Tuesday 29th of July 2008

The scary thing about this Blog is that it shows my age! All this turmoil in the investment markets – with finance companies and mortgage trusts – reminds me of a major event that happened back in the early 1990s. Back then, investors on both sides of the Tasman, loved unlisted property trusts. Indeed it is where many firms made their name. This property sector imploded in spectacular fashion when investors suddenly lost confidence and demanded their money back. Then the key issue was that you had long-term illiquid assets, matched with investors who had short-term expectations and expectations that they could redeem their investment at will. What happened is that investors sought to cash up their funds and managers responded by freezing redemptions. To get the cash they would have had to sell assets at a discount. To me there is very little difference (or lots of similarities) between what happened then and what is happening now. The two factors at play are investor behaviour and a depressed property market. Something many people will have heard me say in recent months is that markets work in cycles. We have been through these parts of the cycle before. The good thing is that we know, particularly in investment markets, that we come out the other side. The stuff we are seeing now is not brought about by shonky schemes, or rubbish management. It’s brought about by changes in the market and investor sentiment. What companies like Hanover and these mortgage trusts are doing is the right thing. As long as the underlying assets are OK, people shouldn’t panic. Sure it is frustrating, but be patient.