Vince Cable: need for shift in equity investment

Vince Cable: need for shift in equity investment

The Collective Engagement Working Group has set up a new forum to promote shared commitment to long-term strategies and sustainable wealth creation among asset owners, asset managers and companies.

The group, chaired by James Anderson, partner at Baillie Gifford and a member of Professor John Kay’s Advisory Board for the review of the UK equity markets, created the forum on the back of concerns about short-termism investment culture.

The forum will be open to institutional investors, including international asset owners, asset managers and sovereign wealth funds.
Vince Cable, Secretary of State for Business, Innovation and Skills, said:

“This acknowledges the need for a shift in the culture of equity investment, focusing on long-term wealth creation and a stronger voice for committed investors.

“Improved collective engagement by investors is a vital part of achieving this, and I would encourage long-term investors in UK companies to make a genuine and sustained commitment to its success. We now need to see immediate and concrete action to make the Forum a reality.”

The group also made key recommendations in its new report. It said that companies should hold an annual strategy meeting with institutional investors outside the results cycle so that investors and company executives can link governance to the company’s long-term strategy without the focus on short-term results.

The group recommended that investors review their own practices and cultures, for example monitoring and disclosing conflicts of interest.

“Asset owners should be clear when appointing an asset manager to ensure the manager’s approach to stewardship is aligned with their interests and that there is a strategy for, or policy on, engagement. In evaluating an asset manager, asset owners should examine how the managers has engaged with companies in the interests of protecting and enhancing value in the future and assess performance over an appropriately long-term time frame. This should also apply to investment consultants.”

The group also called for engagement on governance issues to be integrated into the investment process.

Anderson said: “We insist that improvements in the collective engagement process are not a chimera. They are feasible with consistent and long-lasting effort. Ultimately these improvements can contribute to increased wealth creation by companies and for savers. We must be consistently engaged rather than occasionally outraged or so often apathetic.

“The Investor Forum that we have announced today will drive cultural change and act as a mechanism for investors to work together more effectively when there are issues at particular companies that have not been resolved by conventional engagement.”

Simon Wong, visiting fellow at the London School of Economics, was optimistic about the ability of the Investor Forum to drive change.

“In my view, it remains challenging to bring together a disparate set of institutional investors but the idea of appointing a lead investor to spearhead an engagement and coordinate activities has potential. Dutch institutional investor forum Eumedion employs a similar structure for AGMs to good effect (which is particularly helpful to foreign investors).

“A key issue in the UK has been insufficient participation by foreign institutional investors in collective engagements with companies.  If the proposed Investor Forum is able to boost their involvement materially, it would be a substantial achievement.

“It is commendable that the Investor Forum will seek to promote long-term strategies and competitive advantage at investee companies. It would, of course, require institutional investors to adopt longer investment horizons themselves and strengthen their competencies to evaluate strategies and competitive advantages over the long run.”

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