Saddam loses face...

Thanks to Mrs Tom for scanning the pics...

1968 and all that

Prospect has a load of pieces from various folks reflecting on the impact (good and bad) of 1968. I was drawn to two from very different perspectives. The first one, the more conservative/skeptical view, comes from economist Paul Ormerod:

I observed the events of May 1968 from my council estate in Rochdale. They seemed to have no relevance to us. We saw on our television screens self-indulgent children of the bourgeoisie calling for the overthrow of the system... Public schoolboys, with glittering careers awaiting in finance, the media and the law, occupied buildings and pontificated about revolution. It was hard to treat it seriously, as anything other than some live street version of Footlights.

40 years later you can still see the same thing. You can’t help but wonder why – in the face of complete indifference from the class they claim to want to liberate – comfortably-off young peeps continue to get involved in ‘revolutionary’ politics. It can’t be any kind of rational response to the society they see, which is wealthier than it has ever been and within which a revolution would appeal to very few. Maybe it is, like Ormerod suggests, simply a bit of play-acting, albeit one the participants don’t even realize (yet) they are indulging in.

Anyway, coming at 1968 from the shamelessly 'it was a brilliant laugh' perspective is none other than Denis MacShane:

Before 1968 all was grey, conservative, male and old. After 1968, it got a lot better. I was 20 in 1968, and I cannot think of a better year in the last 200 to have been 20 in. The 1968 generation gave up economics for sociology. Capitalism won as most 1968ers morphed into Richard Bransons with greater or lesser success, and 1968 produced no enduring reformist politics. But to be young in 1968 was very heaven, and today’s Blimpish attacks prove just what a great moment in history it was.

He must have read Roger Scruton’s piece just before he wrote the line about ‘Blimpish attacks’, since Scruton sounds like the sort of bloke who turns up to a party and can’t understand why people are enjoying themselves.

Meanwhile 1968 also got a mention in the FT yesterday. I am sure the Jonathan Guthrie is far too young to remember 1968, but he sounds like he ingested some similar substances to the 68ers, how else do we explain his missing decade:

This year marks the 30th anniversary of the anti-establishment rioting of 1968.

Don’t they say if you can remember the 60s you weren’t there?

Private equity round-up

After a bit of a quiet period on the buyout front, there are a number of interesting stories around about private equity.

First up, the position of private equity houses as employers standing behind pension funds. Today the FT reports that Terra Firma could face a £170m bill because of the ongoing spat with the EMI scheme's trustees. The Pensions Regulator has been called in to decide how much more money the scheme needs. A seperate report in The Times suggests that Guy Hands is looking to offload the scheme to a pension buyout body.

By strange coincidence BVCA chief exec Simon Walker has just penned a piece arguing that the Regulator's powers go too far (see 'Pensions regulation will overstep the mark' on the BVCA site). Presumably he is having his ear chewed off by Hands and others who are facing bigger pension costs than they had expected. From an image point of view all this squabbling with trustees can't be doing the industry any good.

Separately the BVCA has also just issued an interesting bit of research about the performance of private equity-backed IPOs (FT report here, full report (pdf) here). Here are the main findings from the report:

private equity-backed IPOs outperform other IPOs by more than 9% one year after their public listing
they also outperform the FTSE ALL Share Index by 20% over the same period
venture capital-backed IPOs typically spend up to five times as much on R&D as their non private equity-backed counterparts at the time of flotation
typical private equity-backed IPOs spend twice as much on capital expenditure in relation to total assets as non private equity-backed companies

Presumably this research is meant to counter the accusation - based on cases like Debenhams - that PE firms float badly indebted companies etc. Notably venture-backed companies do pretty badly, which isn't a great story given that's the more fluffy bit of the market.

Private equity 'a force for good'. Repeat. Repeat.

I posted last year about the curious reoccurrence of the phrase ‘a force for good’ in much commentary about private equity. A striking number of senior people from the buyout business used the term.

I thought I would have a quick trawl around to see if it is still cropping up, and not only is it still appearing but it is spreading by the looks of it. I said previously I don’t think this is a deliberate attempt to manipulate language, I’m not so sure now though. What’s even more annoying is the way that the phrase is being used without thought by people discussing private equity, even though it has no factual basis (I’m not making a point about the merits of PE here, rather how can it be proven to be ‘good’?).

