Responsible Investor: 90% of institutional investors say moral hazard has got worse in financial markets in unique survey.
More than 90% of institutional investors questioned in a unique survey of market participants believe financial markets are now threatened by increased ‘moral hazard’ – the belief that banks and other investors will take excessive risks based on implicit government guarantees – following the credit crisis bailouts than they did before it, and that fixing this must be a priority to ensure the sustainable functioning of markets. However, just under a third of these same investors (28%) are pessimistic that the right lessons from the crisis have been learnt to avoid future market blowouts. And 80.5% said the response of regulators has so far fallen short of what is needed to fix the system. The survey, titled: Credit Crisis: Business as usual for institutional investors? was carried out by the Network for Sustainable Financial Markets (NSFM), an international on-line network of senior financial market professionals and academics, AQ Research the investment research and data group, and Responsible-investor.com. It was answered under guarantee of anonymity by 208 investment professionals, the majority (49.4%) from
mainstream asset management firms, while 32.6% responded from sustainable investment specialists. The results were evaluated for bias between the views of mainstream and sustainability-driven managers, but there was no discernible difference in opinions. It is one of the first times that institutional investors, who some critics – including Lord Myners, UK Financial Services Secretary – believe contributed to the market crisis as absentee owners of banks and corporations, have had their say on the economic crisis and the current major political/regulatory debate topics. Asked if Myners was right and institutional investors should share some blame for the financial crisis, institutional investors were highly self-critical: 86.1% said they should. Of these, 68.2% said they had thought this since the beginning of the crisis, while 17.9% said they had disagreed but changed their minds as the crisis unfolded. Just over 10% said they disagreed. As a result, 40.3% of respondents thought that the crisis had been good for increasing sustainability factors in investment, while 8% thought it had been very good, 27.9% thought it had been neutral, 6% bad, 2% very bad and 15.9% said they couldn’t tell yet.