Seven years into the financial cycle, the memory of the impact and subsequent financial dislocation of the global financial crisis is for many all too clear. Ill-discipline led to overuse of debt, misalignment of strategies and a risky approach that contributed to the eventual global crash.
However, despite increased regulation and enforced transparency, many fear that we may be slipping back into our old ways. In an increasingly competitive environment, investors are facing pressure to enter the market at all costs, making it difficult to buy prime assets at a “sensible” value. For fund managers, the dual pressures to invest available equity to keep clients happy and increase their assets under management can lead them to buy assets that they shouldn’t.
During the last cycle, misalignment was a major issue — fund managers or acquisition professionals were not aligned to strategy and future performance, but to quantity of deals. Much of this intrinsic misalignment has been eradicated from the industry, but not all, and there is a concern that as the cycle evolves at least some of this indiscipline could return with a vengeance.
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