Schroders sees credit crisis lasting 12-18 months

LUXEMBOURG (Reuters) - The credit crisis could last for the next 12 to 18 months, while retail investor appetite for risk could take up to two years to return, a senior executive at fund firm Schroders (SDR.L: Quote, Profile, Research, Stock Buzz) said on Tuesday.

Massimo Tosato, vice chairman of Schroders, said at the Reuters Funds Summit in Luxembourg that central banks had enough experience to handle the crisis, created by the bursting of a "bubble" in structured credit markets. But he said a resolution could nevertheless take some time.

"There has been a reaction from national and international monetary authorities and governments that had demonstrated that over the decades there has been a lot of experience building up on how to manage ... the situation," he said.

"That makes us moderately positive on the possibility that the crisis will have a solution over the next 12-to-18 months."

Equity and credit markets have been volatile since the onset of the U.S. subprime crisis last year, and investors have grown increasingly worried as banking groups Northern Rock and Bear Stearns have been hit by the fallout, prompting support from central banks.

"Without trust the financial system cannot work. What you're seeing in these days are the ups and downs of those trust factors. It's very difficult to make any prediction if it's going to be a smooth solution or a bumpy solution. It certainly will take some time, because it takes some time to rebuild confidence," he said.

Tosato also said that the effects of the credit crisis would be felt most strongly on retail investor flows, rather than from funds provided by institutional or private clients.

Industry data from the Investment Management Association has shown that investors pulled out record amounts from retail funds in recent months as the credit crisis deepened.

"Where the impact is probably stronger is on the retail market ... My expectation would be that investors will have stronger risk aversion for a year or two to come, which means they will privilege more cash-oriented products, capital-protected, or outcome-oriented solutions."  Continued...