Investment after Covid: is the worst yet to come?

On the face of it, the investment and savings industry has escaped relatively unscathed from the pandemic. Asset managers earn fees based on the value of funds under management; as the first lockdown loomed, global equity markets fell 30 per cent, but after governments and central banks worldwide responded with an unprecedented US$20trillion stimulus and vaccines were announced, the global index ended 2020 up 14 per cent. There were massive divergences between the ‘winners’ (such as technology stocks) and ‘losers’ (including airlines and bricks-and-mortar retail), but overall, it was an impressive recovery.

And a big initial concern – that the industry wouldn’t be able to make universal remote working actually work – quickly subsided, as we readily adapted to Zoom and Teams. In fact, remote working seemed to make us more productive, with less time wasted on commutes or travelling to meetings. The giant enforced working-from-home experiment proved that working from home can be both efficient and cost-effective.

Hopes have grown that the experience paves the way to more modern ways of working in what’s been a very traditional industry, shifting the basis of promotion and reward away from hours spent in the office to results achieved. This is good news for diverse talent, women and other under-represented groups whose ability and willingness to play office politics and spend endless hours being ‘present’ in the office are often less strong than their ability to perform. The opportunity to ‘build back more fairly’ remains one of the potential silver linings to the pandemic’s dark cloud.

Fading optimism

But it’s not quite that straightforward. I chair the Diversity Project, an initiative to create a more inclusive, more diverse and more equitable investment and savings industry. Each autumn, we hold a seminar; 2020’s was, of course, completely virtual – and bigger, with over 1,000 people signed up. I asked attendees whether they thought the pandemic created more of an opportunity to further diversity and inclusion in the industry or more of a threat. Seventy-two per cent felt it was more of an opportunity.

But as the pandemic wore on and lockdowns wore us down, that optimism faded. In February 2021, I asked the same question again at another webinar, this time specifically on gender issues. Now, the majority (56 per cent) felt it was more of a threat. Women working in asset management have – like women in other sectors – borne the brunt of home schooling, domestic duties and eldercare. Many tell me their aim is ‘survival’; career aspirations have taken a back seat. At the same time, despite good intentions, the promise of mentoring, work experience, apprenticeships and entry-level jobs for less privileged and ethnic minority students and graduates has been difficult to keep. Our 2020 ‘women returners’ programme – already overwhelmed with applicants – was cut in half.

This is just the tip of the iceberg in terms of the impact on people working or aspiring to work in the industry. Early in the first lockdown, the Diversity Project realised that many of our member firms were – understandably – prioritising operational resilience and the servicing of clients, so we staged a series of ‘Ask Me Anything’ sessions for their employees. These revealed the scale and severity of the impact of lockdown. Our most in-demand sessions have been on mental health, the issues affecting working families, and women. Questions are submitted in advance – usually anonymously – and answered by a panel of both experts and industry practitioners. This is a ‘stiff upper lip’ industry, but the revelations are heart-breaking. Lockdown has created anxieties about just about everything that matters to us – vulnerable elderly parents, young children falling behind at school, lonely friends and colleagues, victims of domestic abuse, withdrawn teenagers, anxious university students, and – increasingly – worries about job security. These are the concerns we hear about in every sector, every company, every family – fund management is no different. A financial firm that uses Rungway, a digital workplace advice platform enabling employees to seek help, was shocked to see ‘panic attack’ as the most frequent tag for questions.

And now, after a full year in what’s increasingly felt like captivity, with most people in the fund-management industry spending their entire days in the virtual world, the impact on our mental health has accumulated. Lockdown has taken a heavier toll on those living alone, those in cramped shared accommodation, and those just starting out in their careers. Many can’t wait to get back to the office. There are other, less obvious issues. Board meetings – an important oversight of management – have become more formulaic and less effective online. It’s impossible to ‘read the room’ or have those side alley conversations that might really get to the heart of an issue. The ‘raise the hand’ etiquette prevents naturally flowing debate. Relationships with colleagues that once seemed close now feel distant. There’s no immediate impact, but we are storing up potential problems ahead.

Dancing on a tightrope

Finally, and critically, caution is now setting in about the market outlook and business prospects. Equity markets defied 2020’s economic decline, but few practitioners are complacent. Stating the obvious, there is an awful lot of government debt to service. Sovereign debt ratios in developed countries are approaching an average 125 per cent, up from 84 per cent pre-Covid. In the US, President Biden’s ‘think big’ stimulus – 10 per cent of GDP – is expected to take that ratio to 135 per cent. Central banks have so far disguised the problem by soaking up debt issuance almost pound for pound, dollar for dollar: the Bank of England now owns nearly half the gilt market. The whole edifice is built on the premise that debt will remain cheap to service, that is, that bond yields will remain low; the ‘plan’ is to buy time, keep stimulating until sustainable growth is achieved and only then tighten our belts and get debt under control.

It may just work, but we are dancing on a tightrope. Excessive economic stimulus carries the risk of inflation – anathema to bond markets. Since last August, the ‘reflation trade’ has already caused the worst sell-off in US Treasuries in a century. Equity markets continue to cling to the greater hope of growth from the stimulus, but at a certain, indeterminable level of bond yields, the fear of an unsustainable debt mountain would dominate. The investment community is hunkering down, cutting costs (ie, making redundancies) and watching those rising bond yields nervously. Lockdown has wrought damage on many businesses and people’s finances. Sadly, the worst may yet be to come.

Baroness Morrissey DBE

Financier, author, wife, mother of nine, Conservative peer

Helena has over three decades’ experience in financial services, including 15 years as CEO of Newton Investment Management, during which time AUM grew from £20bn to £50bn. She is lead NED at the Foreign, Commonwealth and Development Office and on the board of Green Park, an executive search firm specialising in diverse appointments. In July Helena will become Chair-designate at AJ Bell, the FTSE250 firm.

Helena is well known for her work on inclusion and diversity. In 2010, she founded the 30% Club, a campaign for better gender-balanced boards. Since then, the representation of women on FTSE350 boards has risen from less than 10% to over 30%.  There are now seventeen 30% Clubs throughout the world. Helena chairs the Diversity Project, aimed at improving diversity across all dimensions in the investment industry.

Helena entered the House of Lords in September 2020 and was appointed a Dame in 2017. Her first book, A Good Time to be a Girl, was described by Forbes magazine as one of the five most empowering books for women in 2018. She posts daily career dressing advice on Instagram.

Helena is married with nine children.

Follow Helena on Twitter at: @MorrisseyHelena