City & Corporate: Investment funds need to educate

Bernie Madoff and Sir Allen Stanford, whatever else they may have done, have delivered a massive blow to the reputation of the global asset management industry. Add to that the diminished returns posted by legitimate funds, and you have kicked away the props of investor confidence.

Essentially, belief in financial service brands has collapsed. In the past, the building blocks of these brands were trust and delivery. In a world of Madoffs and Stanfords, trust has disappeared and the track record looks distinctly potholed.

The good news is all of this leaves space for new financial service brands. This next generation of brands, however, will need to be like Caesar's wife - beyond suspicion. It is no longer good enough for investment managers to say 'trust us'. To regain investors' confidence, they will need to explain why they should be trusted.

The key to refounding brands is education. These days, investors are spooked. They need to regain confidence in funds. There is an increased demand for real information - readership of both The Economist and Financial Times has increased - which suggests the desire to be educated about investment is there.

Investors need to understand the different fund strategies and the range of risk - from one end of the risk continuum's lower return funds that protect capital above all else, to the other end's higher volatility funds that take higher risks. Above all, the new brands should emphasise risk adjusted returns. One of the failings of investment products in the past was that they sold returns, not risk, which led to some very unhappy investors when the markets went south.

There is growing anecdotal evidence that investors believe beta should be fairly cheap, but alpha should be paid for. Among those who know how to invest, there is an understanding beta is fairly simple and alpha is considerably more complex.

Now is the time to educate the market. Investment funds need to explain to investors, journalists and the public how to invest in a sophisticated way. Specialist financial PR has a central role in this effort.

Anthony Payne is founding partner of Peregrine Communications

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