what is expected to be four or five big players when the market eventually consolidates. And they also expect to run the lion’s share of the UK’s pension fund assets in time. That is a big ambition, especially in the light of current concerns about the health of the life insurance sector.
North American institutional investors have lost some confidence this month judging by a slight fall in their appetite for risk measured by putting more equitites in their portfolios.
State Street’s Global Investor Confidence fell by 2.7 points to 70 from February with the North American index slipping by 4.8 points to 59.4. But this is not surprising after a remarkable rebound in confidence or appetite for risk over the last quarter from an all time low of 30.6 in December, says Paul O’Connell of State Street Associates.
At least North American investors were well positioned for the recent equity rally unlike their European counterparts where confidence is still low, he adds.
The difference in confidence levels might just have something to do with the pace of policy response in the two regions. The recent US Fed and Treasury response to the financial crisis has buoyed US investors, says Harvard university professor Ken Froot.
Now the trick will be to judge the next step in the risk game. Risk remains high but investors “must hedge against the sudden switch from hoarding large amounts of cash to dishoarding, ” adds Mr Froot.
‘There’s none so blind as them that will not see’ was the insightful, if ungrammatical, comment of a childhood mentor about those who refuse to admit adverse reality.
The line sprang to my mind when speaking to James Hatchley, a managing director of Freeman & Co, an M&A advisory consultancy. On most other topics, Mr Hatchley expressed reasonable and sensible opinions, but when it came to the subject of funds of hedge funds, an area his firm earns a lot of revenue from, he seemed to be in a different world.
“We see funds of [hedge] funds as a net beneficiary of the current crisis,” he said. “The market is entering into a winners and losers phase.”
While many might agree with the second statement, I would have put funds of hedge funds generally firmly into the losers’ basket. When questioned more closely about what the benefit might be, he predicted “fewer, bigger, better funds of funds”.
This may be a win for the end-investors, those that still have any money to invest and have the nerve to entrust it to funds of hedge funds, but it is presumably bad news for the many funds of hedge funds not fitting this description.
Anyone who knows Ned Cazalet will know he has a colourful turn of phrase. They will also know he has harried UK life companies over the years, berating them for poor business practices and a refusal to acknowledge the risks they were running, particuarly in their with profits funds.
Those risks became apparent in the end as Equitable Life crumbled under the weight of guaranteed annuity rates and Standard Life nearly imploded in the market downturn at the turn of the century. The Financial Services Authority brought in realistic solvency rules in response and the old system of sweeping things under the carpet and pretending they weren’t there was thrown out.
Mr Cazalet describes the change as “a massive improvement”. But it has clearly made his life too dull, as he is now gunning for defined benefit pension schemes, which he claims are life companies in disguise.
Institutional investors may be starting to make allocations to equities again, it seems. Research Affiliates, which offers passive investment in indices weighted according to company fundamentals, has gathered $1.5bn of new assets in recent months, according to its chief investment officer Jason Hsu.
Index providers have not traditionally thought of themselves as the cutting edge of financial innovation. Standard & Poor’s director of index research, Gareth Parker, even confessed his activities used to be ‘very boring’ at a ‘teach-in‘ for journalists last week.
Now, apparently, index provision is fun and exciting, to the point where Mr Parker thinks index providers are the new investment bankers.
Companies in developed economies may be congratulating themselves about improved performance on corporate responsibility concerns but some emerging market businesses are beginning to match their peers in some areas, especially when it comes to environmental issues.
Bigger companies in emerging markets such as South Africa, Brazil and South Korea are leading the way in adopting environmental management policies and practices, says a report by the Sustainable Investment Research Analyst Network.
Some investors attending the NAPF conference did not take kindly yesterday to being told by Hector Sants, chief executive of the Financial Services Authority, that they had not done enough to prevent bank boards run amok and destroy value.
He suggested investors had failed to understand what they were buying and were too reliant on company reports, credit rating agencies and other “normal channels of information”. He wants investors to “challenge management to ensure their plans are credible”.
This was priceless for one questioner.
An analysis by Rob Arnott of Research Affiliates suggests the equity bias of most fund managers might be totally misconceived. In a piece to be published in a forthcoming issue of the Journal of Indexes, he points out that, in the US at least, bonds have beaten equities not just over the past 10 years but the past 40 years, since 1969.
John Authers ruminated on the implications for investors in his column on Saturday. But asset managers need to take a long hard look too. Have they been betting on the wrong asset class all these years? Or is the analysis the sign that markets are about to turn – the death of the equity has been forecast before sharp upturns in the past.
Anyone who thinks the latter to be true is probably clinging to what has to date been regarded as conventional wisdom like a drowning man to a life raft.