Here's what I could find from 2008 just from a quick trawl:

BVCA
Notably the BVCA really go to town on ‘a force for good’ and in fact it is actually one of their objectives for the year to get this message across.
"1. Private equity is a force for good"

Australian opinion research
"Australian businesses think private equity is a force for good"

Guy Hands
Private equity “is unquestionably a force for good”.

Michael Snyder, chairman of the policy and resources committee for the City of London
"The industry is working hard to be more transparent and should be seen as a force for good."

Charlie McCreevey
"I have never viewed private equity as anything other than a force for good in advancing economic progress and ensuring that Europe adapts to the realities of the global marketplace."

Management Today
"If private equity wants to survive and flourish, it must come out of its shell and prove to a sceptical public that it is a force for good in the UK economy, as it has always insisted."

Personal Accounts charging

I haven't really being paying enough attention to what is going on with Personal Accounts policy. PADA released this consultation doc on the charging structure for PAs a few months back. The deadline for responses has just elapsed and so far I've not seen any TU responses to it.

Very broadly a number of options are available. The big two really are an annual management change (AMC) or a charge on contributions. Other options include an annual flat fee and a joining charge. I'm personally more drawn to the contributions charge on the basis that a) it strikes me as pretty fair and b) it will help the scheme get properly funded pretty quickly. There is a danger that if it doesn't start making its start-up costs up pretty quickly then some people might start attacking it. Already PADA is taking flak over consulting fees - see FT today.

Anyway, the Pensions Policy Institute has produced a useful overview of the charging options and their pros and cons which can be accessed here. From what I have read a few people are favouring a mixture of an AMC and a contributions charge, but to be honest I have no idea how the lands lies at present.

Soggy leaflets

I thought I would get up early this morning and deliver my last round of leaflets. Big mistake. Got through one street before I was absolutely soaked. More exciting election news shortly.

Flemish fash, Belgian beer and Saddam losing face

Back from Belgium. As usual even when I am on holiday I can't stop myself looking for political and trade union posters, stickers, graffiti etc. What surprised me this time was how little I could find. I was especially surprised to not see anything from the Vlaams Belang (Flemish Interest) party, as Antwerp is supposed to be their stronghold (they get about a third of the vote there).

Although VB has toned down its image in recent years (its previous incarnation Vlaams Blok was shut down), it is pretty much the Belgian version of the BNP. I remember visiting Belgium about 15 years ago and seeing loads of orange Vlaams Blok stickers all over the place. Mind you also saw quite a few from Youth Against Racism In Europe, which I think was aligned with Militant (can any lefty trainspotters remember?).

Anyway, this time around I didn't see a single VB sticker or poster. In fact the only recent political poster I could see was something advertising a May Day event, which looked a bit anarcho-fied.

I did managed to get one fix of political imagery though. Today we visted the Photography Museum in Antwerp and in the museum shop I found some postcards of defaced pictures of Saddam in Iraq. They are quite striking as Saddam's face in the pictures in obliterated, it kind of reminded me of the fantastic Adbusters Design Anarchy (issue 37) cover. I'll scan the postcards and post them up shortly.

Finally I had to try a few of the beers (and the local spirit Jenever, which is a something between gin and vodka) and the pick of the bunch has to be Chimay Blue. Though at 9% I was a bit dazed after one at lunchtime!

Belgian blogging break

Me and my better half are taking a few days off to visit Brusells and Antwerp, so no blogging for a few days. The boss class can breath easy - FOR NOW...

A new Labour supporters blog

Just stumbled across the LabourOutlook blog, which kindly links to mine, and looks like a good initiative. Here's the launch blurb:

No blog is an island

Politics today is as vibrant as at any time in the last twenty years. The Conservative Party is resurgent and in a different form to that which Labour has defeated three times. There are Parliamentary battles over tax and civil liberties. International financial instability brings issues to the surface that haven’t been at the forefront of politics for a generation. The political blogosphere reflects this but, as had has been discussed on various sites, its success is not equal across all parties.

Conservative blogs seem to go from strength to strength, outstripping their Labour counterparts in visitor numbers, in campaigning clout and in their ability to influence the mainstream agenda. Meanwhile, we have a Labour blogosphere that excels in some areas while lagging behind in others. Aggregator sites like Bloggers4Labour and the user-generated approach of Labour Home have no counterparts on the Tory side but for all the innovations by Labour bloggers, the community still doesn’t quite seem to hang together in the way that the Conservatives’ does.

