Invesco Perpetual income manager Neil Woodford says fund managers should have a much greater involvement in the companies in which they invest.
Speaking to the business, innovation and skills select committee on the Kay Review into short-termism today, Woodford said it is his job to hold a board’s “feet to the fire” over strategy and capital allocation.
Woodford says his average holding has been 16 years and it is important that fund managers think like owners rather than looking for a quick sale when there are problems.
He said: “We think it is our responsibility to give our advice and halfpenny worth on how they should allocate capital. The problem I see today is that most fund managers don’t think like owners.
“If something goes wrong at a business, something happens that they didn’t anticipate or the share price falls then they emphasise sale over voice.
“You have to have a long-term involvement to have a voice over sale so I think it is the complete reverse and there is not enough engagement.”
Conservative MP Brian Binley asked whether it was “dangerous” for fund managers to become too involved in running a business as they have no experience of running firms and encourage short-term thinking.
Woodford said: “I don’t believe our role as fund managers is tell companies how to run their business. Our job is to hold their feet to the fire on capital allocation and strategy.
“Having run a business may even be a disadvantage as I believe interaction between companies and shareholders should be based around holding management to account regarding the shareholder agenda.
“We’re not experts in finding working capital or cost-cutting. It would be counter-productive and boards would be dysfunctional if all fund managers chipped in on that. We take a step back and operate on a higher level.”