Success in investment management should be measured by holistic returns; it’s not enough to think about investments as just a bet on markets, said Saker Nusseibeh, chief executive of Hermes, who reminded delegates at the Fiduciary Investors Symposium that the financial world has become completely isolated from the real world.
“We collectively have a responsibility; we control the world economy,” Nusseibeh said. “The financial system sits in a bubble separate to the rest of the world. Why do we invest? Do we invest purely to accumulate wealth? Investing in the economy is a stupid way to invest if the only motivation is to make money for your clients. You should go to Las Vegas and hire a top-rated poker manager. They have better hit rates than any top-rated funds manager, even high-alpha managers.
“Skilled fund managers are rare. So now we are betting on factors in the economy, like a bet on the uptick of the European economy. That’s not the language of investment.
We have to think about what we are trying to achieve with this money. There is a disconnect between the amount of money we have invested and the world we live in.”
He made the case for measuring success by holistic returns.
“There are two reasons you invest in companies,” Nusseibeh said. “The first is to participate in economic growth, the second is [the need to engage about wanting] the businesses to be sustainable. And for that to happen, they have to be long term, more than just the next year or three years.
“We can prove that bad governance leads to bad returns. We have absorbed the idea that finance is a science, which is wrong, and built models, which is wrong. But part of what we are doing is betting on the economy. The other part is to encourage the economy we are building to be sustainable, environmentally friendly and friendly for the people who work in it. We have a duty of care to use the money to benefit the people whose money it is. Good [environmental, social and governance practice], good stewardship, is actually good business.”