It’s life, Jim, but not as we know it…

Aficionados of the weird, will know that the above quotation comes not from the legendary original Star Trek TV series, but from a 1987 song entitled “Star Trekkin’”, whose lyrics can be somewhat insidious when listened to…”Boldly going forward, because we can’t find reverse…”

The phrase came to our mind as we surveyed the increasingly surreal economic and financial landscape being created by the actions of the world’s central banks- a landscape in which, by one count, roughly half of all debt originated in the developed western economies now has a negative yield, while asset managers are continuing to hoard cash because of their uncertainty about “what happens next”; and banks make plans to warehouse banknotes to avoid negative yields from maintaining their reserves at the central bank.

One can also see the impact of central bank policies in the continuing decline in the reported “run rate” net investment yields of the (re)insurance industry, as one can only harvest capital gains for so long; and reinvesting cash in equivalent assets inevitably generates a lower running yield.

In theory, central bank actions are intended to re-ignite Keynesian “animal spirits”; and cause both banks and (re)insurers to support productive investment. Yet, quite clearly that is not happening; as, with few exceptions, rates of GDP growth are below trend and total factor productivity languishes.

Investors are desperate for yield, but are faced with a diminishing supply of new securities issuance from traditional sources, while regulatory capital constraints paradoxically give CIOs pause for thought when deciding upon the allocation of capital on a rational risk/reward basis.

So what is an anxious CIO to do?

Well, he or she could do worse than talk to the Awbury Team. Apart from providing our range of clients with bespoke ways in which to manage and mitigate credit, economic and financial risks, and our partners with attractive, non-market-correlated returns on their capacity, we have developed a suite of products that can enhance both the efficient use of capital and risk-adjusted returns on and yields of investments. There are still attractively-priced assets “out there” for those with both the patience and the capacity to perform appropriate levels of due diligence, and to negotiate robust terms.

The somewhat lazy shorthand for this area tends to be “Alternative Investments”, which can induce a rolling of the eyes. In reality, in a world in which central bank policy has almost certainly created a series of “financial bubbles” just waiting to implode, and where too many now seem willing actually to pay to have their money “kept safe”, it is debatable what exactly is “alternative”. Surely it is worth spending some time looking beyond the “safety” of cash and “fixed income” to consider allocating at least part of an investment or, in fact, liability portfolio to opportunities beyond the obvious?

The Awbury Team


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