Sub-prime scars run deep
The events surrounding the sub-prime crisis and the resultant tightening in liquidity are likely to have a more profound and longer impact on the psyche of US retail investors than previous similar events, according to the chief executive of the Dreyfus Corporation, Jonathan Baum.
As a result, investors and their financial planners may take longer than in the past to move out of cash and back into longer-term investments.
Baum told Money Management in New York that while investor attitudes had reflected the pace of past financial events, the current market conditions had given rise to a very different scenario.
“I think this is going to be a period of time that creates more of a lasting image on the psyche of the retail investor than some of the past periods we’ve had,” he said. “I think we have all become used to very quick financial events and you really have to go back to the 1973-74 period to have seen such a period of prolonged and deep economic activity.”
Baume said he believed US retail investors had become used to quick events but that those currently in play were likely to “stay burned in the psyche a lot longer”.
He said that the volatility in the market had created a different set of realities for people in his business but as a conservative manager of cash, Dreyfus had done very well.
“Dreyfus is a one of the largest managers of cash in the industry, so we’ve actually seen very strong flows of cash in short-term instruments due to our very conservative nature,” he said. “Obviously, that is a business that ebbs and flows and we expect that a lot of that cash will find its way back into longer-term assets.
“At Dreyfus, we really believe that people need to match their investment outlook to their lifestyle needs and the basic reasons why people invest with us really haven’t changed,” Baume said. “We think that the future for long-term assets will continue to be very, very strong; it will just take people a little longer to transition back into them.”
AUTHOR
Mike Taylor
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