They Charge Huge Fees, But Are Fund Managers Really Working For You?

Beth lives in Atlanta, Cathy lives in Aberdeen, and Sarah lives in Amsterdam. They are sisters, and each earns around £40,000 a year. They also each pay roughly the same amount into a pension scheme. But, on retirement, Sarah in the Netherlands picks up a pension that is 50% higher than her sisters in Britain and the US. Why? The outcome is boardrooms where directors suffer from financial attention deficit hyperactivity disorder. One study found that senior corporate officials in the US won’t countenance a long-term investment if it affects even one quarter of reported profits. The underlying savers in pension funds are investing for 30 years, but the managers of the money are investing for just three months. Thus the boards of companies are now paid to do the wrong thing, claim the book’s authors. The introduction of stock options to “align” the interests of boards with fund managers has simply led to an explosion in pay, not performance. Pay formulas linked to share prices which are swayed by high-frequency traders undermine directors, the very people who are supposed to provide oversight of companies.

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