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IMA submission to the Kay review: Asset managers invest for the long-term

24 November 2011

In its submission to the Kay Review, the Investment Management Association (IMA) set out evidence that asset managers invest for the long-term. Where concerns about short-termism are valid, they are in relation to the incentives for company boards and sell-side intermediaries.

Commenting, Liz Murrall, Director of Corporate Governance and Reporting at the IMA, said:

“We welcome this opportunity to engage with Professor John Kay and his team on such important issues. We emphasise that the great majority of investors in UK equities manage clients' money in a way that seeks to build value over the long-term.

“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. There is no incentive for investment managers to over-trade portfolios because the costs would simply reduce performance and revenues.”

The IMA's submission raises concerns over the incentives for companies' senior executives and for sell-side intermediaries, urging the Kay Review to consider these issues.

Company board remuneration structures can mean that they are incentivised to maximise share price or earnings in a short timeframe which can come at a cost to long-term value and viability. Also CEOs often have too short a tenure to foster a long-term perspective.

Another concern is that intermediaries in the equity markets are incentivised to encourage behaviour which is not necessarily in the long-term interest of companies. For example, corporate financiers and other advisers are incentivised to encourage the completion of merger and acquisition deals, because they receive a fixed fee upon completion. However, evidence that such deals add long-term value to companies is mixed at best.

The IMA's submission can be found here:

http://www.investmentuk.org/assets/files/consultations/2011/20111123_KayReview.pdf



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Investment Management Association

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