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If you think bankers are greedy and self-interested, you should meet fund managers

GreedThe latest incomes data shows bankers still getting obscenely high remuneration and whopping big bonuses, yet they are being overtaken by another group within the finance sector. Fund managers have now overtaken the pay and bonuses of bankers, though they’re keeping it very quiet. They say there’s no need for customers (i.e. the investing public) top know about their pay because all the overall data about running a fund – its cost, performance, etc. – is already published. But this evades the role which fund managers should be playing, but are not playing, under free-markets anything-goes contemporary capitalism.

These executives who manage the enormous pension and insurance funds that make such a large part of Stock Exchange shareholdings are the same persons who both usually exercise a decisive vote at company AGMs, over contested merger and acquisition issues, and at determining the boss’s pay in remuneration committees. Whereas all these major decisions should be taken independently at arms length, or at least within a much wider and more representative forum, the fund managers co-exist within a closed circle around the top and thus have all the big decisions neatly sewn up – for which they are rewarded with the riches of Croesus.

In any accountable economic system the fund managers should be the guardians of good corporate governance, both in terms of insisting on objectivity and independence for decisions made at the top of the business world and also demanding that pay and incentives are moderated to a degree that is socially acceptable. They do the reverse. By encouraging, or at least not fretting at, greed in the boardroom they indirectly get a kickback in their own exorbitant fees.

Fund managers are at the epicentre of non-accountability in the City of London. They exercise no leverage against excessive pay because they refuse to make public their own out-of-control remuneration. Their boast of pay-for-performance is nullified by their insisting on rewarding themselves with the same proportion of assets even when in the good times these assets are rapidly swelling. Fees should be falling as investment houses get bigger, and the benefits of size should be passed on to individual investors,but they’re not.

In the last 30 years the proportion of share on the Sock Exchange held by individual investors has nosedived till it is now a mere 10%. Their place has been taken either by big foreign interests (who now control half of all Stock Exchange holdings) or by the big UK institutional funds. With this degree of shareholder control vested in fund managers’ own hands goes crude power. It is another example exposing how the checks and balances have been eroded away within an increasingly rotten capitalism.

3 Comments

  1. Robert says:

    But they have been allowed to get away with this by Ministers of all parties, so in the end whom do we vote in who will do something about it, labour I very much doubt it, Tories of course not .

  2. Barry Ewart says:

    Yes the SDP coup of New Labour wouldn’t have been interested but current Labour has moved on a bit. You had mentioned the awful faction ‘Progress’ (an oxymoron) and perhaps this faction should be honest and rename themselves the SDP!
    We need massive taxes on bankers bonuses, hedge fund managers and the rich in general as well as windfall taxes on the top 200 companies plus tax land and have a substantial EC Financial Transaction Tax – will wipe out debt and end austerity at a stroke and will leave us reserves for a rainy day after longer-term public investment but then again I am a democratic socialist and not a social democrat – I don’t want to manage capitalism and have a few crumbs for working people – I want to redistribute wealth and power democratically in favour of working people. Your in solidarity!

  3. James Martin says:

    The increase in fund managers pay (which has been massive since the banking crisis) is actually all down to quantitative easing. Unlike the older practices of straightforward government money printing to pay off debt (which also leads to inflation – although some inflation is necessary for the debt value to reduce, as most of our WWII debts were over some decades), or new government bonds (gilts), QE effectively pumped money into certain banks who then used it to buy certain financial assets.

    This has not (so far) led to inflation (the opposite is actually the case) , but it has artificially boosted the stockmarkets as well as putting lots of money into both the hands of thge bankers and fund managers. However the bankers are under the spotlight, and despite still disgusting multi-million pound bonuses for those at the top the middle managers have had their cloth cut. There is no such spotlight on the fund managers however, and while there has been regulatory (and some investor) pressure to reduce fees, aided by the changed rules on commission (so now the average fund manager basic take has fallen from around 1.5% to around 0.75%, there has been an increase in both the money they manage and in a number of additional performance bonus charges,

    Essentially what we now have is living dead zombie capitalism that is centred on the US fed reserve. The traditional capitalist reviving process where a crisis put unprofitable sectors and businesses to the wall and the remaining competitors benefited and grew at their expense is hamstrung by the fact that the individual units of competition are now nations or larger (the EU for example) and so failure has game changing implications (mass starvation, war, fascism, revolution or other unknowns), so the Fed, and others (The UK and EU) find they can’t actually turn the QE tap off very easily, which in turn makes the fund managers very happy bunnies indeed.

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