The much-awaited Myners Review was published this morning. It is advocating clearer incentives and tougher pressures throughout the savings and investment industry but stops short of calling for major legislative changes.
In his 2000 budget, the Chancellor of the UK Treasury had asked Paul Myners, chairman of fund manager Gartmore Investment, to carry out a review of institutional investment. The Chancellor will give his response to Myners' recommendations in tomorrow’s budget.
Whilst praising the achievements of the British investment management industry overall, the review points to certain “distortions” that it wants to see remedied. Pension funds and their advisers are thus criticised for lacking resources and expertise to make informed investment decisions, relying on the unchecked judgement of others, bowing to peer group pressure and shying away of intervening in companies in which they are shareholders.
Overall, “the review finds that savers’ money is too often being invested in ways that do not maximise their interests. It is likely to follow too that capital is being inefficiently allocated in the economy”, Myners says.
The central proposal of the review is a short set of principles to guide investment decision-making. These would apply to pension funds and, in due course, other institutional investors. They would not be mandatory. But where pension funds chose not to comply with them, they would have to explain to its members why not.
Myners said the recommendations are little more than common sense, “yet they certainly do not describe the status quo. Following them would require substantial change in decision-making behaviour and structures.” The recommendations postulate that pension funds:
The review also looked specifically at private equity. Investment in private equity, it demands, should benefit from the framework set out by the new principles and from the replacement of the Minimum Funding Requirement.
The review also makes a number of proposals that take account of the special nature of private equity as an asset class for institutional investors, including changes to the maximum number of partners in a limited partnership and changes to the taxation of investments in limited partnerships. It also calls for the British Venture Capital Association to take action to improve transparency and disclosure about issues such as investment returns and compensation.
Myners has not called for any changes to become law, at least not in the short term. “The review believes that it would be preferable for the industry to adopt the principles voluntarily, but is clear that if necessary the Government should legislate to require disclosure against them. The review recommends that the Government should examine after two years the extent to which the review’s proposals have been successful in changing behaviour.”
Initial feedback to Myners' work from pension fund officials has been positive: Alan Pickering, chairman of the National Association of Pension Funds, said: “The report is welcome not just for what it says but for what it leaves unsaid. We are pleased and delighted that a prescriptive approach is not being recommended and that the temptation to pursue a box ticking mentality for the investment process has been rejected. There is no viable alternative to a thoughtful and informed approach to pension fund investment.”
A full copy of the report is available on the UK Treasury website. To download it click here.