Best armour against risk is an informed investor

THE collapse of water treatment firm Hyflux Ltd has raised many important questions, not least of which is whether retail investors who ploughed millions into the company's perpetual securities and preference shares truly understood the risks of what they were buying. Given our close and ongoing involvement in the affair in organising meetings between the company and the various stakeholders over the past nine months, it appears that the answer is no, they did not.

Many were blinded by the high returns on offer and failed to understand that such instruments are inherently riskier than usual, or that they rank below many other creditors in the event of a winding-up, with only ordinary shareholders lying below them in the claims hierarchy. Only now that liquidation could be an eventual outcome do they understand exactly what they have invested in - as always in cases like this, much too late.

Our sympathies lie with these individuals, all 34,000 of them, especially since it appears as if they have no recourse because this is a caveat emptor (buyer beware) world that we live in and they are expected to familiarise themselves with all risks before investing.