There are numerous lessons from the financial crisis for all funds management industry participants. In the rebuilding phase those who are looking to learn and change their behaviour seem to be focused on trust.
In an interesting address last week to the Institute of Economic Affairs and Marketforce annual funds management conference in London, Willie Watt, the chief executive of Martin Currie Investment Management, sought to define and analyse “trust” in relation to investor relations.
He said: “The crisis resulted in major large-scale losses for many clients. The experience has led to an emotional response which can, in part, be likened to bereavement and has led to a growing distrust of our industry by some investors…
“Many of our ultimate clients, particularly those individuals at the edges of the investment world, do not differentiate between banks, life companies and investment managers. To them we are all part of the financial services industry… Therefore, the wider issue of trust as it relates to the financial system is also our issue. So, whether we like it or not we are all grouped together, and the fair apportionment of responsibility goes out the window. This view could also be said to be held by some politicians and risks driving inappropriate regulation.”
Trust, in terms of the funds management industry, means, he said:
. reliability – the predictability of investment returns
. truth – honesty and clarity of investment objectives
. responsibility – putting clients first every time, and
. confidence – in investment assets to deliver long-term value for clients.
Watt said there were three main conclusions which could be drawn from an understanding of “trust”.
1. “Firstly, in relation to investment products, we need to look more closely at product design. The crisis has changed clients’ risk/reward dynamics and we need to pay attention to this. The behavioural impact of loss, coupled with the reassertion of the common sense wish to protect capital and make incremental absolute returns are present for both institutional and individual clients. We need to do more than just pay lip service to it. The industry’s focus on the separation of alpha and beta and the racking and stacking of investment managers based on relative performance irrespective of absolute outcome, sit uneasily with client sensibilities just now…