Asset Management has created a monster, the Star Manager! Beyond the specific headlines and issues, Woodford poses a broader question of the industry’s value to society; wealth creation, the economy, social equality and even environment. The debacle questions active fund management, fund advocacy and whether fund board governance is actually working on behalf of fundholders, to the very core of what we hold dear as fiduciary, and the agent-principal relationship. Will iNEDs face ‘the pit and the pendulum’ in my Halloween entry?
Greetings fellow FBC members!
I write to you in the aftermath of Halloween, the wasteland following the invasion of small berserkers whom threatened tricks if not satisfied with treats. Pocket size dictators with questionable costumes, dubious jokes and sugar-induced frenzy. I can still hear ‘The Ride of the Valkyries’ blast out as the diminutive horde crested the horizon. Likewise, in fund board land there was blood on the Board table and not just from the sharp edges of stapled packs but also the very public defenestration of an Oracle. Woodford.
The Oxford based manager exposes our mob mentality and inherent desire to create monsters. Natalie Lawrence at the Department of History and Philosophy of Science, Cambridge explored ‘What is a Monster?’ Citing Dr Walter Palmer, aka ‘The Dentist’, who illegally shot Cecil the Lion in Zimbabwe. In doing so, creating outrage on social media and persecution for Palmer. Natalie wrote that;
“public ‘monsters’ serve a similar role to gothic monsters, images that embody the cultural or psychological characteristics that we as a society find difficult to acknowledge. By excising them, through fantasies of execution or simply professional exclusion, we rid ourselves of the undesirable attributes they are perceived to carry.”
Vampires then, in keeping with the work of Natalie Lawrence at Cambridge, become a societal embodiment and revulsion towards parasitic behaviour, the draining of value and that ‘manager’ remains high on directors’ minds. The recent BBC Panorama report painted a fairly monstrous picture of the ‘Oracle of Oxford’ and of ‘light touch’ governance surrounding. Consumerists have lauded the coverage; low cost index distributors profit from it, while the Investment Association (IA), the industry’s trade body, and many senior managers outcry their revulsion to the broader implications made. Fund buyers, raters and distributors have observed, commented and obfuscated but will face their own inquisition of recommended buy lists.
Before the new iNED changes have fully taken hold, or the first AoV disclosure published, the effectiveness of fund governance and ‘independents’ is already bloodied. Caught between the respective mobs, key areas such as conflicts of interest, fund suspensions, fees, illiquid assets, open-ended fund structures, supertanker funds and investor mix have all been thrown into the pit. Andrew Bailey, of the industry regulator, the Financial Conduct Authority, has hinted at more segregation of retail and institutional investors but that seems to jar with the purpose of its own Assessment of Value. If the job of iNED was already under pressure, get ready for the pendulum to swing yet further.
The timing could not have been more prescient given the key topics this quarter. Brexit isn’t far away and Boards still find it hard to contextualise with so much uncertainty of outcome. The very future state of U.K. asset management hangs in the balance between a second ‘Big Bang’ towards deregulation or increased EU-pegged gold-plating. Reputation matters with prospective asset managers and non-domestic investors. How much of the nearly £10 trillion that IA-affiliated firms manage, will remain in the UK post-Brexit is unclear. The active-passive war marches on as rival domiciles, outsourced hosting companies, internal boards and even investment trusts are vying for the moral high ground. All seeking to grab time on the airwaves to publicly stake Woodford with propaganda worthy of Dominic Cummings.
Quite how Woodford or the Patient Capital Trust (the investment trust once managed by Woodford, but now under Schroders management) cast any fund governance structure in glory is lost of me. Within the perpetual tribalism between these factions, the public trust is ebbing away. The national savings ratio is at record lows. Perception is everything. How iNEDs are perceived will be crucial to retaining what little trust remains. The voice of iNEDs needs to rise and with it the volume of improving fund governance. As Link and the Patient Capital Trust has shown, iNED deniability is not a great defence. It is important to know what ghosts or skeletons lurk in the closets of your firm, to discuss and, if necessary, to challenge your executive colleagues.
So, it’s back to the day job. Whilst we all wait for the first AoV disclosures to trickle through, key reading this month being FCA PS19/4 on illiquid assets and ESMA guidance on liquidity stress testing. Get in touch and share your horror stories. Until next month dear friends, lock your doors and windows!
“I struggled no more, but the agony of my soul found vent in one loud, long, and final scream of despair.” The Pit and the Pendulum, Edgar Allan Poe.
JB Beckett, FBC Corporate iNED Member
iNED, Author ‘New Fund Order’
In his monthly column, Diary of an iNED, JB will record his experiences on the boards of two very different organisations as he navigates the highs and lows of a plural career at a time when the fund industry is beset with challenges and opportunities in equal measure.
JB can be contacted at firstname.lastname@example.org.
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