Renée Bonorchis
25 July 2007
Johannesburg — THERE is overwhelming evidence of a link between a company's performance and its corporate governance standards, says David Couldridge, senior governance analyst at Frater As-set Management, said yesterday.
He cited reports by the Gordon Institute of Business Science, Deutsche Bank and McKinsey to back his claims. Couldridge said a fund manager's job was simple -- to add value and prevent downside risk.
"So we must use all the tools available to us. It's not just about the financial issues. That's why corporate governance is so important to us. We believe there's a direct correlation between corporate governance and performance," he said.
Following an international trend, more South African fund managers were starting to talk about the value of a truly long-term view and the wealth destruction that "short-termism" could lead to.
"Pensioners are not concerned about the next quarter or how asset managers are remunerated. Their question is: 'Is my money going to run out before I do?'"
One thing local asset managers are doing is to take notice of the Marathon Club. This club, which started in the UK, aims to "stimulate pension funds, endowments and other institutional investors and their agents to be more long-term in their thinking and actions, and place more emphasis on being responsible and active owners with a view to increasing knowledge about how their strategy and process can improve the long-term financial and qualitative buying power of fund beneficiaries".
Another fund manager talking about the benefits of a long-term view yesterday was the Old Mutual Investment Group SA (Omigsa).
With the local environment deteriorating (higher oil prices, a rising maize price, inflation through its target levels, a climbing prime rate and falling car sales) Omigsa's head of macro strategy investments, Peter Brooke, said the market would not maintain the returns it had enjoyed in the past three years.
"But that's not a reason to get out . You'd better get in. Where else will you get the returns for the risk you take?"
Brooke and Couldridge said a market correction would come , but both agreed that a long-term investor should not have to worry .
But for the local market to get over its addiction to short-term thinking, Couldridge said the likes of the Government Employees Pension Fund (GEPF), with more than R600bn in assets, would have to lead . Couldridge also referred to the fact that the GEPF had signed the United Nation's Principles of Responsible Investment and would encourage all of those who managed its money to follow the principles.
The principles espouse, among other issues, long-term thinking and transparency. Couldridge maintained that the public disclosure of fund man-ager voting records was just one tool in an investor's armoury.
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