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.