Among the received wisdom is that blogging from opposition is simply a lot easier. Maybe writing about what’s going wrong is quicker and simpler. Maybe Labour’s Iain Dales and Tim Montgomeries are working in government rather than setting up websites. Maybe, with a web-led fight over the party’s leadership rules, a leadership election, the party’s attempt to keep the ‘A-List’ secret and massive changes to their party, Conservatives have just had a lot more to read and blog about over the last three years.

This can’t be the full picture though. Conservative blogs aren’t just filled with anti-government posts, they cover their party too. Some Labour insiders might be working in government and unable to blog but there are plenty of connected people who find the time. Conservative blogs may have had a lot to write about since 2005, but its not as though Labour haven’t had their share of interesting stories too.

So what’s the real reason? Sunny Hundal diagnosed the problem last year as the left-blogosphere’s “painful lack of coalition building” and the fact that “leftwing blogs discuss social issues almost as single issue groups, focusing on relatively few areas of interest. This means far too little cross-fertilisation of ideas and conversations”. In contrast, a constant flow of news, comment, thinktank reports and campaign information from all parts of the conservative movement moves through a few of the big Conservative sites read by bloggers, members and the media alike. The Tory blogosphere benefits enormously from sites like Conservative Home and Iain Dale’s Diary that collect information from these disparate sources and bring it to the attention of the rest.

Sunny’s excellent LiberalConspiracy.org responded to this problem by bringing together a number bloggers under one roof – rightly thinking that leftwing environmentalists, civil libertarians and feminists etc. would achieve far more by working together than by discussing things separately. The site has been successful at bringing disparate debates together and the next move is to follow the Tory blogs by linking up with the wider, non-web-based Labour party. LabourOutlook.com seeks to contribute to that by publicising Labour-related news, campaigns and Labour-leaning thinktank reports and by hosting articles by bloggers, MPs, parliamentary candidates and anyone else involved in Labour politics.

Bringing together sites in a way that spans and links single-issues, Westminister politics, thinktanks and non-web-based organisations will allow Labour’s online presence to compete with the big boys.

John Miles

UBS and the pay problem

It was interesting to see UBS publish its special audit (called for by activist shareholders). I have only skim-read the report, but it's notable that they blame their own remuneration policies for incentivising the wrong kind of behaviour. You can download it here, below are the conclusions from the 'compensation' section (page 41 onwards).

UBS has identified the following contributory factors related to compensation and incentives:

• Structural incentives to implement carry trades: The UBS compensation and incentivisation structure did not effectively differentiate between the creation of alpha (i.e., return in excess of a defined expectation) versus the creation of return based on a low cost of funding. In other words, employee incentivisation arrangements did not differentiate between return generated by skill in creating additional returns versus returns made from exploiting UBS's comparatively low cost of funding in what were essentially carry trades. There are no findings that special arrangements were made for employees in the businesses holding Subprime positions. However, the relatively high yield attributable to Subprime made this asset class an attractive long position for carry trades. Further, the UBS funding framework amplified the incentives to pursue compensation through profitable carry trades. For example, several Super Senior trades had relatively thin overall positive carry.

• Asymmetric risk / reward compensation: The compensation structure generally made little recognition of risk issues or adjustment for risk / other qualitative indicators (e.g. for Group Internal Audit ratings, operational risk indicators, compliance issues, etc.). For example, there were incentives for the CDO structuring desk to pursue concentrations in Mezzanine CDOs, which had a significantly higher fee structure (approximately 125-150 bp) than High-Grade CDOs (approximately 30-50 bp). Similarly, the CDO desk had an incentive to pursue AMPS trades, as they provided, compared to NegBasis trades, a less expensive (and therefore higher return) form of hedging. Also, Day1 P&L treatment of many of the transactions meant that employee remuneration (including bonuses) was not directly impacted by the longer term development of positions created. The reluctance to allow variations between financial reporting and management accounting made it less likely that options to vary the revenue attributed to traders for compensation purposes would be considered.

