The newspapers recently have been very useful in reminding me of the major changes which occurred in 2011. I suspect that very few of us would have predicted that all of these changes would be compressed together into one year, for instance, the Arab Spring and the Eurozone crisis.
In my opinion dramatic changes will start to occur to improve the operation of the capital markets; it takes a good crisis to produce game changing solutions. Last October, I referred to an excellent paper, It’s the Economy, written by Andrew Tyrie, chairman of the Treasury Select Committee. Clearly this committee contains some interesting thinkers and one of Mr Tyrie's colleagues, Jesse Norman, has just published a pamphlet, Conservative Free Markets, and the Case for Real Capitalism, which can be accessed by clicking here.
Another couple of recent publications incorporating useful pointers for investors have been:
The press release, 2012 - time for the UK to 'power up' and begin rebalancing its economy, issued by CBI Director General, John Cridland, is accessible by clicking here.
John Mauldin's recent newsletter contained a link to a paper by Boston Consulting Group staff advising business leaders how to prepare for 2012 (and beyond). The paper provides useful input for investors as to what features to look for in companies in these difficult times, such as innovation and game changing business models.
The big structural changes which I believe will start to occur in the UK capital market are:
- The growth in funds managed by institutional investors will start shrinking. It was an appropriate structure in a pre-internet day and age, but has run its course due to:
i) The internet enabling private investors to organise themselves so as to appear to the City and companies like institutional investors, whilst the final investment decision is left in the hands of each individual investor rather than being made by an agent, e.g. an institutional fund manager.
ii) Institutions demonstrating that over the long term they are not effective owners. If they were, Jesse Norman would not have had occasion to write the pamphlet referred to above.
iii) Concentration of decision making runs counter to the principle of The Wisdom of Crowds.
iv) The costs of investing via institutions, including those which are not of the institutions' own making such as the costs associated with regulation, cannot be justified at…
