The 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.