• Insufficient incentives to protect the UBS franchise long-term: Under UBS’s principles for compensation, deferred equity forms a component of compensation that generally increases with seniority. Although incentivisation of employees broadly builds in increasing levels of deferred equity for increasingly senior people, it remains the case that bonus payments for successful and senior IB Fixed Income traders, including those in the businesses holding Subprime positions were significant. Essentially, bonuses were measured against gross revenue after personnel costs, with no formal account taken of the quality or sustainability of those earnings.

Global financial regulation

There's an interesting event at the LSE next week which I thought I would give a plug:

Global Financial Regulation: The Essential Guide

Date: Thursday 1 May 2008
Time: 6:30-8pm
Venue: New Theatre, East Building
Speakers: Howard Davies, David Green, John McFall, Sir Steve Robson, Gillian Tett

As international financial markets have become more complex, so has the regulatory system which oversees them. The Basel Committee is just one of a plethora of international bodies and groupings which now set standards for financial activity around the world, in the interests of investor protection and financial stability. These groupings, and their decisions, have a major impact on markets in developed and developing countries, and on competition between financial firms. Yet their workings are shrouded in mystery, and their legitimacy is uncertain.

I hope to make it along, so should be able to post up some info afterwards. The book looks like it will be worth a read.

Another nice bit from Robert Shiller

About the relationship between stockmarkets and the real economy. A nice bit to re-read after a prolonged exposure to CNBC.

Not only are stock markets small relative to their corresponding economies, but changes in stock prices do not correlate very well with changes in measures of the aggregate economy. But the news media, ever attracted by grand and simple stories, has created the impression that a country’s stock market is like an index of the country’s performance. Ever focused on whether we are entering a recession or coming out of one, the media create the impression that forecasting the stock market is like forecasting recessions.

Thus we tend to imagine that the US stock market is a proxy for the US economy, the German stock market is a proxy for the German economy and so on. But getting past the story telling and looking at the data, one sees surprisingly little similarity between stock prices and the overall economy. Over extended periods of time when the stock market was doing very well, we have had numerous recessions, and over extended periods when the stock market was doing very poorly, we have also had numerous recessions. The recessions really do not matter so much for stock markets’ overall performance. Ultimately, the stock market represents claims only on a small sector of the economy, corporate profits, that does not bear a close relationship to the economy as a whole.

Choice and pensions again

More on how an excess of choice leads to wonky decision-making. This is from a sponsored (blurgh...!) feature from Axa in the latest Pensions Age.

Interesting findings here:

[R]esearchers appear to have proved that uninformed people often make irrational decisions, as the following headline findings indicate.

* Diversification heuristic. A choice of four equity funds and a cash fund typically results in 80% investment in equities.
* Decisions are heavily influenced by the number of fund options on an application form.
* Extensive choice discourages risk taking and heightens an individual’s fear of losing money. For example, for every ten funds added to choice, allocation to cash funds increases by 4%.
* Alarmingly, for every ten funds added, the number of people who elect to join a scheme falls by 2%.

And an obvious example of anchoring here:

A study by Vanguard Group (2003) looked at member allocations to equity investment funds. The research found allocations were heavily influenced by market conditions at the time of joining, Because most people failed to review their equity fund allocations, their exposure was illogically anchored to the bull or bear market conditions prevailing when they first invested.

Climate change and shareholder voting

There is an excellent bit of research on the Ceres website here on how shareholders in the US vote on climate change resolutions. It is based on data compiled by Jackie Cooke who also runs the ace FundVotes website. The bit in the climate change voting analysis that really caught my eye was this:

Still, many mutual funds are acting inconsistently on climate change -- offering new climate-related funds and research products while continuing to oppose virtually all climate-related resolutions. The inconsistent behavior is especially apparent at Morgan Stanley, State Street Global Advisors and other Wall Street firms which are investing aggressively in new climate-related business activities, yet have opposed virtually all climate resolutions in recent years.

And in more detail further down:

Some mutual fund companies and related entities are boosting their climate-related business activity while still voting against climate resolutions. Examples include Morgan Stanley, whose mutual funds supported none of the 215 climate resolutions they faced from 2004-2007, and State Street Global Advisors, whose mutual funds have opposed all 54 resolutions they faced over the same four-year period.

