Andrew Lill has stepped down as chief investment officer of the $86 billion Rest, bound for parts yet unknown. The fund he leaves looks very different to the one he joined.
Authorities have had enough of greenwashing excuses, and they’re lobbing record fines at transgressors. Funds will have to lift their game.
Why the market’s ‘endless summer’ can’t last
It’s unusual for markets to experience decades of stability, Jonathan Ruffer writes in his latest investment review, and there’s no reason to believe that stability can (or should) last.
That’s because a number of emergent novelties threaten to upset the equilibrium, including the rise of passive investing (“a great idea” that has “become a force for potential destabilisation” by exerting more pressure on stock prices than underlying fundamentals); and the proliferation of both leverage and private debt, which have both layered a significant amount of debt into the investment universe, creating “not just risk, but amplified risk”.
“The unbroken upward trend of the markets reveals that there hasn’t been as much risk around as the facts would suggest,” Riffer writes. “The reason for this is that central banks have always been there to bail out the system, time and again medicating the wounds caused by speculation. Whatever the weather – be it pandemonium or pandemic – the Federal Reserve (Fed) has piped on. The mood of many in the market is: we rather agree with this Ruffer chap’s worrisome analysis; but while the music continues, we’ll make money in the momentum and, when it stops, we’ll hold our nerve, and the Fed will bail us out.
But while central banks have always been able to ward off disaster in the past, Ruffer says that there are “two flies which will likely make the Fed’s ointment ineffective”, the first of which is that the conditions are in place for a bona fide liquidity crisis.
“In many situations, illiquidity is an inconvenience, but when it is systemic, it can act like a forest fire and spread its flames throughout a financial system,” Ruffer writes. “But surely (will ask Socrates’ friend), the Fed is alert to the danger, and will provide emergency funds?
“The second fly is that in such a swift crisis, the Fed will not be able to provide the funds in time. Markets are driven by algorithms, which recognise opportunities through patterns – the speed of dealing is, in effect, instantaneous. Once those patterns signal a reversing dynamic, they will be activated, and that will trigger margin calls: borrowers will have to stump up more collateral immediately to keep their borrowing in place. Easier said than done, of course – Christopher Fildes once described an emerging market as one from which it is difficult to emerge in an emergency. It might just be that this is the fate, too, of the traditional markets.”
And while that outlook might sound gloomy, it’s not unprecedented. As Ruffer notes it’s more or less what happened in 1987, when the crash was both “unstoppable and speedy” and occurred in a fairly valued market – in a bull phase – because portfolio insurance protections didn’t work when they were supposed to.
“If the markets were a taxicab, I wouldn’t want to get into it, even if it was raining,” Ruffer writes. “A computer-driven market is passionless, and rapid. Trouble becomes chaos in a jiffy – five minutes before the hurricane, the market can give every appearance of calm. That adds up to a ‘when’, rather than an ‘if’.”
