We all like to excel in our chosen field and sometimes people will go to great lengths to do so, including paying for it. Asset managers, it seems, are no different as data from the Thomson Reuters Extel Survey this week revealed they are continuing to allocate a significant sum of their commission pot to brokers who offer them access to senior company executives.
This is no surprise as I’m sure any asset manager would highly value a bit of one-to-one time with senior managers at companies they invest in.
Indeed, the survey, which asked 5400 portfolio managers and buyside analysts what they reward in sellside research and advisory services, found some 25.2% of respondents said corporate access/expert panels/networks. This led the pack, followed by: independent thinking (16.3%); trade ideas (15.7%); direct analyst contact (14.2%); written research (12.5%); wide coverage of stocks (9.6%); and ongoing client/sales service (6.5%).
The Financial Conduct Authority (FCA) has already threatened multi-million pound fines for asset managers who pay for corporate access, but the fact they highly value this service – and that it came out top in the survey – suggests it still occurs. One option is to ban one-on-one meetings completely but surely this would be difficult to police as they could still take place under the radar?
Research is a cloudy area. If the access is for legitimate research purposes and the payment comes from an asset manager’s own pocket then this can be viewed as acceptable. After all, this could be seen as fulfilling fiduciary duty to get the best return for clients by meeting the top bods at a company.
If on the other hand fund managers are using investors’ money to pay for this access under the guise of ‘research’, then that is when it becomes highly controversial and where the FCA should step in, as it already has. But the situation is made more difficult by the fact that institutional asset owners are continually putting pressure on their agents, or asset managers, to better engage with the companies they invest in – particularly the case for smaller pension funds with lower governance budgets. So, if an asset manager meets with company management, is that not just an example of trying to be actively engaged as a steward on behalf of its clients (pension funds)? It depends on who’s paying.
Greater transparency is needed here to ensure the end investor does not suffer as a result. The Investment Management Association’s working party to examine how research should be paid for is encouraging, but should be just the start of a deeper delve into what constitutes ‘research’.
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