Author: Joanne Frearson
Covid-19 has caused extreme volatility in the markets and if this lasts for a long period of time companies might find it difficult to raise capital and have lower revenues.
However, if investors are objective as possible, are not swayed by their own behavioural biases and think long-term there are still opportunities in the market.
Covid-19's impact on the economics of investment management
Daniel Murray, CFA, Deputy Chief Investment Officer and Head of Research at EFG Bank, says: “In the short term there has been a very sharp and sudden shock to the markets and because our revenues are proportionate to the assets we manage that in turn will have an impact on the revenues for some businesses.
“We do not yet know how persistent the impact of the crisis will be. We don’t yet know for how long revenues will be lower, but obviously there will be a risk that revenues will be impacted for a prolonged period of time, in which case might be challenging for some businesses.”
Murray expects an increase in defaults especially in the areas of high-yield debt and leverage loans and believes until volatility has declined it could be difficult for the industry to raise assets.
The need for professionalism and behavioural challenges
He also advises professionals to think on the long term when it comes to investment decisions in these volatile market conditions. He says: “It pays to try and be as objective as possible and unemotional without getting caught up in the behavioural traps that we have all become more familiar with in recent years.
“This is tough to do because behavioural biases are so strong and so inherent and are part of being human. They are very difficult to avoid, but nonetheless it is helpful to try and look through and be objective and think about where are you going to be in say 12 or 24 months time?”
Although Murray feels the short-term vision through these difficult times is much more limited than normal, there are still good angles to take for the long term.
The impact of the crisis on CFA UK
Murray who is also chair of the CFA UK Board sees it as a challenging time for the Society.
“We have to be more creative and think about ways we can support our members during these really unusual conditions,” says Murray. “It is important to stay in contact with all our members and that is of course more difficult when we can’t run events and we can’t meet our members face-to-face.”
CFA UK continues to look at its digital strategy to improve support to its members and has been thinking more carefully about how to provide IMC and ESG exams and other resources in a virtual environment. Even though the situation is tough, Murray believes it is also a great opportunity.
To find out more about these issues, here are the key areas to watch [timestamp in brackets]:
Covid's impact on the economics of investment management [0:00-2:30]
The need for professionalism and behavioural challenges [2:30-5.00]
The impact of the crisis on CFA UK [5:00-6.45]
This video was recorded over Zoom on Friday 17th April.