This session examined the structural trends in the financial sector that have been either amplified or altered by the COVID crisis. It also examined whether post-COVID trends in the sector, such as the increased debt that has built up in the system, are likely to reinforce the lower for longer growth, inflation and interest rate regime or act as a catalyst for regime change. The speakers highlighted the most important waymarks for investors, including the intersection with post-crisis monetary and fiscal policy developments, offer thoughts on the likelihood of regime change and considered what that would mean for optimal capital allocation. The session also discussed the extent to which the financial sector’s resilience will be affected by physical and transition climate risk.
Click here to view Jeremy’s presentation slide[vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Thorsten%20Beck%20%22%2C%22job_role%22%3A%22Professor%20of%20banking%20and%20finance%2C%20Cass%20Business%20School%3B%20Professor%20of%20economics%2C%20Tilburg%20University%3B%20research%20fellow%20of%20the%20Centre%20for%20Economic%20Policy%20Research%20(United%20Kingdom)%22%2C%22content%22%3A%22Thorsten%20Beck%20is%20currently%20Professor%20of%20Banking%20and%20Finance%20at%20The%20Business%20School%20(formerly%20Cass)%20in%20London.%20He%20is%20also%20director%20of%20the%20Florence%20School%20of%20Banking%20and%20Finance%20and%20will%20take%20up%20a%20Chair%20of%20Financial%20Stability%20at%20the%20European%20University%20Institute%20in%20September%202021.%20He%20is%20a%20research%20fellow%20of%20the%20Centre%20for%20Economic%20Policy%20Research%20(CEPR)%20and%20the%20CESifo.%20He%20was%20Professor%20of%20Economics%20from%202008%20to%202014%20and%20the%20founding%20chair%20of%20the%20European%20Banking%20Center%20from%202008%20to%202013%20at%20Tilburg%20University.%5CnPreviously%20he%20worked%20in%20the%20research%20department%20of%20the%20World%20Bank%20from%201997%20to%202008%20and%2C%20over%20the%20past%2012%20years%2C%20has%20worked%20as%20consultant%20for%20%E2%80%93%20among%20others%20%E2%80%93%20the%20European%20Central%20Bank%2C%20the%20Bank%20of%20England%2C%20the%20BIS%2C%20the%20IMF%2C%20the%20Inter-American%20Development%20Bank%2C%20the%20Asian%20Development%20Bank%2C%20the%20European%20Commission%2C%20and%20the%20German%20Development%20Corporation.%20His%20research%2C%20academic%20publications%20and%20policy%20work%20have%20focused%20on%20two%20major%20questions%3A%20What%20is%20the%20relationship%20between%20finance%20and%20economic%20development%3F%20What%20policies%20are%20needed%20to%20build%20a%20sound%20and%20effective%20financial%20system%3F%5CnIn%20addition%20to%20numerous%20academic%20publications%20in%20leading%20economics%20and%20finance%20journals%2C%20he%20has%20co-authored%20several%20policy%20reports%20on%20access%20to%20finance%2C%20financial%20systems%20in%20Africa%20and%20cross-border%20banking%20and%20he%20has%20research%20and%20policy%20experience%20across%20a%20large%20number%20of%20countries%20across%20the%20world.%20In%20addition%20to%20presentation%20at%20numerous%20academic%20conferences%2C%20including%20several%20keynote%20addresses%2C%20he%20is%20invited%20regularly%20to%20policy%20panels%20across%20Europe.%5CnHe%20holds%20a%20PhD%20from%20the%20University%20of%20Virginia%20and%20an%20MA%20from%20the%20University%20of%20T%C3%BCbingen%20in%20Germany.%20He%20is%20also%20co-editor%20of%20the%20Journal%20of%20Banking%20and%20Finance%20and%20member%20of%20the%20Advisory%20Scientific%20Committee%20of%20the%20European%20Systemic%20Risk%20Board.%22%2C%22image%22%3A%2244355%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Fthorsten-beck-1b262712%2F%3ForiginalSubdomain%3Duk%22%7D%2C%7B%22name%22%3A%22Jeremy%20Lawson%20%22%2C%22job_role%22%3A%22Chief%20economist%2C%20Aberdeen%20Standard%20Investments%20(United%20Kingdom)%22%2C%22content%22%3A%22Jeremy%20Lawson%20has%20been%20a%20professional%20macroeconomist%20for%2020%20years%20and%20has%20held%20a%20range%20of%20senior%20positions%20in%20both%20the%20public%20and%20private%20sectors.