The UK’s Investment Association and Opacity
The UK’s Investment Association promotes the Opacity Protection Team’s myth quarterly reporting drives management to focus on the short-term at the expense of the long-term success of their company.
A couple of individuals who should know debunked this myth.
JP Morgan’s boss, Jamie Dimon, and Warren Buffett, the world’s richest investor, argued earlier this year that companies should stop publishing quarterly earnings guidance that puts too much weight on hitting short-term targets. However, they said quarterly reporting should stay because it made companies accountable to the public.
However, that didn’t stop the Investment Association, whose membership manages £6.9 trillion, from endorsing the myth.
Chris Cummings, the Investment Association’s chief executive, said: “Asking the SEC to study the effect of quarterly reporting, with a view to moving to a longer-term model, is a significant and positive intervention by the president. We look forward to working with the SEC on this important development in corporate governance.”
Hmmm….. professional investors calling for less disclosure.
Apparently doing the work to know what they have invested their clients’ money in is too taxing for all the firms that are members of the Investment Association. Apparently the members prefer to blindly bet with their investors’ money.
I am not sure investors would be happy to find this out. The investors probably thought they had placed their funds with asset managers who actually assess the investments because these managers claim to be experts in assessing investments. Yet here are these same asset managers admitting they actually prefer not to do the work of actually assessing the investments, but prefer to blindly gamble with the investors’ money.
Of course, if this isn’t true, the membership of the Investment Association should embrace the Transparency Label Initiative. After all, the Initiative gives the members leverage to get the disclosure they need to know what they own.
The Initiative also provides a nice response to
Unilever’s chief executive, Paul Polman, scrapped quarterly reporting when he took over in 2009. He told investors that Unilever’s plans were long term and that if they did not agree with his move they should put their money elsewhere.
If Unilever doesn’t qualify for a label indicating it provides sufficient disclosure so an investor could know what they own, it becomes part of opacity as an asset class. Investments in this asset class require a higher return to compensate the investors for the risk of blindly betting on them.
A higher return is the equivalent of a lower stock price and a higher interest rate on the company’s debt. Assuming Mr. Polman wants this, he will continue to provide insufficient disclosure.
On the other hand, Mr. Polman might want a higher stock price and cheaper access to debt. In this case, he will provide the necessary disclosure.
Please note, forward guidance is not included in the necessary disclosure to qualify for a label.
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