The asset management industry should create a "bold and ambitious" new product to help find a long-term, sustainable way of ensuring businesses survive once the coronavirus abates, according to Fidelity International CEO Anne Richards.
In a post on LinkedIn, Richards said the response so far to the crisis facing many businesses up and down the country, which has come in the form of emergency liquidity through loans and guarantees, was "an effective quick fix".
"It is only a short-term fix though. Ultimately, excessive indebtedness will dampen future growth and productivity," she countered.
"We need only look at the experiences of the West following 2008 and Japan in the 1990s to understand that a heavy debt hangover can have real economic consequences, and non-financial debt in the UK was already high coming into the crisis.
"There is a very real danger that most these emergency loans will never be paid back and so a temporary liquidity problem changes into a permanent insolvency problem, as companies fail."
Richards suggested more needed to be done further down the line, putting the onus on the asset management industry, which she said had "an opportunity to help find a solution".
"Recapitalising the economy will require capital, and the choice of capital that you use may have very different outcomes," the CEO continued.
"Government, individual savers, private capital, institutional capital such as pension funds and corporate balance sheets - all of these will have a role to play."
Covid-19 investment fund
Richards said the solution could come in the form of "a Covid-19 retail equity investment product [that] could put the UK's collective savings to work, while at the same time increasing the participation of the wider public in the benefits of economic recovery". This, she suggested, could be an OEIC, or an investment trust, perhaps with tax incentives through ISAs.
A particularly "bold and ambitious" idea would be a sovereign wealth fund or a new form of co-operative or mutual society, Richards continued.
"The Covid-19 crisis has been likened to a war because of its destructive impact on human lives and economic production.
"An interesting example from history, in the wake of the World War II, the Bank of England set up the Industrial and Commercial Finance Corporation, which eventually evolved into 3i [currently the largest investment trust in the UK].
"It invested in companies that had no access to long-term equity capital and it did very well. That sort of multi-decade success offers a solid model for steering an economy through a period of devastation."