The market continued to be eviscerated on Monday with the S&P/TSX composite index falling 573 points, while the Dow Jones dropped 370 points. At this point, it’s hard to say who the sellers are — is it the frightened North American public or institutional investors who have a lot to lose? Maybe it’s both.
Stephen Jarislowsky, chairman of investment counselling firm Jarislowsky Fraser, says he’s doing “very little” buying and is instead selling assets for the cash. “I want to have enough money to last a few years without having to sell stocks as they go lower,” the Montreal-based billionaire explains. “We want to make sure nobody panics or has to sell at bad moments.”
Jarislowsky, who manages investments for funds, endowments and corporations, along with a number of private accounts, says there are a “tremendous” number of buying opportunities, but there are still “enormous dangers” stopping him from scooping up cheaper stocks.
“There are a lot of hedge funds going broke, an enormous amount of pension funds with inadequate reserves, all kinds of leveraged buyout funds are in dire straits, mutual funds are in massive redemptions. Why would I be stupid enough to help them?” he asks. “I don’t believe in standing in front of a big Mack truck that’s driving.”
It’s hard to determine if other institutional money managers are selling as Jarislowsky is, but Sadiq Adatia, CIO of Russell Investments, doesn’t think many are. He says institutional investors think more long term than the average Canadian, and if that’s the case, they’re still in the market.
“Most of these institutions are tied to liabilities, so they’re not really taking on the risk just on the asset-only side of things,” says Adatia. “Even if markets do have extreme periods, they try to match it off with liabilities. For them, everything is matching, so they can take on a longer-term perspective — about four or five years.”
He blames the market drops on “nervousness across the board.” The market sentiment has been negative, he explains, and that’s caused everyone to sell, though retail investors are abandoning ship more quickly than institutional investors.
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However, it’s possible that institutions are engaged in asset–liability studies, which could cause them to reassess risk and sell off the more volatile investments. Adatia says when an asset–liability study takes place, managers often ask clients if they are comfortable with the risk they are taking on.
“A lot of times, people take mismatched risks toward equities,” he explains. “People take on equity risk if their own corporations are doing well because they have the funds to pay should they have to put money in for funding costs. When the whole economy is slowing down and corporations aren’t as strong, financial flexibility for extra funding costs may not be there, so people won’t want to take on the equity risk.”
No matter who is pulling out of the market, it’s unlikely the bleeding will stop soon. Jarislowsky says this financial crisis is the worst in modern history, and people are fearful of what will happen next.
“Everybody is scared,” he says. “And they’re saying, ‘Sell me out, I can’t stand this.’ I don’t think anyone alive has seen anything like this, even those who were there in the ’30s.”
He does say that the markets will turn around at some point, maybe in five years, and investors will start making money again, especially if they buy at the bottom and stay diversified. But can clients weather the storm until then?
“I have to get through the years where the stock market is collapsing before the cash value collapses,” he says, adding “life isn’t exactly easy.”
 | Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com |