Funds Hub

Money managers under the microscope

from Global Investing:

Big Beasts

This week might just have seen a marked shift in how British investors think about their role as owners of companies.

First up we had three of our largest unions teaming up behind a set of governance guidelines which they will wave noisily in the air at AGMs, but more significantly, Tuesday morning saw the first steps towards building the kind of collaborative architecture for investors envisioned by the Kay Review.

As first steps go, it's fairly tentative (as was the first, first step). In a sparse announcement, the Association of British Insurers, the National Association of Pension Funds and Investment Management Association said they will set up a working group to report back on how collective engagement "might be enhanced to make a positive difference.” It is a response to Economist John Kay's government-backed report from last July, which argued funds could improve returns to savers by presenting a united front to company boards.

We've looked before at how difficult this will be given the diversity of outlook and motivation among investors. Significantly, Tuesday's statement makes explicit reference to drawing in "overseas investors" who at the last count were heading towards ownership of half the UK stock market, though quite how that might work is hard to see. IMA chief executive Daniel Godfrey told Reuters he has already spent some time sounding out some of those foreign share owners, and encountered a "range of views and a range of enthusiasms." The next step, he says, is to work out whether there's a way to navigate past the obstacles.

from Global Investing:

GUEST BLOG: The missing reform in the Kay Review

Simon Wong is partner at investment firm Governance for Owners, adjunct professor of law at Northwestern University School of Law, and visiting fellow at the London School of Economics. He can be found on Twitter at @SimonCYWong. The opinions expressed reflect his personal views only.

There is much to commend in the Kay Review final report. It contains a rigorous analysis of the causes of short-termism in the UK equity markets and wide-ranging, thoughtful recommendations on the way forward.  Yet, it is surprising that John Kay omitted one crucial reform that would materially affect of the achievability of several of his key recommendations – shortening the chain of intermediaries, eliminating the use of short-term performance metrics for asset managers, and adopting more concentrated portfolios.  What’s missing?  Reconfiguring the structure and governance of pension funds.

Morning Line-Up: insider trading, BP, 2011 outlook

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News and views on the asset management industry from Reuters and elsewhere:

Insider trading defendants in prime time to deal – Reuters

U.S. pension funds prepare to sue BP over oil spill – Telegraph

Year-end planning: the 2011 fund outlook – Reuters

ICI: Long-term mutual funds rose $1.8bln in latest week – WSJ

Where pension funds went wrong

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Knut Kjaer, adviser to some of the world’s biggest asset pools, and former head of Norway’s government pension fund, told pension funds some home truths at the CFA Institute’s European Investment Conference on Tuesday.

Kjaer said the financial crisis had exposed two main pitfalls in institutional investment – the tendency to run with the herd, and the adoption of overly complex portfolios.

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