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SLI CEO Skeoch calls for debate on long-termism

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Standard Life Investments (SLI) has called for a new phase in the debate on long-termism concentrating on how we create the conditions that will improve the supply of, and investment freedom for, long-term capital.

Speaking at the North East Chamber of Commerce Tees Valley Annual Dinner in Middlesbrough on Friday 21 September 2012, SLI chief executive Keith Skeoch (pictured), said: “The intellectual debate on shareholder behaviour has largely been won. The shareholder spring and the Kay report show that a consensus is starting to form about the practical measures that need to be implemented. There is still much hard work to be done to ensure that effective engagement and comply or explain, which lie at the heart of good governance, are embedded as best practice but it’s as much about the how as the why.

“It is important to recognise that the main factors driving investors to take shorter-term views are not confined to equity markets but are also affecting strategic asset allocation. The unintended consequences of imbalances between macro-prudential and macro-economic policy are driving long-term investors to take shorter-term views. In particular the negative feedback loops that flow from the combination of risk based solvency, mark to market accounting and inflation targeting are proving toxic for the risk appetites of long-term funds. This is having the unintended and paradoxical effect of frustrating the record levels of short-term stimulus from monetary policy.

“There is a real need for increased transparency and simplicity in the regulatory framework, and while this is starting to be recognised for banks, it is every bit as important for long-term investors.

“Macro-economic and macro-prudential policy needs to be fully integrated with an appropriate balance between the two. If policy makers cannot mitigate the impact of the negative feedback loops they should give serious thought to abandoning inflation targeting.

“Simplicity and transparency are fine words but in our deeply complex financial system will do little to improve matters without an increase in trust. While there are no short-term fixes the way to build trust is to promote Stewardship, which should be at the centre of economic and financial life in a modern well governed economy.

“Asset gatherers are the Stewards of savers’ funds and need simple, transparent and cost effective propositions to deliver returns that allow individuals to financially cope with life’s trials and tribulations. Investors are the Stewards of the assets they manage and have fiduciary responsibilities to their clients about their ability to deliver a return to help meet savers’ needs. Companies and boards of directors are Stewards of the capital they are allocated, the assets they acquire with it and the return delivered to investors and their ultimate clients’ savers. Finally the policymakers also need to recognise that they are Stewards of the economic and financial system and should take a long run approach to its health rather than looking for shorter run fixes.”

 

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