It seems that the Government has produced some research that endorses what many advisers have known for some time. That investing needs to have a long-term horizon to work properly. Diversification is really important to successful investing and if you are determined to use an active Fund Manager, make sure that they have a process that enables them to deliver the outperformance (alpha) rather than simply hug a benchmark and watch rivals, so that they are not out of step with their peers which is short-termism at its worst or perhaps most timid.
Last year Vince Cable, the Business Secretary (at the time of writing this blog) commissioned a review – The Kay Review of UK Equity Markets and Long-Term Decision Making. The 133 page report has now been published and will doubtless add further fuel to fire surrounding the issue of what Fund Managers charge for and how do they get away with it.
I appreciate that it takes a Government report to generally weigh this information properly (and I’m guessing that this won’t be the last one). However anyone that visits the City of London, New York or any other major financial centre, will appreciate that despite the expensive land price, there is an awful lot of room given over to a marble-floored foyer. It should be no surprise that this has a price tag which needs paying for.
I’m all for a smart office, particularly when I have to work in it, but I do remember one very successful Fund Manager that used to run a “special situations” (i.e. undervalued) type of fund say to me that he would apply some very early filters to his process. On a visit to a company, if the car park was full or cars with personalised number plates he wouldn’t even enter the building. If he found a fountain in the foyer he would turn around and leave. It served him rather well, because he knew that sometimes the ego is simply too big to accept necessary change.
I shall be working my way through the report in the coming days. However the key themes from it have a resonance that I quite like. I quote.
Restore relationships of trust and confidence in the investment chain, underpinned by the application of fiduciary standards of care by all those who manage or advise on the investments of others.
Emphasise the central function of trust relationships in financial intermediation and diminish the current role of trading and transactional cultures
Establish high level statements of good practice
Improve the quality of engagement by investors with companies, emphasising and broadening the existing concept of stewardship.
Shift regulatory philosophy and practice towards support for market structures which create appropriate incentives, rather than seeking to counter inappropriate incentives through the elaboration of detailed rules of conduct.
Tackle misaligned incentives in the remuneration practices of company executives and asset managers, the disclosure of investment costs, and in stock lending practices.
Reduce the pressures for short-term decision making that arise from excessively frequent reporting of financial and investment performance (including quarterly reporting by companies), and from excessive reliance on particular metrics and models for measuring performance, assessing risk and valuing assets.
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The Cable Guy challenges the CityDominic2023-12-01T12:22:35+00:00