Fund managers are not the same as investors: it’s time we remembered that

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Brendan Barber has written on the TUC blog, saying:

We’ve been examining the voting records of institutional investors for seven years now at the TUC, through our Fund Manager Voting Survey (2009 full survey here), and we’re noticing a worrying trend- we’re now down to 40% of fund managers responding to our survey, compared to 68% only five years ago.

Coupled with this, there seems to be a pattern of complacency amongst many funds. The vast majority of institutional investors didn’t challenge the remuneration reports of leading banks in the run up to the crash. Only one respondent (Co-operative Insurance Society) opposed RBS’ acquisition of ABN Amro (which is now widely regarded as one of the worst deals in UK corporate history). Such a strong pattern of siding with the board on controversial decisions looks like fund management on autopilot.

The theory is that in modern capitalism company boards are accountable to their owners, the shareholders. But this is a long way from what is actually happening. Instead share owners, mostly ordinary people saving through their pension funds, simply have no say.

The fund managers who are meant to exercise ownership rights and responsibilities often fail to do so. What is worse is that many will not even tell the unions that represent thousands of pension fund savers whether or how those ownership responsibilities were exercised.

It’s worth reading the rest, but the key issues is this: pension and other investment fund management has been almost entirely devolved in our current financial hierarchy to the City. And yet that’s exactly where the worst ‘group think’, the big bonus culture and the conflict of interest that puts personal gain for the banker / fund manage ahead of duty to their company, client or society is at its worst.

So we’ve outsourced control of pensions to the very people least likely to do the job well because they have maximum conflict of interest and the lowest level of motivation to break the mould of the City which ahs created such spectacularly poor results that BT can only meet 57% of its pension obligations.

And yet, every time the government consults with investors it asks those pension fund managers what they want — not the actual members of the fund, creating a ring fence around this money which is supposedly managed for pension fund members but which is in practice entirely purloined for the benefit if the City with such miserable consequence.

Pension reform would be another task for a genuine left-wing government of the sort we so desperately need. And it’s another indictment of New Labour that what we have has failed so badly.