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TwentyFour and the Global Financial Crisis – 10 Years On

13 September 2018 by Graeme Anderson

When Lehman Brothers Inc. filed for bankruptcy on September 15, 2008, TwentyFour Asset Management was barely 48 hours old.

With nine staff in our London office at 24 Cornhill, we created a specialised fixed income boutique and launched into a fund management industry that was about to change beyond recognition almost overnight. Ten years on from Lehman’s collapse, the global financial crisis continues to shape financial markets, economics, regulation, and right down to people’s daily lives.

The effects of divergent policy responses in the US and Europe can still be seen to this day. Having procrastinated over saving Lehman, the US authorities then galvanised themselves to provide unlimited liquidity in order to recapitalise the banking system, ultimately injecting $700bn through the Troubled Asset Relief Program (TARP). Their European counterparts failed to act so decisively, and today the ECB is still deploying crisis-era stimulus while the Fed is well on the way to policy normalisation and presides over a strengthening US economy.

In the last decade we have witnessed an unprecedented expansion in the role and power of global central banks, whose combined balance sheets now exceed $15 trillion. Yield curves are lower and flatter than they were pre-crisis, thanks to a combination of risk aversion and quantitative easing. This has distorted the relationship between interest rates and inflation, and has destroyed term premium, a tell-tale sign that markets have yet to normalise.

We have seen a transformation in the volume and quality of capital in the global banking system, along with a sea-change in regulation of the sector. At TwentyFour we spent a huge amount of time and resources understanding and getting comfortable with the new financial instruments resulting from these changes. We were investors in the very first Additional Tier 1 (AT1) transaction (BBVA’s 9% bond, which was called earlier this year). We also wore out a lot of shoe leather educating clients about European asset-backed securities (ABS), a market wrongly swept up in the search for the cause of the crisis. We are now one of the largest asset managers in European ABS.

Political risks are more prominent. I believe the backlash we have seen against mainstream politics in Europe and the US, one of the primary sources of geopolitical risk in the last few years, stems directly from the fallout of the financial crisis.

Finally, experience only counts for so much. The partners and portfolio managers at TwentyFour have decades of fixed income experience between us, but if the last 10 years has taught us anything, it is that we must constantly challenge our assumptions. How many of us initially thought QE might lead to surging inflation and steeper yield curves? How many of us thought interest rates could be held so low for so long? This environment is unique and we must be continually ready to adapt our thinking.

Shortly after the Lehman bankruptcy, having realised we would be getting zero mandates in short order, we had a meeting where we said we had better re-think everything we thought we knew about financial markets, because this was a new chapter – a challenge revisited by Mark Holman and Eoin Walsh in this roundtable discussion marking the firm’s 10-year anniversary. It is no exaggeration to say we learned more in our first year at TwentyFour than we had in the previous 20, and this learning culture remains at the firm today, as do the same nine staff that started the journey in 2008.

We thank all of our clients for their support and partnership over the last decade, and we look forward to navigating the next 10 years in bond markets with you.

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