This content is from: Corner Office

U.K. Fund Firms Seek to Change Short-Term Mindset

Hermes Investment Management has changed its client reporting to focus on long-term performance instead of quarterly portfolio activity.

  • Joe McGrath

Britain’s 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 aren’t 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 don’t want money with them that’s 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 firm’s chief executive officer Saker Nusseibeh said its client reporting will now lead with how the firm’s 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 manager’s 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.”