%20He%20began%20his%20career%20at%20the%20Reserve%20Bank%20of%20Australia%2C%20where%20rose%20to%20the%20position%20of%20senior%20research%20economist.%20He%20then%20joined%20the%20OECD%20in%20Paris%2C%20where%20he%20worked%20extensively%20on%20European%20public%20policy%20and%20climate%20change%20issues%20and%20was%20the%20head%20of%20the%20Hungary%2FSlovenia%20desk.%20In%202010%20Lawson%20joined%20the%20Institute%20of%20International%20Economics%20as%20the%20deputy%20director%20of%20global%20macroeconomics%20before%20moving%20on%20to%20BNP%20Paribas%20as%20a%20senior%20US%20economist%2C%20specialising%20in%20Fed%20policy%2C%20as%20well%20as%20fiscal%20issues%20and%20inflation.%20Lawson%20was%20the%20chief%20economist%20of%20Standard%20Life%20Investments%20before%20becoming%20the%20head%20of%20the%20ASI%20Research%20Institute.%20The%20Institute%20was%20founded%20to%20oversee%20and%20promote%20sophisticated%20conjunctural%20and%20scenario%20analysis%2C%20as%20well%20as%20fundamental%20research%20at%20the%20intersection%20of%20economics%2C%20politics%2C%20policy%2C%20ESG%20issues%20and%20markets.%20Lawson%20holds%20an%20MSc%20in%20Public%20Financial%20Policy%20from%20the%20London%20School%20of%20Economics%20and%20took%20a%20sabbatical%20in%202007%20to%20advise%20the%20then%20Australian%20Opposition%20Leader%2C%20Kevin%20Rudd%20on%20economic%20and%20climate%20policy.%22%2C%22image%22%3A%2244356%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Fjeremy-lawson-7459b9b8%2F%3ForiginalSubdomain%3Duk%22%7D%5D” title=”Speakers” el_class=””][vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Amanda%20White%22%2C%22job_role%22%3A%22Director%20of%20institutional%20content%2C%20Conexus%20Financial%20(Australia)%22%2C%22content%22%3A%22White%20is%20responsible%20for%20the%20content%20across%20all%20Conexus%20Financial%E2%80%99s%20institutional%20media%20and%20events.%20She%20is%20responsible%20for%20directing%20the%20bi-annual%20Fiduciary%20Investors%20Symposium%20which%20challenges%20global%20investors%20on%20investment%20best%20practice%20and%20aims%20to%20place%20the%20responsibilities%20of%20investors%20in%20wider%20societal%2C%20and%20political%20contexts%2C%20as%20well%20as%20promote%20the%20long-term%20stability%20of%20markets%20and%20sustainable%20retirement%20incomes.%20She%20is%20the%20editor%20of%20conexust1f.flywheelstaging.com%2C%20the%20online%20news%20and%20analysis%20site%20for%20the%20world%E2%80%99s%20largest%20institutional%20investors.%20White%20has%20been%20an%20investment%20journalist%20for%20more%20than%2020%20years%20and%20has%20edited%20industry%20journals%20including%20Investment%20%26%20Technology%2C%20Investor%20Weekly%20and%20MasterFunds%20Quarterly.%20She%20was%20previously%20editorial%20director%20of%20InvestorInfo%20and%20has%20worked%20as%20a%20freelance%20journalist%20for%20the%20Australian%20Financial%20Review%2C%20CFO%2C%20Asset%20and%20Asia%20Asset%20Management.%20She%20has%20a%20Bachelor%20of%20Economics%20from%20Sydney%20University%20and%20a%20Master%20of%20Arts%20in%20Journalism%20from%20the%20University%20of%20Technology%2C%20Sydney.%20She%20was%20previously%20a%20columnist%20for%20the%20Canadian%20publication%2C%20Corporate%20Knights%2C%20which%20is%20distributed%20by%20the%20Globe%20and%20Mail%20and%20The%20Washington%20Post.%20White%20is%20currently%20a%20fellow%20in%20the%20Finance%20Leaders%20Fellowship%20at%20the%20Aspen%20Institute.%20The%20two-year%20program%20consists%20of%2022%20fellows%20and%20seeks%20to%20develop%20the%20next%20generation%20of%20responsible%2C%20community-spirited%20leaders%20in%20the%20global%20finance%20industry.%22%2C%22image%22%3A%2243061%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Famanda-white-101a7515%2F%3ForiginalSubdomain%3Dau%22%7D%5D” title=”Moderator” el_class=””][vc_empty_space height=”10px”]
