Jean-Pierre Grimaud discusses the importance of stability for the investment industry
For several months, the Association Française des Investisseurs Institutionels (Af2i) has been taking part in a fundamental debate on the notion of long-term investors. This thematic debate is the outcome of the lessons learned by our Association from the banking and financial crisis of 2007.
Many observations have been made from various quarters and many initiatives are currently in progress. However, it seems to us that several basic lessons have still not been learned from this difficult period, quite the contrary in fact.
This crisis is above all a debt crisis, and debt has not diminished. Instead, it has simply been transferred from the private sector (in particular the banking sector) to the public sector (state debts).
Following the implementation of the Markets in Financial Instruments Directive (MiFID), the restructuring of the markets has been amplified, in particular in the bond market, which felt the full force of the collapse of liquidity during the monetary crisis of 2007-09, ceasing to operate for several months, compounded by the increased opacity of the equity markets. This opacity calls into question the very existence of a financial market.
The procyclical effect of financial regulation, whether in banking or insurance, in combination with accounting standards (such as IFRS) and the fragmenting impact of ratings have only succeeded in further contracting the horizons of investor placements.
We wish to reaffirm a certain number of points that we consider vital to the current debates. These points are all based on the idea that finance can only be at the service of economic development.
Af2i is convinced that only organised, structured and transparent financial markets efficiently serve the economy. It is necessary that all players in the financial markets be governed by a level playing field in competition regulation.
In addition, we wish to see the bond market return to a more structured and organised form of operation. In this respect, Af2i supports the development of centralised negotiating platforms subject to transparency and the public disclosure of prices and transaction volumes. We also support the initiatives designed to reintegrate the information relating to certain types of over the counter (OTC) transactions into the available information concerning the organised markets attached to regulated compensation chambers.
The other significant vector is to restore long-term investment capacity. Our mapping of French investors (pension funds, insurance companies, mutual funds, others) in our 2010 survey revealed that the entire community is witnessing a contraction of its investment horizon. On the other hand, everybody knows that certain types of investment by nature are designed for the long term (non-quoted shares, real estate, quoted shares, infrastructure and some types of credit).
For good management of the asset/liability balance, it is therefore necessary to have the facility to maintain long-term liabilities. Our proposals aim towards this goal.
Will this be sufficient to stabilise the financial markets?
Without doubt the answer is no, but it seems to us a necessary precondition to enable investors to play a countercyclical role.
Af2i will continue to play an active part in these debates, because it is our responsibility as professional investors to highlight the conditions that enable the savings entrusted to us to be used for the medium and long term financing of the economy.
Jean-Pierre Grimaud is president, Af2i, and investment manager, SwissLife France