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‘Constant battle’ to drive long-term investment
05 December 2013
The chair of the UK Collective Engagement Working Group tells Stephanie Baxter why he believes investment behaviour needs to change
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
"It's very sad how the dialogue in London has become so
dominated by the combination of investment banks and hedge
"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
"Quite a lot has been going on [to try to change things] 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
"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 [been able to invole] some large American
institutions and sovereign wealth funds - that's a big
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."