You could read this in a number of ways. One is that Morgan Stanley and State Street see their climate change product offerings as a money spinner, but don't really buy that climate change matters an investmemt issue. Alternatively maybe they think voting in favour of climate change resolutions is a low-value bit of activity compared to specific products (and maybe there's some truth in that one). Or maybe there are simply different bits of the business not talking to each other.

Whichever it is, it's a strange position to be in. They risk reputational damage through surveys like this. You would have thought it would have been worth their while spending a bit of money to ensure that their proxy voting is aligned with what they are doing elsewhere.

VOTING DISCLOSURE MOAN ALERT!

Obviously we can't do anything similar to this research in the UK because so few managers disclose meaningful voting data.

Fund managers are burning our money

As hopefully a few people recognise the title of this post is inspired by the TaxPayers Alliance blog. I was reminded of the title recently when I sat in on a pension fund meeting. One of the presentations was from The WM Company, which provides investment performance data to pension funds and others.

Anyway, the woman from WM presented the company's analysis of local authority and other pension fund performance. She highlighted a number of the characteristics of better performing local authority funds. The principal ones were that the better performers tended to be bigger, be internally-managed, have less fund managers if they were externally managed, and to change their external managers less often. (By the way when I say intenrally managed I mean the council actually employs a fund manager or fund managers on the staff. Not common these days but it still happens).

It brought home to me, yet again, what a mug's game active management is. Think about it. Reasons that big internally managed funds do better are because their costs are lower - not just economies of scale, but also less portolio turnover. Meanwhile funds that chop and change managers - seeking that precious alpha - do worse. I can't shake the view that even if - and it's a big if - active management can consistently deliver the goods, pension funds are failing to pick the right managers for the job. Yet they continue to pee millions of pounds up the wall for mean-reverting performance.

Plenty of people have put this more eloquently than I can. Here's Vanguard's John Bogle back in the 1990s:

"... RTM is a rule of life in the world of investing—in the relative returns of equity mutual funds, in the relative returns of a whole range of stock market sectors, and, over the long-term, in the absolute returns earned by common stocks as a group".

Sunday's news

There are a couple of interesting linked pieces in The Observer today, though I'm growing steadily more disenchanted with their business section. First there is this piece about energy companies putting up their prices again. Unfortunately the story only tells us these increases could be "up to 25%" so the actual potential range is unclear.

But then over the page is this report on how indebted utility companies are, and how this may mean they are unable to fund necessary repair work. It is another hangover from the debt binge, and arguably could be seen as side effect of the private equity boom. As the IMF suggested in a report this time last year, the buyout boom could be seen as a form of capital structure arbitrage, as private equity was more willing to make the most of cheap debt. But a knock-on effect was that companies wanting to avoid a buyout also took on more debt.

You do wonder therefore if the indebtedness of utility companies may further exacerbate the problem of rising fuel bills.

The other interesting bit in The Observer is the front-page story about the idea of 'mortgage holidays' for those that get into financial difficulties. It's not a huge stretch from flexible mortages really, so it seems like it ought to be doable, we just need watch that providers don't sting customers for using the service. I think it's little innovations like this that could make the financial system much more useful for the average punter.

Leaders and choices

The other day I met up with a friend who works in public affairs and so deals with politicians quite a bit. He said something that rang very true with me which was that a lot of people in the political world lacked the ability (or desire?) to see another point of view, and that perhaps this was part of what made them successful. I think that might be bang on the money. A failure to appreciate another point of view allows single-mindedness and conviction (arguably it's also a sign of being a psychopath, but we'll let that one go). It enables clear decision-making.

In contrast, accepting other perspectives can lead to the realisation that a) there are other ways of addressing an issue b) your existing viewpoint is simply ...err... wrong. Unfortunately once you allow other perspectives it also, in my opinion, makes decision-making harder. And in this context making decisions makes many of us anxious - what someone called the 'dizziness of freedom'. You realise that often there isn't an obviously right/good option.

Our desire for an obvious correct option can been seen in all sorts of politics. On the Left we love idea of past betrayals, or sell-out leaderships. It would have worked out fine if the leadership hadn't turned to the Right/called off the strike. We can 'know' the right answer with the benefit of hindsight, and with no chance that our own solution will be put to the test. For right-wingers their desire for an obvious answer is surely most clearly demonstrated by the way so many of them reinvent the relatively recent past as a much better time. For anyone it's a very seductive way of thinking.

