Meeting the Challenge of the New Financial World: Creating sustainable wealth through responsible asset management and ownership

A short film of the event

View

News coverage from the event

Lord Myners: shareholders risk 'sleep-walking' into another financial crisis unless they challenge companies
Daily Telegraph
Read

HSBC: Over regulation may cause new crunch
City am
Read

Hedge funds aren't out of the woods yet
Evening Standard
Read

Hermes tries to change the world
Ft.com
Read

 

________________________________________________

Daily Telegraph
by Rupert Neate
25 November 2009

Lord Myners: shareholders risk 'sleep-walking' into another financial crisis unless they challenge companies

Shareholders risk "sleep-walking their way into another financial crisis" unless they intervene and challenge companies, according to Lord Myners, the City minister.

The former chairman of Marks & Spencer warned shareholders to become the "drivers" to improve corporate governance. He said the financial crisis was not caused by a failure of regulation, but due to errors in judgement and a lack of good corporate governance.

"Well-run companies are founded on good governance," he said. "Good judgment is fundamental, but it is in danger of being overlooked as all the focus is currently on supervision. "Institutional investors have the power to act and intervene in companies but most have been reluctant," he said at the Hermes Fund Manager and City of London responsible asset management conference in London yesterday.

"Shareholders should not be gamblers, they are owners. But many, with hindsight, were simply at the races. Most do not believe they are owners, do not feel responsible for companies. "So government has had to step in and take a lead in remuneration and risk management. Investors had the power to ask for change, but chose not to. There was effectively market failure, so the Government has a responsibility to act. If the banking crisis has taught us anything, it's that bad decisions went unchallenged. Good governance needs good judgement, robust decisions and requires owners to care."

In a thinly veiled reference to the Kraft bid for Cadbury, Lord Myners said shareholders should stay firm in the face of hostile approaches and focus on long-term returns rather than the "bounce in a share price that comes with a takeover".

"Without significant steps forward, the ownerless corporation will sleep-walk into another financial crisis. The time for better stewardship is now," he said. At the same event, Stephen Green, chairman of HSBC, said proposals to force banks to pre-plan for their own demise through the creation of 'living wills' deserves "closer consideration" by regulators. "The devil will be in the detail," he said. "There is a real danger that a simple concept could become complex and bureaucratic."

________________________________________________

City am
By Victoria Bates
25 November 2009

HSBC: Over regulation may cause new crunch


HSBC chairman Stephen Green yesterday warned over-regulation of the City threatens to destabilise the financial services sector and send the economy spiralling back into recession.

Speaking at the Hermes and City of London asset management conference, Green said: "The impact of various measures currently under discussion for the enhancement of capital ratios, at the wrong stage of the economic cycle, could easily withdraw credit from the economy and drive a new credit crunch...We need an approach which is properly calibrated and phased, and co-ordinated across a wide range of jurisdictions, as we seek to turn fragile green shoots into sustainable recovery."

Green said there was much right with the City as well as wrong and cautioned that "we must be careful not to throw the baby out with the bathwater".

City minister Lord Myners, also speaking at the conference, reiterated his call for shareholders to take responsibility for company actions, warning investors are "sleep-walking their way to another financial crisis".

________________________________________________

Evening Standard
By Anthony Hilton
25 November 2009

Hedge funds aren't out of the woods yet

Hedge funds have not lost their clients' money, Ian Wace of Marshall Wace told the Hermes/City of London fund management conference yesterday.

No less than 55% of hedge funds are above their high-water marks. The average loss of value in the crash at between 25% and 30% was just about two years' profits. The average volatility in hedge funds was 14% or less than half that of the market. Compare this - he said - with how the banks, which are much more heavily leveraged, performed. Merrill Lynch's losses wiped out all its earning for the previous 10 years.

It is a bit unfair to take him to task for off-the-cuff remarks but the claim does seem a little extreme. There is no doubt that clients of his firm fared reasonably well. It is widely accepted that between one-half and two-thirds of hedge funds have closed in the past few years. It is hard to believe they closed because they were making clients money.

