Short-termism contributed to GFC
While many corporate executives believe that investment analysts value people and culture, what they really value is cost management and efficiency, according to new research released by AMP Capital Investors.
AMP Capital Investors' latest Corporate Governance Report warned, however, that an overemphasis on short-term factors in preference to longer-term qualitative risk issues contributed to the asset price bubble that preceded the global financial crisis.
AMP Capital Investors' senior portfolio manager of sustainable funds, Michael Murray, said the research had identified an overreliance on intangible aspects of valuation, particularly things that could be comfortably measured and communicated by the analyst community, such as announced costs and efficiencies.
“Investors can avoid traps associated with an overemphasis on short-term company factors by considering intangible and qualitative issues such as corporate governance [and] environmental and social responsibility,” he said.
Murray said understanding intangible issues and how these impact asset valuations requires a longer-term perspective than is generally adopted by market participants.
He said overemphasis on short-term performance was likely to remain a challenge for fundamental investors, but by conducting long-term risk analysis, investors could have avoided companies that were the “flavour of the month” during the asset price bubble by focusing on significant issues around governance and transparency.
Recommended for you
Sharing his reasoning in joining the FSC board, WT Financial chief executive, Keith Cullen, believes “product and advice cannot be separated” from each other in the current environment.
The Emerge Foundation, a charity run by financial advisers and fund managers, has announced a scholarship program to help veterans transition into tertiary education.
In an open letter, Sequoia chief executive Garry Crole has hit out against shareholders “with a personal axe to grind” as he fights for his job ahead of an EGM.
The JAWG has announced it is in talks with Treasury around five “core principles” to strengthen the education standards for new entrants to the financial advice space.