Asset managers run clients’ money with a long-term view rather than being motivated by immediate incentives, the Investment Management Association (IMA) has told an independent review.
Last year, business secretary Vince Cable asked economist John Kay to lead a review into UK equity markets and the role they play in supporting corporate performance.
The IMA’s contribution to the Kay Review flags several concerns regarding short-term incentives and the integrity of the UK equity market. The association sets out an argument that asset managers are incentivised by long-term performance and improved investee company performance rather than near-term rewards.
“Inherently investment managers are agency businesses whose interests are aligned with the companies they invest in and with their clients – ordinary savers and investors. The better companies perform, the better returns are for clients and the better managers are remunerated,” says Liz Murrall, the director of corporate governance and reporting at the IMA.
“There is no incentive for investment managers to over-trade portfolios because the costs would simply reduce performance and revenues.”
The other important driver of a company’s performance relates to the incentives offered to company board members. The IMA’s assessment questions whether the current renumeration systems are aligned with long-term perspectives.
The same applies to corporate financiers and other advisers who are incentivised to complete mergers and acquistions deals in return for the fixed fee upon completion.
With regards to the integrity of the UK equity market, the dismissal of “minimum free-float requirements “ has led to an increase in the number of overseas mining companies.
The IMA specifically warns that failure to maintain the quality of a UK listing in this manner could have a negative impact on the integrity of the UK market.
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