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Market developments on the back of the credit crunch have shaken pension funds and institutional investors’ confidence in credit ratings agencies, suggests a study by
"In perhaps the clearest indication of the severity and extent of the liquidity disruption, more than 60% of participants active in corporate bonds say they have experienced trouble getting a simple price quote from dealers on these usually liquid products," says Greenwich Associates consultant Tim Sangston. "It's hardly an exaggeration to call this a total market breakdown."
“Investors are divided when it comes to the question of whether the current liquidity crunch represents a short-term event or a structural crisis,” according to Greenwich Associates consultant Lori Crosley. “Fifty-five percent of study participants see the liquidity crunch as a structural crisis, while 45% see it as a short-term event,” she added.
Nearly a third of the institutional investors say they are liquidating positions/portfolios in order to mitigate the risks posed by turbulent credit markets and roughly half say the recent performance of CDOs and other structured products has made them less likely to invest in these products in the future. "A sizable share of participants say they have stopped investing in fixed income altogether for the time being," says Greenwich Associates consultant Frank Feenstra.
More than three quarters say the performance of CDOs and other structured products in the current market crisis has decreased their confidence in credit rating agencies.