European Institutional Investors 'Forced' Into Short-Term Thinking

Hermes Investment Management undertook their inaugural Responsible Capitalism Survey in early November. The headline result of the survey was that according to 44% of institutional investors, “regulators’ insistence on FRS17 valuations; the triennial cycle of valuation and modern portfolio theory are driving pension schemes to think in short-term nominal returns.”

Of interest, 61% of institutional respondents to the Hermes survey also said they believed that large shareholders are likely to ‘become unaware’ of some of their investments, even forgoing voting rights and losing influence in decision-making processes.

Hermes’ Responsible Capitalism Survey for 2014 was conducted between September 2nd and 14th among 108 European institutional investors.

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Other findings from Hermes institutional investors survey

Other findings from the 2014 Hermes institutional investor survey include:

  • Only 32% of institutional investors believe pension funds have a responsibility to consider the overall quality of life of their beneficiaries, and should do more than just focus on maximizing the retirement income of their members
  • A solid 37% of institutional investors believe pension schemes focus too much on investment performance, in some cases to the extent that they disconnect from their fiduciary duties as owners of actual companies.
  • Of interest, 44% of institutional investors believe quarterly reporting of results should be replaced with bi-annual or annual reporting.

Statement from Hermes CEO

Commenting on the survey findings, the CEO of Hermes Investment Management, Saker Nusseibeh, noted, “The short-term factors driving the management of pension schemes require detailed attention. Schemes need to have the freedom to act and focus on longer term considerations to best serve their end beneficiaries, savers. As asset managers, we have a responsibility to manage savers’ money as best we can, and that is often not achieved when short-term constraints are applied.”

“I am stunned that less than one third of investors believe that pension funds should look at the overall quality of life experienced by their beneficiaries, rather than maximizing retirement incomes for their members. Surely everyone saving for their retirement is doing so with the goal of the best quality of life they can hope for in retirement. A staggering 49% of investors disagreed with this, 17 percentage points more than those who agreed.”