A panel discussion and Q&A with Professor John Kayby Prospect Team / November 27, 2013 / Leave a comment
From left to right: Sir George Cox, Henry Tapper, John Kay, Bronwen Maddox and Martin Gilbert © Sophia Schorr-Kon
Listen to the event here
On 19th November Martin Gilbert, CEO of Aberdeen Asset Management, hosted an event on short termism in equity markets in association with Prospect. On the panel were Professor John Kay, Henry Tapper and Sir George Cox.The debate was chaired by Bronwen Maddox, Editor of Prospect.
Professor John Kay, the economist and Financial Times columnist, explained to a large audience at Aberdeen Asset Management’s London office, the reasoning behind his report into equity markets, which was published 18 months ago. The report, explained Kay, pointed out that public exchanges were a product of the 20th Century and were designed to suit the purposes of large manufacturing corporations such as rail companies. But 21st Century exchanges are composed of companies that are much less capital intensive. Companies now, especially technology companies such as Google, Facebook and Twitter, can become cash generative much faster. So when Facebook issued equities, and in doing so raised £16bn, it made clear afterwards that it had no idea what to do with the money.
Kay said UK markets were no longer a significant source of funding for new investment by UK companies and equity markets were now dominated by asset managers, consultants and other intermediaries. The raison d’être of equity markets he said was not however intended to be the intermediaries but rather the savers whose funds are invested and the companies in which those funds are invested.
A cultural change is required across the entire equity investment chain, said Kay. The system should be simpler, involve fewer intermediaries and should require a greater number of specialists and fewer conglomerates. Martin Gilbert stressed that the conduct of firms intervening in the investment chain should be driven by the overarching principle of putting customers first. This implies exceeding the principles of treating customers fairly and in that sense involves a greater degree of responsibility to be demonstrated by firms in servicing investors.
The “hyperactivity” in evidence in equity markets was, Kay told the audience, a measure of the “decay” of those markets, not of their health. Investors should place their money with asset managers for much longer periods—and those managers, he said, should face an entirely different regulatory framework. Kay noted that the regulation of the…