A review commissioned by the Treasury and conducted by Gartmore Investment Management chairman Paul Myners is seeking to find out why there has been a reluctance on the part of institutional investors to invest in assets such as venture capital, companies outside major stockmarket indices and high-yield bonds. A consultation paper issued in mid-May posed a series of questions which it is hoped will result in firm recommendations in time for the Chancellor’s Budget in 2001 – but side-stepped the issue of corporate performance.
Myners questions whether the fund management industry is too concerned with avoiding underperformance at the cost of the rewards of outperformance. This may be because of factors ‘encouraging institutional investors to follow industry-standard investment patterns which focus overwhelmingly on quoted equities and gilts’, he says.
Myners notes in his report that only 0.5% of pension fund assets are invested in venture capital, one-tenth the rate at which their US equivalents back such SMEs. Moreover, the venture industry raised three times as much money from foreign pension funds and insurance companies as was raised from their UK counterparts.
At the same time, more small companies have de-listed from the London Stock Exchange than joined it, because of ‘high levels of dissatisfaction’ when quoted. ‘It is important for growth and innovation that there is the broadest possible range of financing alternatives available, particularly for small companies,’ the document comments.
But the main part of the paper does not specifically address one question raised by Myners in the Foreword, where he asks, ‘Do we have the right incentives to tackle underperformance at the companies in which we invest?’ For now, the question of whether active institutional involvement in corporate governance might raise the benchmarks for all investors’ benefit is unanswered.
The paper is available at www.treasury.gov.uk. Responses can be e-mailed to myners.review @hm-treasury.gov.uk.com
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