XxX | Feature Contents Editorial
MIND GAMES
In the late 1990s there were two types of company: those who built their business around the new and exciting innovation called the world wide web, and those who didn’t. The internet, as it is now known, was revolutionising how goods and services were sold by giving businesses access to more consumers through their
dot.com address.
Investors fell over themselves to back such businesses and their valuations jumped accordingly. Yet the fundamentals were not great. Indeed, many of the businesses established to benefit from the sales power of the internet were carrying huge losses. It didn’t matter, because this was the future and investors wanted to get in early before someone else did. A bubble had formed, and, like all bubbles, it burst. It happened in March 2000 after several internet companies went bust, including
Pets.com, Webvan and
Boo.com. Within weeks of the crash, Nasdaq had lost 40% of its value. The high valuations of businesses that were in reality worth very little were driven by the fears and biases of investors who it appears were acting irrationally. This is not the first such bubble that has been created by a herd mentality. The value of tulip bulbs exceeding average monthly salaries in the Netherlands back in the 1630s is an example that sticks in the mind. Other bubbles will form and burst unless more and more investors understand the importance of psychology when making decisions. Our cover story this month looks at the issue from page 18.
Also in this edition, we examine the importance of liquidity in portfolios and ask how investors could be impacted by rising inflation and the withdrawal of monetary stimu- lus. Our coverage starts on page 22. We also look at another form of inflation hitting investors: greenflation. The rapid adoption of green strategies has created a supply-demand imbalance which is, of course, increasing the cost of decarbonising the planet. Read what is happening from page 32.
Elsewhere, liability-driven investing (LDI) is a tool that many institutional investors employ to hedge against interest rate and inflation risks. Now that both of those factors are changing, are such strategies fit for purpose? We take a look from page 46. We also review a webinar we hosted with four industry insiders to discuss the key themes within the diversity debate. Our extended coverage starts on page 40. Finally, we speak with Emma Matthews about how, as the newly appointed head of investment at NOW: Pensions, she is shaping portfolios. Read what she has to say about limiting choice and taxi drivers from page 14. We hope you enjoy the issue.
Mark Dunne Editor
m.dunne@portfolio-institutional.co.uk Issue 115 | July–August 2022 | portfolio institutional | 3
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