THE SUPPLY SIDE – INVESTORS, SAVERS, PROVIDERS OF CAPITAL

Individuals, cor porations and even governments and state institutions may have savings or money that is sur plus to their current requirements. For convenience sake we will refer to them all as investors. Investors seek the following:
Risks and returns. To get the highest level of return available for a given level of risk taken, or the lowest level of risk possible for a given level of return. These are not at all the same thing. There is a wide range of tolerances to risk between investors.
Economic term. To make investments whose economic term matches that of their liabilities. An individual seeking to invest in order to generate an ongoing income in their retirement will look for investments that meet that objective rather than investments offering a shor t-term return only, for example.
Liquidity. To match the liquidity of their investments with their own liquidity requirements. Some investors need to keep most of their funds in investments that are close to being cash equivalents and can be easily and quickly liquidated. Other investors may be willing to accept a much lower level of liquidity in return for higher long-term returns.
Counterparty risk. To minimize counter par ty specific risk.
Costs. To keep the costs associated with making the investments, and liquidating them if necessary, as low as possible within the primary constraints of meeting the overall objectives in terms of risks and returns.
Diversification. To select a level of diversification that matches their risk tolerances. Diversification reduces specific risks and individual investors may be willing to pay for diver- sification benefits that they cannot readily achieve on their own.
Although these investment objectives appear relatively straightforward, when taken in combination they result in ver y many different specific objectives. Many financial intermediaries (fund managers) have developed whose only products are investment funds tailored to meet these varying, and conflicting, objectives. All investors would like to make the investments that have the highest returns and the lowest risks. The only place where such investments exist is in their dreams.