‘Constant battle’ to drive long-term investment

‘Constant battle’ to drive long-term investment

Investment behaviour is too focused on short-term strategies, according to James Anderson, a member of Professor John Kay’s Advisory Board for the review of the UK equity markets and partner at Baillie Gifford.

Anderson spoke to Global Investor/ISF following the announcement that the UK Collective Engagement Working Group – which Anderson chairs - is launching an Investor Forum to promote commitment to long-term strategies among asset owners, asset managers and companies. The group was set up to take forward one of Professor Kay’s key recommendations on promoting better engagement between investors and companies.

Anderson believes that change is needed in London’s finance centre.

“It’s very sad how the dialogue in London has become so dominated by the combination of investment banks and hedge funds.”
“It’s a constant battle within investment organisations, inside the city, governance to try to think about the long term rather than respond to the latest headliners.”

He said it is “deeply depressing” to see asset owners focusing on the short term, for example considering it important to look at performance on a three-month or one-year basis. He added that “we need better ownership on that level”.

But Anderson admitted that trying to change investment behaviour is no small feat:

“It’s going to be a long-term effort to try to reverse the pendulum that’s been swinging the wrong way for the past 30 years.”

“Quite a lot has been going on but it’s a bit depressing the sheer amount of work and persuasion needed to get enough of the community involved. But I think the people who have signed up to the group or invited to join are doing it out of genuine belief that we need to change things.”

“I’m encouraged there’s a group of influential long-term investors - that have very heavy ownership of our major corporates - that want to do something about it.”

One of the group’s major breakthroughs has been to encourage the involvement of foreign investors.

“One big issue up until now is that people wanting to get involved have been UK-based but the bulk of equity in most British companies is owned by overseas institutions. I’m pleased we’ve some large American institutions and sovereign wealth funds – that’s a big step forward.”

The new forum will focus on driving culture change by developing a shared sense of partnership among asset owners, asset managers and companies and will try to encourage companies to think about their underlying strategy.

“I’m determined that we should talk to companies before you get to a series of real problems where you might need to take action in a dramatic sense. But that doesn’t mean we’re not prepared to try and be quite serious if there are structural problems at the end of it.”

Anderson is particularly critical of companies motivating employees by pay:

“Without exception all the truly great companies in the world are not obsessed about their levels of compensation or how much executives get paid. There are more important things than pay and one of our great problems is people tend to think motivation is only about pay.”