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In the hot seat

It had not been an easy summer for the chairman of Betelgeuse Investment Funds. Turmoil in the credit markets and a particularly volatile period for shares had not helped demand for its products. Nor had it made life any easier for its managers, operating in conditions where share prices could swing violently in a single day.

If you thought the upsets might have persuaded investors to buy more cautious or absolute return funds, you would be wrong there, too. Most cautious managed funds had failed to make money during the difficult trading conditions while investors had become increasingly suspicious of funds using opaque techniques. It seemed that trust in some of the industry’s more esoteric products had been undermined by events.

Yet the health of the industry overall appeared robust. Optimism remained high that global prosperity would lead to greater demand for investment products all round the world, so developing a wider international reach was becoming a priority.

Evidence of globalisation was all around. Advertising posters on the street were put up by a French company, the garden furniture that had so little use this summer was probably made in China and electricity or gas supplies might be coming courtesy of a French or German concern. Compared with what had been achieved elsewhere, the fund management industry appeared relatively provincial.

True, American groups continued to dominate the global scene but the Europeans were fighting back. Yet in a business like this, where so much control lay in the hands of a small number of individuals capable of prima donna-ish behaviour, it was little wonder that the boutiques thrived.

The chairman mused over the nature of Betelgeuse as he looked at the assembled fund managers in their open-plan office. Was it a boutique or aspiring global player? Four years of benevolent market conditions had allowed him to build a useful business and the growth of alternative investment approaches had presented the opportunity to broaden significantly the range of funds he was able to offer. But the fact remained that compared with the giants like Fidelity or Barclays, he was a mere minnow. Not that size was everything in this business, he reflected.

Become too big and it could be difficult to hold on to your more idiosyncratic managers. Mind you, some of the big boys were quite capable of waving huge cheques under the noses of your high profile operators. Continuity was becoming difficult to sustain in the highly competitive market for retail investment funds.

At least he did not have the problems faced by some of his competitors with the potential losses they faced keeping their structured products afloat. Or did he? There was, after all, an offshore bond fund that might have exposure to repackaged mortgage-backed securities. There were also hedge funds in his armoury now. He needed to keep a closer eye on what his managers were up to, he decided.

Anyway, the interests of governments worldwide were synonymous with those of the fund management industry. Governments needed people to save more and if that saving was in the form of so-called risk capital allocated to equities, the economy should benefit. Perhaps Bernanke was not the soft touch that Greenspan had become but even he knew on which side his bread was buttered.

Turning back to his desk, he shuddered at the thought of all the regulatory information he needed to sift through. Included was a paper on the likely effects of the retail distribution review. Perhaps new distribution channels needed to be explored. Should they place more emphasis on platforms? Of one thing he was sure – nothing stands still in the retail investment world.

Brian Tora (brian.tora@centaur.co.uk) is principal of The Tora Partnership

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