The Legacy of the Debt Crisis – 2013 CREATE Research Report

The 2013 Principal Global Investors/CREATE-Research report is due to be launched on June 17th. Each year, a survey focus is chosen after canvassing the views of thought leaders in the investment value chain worldwide. The research topic selected for 2013 is investing in today’s debt-fuelled world. The resulting research report, Investing in a Debt Fuelled World, takes a look at what it means to be an investor in a world where many major economies are trying to cut their debt mountains mostly via a combination of low interest rates and inflation. The resulting arbitrary redistribution of wealth from savers to borrowers — also known as financial repression — is raising three challenges for investors:

  • How can they avoid being losers in this zero-sum game?
  • Where can they find decent yield at today’s record low interest rates?
  • How can they identify asset managers who can protect their clients while markets remain disconnected from their fundamental value drivers?

The topic proved so popular that the survey response rate increased nearly 100% over previous years. 713 asset managers, pension plans, pension consultants, fund distributors and fund administrators from 29 countries participated in the survey, with a total AuM of US$27.4 trillion.

Two key themes emerged from the research.

First, whereas the worst of the crisis is over, any semblance of stability is still some way off. The Eurozone has not broken up. America has not fallen off the fiscal cliff. China’s economy has not crash landed. The world has not suffered an oil spike. The dire predictions about the recent past have been confounded.

Markets have rallied because of receding worries as much as decisive action by central banks on both sides of the Atlantic. Yet, fear continues to lurk in the background. Will politicians continue to kick the can down the road on fiscal reform? Will the Federal Reserve’s exit strategy turn what is now a stabilising force into a destabilising force? Will Japan’s recent competitive devaluation start a currency war?

The second theme that emerged from the survey is that whilst there are outward signs of fear fatigue, investors are moving towards a different approach in keeping with the new reality. The destructive impact of the debt crisis on investors’ wealth has been well documented. What has not been documented is the nature of powerful undercurrents created by the crisis when combined with ageing populations and persistent pension deficits; nor the lasting changes triggered by them.

The 2013 Principal Global Investors/CREATE-Research Survey seeks to spotlight the secular shifts that will be reshaping the investment landscape over the rest of this decade and recommend the actions that asset managers need to take to help their clients to manage the transition.

Watch for the new report Investing in a Debt-Fuelled World, available online at on June 17.




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