Global Investing

from MacroScope:

The end of capitalism

Hard to imagine with financial markets still buoyant and newspapers full of tales of bonus greed, but there is still the possibility that captialism will end.  At least there is according to prestigious investment consultants Watson Wyatt in their latest study called "Extreme Risks".

The firm listed the demise of the system of private ownership as one of 15 threats to investors and the global economy that probably won't happen but which it reckons are worth worrying about anyway. The idea behind the report is that such things as climate change, the break up of the euro zone and war are always worth being included in an investment risk management process.

As for the future of capitalism:

In our view, the most likely scenario is moving along from one end of a spectrum where market is king (minimum regulation) towards the other end, where we could see more onerous regulations and government intervention in, and control of, the economy. The extreme risk, however, is the demise of the capitalist system and the end of the market as the primary means of resource allocation.

And the impact:

The economy would be likely to run a higher risk of failure and economic growth would be sluggish in the long run due to lower productivity.  Centrally controlled economies tend to be characterised by shortages, which are inherently inflationary. Private investment activities would collapse or even be terminated. The end of capitalism is simply the ultimate extreme risk. The economy is likely to be associated with extreme uncertainty and a large amount of wealth destruction during the transition period.

Watson Wyatt does try to give its free market clients some hope, suggesting that buying gold may be one way to hedge against the propect of capitalism's demise. But it admitted that in such a circumstance investors would probably be more concerned about the return of their investments rather that the return on them.

Top fund firms lose $16 trln in 2008

Watson Wyatt tells us the world’s largest fund managers lost $16 trillion of assets in 2008 as the worst of the global financial crisis took its toll on the top 500 global fund firms.  The fall in assets is the largest since Watson Wyatt’s research began in 1996 and doesn’t even include the dog days of early 2009 when no one knew quite when the flood would abate. 

Indeed, the survey to end-2008 is a wee bit limited, for all its completeness. A lot has changed in the asset management world since then.  Not least, the giant deal which brought BlackRock and Barclays Global Investors together to create the world’s largest money manager with assets of $2.8 trillion. Watson Wyatt’s survey ranks BGI as the world’s largest fund firm with $1.5 trillion.

Perhaps most pertinently though, the survey highlights in some detail an unprecented slump in passive assets during the year, shrinking by more than 25 percent to $4.5 trillion. Last in, first out it seems, as that has been followed by a 2009 marked by a swift and unapologetic return to the low fees of index investment after the shock of the credit crisis left active managers scratching their heads with the rest of us.