Risk-taking returning to normal after decade of excess

Seven Investment Management chief executive Tom Sheridan says that attitude to investment risk has now returned to normal after a decade of excessive risk-taking.

He said: “You could argue that attitude to risk in the years of boom was the aberration and we have come back down to earth again with a thud. Historically, we are just returning to what is normal.

“When I grew up, it was normal to look at credit risk and liquidity risk, not just market risk. I think what has happened is that the period we saw over the last decade of excessive risk-taking was the aberration.”

SimplyBiz chairman Ken Davy said: “The last few years have been the aberration and therefore the importance of spreading your risk and having the appropriate asset allocation has increased.”

Taxbriefs editorial director Danby Bloch said the collapse of Lehman Brothers has brought counterparty risk to the fore- front of people’s minds.

He said: “People now talk about counterparty risk in a way that was probably not familiar to them a year or two ago. The game changed very dramatically when Lehmans was allowed to go under.” Bluefin group director of research and product development David Cartwright said: “We have got not only market risk with us now but we have also discovered institutional risk, particularly in the advisory market.”

The panel also highlighted the importance of international diversification within portfolios.

Bloch said: “I would have thought that just using the UK as your base of operation is in some respects a high-risk approach. Betting the farm and a whole lot more on the UK economy is something that one needs to avoid in entirety.”

Sheridan said: “There will be more international diversification but it needs to be cognisant of the level of risk and the portfolio needs to have the ability to hedge that risk when it is desired.”

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