Key takeaways
It is important that fiscal policy now rotates from support to long-term stimulus. Outside the US where large public investment plans are underway, there is a danger that policy mistakes of the past will be repeated.
Inflation will be subdued going forward, with European economies, Japan, Australia, Korea and China struggling to meet long-term inflation targets.
Although remote working in the services sector could push down prices, the pandemic has also pushed up pay levels amongst low skilled workers.
People are confident in the banking sector but while some firms can handle their debt levels, others may have to restructure, and others may not make it at all. Corporate insolvency laws vary across Europe with different levels of efficiency regarding restructuring
Although central banks have opened the door to changes in the payment systems, they are reluctant to cede control or decentralise finance because of concerns around financial stability.
Central banks are looking closely at digital assets and involved in their evolution to ward off disruption from the emergence of private digital currencies.
Any transition from a heavily banked system or signal of a changing dynamic will see investors re-evaluate how they value the banking sector.
Any transition is a complex exercise for central banks whereby they can’t halt the arrival of new technology but have to marshal its progress and ensure it doesn’t weaken financial stability.
The big difference between the vaccine rollouts and the scale of the stimulus measures across the world could result in a K-shaped global economic recovery, with much of the developed world booming but poorer countries continuing to struggle. However the
Panellists discuss the possible impact of corporate failures on European banks coming out of the pandemic, and note central banks juggling act around digital currencies; unable to halt their arrival but still having to marshall progress and ensure the technology doesn’t weaken financial stability. The session examined the structural trends in the financial sector that have been entire amplified or altered by the COVID crisis.
Bridgewater’s co-CIO Bob Prince explains the perils of MP3 and suggests investors need to think differently, shaping strategies around cash-flow yields - connecting equity cash flows to stable sources of spending in the economy.
Investors need to ensure they are accessing the new economy if they are to benefit from the growth story that drives emerging markets returns. Investors at the Fiduciary Investors Symposium talk about how they allocate to emerging markets.
One of the silver linings of the pandemic has been that location is not a restraint on investment when it comes to investing in venture capital with investors seeing venture opportunities springing up in all corners of the world.
The interruptions to work and the revolution of technological tools in 2020 have changed thee way investors assess funds managers. A discussion around due diligence in a lockdown environment finds that allocators have tended to stick with existing relationships through the pandemic making it difficult for managers approaching investors for the first time to form relationships and win mandates.
The sharp market falls triggered by the pandemic brought the longest recovery ever in modern finance to an abrupt end. But despite the turmoil unleashed by COVID, it has not wrung out the market excesses of the last 13-year cycle. It means another wave of corporate failures could appear on the horizon in a shorter timeframe than expected, and offer more opportunities for distressed debt investors, according to Victor Khosla founder of SVP Global.
Leave a Comment
You must be logged in to post a comment.
Login