GLOBAL - Current investment theory and practice runs the risk of failing investors at their time of greatest need, a new group of investment managers warns.
The 300 Club - a group of investment professionals from around the world - has been launched to respond what it described as an urgent need to raise "uncomfortable and fundamental questions" about the very foundations of the investment industry and investing.
It said current economic and investment trends would change the investing landscape over the next two decades and warned we are at a "crisis point", presenting huge risks to investors.
300 Club chairman Saker Nusseibeh explained: "Today we face a progressively more uncertain and complex set of global economic fundamentals.
"When this is combined with increasing regulatory disruption and an industry drive towards costly and complex financial models and structures the situation becomes untenable. We must make sure that what is being built by the professional investment community is the optimal answer for the investor or for society."
The club said that, over the past 50 years, there had been three main trends which have contributed to the growing impact of the financial industry on the economies of most developed countries and which culminated in the 2008 financial crisis.
These were an increased complexity of instruments and models creating a feeling that a free lunch - return without risk - was possible; an increased focus on products as opposed to investor needs; and benign market conditions which had encouraged the view that, in the medium/long term, markets will always rise.
It said the combination of these three trends raised formidable challenges - creating a "perfect storm" for investors and the economies in which they operate.
The club said a consequence which is already visible for the investment markets is the herding of investors into increasingly overpriced assets while continuing to count on de-correlated return or lower risk.
It said: "Coupled with this, the shift, under regulatory pressure, of investor interest away from ‘risk capital' is a major body blow for Western economies that desperately need investment capital to help regenerate their competitiveness and foster growth."
The 300 club said the irony of the current state of affairs was that, at the core of today's trends, is a headline ambition to recognise, measure, manage and minimise risk.
It said this increased focus was not just an individual investor reaction to perceived greater risk and uncertainty - and is structurally embedded in the thinking of the regulators of investment markets globally, in the strategies pursued by major investing institutions and in the sponsors of pension funds and their advisors.
While this momentum has been building under the heading of greater financial sophistication and risk management techniques, it is now being applied with particular alacrity and vigour in response to unprecedented market conditions.
Nusseibeh added: "The 300 Club has come together because we believe that this moment of crisis could be the harbinger of greater danger to come. It is our hope that we are able to raise enough awareness of this threat to allow the investment community to address the challenges in a better way and to minimise the ultimate impact on savers and pensions from all corners of the globe."
Over the course of the coming 12 months, The 300 Club will spotlight "irrational and dangerous market behaviours" and assess their implications.
The current members of the 300 Club are:
Saker Nusseibeh of Hermes Fund Managers (Chairman of The 300 Club)
Zuhair Mohammed of Aon Hewitt
William De Vijlder of BNP Paribas Investment Partners
Prof. Amin Rajan of Create Research
Lars Dijkstra of Kempen Capital Management
Adriaan Ryder of QIC
Robert Talbut of Royal London Asset Management
Alan Brown of Schroders
Dylan Grice of Société Générale
Yves Choueifaty of TOBAM
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