THE BLOG - LATEST THOUGHTS
Each year, we carry out global surveys on emerging investment issues, involving key decision makers in various pension jurisdictions. In addition to the resulting survey reports, we also publish regular thought leadership articles in the Financial Times and IPE that touch upon the burning issues of the day.

Together, they provide a timely pulse check on the latest thinking on issues of interest to decision makers in asset owners, asset managers and asset distributors.

Having had the privilege of doing over nearly 40 global surveys and over 100 thought leadership articles over the past 20 years, the updates found below provide the basis for discussion and debate.



Liquidity hangs over the heads of investors like the sword of Damocles
Mon, 30 Apr 2018

Before the 2008 crisis, even the most esoteric bonds could be sold within seconds, irrespective of market conditions. It now takes seven times as long to liquidate even the most vanilla stuff.

Liquidity was only high because of the implicit subsidy enjoyed by banks that were ‘too big to fail’. That risk has now shifted to buyers and sellers under new regulations on both sides of the Atlantic.

The fragility of the new arrangement became all too evident during the flash crash in the US treasury market in 2014, when securities moved 40 basis points at one point only to reverse just as abruptly. At the time, JPMorgan’s chairman Jamie Dimon described it as an “event that is supposed to happen only once every 3 billion years or so”.

The episode yet again confirmed the age-old paradox: liquidity vanishes when it is most needed.

As the Federal Reserve goes for quantitative tightening, there are growing concerns that a mass exodus of investors may cause a sharp decline in prices and outsized losses for sellers, as the 35-year bull market in bonds comes to an end.

Paradoxically, liquidity is everywhere – look no further than the balance sheets of central banks. Yet dysfunctional imbalances are emerging, especially in two areas.

The first one is esoteric illiquid vehicles that investors have flocked to in search of yield, only to have their fingers burnt. The mass exit from property funds after the Brexit vote is a case in point. Asset managers were forced to suspend redemptions to avoid fire sales.

The second one is reflected in the growing mismatch between the respective assets and liabilities of both retail and institutional investors, as they increasingly demand the daily liquidity that dumbs down their returns.

As markets have plateaued and become more volatile, making money requires exceptional skill or exceptional luck.

Investors worry that the Fed will not be able be able to perform the delicate balancing act of raising rates in 2018 and 2019 (as promised), while keeping a floor under asset values and control volatility.  They are yearning for their sugar daddy to stay.

For those of you who subscribe to The Financial Times, my article on liquidity – “Next liquidity crisis could be hiding in plain sight” – is published today (30 April 2018).


Harnessing the power of technology
Mon, 16 Apr 2018

Will new digital innovations invariably destroy jobs?  The answer is “yes” or “maybe”.

The first view is based on the old dictum that “Science discovers, technology executes and humans conform”.

The second rests on the observation that much depends on how technology is actually used.

In the past nine months, I have authored two survey reports on how digitisation will reshape four subsectors in global investments: long only managers, wealth managers, hedge fund managers and private equity managers. They are available at www.create-research.co.uk.

The key conclusions are: each of them face digital disruption, given that data is their lifeblood; and the resulting business transformation is as much about leadership as it is about technology. What top executives do to create new opportunity sets makes a huge difference to eventual outcomes.

Early adopters of digitisation, however, hold that there is nothing inherent in digitisation that guarantees success. It is about navigating through the fog to invent a new future, far removed from old connections and causality. Without a clear business strategy and a group of far-sighted people committed to delivering it, no digital tool – no matter how sophisticated – can make much difference.

I co-authored a piece on this subject which was published in the FT on 11th April 2018 and in FTfm on 16th April 2018. If you are a subscriber, the link is here.


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