The IMA has submitted evidence to the Kay Review which states it believes the interests of asset managers and investors are aligned and further, that this interest is aligned with the companies they invest in.
Commissioned in June by the secretary of state for business Vince Cable, the Kay Review is charged to assess investment into UK equity markets and whether equity market participants (asset managers and investors) are guilty of short-termism, among other things.
Despite the fact it missed the closing date by five days – Professor John Kay kindly gave an extension – the IMA said it is happy with the body of evidence it has put forward for consideration.
As a representative of the asset management industry, with members’ AUM totalling £4trn, the input from the IMA ought to be taken seriously.
But let us not forget that it is an industry body and one that is bankrolled with the fees from its members.
Let’s take a look at this from an objective perspective: A company’s main aim is to make money, an asset management firm’s main aim is to make money, and an investor’s main aim is to make money. So far, so aligned.
What happens when one party’s pursuit of this aim clashes with another’s though?
If a company starts feeling strapped for cash so cuts or stops paying its dividend, asset managers will longer make the money they hoped/counted on and neither will the investor.
The permutations of this equation are multiple, but clearly investors, asset managers and companies, while sharing a common aim are not necessarily aligned.
Of the three, perhaps the investor/asset manager interests are the most closely linked. The IMA said: "Only by delivering sound performance over the long-term will asset managers retain their clients."
And when performance fees are thrown into the mix, asset managers are most definitely on the same page as their investors. The only problem there is when they achieve the shared interest of outperformance, managers reap greater rewards and a greater percentage of their investors’ capital, which would be fine if they paid a penalty when the performance fell the other way.
With regards to the short-termism accusations, the jury is still out. But a survey conducted by Schroders today revealed one in six UK investors check their investment performance every day, something that is sure to have increased in these months of super volatility.
The idea of buy and hold may well be on the way out, as markets heave to and fro at the merest hint of a policy change.
Whether this is driven by investors’ nerves, asset managers trying to find a way to outperform the market, or most likely a combination of both, is far from clear.
