Building blocks in place for shift in investment culture

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Business Secretary Vince Cable set out the progress made in changing the investment culture of UK equity markets.

Publishing the government’s progress report on the implementation of the Kay Review, the Secretary of State:

  • committed to support the further development of the recently established Investor Forum, which has the potential to deliver a step change in effective collective engagement by investors
  • highlighted the government’s comprehensive reforms to corporate reporting frameworks, which will culminate in the imminent removal of mandatory quarterly reporting requirements by the Financial Conduct Authority (FCA)
  • announced that regulators will be looking to embed long-termism in guidance for investors, as recommended by the Law Commission’s recent review of the duties of investment intermediaries

Business Secretary Vince Cable said:

An excessively short-term, ‘quick buck’ investment culture was one of the key factors that led to the financial crash of 2008. I was determined that government should do something about it and make our equity markets better at supporting long-term value creation by British businesses.

That’s why I commissioned Professor Kay’s review, and I am encouraged by the progress that has been made in implementing his recommendations not just by government and regulators but also by the investment community itself. Sustained commitment will be needed to ensure that we fully deliver on Professor Kay’s vision, but I am convinced that we now have the building blocks in place to deliver a lasting shift in the culture of investment.

Simon Fraser, Chairman of the Investor Forum said:

Successful long-term investing requires the whole investment chain, including asset owners, asset managers, boards and management to work together to a common goal of value creation. The Investment Forum is designed to position good and effective stewardship at the heart of investment decision making. Our purpose is to facilitate dialogue, create solutions and enhance value for all investors in UK equities.

Speaking at an event hosted by Aberdeen Asset Management and the Investor Managers’ Association (IMA), the Business Secretary also set out how the government is taking forward work in a number of areas to ensure the commitment to reform is sustained. He highlighted independent research, published today alongside the report, into the ways in which long-term investors assess company and investment performance. This research builds on Professor Kay’s analysis and makes a number of practical suggestions about how to ensure long-term investors, asset managers and companies can work together more effectively on long-term performance.

Professor John Kay said:

I am pleased with the considerable progress that has been made by the government and market participants on the implementation of my recommendations. This is by definition a long-term agenda and momentum needs to be maintained, but I am delighted in particular that the Investor Forum – 1 of my central recommendations – has now come into being.

Professor Kay published his review in July 2012 and set out a radical agenda to reform UK equity markets and restore relationships of trust and confidence in the investment chain. He presented a series of high level principles and specific recommendations that would help shift the culture of investment to better support UK companies to deliver sustainable long-term growth.

The Law Commission’s review of ‘fiduciary duties’ commissioned by the government in direct response to one of Professor Kay’s recommendations was published in July. It proposed a range of actions for government and regulators to ensure that investors take full account of long-term factors such as social and environmental concerns and not just short-term financial performance. The government responds positively to all the Law Commission’s detailed recommendations in today’s progress report.

Government itself has adopted a long-term approach similar to that recommended by Professor Kay, in its Industrial Strategy. This is about developing enduring partnerships with business to build confidence now for investment and growth.

Industrial strategy has been at the heart of the recovery over the past 2 years. More than £10 billion of long-term public-private investment is making the UK more capable and competitive. There is funding until 2020 for the £2 billion Aerospace Technology Institute and a 10-year plan to develop low-carbon powertrain technologies through the Advanced Propulsion Centre.

The result of this has been increased business certainty delivering substantial investment and reshoring. More than £32 billion has been invested in UK life sciences in the past 2 years. Hitachi has doubled its workforce in the UK by relocating its global rail business to Britain and Jaguar Land Rover has invested £200 million into Merseyside.

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