Eight years after the collapse of Lehman Brothers' triggered the global financial collapse, fund managers reveal the biggest lessons learned and those which remain on the horizon and are continuing to threaten the asset management industry.
Craig Reeves, founder, Prestige Asset Management
Preventing another Lehmans crisis
The Lehman Brothers crisis was the harbinger of a new era for banks, ushering a new order of regulation and capital constraints from which many banks have arguably never recovered. This is turn has shaped the way banks now operate with many abandoning the "universal banking" model and focusing on fewer regional activities that generate the most return on their precious tier one capital.
It has been this factor, more than any other, which has led to the rapid growth of loan funds. From small beginnings, the loan funds sector has expanded as deal flow has increased.
Contrarian Investor: Are investors getting complacent?
Taking the UK as just one example, hundreds of branch closures and the retreat of banks from certain loan activities in the small and medium business sector have created an opportunity for fund managers with the expertise to fill this gap.
Total assets under management in the private lending market controlled by asset managers exceeded $500bn at the end of last year and is projected to increase this year.
Credit bubble
The legacy of Lehmans continues to reverberate, in the way it has influenced markets and the consequent changes to investor behaviour. Negative rates on German, Swiss and Japanese government bonds, the ticking timebomb in the bond markets that Bill Gross has referred to - frothy equity markets - all are pushing investors towards other non-correlated assets.
While US long/short equity funds have become more acceptable as almost vanilla financial products, investors have started to buy real assets strategies as an uncorrelated alternative to public markets, and the secured loan as an asset is winning fans because of its superior yield characteristics.
Looking back at Lehmans, we also have to be aware that we need to look forward to the next Lehmans, and how this too will impact our sector. For example, taking a macro view of the world, the $25tn credit bubble in China has the potential to shake the financial world as fundamentally as Lehmans did.
The consequences for public debt markets could be even more severe than 2008 was.
