DBIS has published the final report of the “Kay review of UK equity markets and long-term decision making”. The report says the explosion of intermediation is one cause of the culture of short-termism in equity markets. Asset manager appointment is too often based on short-term relative performance. Instead of engaging in developing the fundamental capabilities and value of the business, asset managers are incentivised to focus on expectations of likely short-term movements in share price. The report calls for regulation focused on establishing market structures which provide appropriate incentives. Its recommendations include:
- all participants in the investment chain should adopt Good Practice Statements that promote stewardship and long-term decision making;
- an investors’ forum should overcome fragmentation in shareholder structures and help collective engagement by investors;
- fiduciary standards should apply to relationships involving discretion over the investments of others, or providing investment advice. This will ensure the client’s interests come first, avoid conflict of interests and make sure costs are disclosed;
- all income from stock lending should be disclosed and rebated to investors; and
- remuneration for directors and asset managers should relate, respectively, to long-term performance and the best interests of clients.
(Source: Kay Review Final Report)