Fund managers ineffective: Report

Economist John Kay has produced a report for the British Government, which found that most asset managers, consultants and other people in the financial services industry weren’t doing a good job.

One of the key findings of the report was that there was a problem with short-termism, driven by a decline of trust and the misalignment of incentives throughout the equity investment chain.

Asset managers had become the key players in the market, and could be divided into those who invest and those who trade on short-term share price movements. Kay said: “The appointment and monitoring of active asset managers is too often based on short-term relative performance. The shorter the timescale for judging asset manager performance, and the slower market prices are to respond to changes in the fundamental value of the company’s securities, the greater the incentive for the asset manager to focus on the behaviour of other market participants, rather than on understanding the underlying value of the business.”

Michael Chamberlain, of MCA NZ, which provides actuarial and investment consulting and advisory services, said Kay’s report underlined the fact the New Zealand investors needed to look not at short-term returns,  or returns versus market benchmarks, but to look at the longer term, and whether the shares in a particular portfolio had the right characteristics for the investors concerned.