September marked five years since the collapse of Lehman Brothers. A symptom rather than a cause of the global financial crisis, it came at a time when low interest rates collided with large amounts of unsustainable individual and corporate borrowing, low regulation and too much liquidity to create an ideal scenario for catastrophe. The past five years has not led to an overall recovery, but there has been progress and some sectors have shown marked improvement.
One of the consequences has been an increase in regulatory oversight and in the UK in particular, the Vickers Report has proposed to ringfence retail banking away from investment banking arms – proposals which have largely been accepted by the government.
Jessica Ground, fund manager in Schroders UK equities team identifies a shift in focus as a new generation of management, more committed to returning capital to shareholders than making acquisitions, has emerged.
More than anything, though, it seems as if the bank’s collapse was concrete evidence of the mantra ‘past performance is no indication of future performance’. While few could have predicted the huge downswing of the market directly following the collapse of Lehman Brothers, the outstanding performance of certain sectors also came as a surprise. Although unexpected global events may represent setbacks in investment, it is still a long-term venture.
Figures from the Association of Investment Companies (AIC) show that while the average investment company performance fell 14 per cent between 31 August 2008 and 31 August 2009, it is up 38 per cent over the past five years. Certainly, anyone brave enough to invest during the week following the collapse of Lehman Brothers will have experienced good returns between then and 2013. Staying invested is one of the key messages to take from the recovery period.
Annabel Brodie-Smith, communications director of the AIC, said: “If you stuck with it, if you held your nerve and rode out the rollercoaster of the six months post-Lehmans, you’ll have seen a very strong recovery. The lesson is to have a diversified portfolio and remember that whatever happens, equities are for the long term.”
Guy de Blonay, manager of the Jupiter Financial Opportunities fund, said banks are now largely “fit for purpose” but low interest rates worldwide remain a concern.
The overall picture following the collapse of Lehman Brothers is that in times of crisis, investors should be strongly urged to stick with solid investments for the long term and not get scared off by shorter-term troubles.
