Investing for the long term, but rewarding for the short term

Does the way fund managers are compensated make it harder for them to take a long-term investment view? This will be a key question at this year's annual conference of the Paul Woolley Centre for the Study of Capital Market Dysfunctionality at the University of Technology Sydney.

“A widespread view is that relying on short-term performance makes it harder to implement a long-term strategy,” says keynote speaker Professor Catherine Casamatta of the Toulouse School of Economics. “Does short-term compensation prevent fund managers from taking into account the long-term value of assets? And what are the consequences for the real economy?”

Prof Casamatta will offer insights on how to structure fund managers’ mandates to improve market efficiency when she addresses the annual Paul Woolley Centre (PWC) conference, to be held this year in the Frank Gehry-designed Dr Chau Chak Wing Building, home of UTS Business School, from October 8-9.

Fellow keynote speaker Professor Geoff Warren, Research Director of the Centre for International Finance and Regulation (CIFR), will also consider how “agency” problems are exacerbated when investing for the long term. “Potential for agency problems always exist when investments are delegated to manager,” he says. “These agency problems are exacerbated when investing for the long term,, when payoffs may not occur for some time and are often subject to high and ongoing uncertainty.” Prof Warren will look at how investment organisations might address this.

In another keynote, Professor Talis Putnins of UTS Business School will look at regulation of “dark trading” – stock trading that takes place away from traditional stock exchanges in so-called “dark pools”. Regulators in Australia and Canada recently introduced new rules that significantly restrict dark trading in response to concerns about an increase in such activity. “That regulation has had both intended and unintended consequences,” Prof Putnins says. He will look at the reasons for that, and suggest ways of making regulation more effective.

Murray Inquiry member Professor Kevin Davis will review its approach to what he describes as the major challenge of ensuring financial systems “are resilient to shocks, while also being competitive, efficient and fair”. This is a particularly important issue at a time when rapid technological innovation can be expected to change the structure and inter-relationships within the financial system in hard-to-predict ways, he says.

Dr John Simon from the Reserve Bank of Australia will also speak at the conference, on low interest rate environments and risk and Professor John Morley from UNSW will speak on financial market contagion.

A special conference session on superannuation will look at new research into default funds – which members accept the default plan and default investment option and why. Professor Susan Thorp of the University of Sydney says that rather than being disinterested, members in default options may in fact be expressing their trust in the super fund. Other speakers will look at the impact of super on the broader economy, and the perceived value of using super to buy a home.

Attendance at the PWC conference is by invitation only. Industry practitioners, academics and media who would like to attend should email Caroline.Dobson@uts.edu.au.

To read about last year’s conference, see: http://bit.ly/1VAwMU7 

Photo: Flickr, Simon Cunningham