Outgoing Financial Services Authority chairman Lord Turner has called on the asset management industry to overhaul the bonuses of fund managers to promote more long-term investment.
At the launch of a new report by the G30 consultative group, Turner argued that national authorities should draft new best-practice guidelines to promote long-term horizons in portfolio management. An example of such a guideline, he said, would be making sure any incentives are “reconfigured” to focus on longer-term returns.
“Portfolio managers’ bonuses could be conditional on their performance over a defined period. For senior managers, a minimum of three years,” Turner commented. “This would support the goal of making smart medium-term asset allocation decisions in the context of a long-term investment horizons.”
The suggestion could see fund manager remuneration structured in a similar way to those of bankers, who have been forced by regulators to defer the bulk of their annual bonus. However, Turner said it is unlikely that investment managers’ bonus will fall under the remit of direct regulation.
“I think essentially we are talking about moral suasion,” the Independent reports him as saying. “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.”