TOO many companies are posting financial information too frequently in a “mechanistic” fashion that doesn’t help shareholder understanding, claims the new chief executive of the powerful Investment Management Association.
And so Daniel Godfrey, whose members north and south of the Border run an aggregate £4 trillion of funds, shows that he is backing Business Secretary Vince Cable’s plan to scrap companies’ need for quarterly reporting, writes Martin Flanagan.
Cable has said quarterly reporting, increasingly the norm, encourages greater focus on short-term returns than long-term value.
“We would support the withdrawal of mandatory quarterly reporting,” says Godfrey, who took over as the IMA’s chief executive on 1 January this year. “You get into a mechanistic cycle which does not really add value to the sum of public intelligence.
“And if a company’s trading is much worse than expected, they should be making a separate announcement anyway. If anything significant has happened [to what results can be expected] the listing authorities say you must make an announcement.”
Godfrey, previously the chief executive of trade body the Association of Investment Companies, says the current glut of publicly-quoted trading statements, has “inevitably” made the process increasingly formulaic.
Asked whether he has got his feet under the table at the IMA now, Godfrey jokes it has been more a case of “feet not touching the ground”.
He visited his members in Scotland earlier this year, and promises regular trips north from the IMA’s central London office in future.
On his radar are a new financial regulatory architecture to be negotiated in Britain, and a stream of what Godfrey brands “politically driven legislation coming out of Brussels”. He says this is typified by the European Union’s proposed financial transaction tax.
He was in Brussels twice in one week alone recently, batting for Britain’s investment management industry, but says ruefully: “The challenge is that it is often a case of, ‘My mind is made up, don’t distract me with the facts’.”
Asked for his initial impressions in the job, Godfrey essentially says the UK asset management industry has to get its skates on in doing its part in rebuilding public trust in what he says is a damaged sector.
“Financial services is not well regarded,” he says. “The window for the industry to ensure it retains control of its own destiny is narrower than I might have thought.”
As such, the IMA boss is passionate about “clear and simple” presentation of charges for fund management services, which he sees as a chink in the sector’s armour against regulatory crackdowns at present. Consultation is going on this summer with members, and he hopes for the initiative to significantly pick up pace by the end of 2014 and through 2015.
How are IMA members responding? Pretty well, apparently, seeing such a move as enlightened self-interest as well as the right thing to do.
Godfrey says: “There’s been good buy-in [to the idea] by members. Unless we do this, and in short order, we are going to find that bigger and uglier people will do it for us. And because they understand the industry less, it could lead to greater costs and complexity.”
Back to issues across the Channel, Godfrey says a UK quitting the European Union after a referendum could be viable, but it “would not be my first choice” if substantial improvements to Britain’s relationship with the trading bloc could be achieved.
“I would never say we should do anything at any price. But for the next few years we should be focused on building understanding and consensus around the need for positive change in Europe; selling to the public the value of a healthy functioning Europe to the UK.”
On the subject of independent viability, Godfrey is measured on the Scottish independence vote in 2014. He says the vote is “clearly a matter for the Scots, I don’t want to get involved”.
But he adds: “Absolutely it [a Yes vote] would affect the IMA’s Scottish members. There will be some difficult issues for them to deal with.”
He cites questions about the currency an independent Scotland would use, legal entity status and whether the country would become an EU member.
Quite apart from business matters, Godfrey has been a regular visitor to Scotland down the years, and is a devotee of the Edinburgh festivals. He also has a Scottish chairman at the IMA, Dougie Ferrans, a doyen of the fund management sector.
Godfrey says: “I am a big fan of the festival, but have not been in recent years. Maybe I have been lucky, but I have often been to five or six shows in a day, and found them thoroughly enjoyable.”
Back to the day job, Godfrey appears ambivalent on last year’s “shareholder spring” of investor activism on pay and corporate governance and its more modest reprise this year.
He says he is “not knocking the shareholder spring”, but claims that the fixation on boardroom remuneration and governance can get in the way of longer-term investor interests exemplified by a company having a good strategy which delivers strong long-term financial returns.
“They [public shareholder rebellions] can be distracting. They can inadvertently be counter-productive sometimes. We should be encouraging boards to take long-term decisions. An over-fixation on boards and pay sometimes does not really help,” Godfrey says.
There has been much talk of the private sector taking up the slack of public sector job cuts, but Godfrey says he sees “no explosion” of mid-office and back office jobs in the asset management industry over the next 18 months or so.
“The UK has been subdued, profits are under pressure. They are not expanding for the sake of it. Rather they are looking to work smart,” he says of his members, which include Scottish fund managers managing about £750 billion of assets.
On another subject, the IMA chief is bracingly candid in saying he has no real idea why the UK stock market is flirting with 12-year highs, although alludes to low inflation, low interest rates and a poorer performance in bonds.
“It is one layman’s opinion, really. I don’t know whether stock markets are cheap or expensive,” Godfrey says. “One day I think they are expensive, one day cheap. I invest every month anyway.”
Born: London, 30 June 1961
Education: Westminster School and University of Manchester
First job: Trainee life inspector, UK Provident
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Car you drive? I use my feet
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