IDEAL FUND

Foreword The unprecedented breadth and depth of the 2007-9 Credit Crunch will engender a response from savers and investors; governments and regulators; that will influence the future of finance for many decades to come. It is useful to recall that the Glass-Steagall Act of 1933, that was born out of the 1929 crash in the United States and governed the structure of US financial markets and its regulation, was only repealed in 1999, some 66 years later. There will be a number of knee-jerk responses to the crisis. There always is. There will be calls for the Industry to show greater transparency, more prudential controls and better risk management and for government to regulate more. But this crisis is different than the last six international crises.The 1994-95 Tequilla and the 1997-98 Asian financial crises had severe economic consequences and the market dislocation around LTCM’s debacle and the Russian default in 1998 was debilitating for a while, but this crisis brought the financial system to a dead stop.The day after the collapse of Lehman Brothers in September 2008, the cost of capital rose to unsustainable levels for almost every banking institution in the US and Europe.When savers who appear to have done everything expected of them - putting aside regular amounts for a lifetime, investing in liquid, well-rated instruments, using established and regulated intermediaries - end up losing more than half of their savings just before retirement, the pressure will be for more than just greater transparency, controls and risk management. This is not the time merely to redouble previous, failed, efforts, but to rethink their direction. The authors of this report bravely do that and consider three critical areas that require an overhaul: long-term investment products, fund governance and investor education.

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