Charlie Porter, CEO
Thames River Capital
Is the crisis unfolding worse or better than expected?
Quantitative easing has been the latest and most effective tool to bring rates down, therefore easing monetary conditions. This feeds through to the economy via lower mortgage rates allowing increased consumption and lower corporate lending rates, allowing companies to either refinance at lower rates or to borrow money cheaply. Both help the economy.
The banks have either borrowed funds from governments, such as TARP, or from capital markets. In either case they have recapitalised and we do not now expect any major failures. Profitability in 2009 looks assured for the stronger banks.
Economic data is still horrid, but markets believe it signals a trough in the US and that, as it is the largest economy in the world and went into recession first, it will lead us all out. This is a brave belief. Valuations look stretched across equity markets and suggest we are cautious, expecting some retracement from here and maybe a rally later in the year as data really does improve. I prefer emerging markets where there is real growth and I worry about Europe where the data is still likely to deteriorate.
How do you view regulatory developments so far and how would you like to see regulations change?
The banking and hedge fund industry has been made a scapegoat by governments and much of the media over the financial crisis and credit crunch, the root cause of which most commentators ascribe to Western governments' policies of providing excessive cheap credit over many years.
The aim is to deflect criticism of government, hence the regulatory initiatives are highly political and fiercely supported by the Socialists in Europe who have no significant alternative investment industry and who are highly protectionist by nature. As a result of these drivers, the initiatives are based largely on prejudice and perception and are not supported by empirical data.
Is there more scope for M&A?
Over the past 20 years, we have spoken of significant consolidation on three or four occasions but the market has generally saved many companies which might have been consolidated. I think that, at the bulge-bracket end of the industry, we might see some change as banks and insurers re-assess their appetite or commitment to asset management.
At the smaller end, it is undoubtedly far more difficult and costly to set up a boutique now and some of the smaller ones who lack brand, distribution and diversification may get swallowed up.
The middle ground and those suffering from an identify crisis is always where you would expect consolidation to occur and whilst some of those guys were approaching capitulation, the market rally since March may well help to change their minds.
The convergence play is for real with traditional firms establishing hedge funds on glider wheels though Ucits III and some hedge fund firms starting to look at the retail space, which was previously the preserve of traditional firms.
©2009 funds europe