“We think now while there might be a bit of bouncing along the bottom, and that it’s unclear exactly where capital markets are going in the short term, that it’s certainly time to take some of that dry powder and move back to a normal position.” The new investment building block, however, is a re-examination of what that normal position ought to be, with particular emphasis on adequate liquidity in case the situation doesn’t improve. According to Barron, there has to be a re-examination of all aspects of the portfolio, as a post-crisis agenda, which should start with how funds are allocated relative to their long-term and short-term needs. “For a fund’s long term needs you want to reaffirm what it is you are trying to accomplish and what are your key goals and objectives.
You have an 8 per cent return expectation, why? And what does it mean if you don’t reach it? Can you still rely on the long-term returns from asset classes that have been built into your assumptions in the first place?” One of the biggest changes, according to Barron, has been the recognition that over shorter time frames, the notion that assets will “get bailed out” by markets just by waiting for another 10 years is looking questionable. “So if you take a large part of the marketplace, foundations and endowments, as an example, they realise that a long-term approach to asset management focusing on virtually an infinite time horizon, could create a real liquidity problem in the short term. That did, for many, come as a surprise,” he says. “We feel pretty good because we have been talking to our clients for a long time about some of the things they thought were liquid might not be liquid in this difficult environment.” The investment director of AMP Capital Investors’ Future Directions multimanager funds, Sean Henaghan, agrees that liquidity has provided “one of the great lessons out of the crisis”.
