Investors have clearly expressed a vote of no confidence in the markets. So how will we get out of this financial fix?
I was at a reception the other day, when the conversation naturally turned to the markets and to hedge funds in particular. One consultant said he’s seeing an increased reluctance by plan sponsors to invest in hedge funds going forward. “It’s emotional,” he remarked, adding that the de-leveraging and redemptions in late 2008 made many investors less trusting of the hedge fund world.
And this issue of trust isn’t confined to hedge funds. I’ve heard from many in the industry that a once-burned-twice-shy mentality will cause institutional investors to adopt a more conservative approach in the future.
Could a concept as elusive as “trust” (or lack thereof) be the core of this widespread lack of confidence in the markets that we now face? It’s an interesting question because it reminds us that investing isn’t just about numbers, dollar signs and percentages. It’s also about the perceptions, feelings and expectations of those investing.
Today, many investors are feeling frustrated and disappointed. They no longer trust the abilities of the markets—and those involved with them—to meet their expectations.
Trust is eroding in employer-employee relationships as well. Middle managers may not trust that they’re getting the true story from senior-level management. Employees see a work environment rife with layoffs and, quite rightly, don’t trust in their future job security.
But if a lack of trust and confidence put us into this recession, what really worries me is how we’re going to get out of it.
The massive bailouts in the U.S. haven’t moved mountains, so it’s clearly not just a matter of government intervention. And if Canadian institutional investors are becoming more risk-averse, building confidence here could be a long, drawn-out process.
Like healing old wounds, is it just a matter of time? Do we have to patiently wait out this recession or will there be some sort of catalyst? Just what will it take to turn this downturn around? When we’ll see an economic recovery, in Canada or in the U.S., is anyone’s guess—but I’m also interested in how it’s going to happen. If you have any thoughts, let me know. I’d like some good news for a change.
Alyssa Hodder is Editor of Benefits Canada.
alyssa.hodder@rci.rogers.com
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the April 2009 edition of BENEFITS CANADA magazine.