The fund management industry has not shown up. Its response to the biggest financial catastrophe in generations has been virtual silence. There were no warnings before the crisis and managers are offering no clear vision of the future now. Where are the counter-arguments to those calling for banks to be nationalised, for example? After all, the industry still represents most of what little non-government owned equity is left. Why has there not been a spirited defence of shareholder value or railings against the failures of boards?
Like a scolded child, the reason is that asset managers have been shamed into silence. They played their part in this crisis. Buy-side equity research, as with the sell-side, focused on profits at the expense of rigorously analysing company balance sheets. Debt managers were mesmerised by yields and did not think to ask why returns on supposedly safe assets were so high. Perhaps the biggest shame, however, is that all talk about improving corporate governance has delivered little in practice. Nor did the industry wield its collective power to challenge dodgy management practices – for example, on pay.
Another explanation for this timidity is that, understandably, fund managers are minding their own backs. If you highlight excesses, you may find that fingers turn on you. A survey by Boston Consulting Group showed the average fund manager profit margin was above 40 per cent in 2007. That is pretty tasty for an industry that underperforms the benchmark in aggregate, after fees. Of course, managers are under pressure. Fidelity, for one, had net redemptions of $32bn (excluding money market funds) in the 12 months to February, according to Morningstar. Cheap tracker funds are also gaining share.