FSA chairman calls for overhaul of fund managers' bonuses
The bonuses of investment fund managers should be "reconfigured" to encourage them to focus on long-term investments, the chairman of the Financial Services Authority, Lord Turner, suggested yesterday.
Lord Turner, pictured, was speaking at the launch of the latest report of the G30 consultative group, which argues that major economies are at risk of experiencing a severe funding shortfall for infrastructure, education and research and development projects over the coming decade.
"Portfolio managers' bonuses could be conditional on their performance over a defined period," Lord Turner said, suggesting a term of three years for senior managers.
This would, in effect, reform investment fund manager's pay in the same way as bankers, who have been required by regulators to defer most of their annual bonuses.
However, Lord Turner – who will leave the FSA when the regulator comes under the control of the Bank of England this year – said that direct regulation of the remuneration of private sector fund managers was unlikely. "I think essentially we are talking about moral suasion," he said. "I think it is quite difficult for us to get into the area of direct regulation of the private fund managers, but I don't completely exclude that possibility."
The G30 – which is made up of senior policymakers, practitioners and academics from the world of finance – argues that annual investment spending will need to rise to $18.8trn (£12trn) by 2020 to achieve even moderate levels of global economic growth. The total spent on long-term investment projects in 2010 was only $11.7trn.
The report argues that the present global financial system does "a poor job" in channelling money from savers to borrowers by disincentivising pension funds, sovereign wealth funds and insurance firms from investing in long-term infrastructure and other investment spending.
"Many pension funds face shortfalls that have intensified short-term performance pressures, while they also face risk-mitigation rules that favour low-risk fixed-income securities," the report said.
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