Mario Draghi's legacy as president of the European Central Bank can be summed up in three words, money managers said.
Within its mandate, the ECB is ready to do "whatever it takes" to preserve the euro, Mr. Draghi said in July 2012 at a conference in London. "And believe me, it will be enough."
His pledge ushered in interest rate cuts — now languishing in negative territory; an ambitious asset purchase program that was introduced, cut, ended and then restarted; and now a tiering of deposit rates.
He "has arguably been the most important participant in European fixed-income markets since his appointment" in 2011, said Eoin Walsh, partner and portfolio manager at TwentyFour Asset Management LLP in London.
Regarding the impact of Mr. Draghi's "whatever it takes" comment, Mr. Walsh said: "He ushered in an almighty rally in peripheral European government bonds, and a collapse in sovereign (credit default swap) spreads, at a time when markets were preparing for periphery countries to exit the eurozone due to unsustainable debt levels and soaring borrowing costs."
In the month following Mr. Draghi's comments in July 2012, the MSCI Europe index gained 7.4%, vs. a 6.9% gain for the MSCI All Country World index. One year after the comment and the MSCI Europe had gained 12.6%, and the Bloomberg Barclays Euro Aggregate Corporate Total Return index added 7.5%. Over his whole leadership, the MSCI Europe index has gained an annualized 6.8%, while European corporate bonds gained 4.6%.
The comment, "I think permanently answered consensus expectations for the euro and whether anyone would leave the euro," added Tom Clarke, portfolio manager on the dynamic allocation strategies team at William Blair & Co. LLC in London. "And the tiering of negative interest rates policy — although there is lateness to that; Japan, Switzerland and Denmark (had already moved this way) — it is probably a key decision to avoid one of the adverse unintended consequences of negative interest rates." Under tiering, part of the excess liquidity that banks hold will not be subject to the negative deposit facility rate, which banks can use to make overnight deposits. This therefore reduces the charges banks need to pass onto customers, said managers.
In summary, added Mr. Clarke, Mr. Draghi's time has been "an almost impossible job that has been undertaken with considerable skill."
Managers also credited Mr. Draghi with helping to transform the ECB itself.
"I think (Mr.) Draghi has been amazing," said David Riley, chief investment strategist at BlueBay Asset Management LLP in London. The ECB "has become an institution which is now viewed as one that is innovative, proactive, has shown leadership and has been — and is — the most effective and important policy institution within the eurozone. A very large part of that is the legacy of Mario Draghi. In that respect, it's been very impressive."
Moves made by the ECB under Mr. Draghi's presidency have also benefited — and will continue to benefit — markets and money managers. Low interest rates have given managers an opportunity to create new, often higher-risk, strategies for yield-hungry investors whose bond holdings have been battered over the years.
"The eurozone probably wouldn't exist as it is today without (Mr.) Draghi's efforts. Rightly or wrongly, his policies have also helped eurozone corporates enormously and have certainly contributed to keeping default rates low. It is very unlikely investors would have enjoyed the same returns without his involvement," said Mr. Walsh.
The ECB has taken a "more proactive and aggressive stance to monetary policy, with a purchase program that definitely helped to stabilize risk assets; but on the other hand (it put in place) measures that increased the pace of holding liquidity like cash" for investors, said Mauricio Vargas, senior global economist at Union Investment in Frankfurt. "I think what the ECB has done in general is to help the business model of asset managers — to push investors and savers into higher-risk assets. That is something that will prevail. And with negative interest rates, I think we will see ongoing pressure on investors to increase their risk exposure — needing more complex solutions, higher-risk solutions; investors won't do it on their own," he said.
But Mr. Draghi's legacy isn't without a blemish or two.
"I think if there is one criticism (it is that) from an investor perspective … negative interest rates have become the norm rather than the exception. This is creating some pretty profound challenges for the operation of markets and the financial sector within the eurozone — issues for pension funds, insurance companies (and) savers," said BlueBay's Mr. Riley. "I don't think it's something he would have wanted to be leaving where … the ECB has relaunched (quantitative easing), cut rates further into negative territory and inflation is still below its 2% target. (The ECB has) reached monetary exhaustion. There isn't much left for the ECB in the toolbox," he added.
And Charles Dumas, chief economist at research and analysis firm TS Lombard in London, said: "People won't look back at his period in charge as being quite such a glorious thing as it would have been" had he finished his tenure two or three years ago, when European growth was better. "I think he did his job at the time in the context of keeping everyone in the euro — difficulty is has he succeeded? Not really — what was needed was more than monetary policy alone is capable of doing," he said.
