My first thought is that, of all the names it was given, “credit crunch” really does not convey the magnitude of what happened in the autumn of 2008.
My second is: has it really been ten years? I know the clock ticks louder the older we get but didn’t expect to see the hands whirring round like something from a film.
The collapse of Lehman Brothers is generally accepted as the catalyst to the market meltdown that followed. Twelve trillion dollars were wiped off US exchanges and home values. Here, it cost an estimated £500bn to prop up the economy.
Numbers so large they’re almost meaningless. Economically, politically and socially, the fall-out continues. I’ve sketched out ten thoughts ten years on.
1.‘New normal’ was the phrase coined for how markets operated post-Lehman. Characterised by rock-bottom, almost static, short-term interest rates, dormant inflation and a lack of corporate enthusiasm to invest. QE, introduced in December 2008 in the US and in March 2009 here, has continued for almost this whole period. Good news for mortgage-holders but challenging over the long-term, pensions horizon. Managing this impact properly remains a critical investment priority as central bank balance sheets begin to unwind.
2. Signs of economies stirring should not distract from the fact that, even in the midst of these doldrums, hedging is still necessary – and remains that way. Pension funds benefit from some form of tailored hedging, especially if all appears to be calm. If you’re scanning the horizon, make sure you’re prepared for all weathers.
3. Trustees turning more professional. This is a more important role than ever but at a time when the responsibilities become ever more complex. The growth of the independent trustee market is a response to this growing burden. Member-nominated and sponsor-appointed trustees should see this development as positive as it fills any potential gap in their knowledge with experienced, pragmatic counsel (if not, it should).
4. The demand for professional trustees also throws into sharp relief my fourth observation. Crash or no crash, technology continues to multiply to make financial services cheaper, more accessible and democratic, further closing the “savings gap”. More people can now save however much they like or afford. Our group has been active in this sector but we always think through: how can several decades of collective actuarial and investment experience guide any such venture?
We’ve found that by applying what we know to the areas and specialisms where we’ve established our business, we can identify new ways for our clients, colleagues and commercial propositions to flourish. We marry know-how with the new.
5. The changes wrought over the last decade continue to re-shape our industry. Punter Southall Group continues to evolve – and build – on its established markets in a way few would have foreseen even a few years ago. While we retain a firm footing in actuarial and investment markets, we also strive to explore and adapt to new approaches in related markets to offer an improved service and create better value. This will be mirrored across the wider financial services industry.
6. Populism and protectionism are just two of the unfortunate consequences of the crash. When the mountains of debt were being formed, the tectonic ripple caused by the weight of rescue funds required found animation – and expression – in the politics of simplistic appeal and a human desire to be insulated from further shocks. America and China are steadily moving deeper into a trade war. The concerted, international co-operation which steered the world economy away from collapse in 2008 would, I think, be hard to find today in a globe shadowed by the rise of nationalism.
7. Brexit represents a further shock. As outlined in my previous blog, it masks the deeper, structural savings issues challenging the UK and other modern economies. Regardless of where you stand on this, leaving a market and international union after nearly 40 years will be a shock. Should we anticipate feeling the effects of Brexit, if we leave, in the coming years as we did the consequence of the credit crunch? It would be unwise not to be prepared.
8. When Stuart and I formed Punter Southall Group, we knew we could offer a more tailored, finely tuned service to clients who had different needs. Part of our business planning was negotiating an overdraft with our bank. The manager with whom we shook hands on the agreement was taken ill that same day – and never returned to work. The bank stood by us, with only our word for it. As it turned out, we never had to touch a penny. Trust has always been a central part of our proposition. Thirty years on, it’s as important as ever.
9. It’s our belief that there is always a solution to deliver a better service or create more value. The late ‘80s were not universally prosperous times but opportunity was there to be seized for the benefit of clients. We have continued to do so and the coming decade will be no different.
10.What the next ten years holds? Material for another blog, I think.