07.28.2014
By Terry Flanagan

UK Asset Managers Face Game Change

Daniel Godfrey, chief executive of the Investment Management Association, a trade body for UK asset managers, said the UK government’s pension proposals are a game changer.

The IMA’s members manage about £5 trillion for UK and overseas clients.

During its budget announcement in March the UK government said that all defined contribution pension savers should have more choice and freedom in how they use their retirement funds. This month the government said pension schemes will have to ensure that members seek independent financial advice when considering whether to move from a defined benefit scheme into a defined contribution scheme

Godfrey said: “The UK government’s proposals are a game changer for asset managers and we will see more individuals interacting directly with fund managers. How we define the bright lines between advice and guidance will be crucial for pensions.”

On 30 June the IMA merged with the Investment Affairs division of the Association of British Insurers, whose 300 members made investments of £1.8 trillion in 2012. Approximately a fifth of of the assets managed by IMA members are on behalf of UK insurers.

The ABI unit operated the Institutional Voting Information Service which provides research to help investors decide how to vote at company meetings. For example, in June the ABI issued a “red top” alert, its most serious warning about governance, in relation to executive compensation at Sports Direct, the UK sportswear chain.

Otto Thoresen, director general of ABI, said in a statement : “It is of critical importance that UK companies have effective engagement with their shareholders that fosters a long-term approach to investment, which is necessary to maintain a healthy UK economy. The merger has strengthened the voice of the investment management industry, creating one organisation which can represent their views effectively.”

Godfrey told Market Media that 14 staff from the ABI had joined the IMA as a result of the merger.

“The merger allows us to represent the complete spectrum of issues on behalf of investors,” Godfrey added. “We will have a more coherent voice to bring better regulation, operating practices, communication and engagement to the companies we invest in.”

In January the IMA will change its name to The Investment Association to mark the wider remit of the merged group.

When the merger completed, Helena Morrissey, chief executive of UK fund manager Newton Investment Management, became chairman of the IMA replacing Douglas Ferrans.

Godfrey said: “Helena has the combination of a desire to see the asset management industry prosper, doing a great job for clients and a track record of being a persuasive and determined person who can make change happen.”

In addition to responding to proposals for new regulations, Godfrey added that the IMA aims to ensure that the investment industry stays ahead of new rules and the trade body has been working on initiatives to improve transparency on costs.

For example, in May the IMA proposed a new measure to tell investors the profit (or loss) and the total cost of owning a unit in a fund each year in order to combat the suspicion that fund managers are hiding expenses. The raw data will be published in the fund’s annual report and the IMA is aiming for the Financial Conduct Authority (FCA) to incorporate the measure into their rules.

The IMA is also developing a common standard for the calculation of “Portfolio Turnover Rate”, to indicate how actively a manager buys, sells and holds shares.

In March the IMA responded to the Financial Conduct Authority’s consultation on payments for investment research and talked to its members about eight possible alternative models. The IMA said the best practice included the way managers set budgets for total research spend and how they ensure spending is based on value received. The trade body recommended that members identify the simplest way of disclosing research costs to customers.

Another of the IMA’s projects has been to work with the ABI, the National Association of Pension Funds and asset managers to set up the Investor Forum. The Forum is an independent body which aims to encourage long-term investing, to promote cultural change in the investment chain and form engagement groups with the widest possible range of investors when companies appear to be failing and conventional shareholder engagement has not worked.

The Investor Forum’s members will include asset managers and asset owners such as pension funds, life assurers and sovereign wealth funds who have an interest in UK companies, including those based overseas.

“About 40% of UK assets are managed by firms headquartered outside the UK,” Godfrey added. “The UK is growing as a centre of excellence.”

This month the Forum appointed Simon Fraser, former chief investment officer of Fidelity Worldwide Investment, as chairman and Andy Griffiths, senior advisor to Corsair Capital, as executive director.

Vince Cable, the UK Secretary of State for Business, Innovation and Skills, said in a statement: “I am delighted that, three years after I asked Professor John Kay to lead an investigation into ‘short-termism’ in financial markets, his recommendation of an Investors’ Forum has been implemented. I hope that this new body will help bring about a shift in the culture of equity markets so they can support UK public companies to invest for the long term.”

Godfrey added: “There are a lots of pressures to perform on a short-term basis but that does not mean that moving to a more long-term perspective cannot be done.”

Featured image via Dollar Photo Club

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