Fund managers have been urged to publicly disclose their pay practices by the industry’s trade association, amid calls for a fresh clampdown on excessive pay in the sector.
In a private memo to the UK’s asset management chiefs, seen by Investment Adviser, the Investment Association said the secrecy around fund managers’ pay was a “growing source of reputational risk”.
It has advised all of its roughly 197 member firms to publish a prominent “client-focused” document stating their pay policies and how their investment teams’ interests are aligned with their clients’.
It comes as public anger over excessive pay and reckless behaviour in the banking industry is threatening to spill over into investment firms, which have already been censured by the FCA for a lack of clarity over how they charge clients.
M&G Investments was recently criticised for paying bond fund manager Richard Woolnough £17.5m last year in spite of poor relative returns.
In 2013 the industry narrowly avoided a European Union bid to cap bonuses at 100 per cent of salary for retail fund managers – a cap that already exists for the banking sector.
From next year, however, the EU will force fund managers to invest at least half of their bonuses in units of their funds and defer at least 40 per cent of their bonuses for three years.
In March, the Institute of Directors (IoD) launched a report calling for regulators to investigate the funds industry.
The organisation also called for an investigation into pay, warning fund managers they were ill-equipped to police the governance of investee companies’ remuneration practices if their own pay was secretive and excessive.
The Investment Association circular was sent out following an April 22 meeting of the organisation’s board.
The recommendation stated that its members should “publish a single client-focused description of their remuneration policies and how, in practice, their design and application are aligned with the interests of clients”.
IoD director-general Simon Walker welcomed the initiative and urged investment managers to “listen to their association and give clients much better information about pay”.
“There remains considerable mystery about the fees fund managers charge,” he added.
“The initiatives... tried so far, including the UK Stewardship Code and the Kay Review, have not yet achieved the desired results.”
However, he also reiterated calls for regulators to investigate the industry.
“This disclosure alone will not quell the increasing disquiet about how the profession operates, particularly when it comes to their stewardship of the companies they invest in on behalf of their clients.”
Mr Walker added that he supported recent Labour Party proposals to force fund managers to declare how they vote on key corporate governance issues.
Investment Association chief executive, Daniel Godfrey, said as investment managers “take their place at the heart of pensions delivery and in the funding of economic growth, they also recognise the need for greater transparency around what those standards mean and how they are applied”.
“Our Statement of Principles and recommendation on disclosure of remuneration policies are two examples of investment managers stepping up in acknowledgement of their vital role in the economy and in their clients’ financial success.”
Asset managers’ pay on course to overtake investment bankers’ packages
In February this year European think-tank New Financial released research showing that pay per employee at asset managers looked set to overtake that paid to investment bank staff.
Pay at asset management firms used to be half that seen at investment banks, but since the 2008 financial crisis pay has increased by a fifth.
“Asset managers and investment banks could significantly improve the division of reward between staff and shareholders,” the report said.
“There is significant scope for further reductions in pay and staffing, and for sharing some of the efficiency and scale gains of the past decade with clients in the form of lower fees.”
