Australia’s “wall of money” towers over traditional yield managers
A $70 billion flood of post-GFC cash into bank term deposits in 2008-9 – termed the ‘wall of money” has cast a long shadow over traditional fixed income, mortgage and cash fund providers, challenging the managed investments industry to adapt to new rules of yield investing.
This is the view of leading wealth management strategy and product specialists Tria Investment Partners (Tria), which today released a research report investigating the trends in yield investments.
[to download the full Dimensions Wall of Money report, click here: Report: Wall of Money]
Tria said traditional yield managers face an uncertain future, and that a range of expected measures would include these players: Updating existing product lines Manufacturing new and innovative product solutions Closing down illiquid products caught short by the recent financial crisis.
Tria partner Andrew Baker says the so-called flight to safety and subsequent “wall of money” phenomenon is no urban myth.
“It exists. Our estimates suggest some $70 billion in additional new cash was stockpiled in bank term deposits at the height of the GFC. This is cash that might otherwise have been invested in traditional yield investments such as mortgage trusts, income funds, and the like,” he said.
“The question is: ‘will the wall crack and release cash back to the managed investments industry, and if so, when might this occur?’” Mr Baker said.
The good news for the asset management industry is that the flow of new money into term deposits has eased, despite the rollover rate for existing funds being maintained.
“This suggests some relief in sight with cash being released. But, the next catch for the industry is to devise new means to capture service and retain these funds with products that heed the lessons of immediate history.
In other words, players in the managed mortgage, cash and fixed income fund space must re-cast their strategies to take advantage of new opportunities for second generation yield investments, he said.
