Earlier this month it released a report called Long-Term Finance and Economic Growth. In it, Trichet concludes that “far-reaching reforms in the international financial system will be needed”, adding “if reforms are not undertaken then we will likely face significant shortfalls in finance in coming years”, that this is “critically important”.
What the Group is asking for is long-term finance, long-term investment and greater links between the private sector (that has money) and the public sector (that is crying out for it). Its core argument is that the chances of securing adequate long-term finance have been hit hard by the recent economic problems.
Guillermo Ortiz, former Finance Minister of Mexico, chaired this particular steering committee. He described “the need for international and national financial regulatory bodies to develop new approaches that can ensure that investors are better able to take a long-term horizon in their investment decisions.”
What Ortiz and Trichet have said is very laudable and incredibly sensible. Turner describes some of the proposals as “challenging and contentious” but many of them are instead singularly unachievable while others are incredibly dangerous.
One suggestion is for new financial instruments to be developed that mitigate the risks involved in long-term investments and make it easier for money to flow across borders. After years of trying, we are still a long way from a truly successful implementation of various European Ucits/Mifid-based regulations. And this is into a fairly sophisticated financial services industry, so any similar plans into less mature (financially) regions, or on a larger God-help-us global basis, will be nigh-on impossible.
Does anyone really want an international financial regulatory body? I suppose it is something else that Adair Turner can chair…
Where Turner wins back brownie points is with his suggestion for pay incentives to encourage portfolio [his word] managers to focus on long-term returns. This should certainly be considered, with perhaps the profile of a fund’s returns being considered as much as a straight peer/benchmark-related comparison.
