Measures to slow the spread of coronaviruses will test the finances of individuals and businesses in the coming months.
The wealth management industry will face its own test. This is a practical test of how we can support otherwise healthy and viable companies. It’s also a philosophical test of whether we’re real long-term investors.
As managers of savings, investment managers have the task of allocating capital to companies with long-term, sustainable business models.
But even the most forward-looking companies face unprecedented short-term shocks. For some, it will threaten their survival.
How do we behave
One thing is clear. There are many, many great companies that have added value to shareholders ahead of this crisis. For the future prosperity of the savers we serve, it is imperative that these companies are not lost to the extraordinary events that surround us.
Fund managers can help. As an industry, we should have honest and open conversations with management teams about the problems they face. We should work together to find inventive solutions.
I encourage companies to speak to us. Our portfolio managers were asked to open these critical discussions with companies to identify the most pressing challenges. We will speak from individual to individual to solve them. I have no doubt that some of these solutions will be very creative. They are only achieved with this kind of human interaction.
In contrast, the shortcomings of mechanized trading, better known as passive trading, will come to the fore. The answers are not conjured up by algorithmic investment management on normal market terms.
Of course, fund managers cannot solve this on their own. We have to work with governments, other shareholders and banks. We can help raise capital for companies, but this only works if both the government and lenders are involved. Like us, they must use imaginative thinking.
There is a lot at stake. The livelihood of millions of people will be affected by how we behave in the coming months.
It is our job to reject short-term opportunists who want to benefit from price constraints. Companies with strong long-term prospects should be supported.
However, this support cannot necessarily be offered.
First, all support measures must be carefully targeted. As representatives of asset owners, it is our job to ensure, for example, that well-intentioned help safeguards the future of employees, not managers.
Supported companies must demonstrate the strength of their social contract with stakeholders. When investors show flexibility, company executives should do the same if they treat employees, suppliers, and customers alike. We will take a close look and be actively involved if necessary.
Second, we are responsible for delivering long-term returns to savers. This is not achieved by handing over capital to companies that have not addressed fundamental weaknesses in their models. This rule must never change.
Everyone involved will inevitably experience pain. Investors have already suffered a sharp drop in the value of equity investments. It is inevitable that many companies will have to suspend dividend payments – maybe even those that have already been declared.
Despite the intensity of events in the here and now, this is the time for long-term thinking. Schroders has survived many market crises in its 216-year history by following this philosophy.
Today we are responsible for supporting the industry and not being affected by short-term turbulence. Longevity has to win.
Peter Harrison is the managing director of Schroders, the FTSE 100 Fund Management Group