New paper suggests asset managers take ‘Hippocratic Oath’ to ‘do no harm’: The Purpose of Asset Management

by: Liam Byrne MP, Chair of the All-Party Parliamentary Group on Inclusive Growth | on: 26.03.18 | in: Business ethics, Inclusive Growth
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The City has trillions of pounds under investment which must be put to work to rebuild a more inclusive economy. Whether it is infrastructure or business investment, we urgently need new approaches to putting capital to more productive use for wider economic growth.

New paper suggests asset managers take ‘Hippocratic Oath’ to ‘do no harm’: The Purpose of Asset Management

by: Liam Byrne MP, Chair of the All-Party Parliamentary Group on Inclusive Growth | on: 26.03.18 | in: Business ethics, Inclusive Growth tags:
The City has trillions of pounds under investment which must be put to work to rebuild a more inclusive economy. Whether it is infrastructure or business investment, we urgently need new approaches to putting capital to more productive use for wider economic growth.

Cross-party Parliamentary think-tank launches programme to harness the City to help fix inequality

New paper suggests asset managers take ‘Hippocratic Oath’ to ‘do no harm’

Parliament’s cross-party economic think-tank, Inclusive Growth, has launched a new programme aimed at harnessing the financial power of the City of London to build a fairer economy.

The ‘Purpose of Finance’ programme was launched at an expert roundtable held at the House of Commons, ahead of the group’s OECD Global Parliamentary Conference on Inclusive Growth which brings together experts and Parliamentarians from 33 countries  at Easter. The launch came with a new, thought-provoking paper entitled The Purpose of Asset Management which explores ways in which asset management could be reformed to make capitalism more responsible – including a ‘Hippocratic Oath’ for asset managers to ‘do no harm’

Launching the new paper and the programme, the co-chair of the Inclusive Growth APPG Liam Byrne MP said:

“The City has trillions of pounds under investment which must be put to work to rebuild a more inclusive economy. Whether it is infrastructure or business investment, we urgently need new approaches to putting capital to more productive use for wider economic growth.

“This new paper makes a vital contribution to understanding how we can harness the City’s power to build a good economy, where wealth is more fairly shared. A Hippocratic-style oath to ‘do no harm’ could be just one step towards making that happen.”

 

George Freeman MP said:

“We urgently need the kind of forward thinking in this new paper. After the squeeze on average incomes as a result of the legacy of the Crash of 2007, 20 years after the deregulation of the City in Big Bang, and popular fears about the risks of unregulated globalised capital and technology has left the City and asset management industry struggling for popular support. The analysis and ideas suggested in this paper help to show how we might rebuild popular support for the City as a force for a more responsible, stable, sustainable and inclusive kind of capitalism.”

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The Purpose of Asset Management

At the launch of the APPG’s new ‘Purpose of Finance’ programme, Jon Lukomnik, pensions and corporate governance expert, and Professor Jim Hawley, Head of Applied Research at TruValue Labs, presented key findings from their new thought-provoking paper on The Purpose of Asset Management.

The paper, which was sponsored by Pension Insurance Corporation asks whether today’s asset management industry works, whether its interests are aligned with savers and the real economy, and whether it could do better.

The paper identifies problems with how the industry operates, notably:

  • misalignments between the incentives of the industry and those of the individual (and institutional) investors who are its ultimate clients and should be its ultimate beneficiaries
  • complexity
  • a multiplicity of fees (many of which are opaque)
  • short-termism

The authors suggest that today’s investing paradigm ignore systems-level risks to investing, from overarching ones like climate change, to internal financial ones like market distortions caused by popular investment products. They suggest a number of reforms such as:

  • taking systems issues into account to improve the returns for all participants: individual investors, institutional investors, and even the industry itself.
  • a simple fee statement equivalent to the nutrition statements which appear on prepared foods,
  • a “do-no-harm” Hippocratic Oath for the industry.

The meeting also discussed a wide range of questions relating to the industry including investment decisions, regulation, short-termism; fund proliferation and intermediation.

Ends

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Notes to editors

 

The All-Party Parliamentary Group on Inclusive Growth brings together reformers across politics, business, trade unions, finance, churches, faith groups and civil society, to forge a new consensus on inclusive growth and identify the practical next steps for reform.

For further details about the APPG on Inclusive Growth and its ‘Purpose of Finance’ initiative, to interview the APPG’s co-chairs Liam Byrne MP and George Freeman MP or the authors of ‘The Purpose of Asset Management’, please contact harry.kind@parliament.uk

The Purpose of Asset Management can be read here

The executive summary is below

 

Executive Summary – The Purpose of Asset Management

Asset management – the investment industry – is huge. It will invest more than $111 trillion worldwide by 2020. It already controls £5.7 trillion in the UK today.

How that money is invested matters. Britons rely on the asset management industry for retirement security, for vacation savings, for buying a home, or just to save generally. British industry and commerce rely on it to finance the real economy and to create jobs.

But how well does today’s asset management industry work? Are its interests aligned with savers and the real economy? Might it do better?

In this paper, Jim Hawley and Jon Lukomnik examine those issues. They suggest that the combination of how the industry is structured, combined with the dominant investment theory of today, results in a decidedly mixed picture.

On the one hand, there is tremendous expertise available to ordinary savers, access to diversified investments either through active managers, tracker funds or, increasingly, what has come to be called factor investing in which certain characteristics of a pool of investments are sought or avoided.

On the other hand, there are misalignments between the incentives of the industry and those of the individual (and institutional) investors who are its ultimate clients and should be its ultimate beneficiaries; complexity, a multiplicity of fees (many of which are opaque), and short-termism. Perhaps more importantly, they demonstrate how the limitations of today’s investing paradigm ignore systems-level risks to investing, from overarching ones like climate change, to internal financial ones like market distortions caused by popular investment products.

Hawley and Lukomnik suggest a number of incremental fixes, such as a simple fee statement equivalent to the nutrition statements which appear on prepared foods, and a “do-no-harm” Hippocratic Oath for the industry. The key recommendation, however, goes to the heart of how we invest. They suggest that taking systems issues into account would improve the returns for all participants: individual investors, institutional investors, and even the industry itself.

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