The Great Debate UK

What to do about the City’s “Lazy Funds”

By Andrew Kakabadse

–Andrew Kakabadse (www.kakabadse.com) is Professor of  International Management Development at Cranfield School of Management. The opinions expressed are his own.–

Over the last 18 months I have interviewed a number of high-level city executives, including chairmen and CEOs, for a research paper to be published in the Journal of Strategic Review early next year. What was surprising was the general consensus that there is £450 billion in ‘Lazy Funds’ waiting to be invested in the City. That is more than twice the upper estimates of national debt. This enormous figure is not being invested because managers cannot see clear opportunities for realising gains.

Many of the respondents also expected another economic crisis of even greater severity than the present in 9-10 years’ time. The prediction is a stark reminder that the root cause of the economic crisis has yet to be resolved. Many respondents made clear that they see this as a political issue, and not one for the financial services industry to remedy. While no other instruments exist for the bankers to do their job, they will continue to use the system that we now know is flawed. The creation of new instruments, which would prevent another economic crisis, is a matter for the government.

The measures that have been introduced by the coalition government to tackle the current economic crisis are not sufficient. The government’s plans privatise gain, rather than socialise capital. Financial institutions continue to have their losses covered by the public, however those same institutions are not sharing the substantial profits that they are now reaping. The levy on banks that was introduced in the comprehensive spending review was an attempt to rectify this. Yet the sums that it will raise represent a miniscule amount when compared with the profits that banks are now making.