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Investment view

The chairman of the curiously named Betelgeuse Investment Funds was not a happy person. His career as a mover and shaker in a dynamic growth industry was not progressing in the way he felt it should.

For a start, the industry in which he operated appeared to be on the decline. Not only had three years of the bear market savaged the funds under management for his group and for the majority of his competitors, severely reducing revenue-earning capability, the public no longer trusted the products on offer. Why, oh why, he thought, had he not become a lawyer as his father had suggested?

It was easy – too easy – to blame the current state of the market for the misfortunes surrounding him and his peers. Clearly, poor investment returns affected the psychology of investors but he knew this was not the whole story. Events had conspired to undermine confidence in savings and investment products.

In the US it had been accounting scandals that had wrought havoc in the minds of those who had trusted their savings to equities – that and the greed of a number of the senior executives involved. Over here, it was more the way in which the Government had trumpeted the failures in the savings market. Naming and shaming had become good sport. Small wonder that Joe Public felt disinclined to buy.

What would the future hold, he wondered? Final-salary schemes were becoming as rare as sightings of Lord Lucan. FTSE 100 companies had pension funding holes in their balance sheets that could sink a country. The only answer seemed to be for people to work longer. That would go down well in this industry, he thought, with most of the young Turks believing fund managers to be over the hill at 40. Not that many of them would be reaching that age in this career. The fund management industry had grown fat on the good years of the 1980s and 1990s. The times ahead would clearly be testing, with downsizing becoming the norm.

Could this be the end of capitalism as we know it? It did not feel as bad as it had in the early 1970s. Then, it was said that a balanced portfolio should include shotgun cartridges, gold coins and tins of baked beans – a demonstration of just how vulnerable investors felt. Society certainly seemed as though it was close to cracking then. He well remembered walking through the canyons of London in electricity blackouts, giving a threatening feel to the City in the dark. With the miners&#39 union challenging the authority of the Tory Government, a full-blown banking crisis and war in the Middle East, it was small wonder that the market was flat on its back.

Perhaps the strangest aspect of today&#39s investment world was that the greatest opportunity – the need to provide financial products to an ageing population – was also the greatest risk. Demographic pressures appeared to be dampening consumer demand in Japan and much of central Europe. A global recession could no longer be ruled out. At times like this it, was hard to find a positive message to deliver to staff and investors. How would his firm find prosperity in the future?

But there were reasons to be cheerful. The cult of the equity may have taken a beating but it was not down and out. In the end, the capitalist system needs risk takers if business ventures are to be financed. Returns may not go back to the heady levels of the final decades of the last Millennium, but they seem likely to remain superior to bonds and cash in the longer term. In any event, there is always an appetite for risk-averse products in this climate.

A thin smile crossed his lips as he reflected that we had to be much closer to the bottom of this bear market than to the top of the last bull market. Markets might prove testing in the months and years ahead but British financial services had always been at the forefront of innovation. Put on its mettle by falling markets and lower returns, he could see some clever ideas being generated as time went on. Relaxing back into his chair, the chairman felt that things could, indeed, be a whole lot worse. Time to look on the bright side and come up with those innovative products that people really wanted to buy.

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