Chances are we have a touch of survivor bias in these hedge fund figures - something which is not altogether unusual. A more accurate message is probably that if your hedge fund is still in business and you have been with it for more than two years then it is probably making you money.

And for that you should be suitably grateful, because a few minutes later Wace cited a report which really does give one pause for thought. The performance of 1700 hedge funds had been analysed over the past 15 years and, according to the way performance had been measured it concluded that only 122 of those had made money for clients over the period. His firm ranked 17.

But there will always be arguments about hedge-fund performance - the respected analyst Huw van Steenis at Morgan Stanley believes the business is on the turn with a marked drop off in redemptions and signs that new money is beginning to flow back in. Significantly this is coming less from wealthy individuals and much more from sovereign wealth funds and institutional investors like pension funds.

He also thinks observers are underestimating the potential demand from smaller institutions, mainstream private investors and retail pooled funds like unit trusts for absolute return products. Some of this may lie behind the third quarter inflows into the hedge fund industry of more than $2 billion which is three times the levels seen in the first three months of the year.

The industry is still not wholly out of the woods of course. A number of hedge-fund managers have been charged with fraud or theft, albeit on a minor scale compared with the disaster at Madoff. But while the numbers remain small as a proportion of the whole, it undermines reputations across the industry. Nor does the industry get an offsetting credit for the good things it does - van Steenis writes that hedge funds probably supplied between 30% and 40% of the capital which has been needed to recapitalise British and American banks this year. That however has cut little ice with regulators who - as has been noted here before - have followed the principle that when a fight breaks out in a pub, you hit the people you don't like, not the person who started the fight.

As a result hedge funds face a more intrusive regulatory environment and it remains to be seen what long-term impact this will have. But overall van Steenis is confident enough to suggest that now might be the time to buy Man and Schroders among listed fund management groups.

________________________________________________

Ft.com
by Pauline Skypala
24 November 2009

Hermes tries to change the world

If any fund manager deserves an award for trying to change the world, or at least start a real debate, it must be Hermes.
The fund manager, owned by the BT pension scheme, the UK's biggest, today co-hosted a conference with the lengthy title: Creating sustainable wealth through responsible asset management and ownership.

Last week, it handed out awards for transparency in governance, in collaboration with the Institute of Chartered Secretaries and Administrators (ICSA).

You could argue Hermes has a vested interest in enjoining institutional investors to become more responsible owners and in pointing out that pension fund trustees already have enough on their plate without having to start engaging with company boards. It runs Equity Ownership Services, which does the responsible part for investors lacking the resources to do it for themselves.

But there is no doubting the sincerity of the effort to improve the overall governance effort. And Hermes must be applauded for bringing up the subject of what a responsible asset management industry should look like. The focus has been on managers' responsibility as asset owners - an important subject. But their responsibility to their clients is at least as important. They are paid by their clients, after all, not by the companies in which they invest.

Speaking on a panel discussion at today's conference about alignment of interests between managers and clients, David Blood, senior partner of Generation Investment Management, called the incentive structure in the long-only fund management industry "very poor". He called for long-term performance fees based on a three to five year horizon, and said base fees should be set to cover costs rather than based on assets under management.

Saker Nusseibeh, head of investments at Hermes Fund Managers, reckons other managers should be more like Hermes: less focused on pushing products to investors and more integrated. He reminded the conference that everyone working in the pensions industry is ultimately an agent for the average scheme member, who can never aspire to the consumption patterns of City or Mayfair denizens.

Ian Wace, chief executive of Marshall Wace, said he had made more money from being in the hedge fund business than as a banker, but his riches derived from being an owner of the business. The way to align incentives, he added, was to have "skin in the game". Managers at Marshall Wace retain at least a 20 per cent interest in their funds.

Well, talk is cheap. Actions speak louder. I could not discover from a quick trawl of Generation's website whether the managers charges on the basis Mr Blood outlined. One must assume it does. Perhaps FTfm should inaugurate awards for the most aligned managers, and name and shame the least aligned.