Credit crisis: 'We're still going down'

Published on Saturday 31 May 2008 14:33

ONE of Scotland's top fund managers has warned the credit crunch is far from over and even darker news for the economy could be on the horizon.

According to Katherine Garrett-Cox, chief investment officer at Alliance Trust, the Dundee-based investment trust, the sub-prime crisis may only be the tip of the iceberg.

Of the "massive" $1.1 trillion that has already been written off during the credit crunch, Garrett-Cox pointed out that only $250m is related to sub-prime. About 40% of that is held by banks, with the majority as yet unaccounted for.

She said: "It feels more is to play out. Our financial analyst was in the United States last week at a conference and he said financial companies over there are unbelievably gloomy and they haven't seen any signs of an upturn. If you look at the US housing data, it's very grim. It feels like we're still going down."

Because of the doom and gloom, Garrett-Cox is sceptical about Alliance Trust investing in financial stocks and is putting money into resources and mining stocks instead.

Speaking to Scotland on Sunday in advance of giving a keynote speech to a hedge fund forum being held in Edinburgh on Tuesday by Thomson Reuters, Garrett-Cox – known as Katherine the Great because of her achievements in the City – says the unsettled economy makes it even more vital for fund managers to find new places to invest.

These include hedge funds, emerging markets and anything related to global warming. To cash in on emerging markets, Alliance Trust will this week announce the appointment of someone to spearhead its move into such territories as Latin America, the Middle East, Russia and Eastern Europe.

Garrett-Cox would not reveal the name of the new recruit but said he is joining from a "well-respected" Edinburgh investment house.

Until now, Alliance Trust has only targeted Asian developing markets out of its Hong Kong office.

Garrett-Cox said: "The growth in emerging markets is likely to continue. They need the resources they don't have, such as metals and oils, and have to get them from somewhere."

At the Edinburgh forum, Garrett-Cox will also warn fund managers to be aware of the risks involved with alternative investment strategies.

She said: "Some thought that investing in hedge funds was a one-way ticket to good performance. What's come through in spades in the credit crunch is that isn't so.

"In the more difficult, volatile markets we've been experiencing for the last 18 months it has become clear that if you're on the wrong side of a certain trade it can wipe you out. You need to be very mindful of the risk in any portfolio.

"The fact that a lot of models broke down last summer was very concerning for those running the money and for investors."

She said fund managers must identify assets that will deliver good performance as they are being demanded by a new group of investors, including Russian billionaires and members of the ageing population with money to invest.