Conference in Barcelona
Fund managers meeting in Barcelona this week are facing up to a bleak outlook as markets stay volatile and inflows dry up, but one or two are seeing some opportunities as asset prices tumble.
"It's not a happy time," James Suglia, chairman of KPMG's global alternatives advisory committee, told Reuters. "The mood is relatively down."
The conference comes as investors continue to shy away from many mutual funds as the credit crisis, which began last summer, rumbles on.
Data this week from the Investment Management Association shows net retail sales of British-registered mutual funds slumped to 653.3 million pounds in May, compared with 1.1 billion pounds a year ago.
UK tax-advantaged Individual Savings Accounts (ISAs) saw their worst sales on record in the traditionally busy ISA season earlier this year.
"We (the asset management industry) are not seeing any desire for people to come back into mutual funds as yet. There is still real fear within the retail investor," said Aberdeen Asset Management Chief Executive Martin Gilbert.
While some fund executives, such as Aberdeen's Gilbert, believe the credit crisis is almost over, few see a swift return to the good times, with most expecting problems to continue for some time.
"I think it's going to be a very long and drawn out affair," said Andrew Fleming, managing director and chief investment officer of Aegon Asset Management UK.
I don't think it's so much the severity of it, I think it's the length of it. That will erode people's confidence in financial services … and asset management will be tarnished with that."
Jupiter Joint Chief Executive Officer Edward Bonham Carter, meanwhile, expects an extended period of asset price declines. Price falls are already hitting areas such as real estate which had been hugely popular with retail investors in recent years.
"We have a reasonably long period of contraction in asset prices relative to incomes to work out and so you have to deflate the asset prices before you can then start again," he said.
OPPORTUNITIES
However, some opportunities are starting to emerge as prices tumble.
"I think you can see some areas where, at the very least, one should be starting to feed some money in," said Invesco Perpetual Chief Executive and Chief Investment Officer Bob Yerbury.
"China is down 50 percent from last October. I'm not saying 'buy now with everything you have', but it seems to me it is no longer expensive in relation to other markets. On a ten-year view, for example, that still looks pretty good to me."
Battered subprime mortgage-related instruments whose value has collapsed also look good value to some investors relative to expected default rates.
"We are already seeing in certain areas which were the first ones to be hit quite interesting opportunities," said Gianluigi Costanzo, chief executive of Generali Investments.
"Even in some areas of the subprime market we can see values that are discounting such a disaster as has never happened in the whole of history."
The problem is that while some valuations may look attractive, investors are wary of further price falls in areas where institutions are deleveraging.
Meanwhile some buyers, for instance hedge funds that have had to cut back borrowing because of pressure from prime brokers, are simply unable to take full advantage.
"There are good opportunities in some debt markets," said KPMG's Suglia. "But there are many instances where there may be market opportunities but the players can't take advantage of it because of (lack of) leverage."
