Long battle to rebuild finance trust

ROB O'NEILL

Last updated 05:00 18/11/2012

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OPINION: The fog around Ross Asset Management has lifted a little, only to compound investor fears of what could be a near total loss of their funds.

The question that now needs to be answered is how whatever it was that went on at Ross went undetected. How long has any mismanagement, or worse, been going on and what checks if any were made of the business by regulators?

What it does show is the battle to rebuild trust in New Zealand's capital markets, our investment scene and regulatory structures after the finance company debacle will be a long one.

I'm not particularly worried that people will wonder who they can trust on the New Zealand investment scene. They should wonder that. It's entirely healthy. But such concerns should not stop them making choices and actually investing.

Investors have to perform some due diligence on the companies they place their hard-earned money with.

While we don't know yet exactly what transpired at Ross, there have been a series of worrying cases coming to light over the last few years. Investors would do well to remember the old maxim that if an investment or business opportunity appears to good to be true, it probably is, no matter how charming or convincing the people involved are.

Investors also need to look at the detail of investments they are offered. If you thought, for instance, that property or property syndicates were a safer bet than equities, take a look at page 16.

A combination of debt, recession and writedowns has served investors in SPI's Hunua syndicate rather poorly. It is easy to see why an investor presented with such an opportunity would think they were on to a good thing.

But they weren't. Property values, particularly commercial property values, are to a very large extent determined by the income a property can generate. That in turn can be affected greatly by the economy. Throw in debt and management fees and things can get pretty ugly, pretty quickly.

And again, at risk of stating the obvious (how often do you have to state this?), diversification is the best defence.

Suggestions that some investors in Ross had placed most of their funds with the company, which appeared to specialise in a couple of sectors, again reveal the folly of chasing high returns across an entire portfolio.

Risk is part of investment, but so is risk management.

Do bother to get your head around the risks you are taking. Understand that markets change. Ask yourself a series of what-if questions and try to model the outcomes of different scenarios on your investments.

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Rob O'Neill is the Sunday Star Times business editor.

- Sunday Star Times

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