How Short-Termism Hurts Governance | Chief Investment Officer

Institutional investors believe corporate governance is a critical driver of performance, but struggle to focus on the long term, Aberdeen Asset Management has argued.

Corporate governance plays an essential role in investment decisions—but achieving good governance requires less focus on short-term performance, according to Aberdeen Asset Management.

The firm’s new survey found that 89% of institutional investors, trustees, managers, and consultants considered effective governance to be a critical driver of investment performance. As a result, 85% said asset managers should engage with invested companies both before commitments are made and at regular intervals afterward.

The respondents also rated poor governance as one of the biggest challenges companies faced, second only to tax regulations.

“A company is much more likely to talk to you if they don’t think you’ll sell their bonds or shares at the sight of one set of poor quarterly figures.”

For more stories like this, sign up for the CIO Alert newsletter. 

“The research makes clear that governance has to be a fundamental part of what investors do day-in, day-out,” said Paul Lee, Aberdeen’s head of corporate governance. “It’s all about asset managers understanding what they own and not being shy of having conversations with the companies they invest in.”

Good governance, Lee continued, is most compatible with a long-term investment approach.

“A company is much more likely to talk to you if they don’t think you’ll sell their bonds or shares at the sight of one set of poor quarterly figures,” he said.

However, over two-thirds of survey respondents said their ability to focus on the long term is hurt by a fixation on short-term performance. Nearly half believed regulations also forced short-term thinking and acting. Investors also found a proliferation of models and metrics as a factor promoted short-termism.

“We need to do more as an industry to invest for the long term ourselves and encourage the companies we own to do the same,” Lee said.

Some 57% of respondents also identified governance regimes as a better way to evaluate risk and opportunity than whether the companies were in traditional emerging or developed markets.

Michael McCauley, a senior officer at the Florida State Board of Administration, said governance has been shown empirically to be a “risk mitigant.”

“Governance is a very significant and material factor within investment analysis,” McCauley said. “I always like to think of it as something that is on par with a lot of other fundamental factors that can drive performance and value.”

The fast-growing information and data provider to the asset management industry—and Chief Investment Officer's parent company—strengthens its resources.

Asset International (AI), a global leader in providing critical data, business intelligence, and information services to the worldwide investment management industry, today announced the hiring of five executives, two senior staff, and two advisors in support of the growing global demand for rapidly delivered insightful, relevant, and reliable market intelligence and data.

Joel Mandelbaum, Chief Executive Officer of Asset International stated, “This is a big step toward creating the global leader of business intelligence and digital media in the investment management space. This is a proven team with deep commercial experience and repeated success. Included among the firms from which they joined Asset International are: Bloomberg, Bottomline Technologies, Openlink, Ion Trading, and Cerulli Associates. These joiners, when coupled with our excellent staff and deep client community, will drive this business far, and enable us to help our clients advance their objectives with their clients.” Mr. Mandelbaum’s appointment as CEO and President of Asset International was announced in late August this year.

Tony Salewski, Managing Director at Genstar Capital, Asset International’s majority investor, said, “Genstar is excited about the increased depth of talent and experience these new hires bring to Asset International. AI presents an exciting opportunity for growth in the asset management space and we believe the decision by our new executive team members to join AI is an endorsement of Joel’s proven track record and the significant and growing value we provide to our clients.”

“Only a sponsor with a long-term view on value creation and confidence in the company and the team would embrace such a swift and material investment in people. I am thrilled to be working with such a partner in Genstar Capital and to be reunited with this team” said Mr. Mandelbaum.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Every day, with its data, analytics, media, and research, the 11 business units of Asset International touch 175,000 professionals across 1,000 clients that include almost all of the world’s largest asset owners, asset managers, custodians, and corporate retirement plan sponsors with aggregate assets in excess of $30 trillion. Every month, Asset International’s business units conduct client transaction cost analysis, examining 500 million equity, fixed income, and foreign exchange trades with an aggregate value of $2 trillion dollars.

Among the announced appointments are:

Terry Beadle as Chief Revenue Officer responsible for Sales, Account Management, Professional Services, and Client Support and member of the Executive Committee. Most recently, Mr. Beadle was at Bloomberg. Prior to Bloomberg, Mr. Beadle held various executive positions at Wall Street Systems including Managing Director of Professional Services, Managing Director of Treasury Systems Products and Managing Director of Global Treasury Sales.
Tony White as Chief Content Officer, Global Product Manager and member of the Executive Committee. Most recently, Mr. White was Business Development Director at Bottomline Technologies. Prior, Mr. White held various executive positions at Wall Street Systems including Managing Director of Software Development, Managing Director of Account Management and Managing Director of FX Trading Products, including the Wallstreet FX platform and the Electronic Settlement Network.
Andrew Guillette as Chief Data and Research Officer, Global Product Manager, and member of the Executive Committee. Most recently, Mr. Guillette was Chief Operating Officer of Cerulli Associates and has held various asset management research, planning, and marketing positions with Columbia Investments, John Hancock, and Fidelity Investments.
Garry Hodnett as Director of Human Capital. Most recently, Mr. Hodnett was Director of Human Resources at Ion Trading. Prior, Mr. Hodnett was Director of Human Resources at Wall Street Systems.
Leonie Alsop as Director of Global Marketing. Most recently, Ms. Alsop was SVP, Global Head of Marketing at OpenLink Financial. Ms. Alsop was the former Global Head of Marketing Operations at Temenos and Global Head of Marketing at Wall Street Systems.
Seth Cohen as Senior Advisor to the Executive Committee. Mr. Cohen was formerly the CFO of Newtek Business Services, Inc. and a Trustee of the City of New York’s Public Pension Funds.
Allison Joy Phillips was appointed Executive Assistant to the CEO. Ms. Phillips was formerly a sales professional at SuperDerivatives, Ion Trading and Wall Street Systems.
Joel Mandelbaum also announced that Avi Nachmany has been appointed Senior Advisor to Strategic Insight, which he founded 30 years ago and where he was most recently Executive Vice President, Director of Research.
John Lee has been appointed Advisor to Global Custodian, The Trade and LiquidMetrix. John Lee founded The Trade 10 years ago and was most recently Managing Director, Europe for Asset International.

About Asset International

Asset International (AI) provides critical data, business intelligence, and information services to the global investment management industry. AI delivers proprietary data and analytics, as well as marketing solutions that target global asset managers. The company’s client base includes more than 500 of the most prominent names in the asset management industry. Its recognized data brands include Strategic Insight, Investor Economics, Corporate Insights, LiquidMetrix, FWW, and Plan for Life. AI’s portfolio of leading editorial titles includes brands such as PLANSPONSOR, PLANADVISER, Chief Investment Officer, Global Custodian, and The Trade. The company’s headquarters are in New York and it maintains offices in Stamford, CT; Boston; the San Francisco Bay area; London; Toronto; Munich; Melbourne, Australia; and Hong Kong. AI is backed by Genstar Capital. For more information, visit www.assetinternational.com.

About Genstar Capital

Genstar Capital (www.gencap.com) is a leading private equity firm that has been actively investing in high quality companies for more than 20 years. Based in San Francisco, Genstar works in partnership with its management teams and its network of operating executives and strategic advisors to transform its portfolio companies into industry-leading businesses. Genstar manages funds with total capital commitments of over $5 billion and targets investments focused on selected sectors within the financial services, software, industrial technology, and healthcare industries.