Investment Management Firms Face New Challenges for the Next Decade

Private wealth management has suffered a blow to confidence over the last year as more and more schemes have been uncovered and exposed. Some of these such as Madoff have been outright fraudulent others have just suffered from the naive thought that financial institutions and markets could not succumb to such a meltdown as we have witnessed in the last year. The idea that banks could not be governed by greed and that markets are self-regulating has been blown out the water. So Investment Management Firms do face a stiff challenge as we go forward into a new decade.

All financial institutions and those companies invested with the assets of individuals and other institutions will have to regain the confidence and trust of those they represent. A new era is required of transparency in which trust will no longer be implicit on past glories but have to be demonstrated by openly and clearly setting out the philosophy and strategy of their investments. The business models will have to exposed and demonstrated by the latest economic modeling. Investors will need to be sure that the necessary depth of risk analysis has been undertook and that all of this will be sustained into the coming years without a fallback to bad practices once the investor relaxes his focus.

The challenges to be faced initially will be to avoid getting court out by the remaining toxic assets that are still lurking in the ‘muddy waters’ of the financial and commercial systems. In the longer term it will be keeping up with the changing regulatory systems that are being imposed as a result of the post mortem carried out on the failures due to the credit crunch and the various bubbles that were allowed to develop without check. Investment advisors will have to keep up with market trends, keeping a balanced portfolio and be disciplined in sticking to strategy whilst not following the crowds that have failed to heed the lessons of the recent past.

Along with the challenges faces by investment management firms the individual will need to be much more aware and have a clear understanding of their own financial goals and aspirations. Understanding that high returns are rarely if ever sustainable and need to be scrutinized to avoid being led blindly by the greed that has pervaded many investors over the last market bubbles. Doing your own research, diversifying into alternative investment, emerging market, green investments and more socially responsible investments will be key to performance as the stricter accounting requirements inhibit mainstream companies from presenting exaggerated or downright misleading results and prospects.

In short the smart investor will be the knowledgeable focused investor that asks the appropriate questions and has the discipline to act accordingly.
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Global Economic News 03/13/2009

The Japanese current account dips into negative territory for the first time in 13 years sending the Nikkei to a 26 year low.  This is a reflection on the weakness of Japanese exports and exasperated by the relative strength of the Yen. Imports are also very weak indicating the loss in confidence as the global economy shrinks.

Global markets rise 5% on upbeat forecasts that the US recession may be over by 2010 and start to grow sooner than expected. Better news from Citi about trading conditions also add to the positive outlook. The fact that earnings will be falling and dividends drying up seems to provide little in the way of damping of enthusiasm to investors. The unexpected rise in markets could be simple hedging of bets as short sellers cover their positions.

Quantitative Easing began to be used by the UK government to add a fresh supply of capital to the UK financial system. Money will be added to the system by the government buying back bonds in exchange for newly created money. Normally this is a last resort in boosting economic activity and it is not possible to predict with any certainty that it will have the desired effect. Secondly, the side effects of knocking confidence, devaluing the currency and causing inflation have left experts and interested parties very uncertain as to the outcome.

The wealth of the worlds richest people has taken a serious downturn in the last year but many having billions wiped off their assets. More importantly the net household worth of Americans has dropped 9% in the last qtr of 2008 making a total fall of 20% from the peak in 2007. Whilst this is largely due to falling property prices it will continue to cast a negative sentiment that will suppress consumer spending.

Markets This Week

US:DOW - up 8.2%

US:S&P500 - up 9.6%

UK:FTSE - up 6.0%

JPN:Nikkei - up 5.2%

HK:Hang Seng - up 4.8%

Gold - $928 down 1.1%

Oil: $45.80 - up 0.4%

Oil - $45.63
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