Among the many Christmas cards received by Investment Week this year, the common theme has revolved around we are, without doubt, living in interesting times.
From the brief glimmer of hope at the start of this year, to the blind panic of March and the quite remarkable rally that has followed, you would be hard pushed to find an investor or adviser who was bored at any point this year.
Living in interesting times is supposed to be the first of three Chinese curses, the second of which is “may you come to the attention of the government” and the third “may you get what you want”.
It is fair to say financial services have come to the attention of governments as never before. It seems a long time since the mainstream press was running extended features gushing over London’s ascent as the top global financial centre. It is also easy to forget that, for much of the past decade, Westminster and the square mile enjoyed a very cosy relationship.
This love affair has now ended and it seems anyone in the City is fair game as a hurt Treasury seeks to tax high earners and high achievers.
It remains unknown exactly what a new Conservative administration will do and what its relationship with the City is likely to be. The concern must be that as we wade our way through tortuous 24-hour coverage of the election campaign, both major parties back themselves into a corner in an attempt to become the taxpayers’ champion.
This is not to say they will not try to retract off-the-cuff populist promises, but it could be harder if there is a hung parliament or if the statements were too strong. And while regulations can be expensive, it is the law of unintended consequences that is generally the most onerous.
Just ask the AIC, whose members find themselves threatened by a directive primarily aimed at hedge funds.
Ultimately, what our industry needs is less change from regulators and a little more time when it can just get on with running its business.
The final part of this curse is that you get what you want. From an asset-gathering perspective, fund managers have happily enjoyed this supposed curse. Investors have returned to the market and risk appetites have increased in line with the continued increase in equity prices. If this does turn out to be a curse, it could be because investors get burnt as they desperately try and jump from one rising asset class to the next.
One result of the volatility we have lived through is the industry has discovered an appetite for absolute return funds. It is safe to say the concept of protecting the downside is now fully appreciated by many bruised investors.
Managers have marketed absolute return with a strong degree of success and it will prove a lucrative sector for many, though the wide range of strategies employed by managers in the sector could yet make for a bumpy ride for clients who have not done their homework on individual managers.
2010 could also be the year climate change or socially responsible investing moves to the mainstream. Some argue it will be exposed as the next investment bubble, but with many institutional investors now hard-wiring these themes into asset allocation strategies, it may become irresistible to retail investors too.
