Britains fund managers are trying to discourage
investor short-termism at a time when their own
quarterly performance is falling under scrutiny.
The Investment Association, a trade group representing
British asset management firms, published a
report this month calling for companies to lengthen their
reporting cycle to help fund managers make better investment
decisions. Quarterly reports arent helpful in building
sustainable businesses because they can inadvertently
embed an inappropriate short-term focus in management
decision-making, potentially at the expense of investments in
the long term drivers of productivity and sustainable value
creation, IA said in the report.
Active fund managers are trying to keep investors from
moving their money into cheaper, passive investment strategies
that have outperformed, a shift in preference that can be seen
in quarterly outflows. Investors withdrawal from active
funds has mangers taking a more business orientated approach to
communicating with their clients, according to Patrick
Connolly, an investment consultant at Chase de Vere.
They dont want money with them thats in
the door one minute and out the next, said Connolly.
Investment firms have increasing concerns that
institutional investors are adopting a short-term approach and
they want their investors to take a longer term view.
Asset managers are trying to alter their own investors
mind-set about how often they should expect to receive updates
on fund performance. Hermes Investment Management, for example,
has reformatted its client reporting to focus on long-term
performance instead of quarterly portfolio activity. The
firms chief executive officer Saker Nusseibeh said its
client reporting will now lead with how the firms
investment strategies have done over a ten-year period.
Nick Samuels, director of the Manager Research Team at
U.K.-based consulting firm Redington, said more-frequent
reporting can, at best, be irrelevant and at worst scare
people into doing the wrong thing. Pension plan clients,
as well as those with defined contribution retirement plans,
are among those who could benefit from a shift away from
frequent reporting, according to Samuels.
All of these people have very long term time frames
for their savings, he said. Even moving away from
quarterly [reporting] would be nice.
Samuels added that some firms may be reluctant to change the
frequency of reporting due to concern that it would involve a
potentially difficult conversation with their clients.
Adam Gillespie, principal at consulting firm Punter
Southall, said investors should be informed before
putting their money into a fund that a
managers reporting will have a long-term focus instead of
the quarterly updates they would typically expect.
For active management, you do need to have some level
of engagement with the asset manager, Gillespie said.
It is easy to take a long term view of a fund if it is
doing what it is supposed to be doing. But if it is not, you
want to be looking at the fund more frequently.