Change incentives to focus on long-term
The investment industry must change the incentive structure for asset managers to encourage them to value more long term investment horizons, according to chairman of the 300 Club, Saker Nusseibeh.
Speaking at the Australian Council of Superannuation Investors, said that the bonus system drives fund managers to make money over one or two years, and value the short term much more than the long term.
The entirety of the bonus is not discretionary, and that pushes people to work just for the bonus, Nusseibeh said.
The incentive structure for the financial industry and investment and banking industry is nuts, he said.
Asset managers must be incentivised to work towards five year goals at least, he said.
The returns must also be risk-adjusted, not absolute, he added.
Nusseibeh also suggested that a bonus be invested in the fund that the manager is in charge of.
The European Union is pushing to increase the base salary of fund managers in Europe, which will force companies to think about who they want to employ for the longer term, he said.
There must be a different relationship between asset managers and their clients, Nusseibeh said.
Asset managers have to be completely open with their clients, because a long term relationship will sustain our industry, he said.
"We on the asset management side have a depth of knowledge and we choose not to say everything we know, because it's good for our business, but that's stupid, because it affects our business in the long term," he said.
The concept of environmental, social and governance investment has to be integrated into all of investment disciplines, he added.
AUTHOR
Staff Writer
Recommended for you
The latest budget papers have outlined a $10 million provision for ASIC greenwashing enforcement activity as well as funds for a sustainable labelling regime to be partially met by industry levies.
Betashares has expanded its fixed income solutions with the launch of a new ETF offering exposure to subordinated bonds issued by the big four Australian banks.
The latest monthly Bank of America global fund manager survey has found investors are starting to shift cash into bonds as cash allocations reach a three-year low.
AUSIEX analysis has discovered the net traded value of Australian dollar fixed income ETFs more than doubled from January to April, reflecting growing investor demand.
