The severity of the U.S. financial crisis exposed investors' need to whittle down a dependence on dollar-denominated assets and diversify globally, two of Wall Street's most influential figures said on Sunday.
Asset managers have to re-think the way they diversify investments to manage risk, said Larry Fink, chief executive of BlackRock
Experts say the plunge in global markets -- which wiped out assets of fund companies and forced them to axe thousands of jobs -- is reshaping the funds management business in terms of competition, regulation and investors' risk appetite.
But investors must also start looking farther afield.
They will have to think of ways to reduce an over-reliance on dollar-denominated assets, Fink told investors and fund managers at the Charles Schwab Impact 2009 conference in San Diego.
One of the outcomes of the deterioration of our capital markets in the United States is a greater need for more global diversification, said Fink, whose steady helmsmanship of BlackRock through the crisis has earned him a reputation as one of the shrewdest asset managers on Wall Street.
We have to think about diversification in a more global setting.
Since markets globally went into a tailspin from last year, the healthiest economies have managed to achieve escape velocity quicker, said Mohamed El-Erian, CEO of top U.S. bond fund manager PIMCO.
El-Erian stressed the new global economy was no longer dependent primarily on the health of the U.S. consumer, but increasingly also on consumption from China, India, Brazil, and other booming emerging economies.
Last week, Chinese industrial output rose to a 12-month high while investment and credit growth surpassed forecasts, suggesting its economic recovery was on a solid track.
The country's benchmark stock market index has gained 65 percent this year. In contrast, the Dow Jones Industrial Index <.DJI> is up less than 10 percent from the start of 2009.
In this new world, international diversification helps, he said. It's very usual for us to invest in what we know, and what sounds familiar.
It may not be the best to invest, but it's what we're going to do. (Reporting by Edwin Chan; Editing by Anshuman Daga)