Challenges for Asset Managers During 2009

Marriott believes that there are three challenges facing asset managers during 2009.

The first relates to the increasingly tough economic climate in which we find ourselves, both globally and locally. Companies will be increasingly challenged not just to maintain earnings patterns but in some cases simply to survive. Already analysts have reduced their forecasts of company earnings for the year ahead, predicting in some cases a reduction in earnings in certain resource, long term insurance and banking stocks. This decline in earnings may result in the markets being depressed and asset managers will struggle to find certainty or reliability when making investment decisions.

Secondly, this lack of certainty has resulted in extreme volatility in markets and other economic indicators both abroad and at home. In Nov 2008, the ALSI dropped 18% in 16 days; it then climbed back up 29% during December and in January 2009 dropped 12%, perhaps indicating the level of uncertainty among investors. Offshore markets, particularly the Dow Jones Industrial and the EuroFirst100 have shown similar swings. The Rand has not been immune to this volatility also experiencing several swings up and down of around 10% during this period against the US Dollar. Hence the ability to plan investment strategies, forecast returns and lay out expectations to investors becomes demanding and in some cases, inadvisable.

Finally, it then becomes difficult for managers to restore confidence in the minds of investors. Confidence in a manager’s investment ability is a commodity that has dissipated as the global financial crisis has emerged and the poor returns of individuals’ pension funds and other retirement savings have been published. The parodying of the lifestyle excesses of investment bankers, particularly in the US, and the lack of public sympathy for top executives when certain investment companies collapsed shows the depth of this lack of confidence.

This confidence must be regained by asset managers in order for investors to trust their ability to manage their life savings. But the poor economic climate that may lie ahead and the uncertainties in the market, it will be very difficult for managers to sell their product during 2009. Regaining confidence is perhaps most difficult challenge to face managers during this year.

Marriott has risen to these challenges by restructuring their portfolios during 2008. Where possible, investments have been moved into money market instruments providing the stability needed by our retired investors. In our single asset class listed property and equity funds, portfolios have been exposed to those companies best equipped to withstand challenges to their earnings. We have decreased the exposure to financial and luxury retail stocks within our equity portfolios and have minimised the exposure within our listed property portfolios to retail rental streams. Offshore, we have maximised our holdings in mega cap stocks best suited to withstand the global crisis. As a result, our funds have performed well during the year in absolute terms and it is hoped that our investors will be as happy with returns during 2009.

This article has been written by Duggan Matthews (pictured 1) and Mike Ronald (pictured 2) of Marriott: The Income Specialists