2. Trends in Direct Investment: A Historical Perspective:
2.4 The 2007-2009 financial crisis
The market volatility of the 2007-2009 financial crisis had a huge impact on institutional investors, both large and small.
Many were surprised that diversification failed to protect their portfolios, as valuations fell significantly across asset classes. Some institutional investors liquidated positions that they had considered as long-term investments, and many investors found their investment plans were dislocated or distorted when other investors were forced to exit. Institutions began to question how best to achieve their desired returns while also managing risks.
The crisis put a particular strain on flows of timely information between external managers and their investors, as institutions struggled to understand exactly where their money was invested, control their positions and gauge how liquid their holdings really were. In the years after the crisis, investors began to include short-term liquidity buffers as an essential part of their capital management process.