Emma Ann Hughes  

FCA pressure could end rock and roll star managers

Emma Ann Hughes

Emma Ann Hughes

Investment management has always been much more rock and roll than other parts of the financial services industry.

Before you splutter your coffee all over your desk in shock at this statement I will clarify. I do not mean asset managers are rock and roll in the sense that we have lots of fund managers throwing television sets out of hotel bedroom windows or that investment analysts get to pick the best groupies out of the crowd during their stellar Powerpoint presentations.

What I mean is there are parallels in the way talent has been cultivated in both the asset management industry and at record labels in the past.

Article continues after advert

Record companies would recognise and account for the fact the vast majority of acts they sign may at best manage a few minor hits but most will eventually sink without a trace.

But despite this fact these companies would still roll these acts out in the hope one of them would go stratospheric like U2, Michael Jackson or the Beatles and fund the discovery of future stadium giants like Coldplay, Adele or Bruno Mars.

The success of those stellar acts would assist the record company to build up a profit and invest in others.

It was the same with fund managers when I first entered this industry.

The biggest investment houses would build up a profit and pay plenty of new managers to launch funds knowing many wouldn’t amount to much but some – the names Neil Woodford and Anthony Bolton immediately spring to mind – would deliver top performance and drag in billions of pounds of investment.

The Financial Conduct Authority’s asset management market study this week had many excellent points.

It rightly demands greater fee transparency from the asset management industry.

The report was critical of the asset management industry running at a 30 per cent profit margin and defending annual management charges by saying it was all about performance.

The FCA found many actively managed funds fail to beat the passive, lower cost alternatives.

Comparisons were made with the very narrow profit margins of retail giants like Tesco.

At best the FCA’s paper suggested the asset management market looks like “price clustering” and at worse it portrayed it as looking like a cartel. 

It is wrong to compare the asset management industry with shops like Tesco. The laws of supply and demand mean they don’t have to spot the next big thing. They can see it flying off the shelves and swiftly just order more of it.

While the regulator is right to push for greater transparency of charging information, I feel availability of all of the data in the hands of the consumer will drive costs down and ensure that the consumer gets a better deal.  

Those managers who truly perform over the longer term will be rightly rewarded but the law of supply and demand have always meant those that don’t perform as well will be weeded out.