This reminds me that whilst I unfortunately still have some kind of pavlovian emotional response to red-blooded socialist rhetoric and imagery, intellectually and on a practical level I am Mr Moderate. I can't accept that defining yourself as a socialist/social democrat/lefty automatically also defines your policy outlook. My politics are basically a set of internal values and perspectives, not a programme. I don't think there is really an alternative to addressing each issue in turn and deciding an appropriate response given the balance of forces.

Unfortunately that means I am really bad at making decisions. Ho hum.

Behavioural economics and policy

I came across this paper from the New Economics Foundation recently. It's a good run-through of some of the key themes emerging from behavioural economics and how they might be applied in policy. It's also got quite a few useful references that point in some other interessting directions.

For example it led me to this DoH paper on how to encourage healthier behaviour. This coincides with my growing interest in the PruHealth scheme. I know it is private health cover, but I'm intrigued by the idea of incentivising healthier lifestyles. Not only do you get your gym membership discounted, you also get rewarded for healthy eating, having medical check-ups etc. Obviously it enables the Pru to cherry-pick the lowest risk policyholders, but there has to be something in it for them.

Anyway, casting my net wider I also noticed that the recent National Audit Office report on the removal of retail price controls makes an interesting reference to behavioural economics:

Regulators have tended to focus on understanding and regulating the supply side of their markets, making assumptions about the consumer’s response. Until recently, regulators have focussed more on understanding and reforming the industry than on building an understanding of consumers. However, the regulators are now realising that competition and consumer policy are integral to each other and that they need to increase their understanding of how consumers behave. ‘Behavioural’ economics can provide insights into consumer participation in a market which cannot be explained by traditional economic theory, and increasing engagement with consumers and suppliers can improve regulators’ understanding of the market. There is more scope for the regulators to share learning and commission joint projects, for example, on understanding how low income consumers interact with the market.

I think this is exactly the sort of area where behavioural insights could/should be applied. The report shows the significant level of inertia amongst consumers when you open up services that were previously monopolies to competition:

The former incumbents in energy have all lost market share to competitors, although they still retain a large share (46 per cent in gas, and just under 50 per cent in electricity)... BT, the former incumbent, still retains 37 per cent

Finally, the NAO report here on directory enquiries services liberalisation is also worth a read, though it's a bit old now.

Gotcha! CTW's first sub-prime result

The Change To Win Investment Group has successfully helped to oust a director of Washington Mutual as part of its campaign to seek corporate accountability for the sub-prime debacle, and is seeking the departure of two others. FT report here, CTW's own statememt below.

CtW: Shareholders Rejected Two Additional WaMu Directors

Investment Group calls for resignations of James Stever and Charles Lillis

Washington, DC - Pointing to unofficial election returns showing that shareholders rejected two additional WaMu Directors, James Stever and Charles Lillis, the CtW Investment Group called on the WaMu Board to immediately release full election results and demand the resignation of any directors who failed to win majority shareholder votes.

“Washington Mutual shareholders sent an unequivocal message today that they are ready for more independent and accountable Directors,” said CtW Investment Group Executive Director William Patterson. “While we commend Washington Mutual’s Board for promptly accepting Mary E. Pugh’s resignation, we believe that Charles M. Lillis and James E. Stever also failed to win re-election. The Board should immediately disclose detailed election returns, and should demand the resignation of any Directors who failed to win majority support, excluding broker votes.”

The letter, which is attached, cites preliminary election returns showing that shareholders withheld 51.2% from Mr. Lillis, 61.9% from Ms. Pugh, and 50.9% from Mr. Stever. CtW had urged shareholders to withhold from Pugh in response to risk management failures and from Stever in response to poor executive compensation practices. AFSCME also urged withholds from Stever and Lillis.

Socially responsible private equity

Just stumbled across this report by the Environment Agency pension fund. This fund, as you might expect, is a bit of a leader in the socially responsible investment world. Almost uniquely as a UK fund they have attempted to apply a responsible investment strategy across all their asset classes - including the unions' favourite, private equity.

I've not read the report properly, so I am mainly posting for info in the hope that others maybe able to use it. However I did notice some interesting comments in the 'lessons learnt' section at the end. Notably the bigger PE funds (focused on buyouts) were less open to 'responsible entrepreneurship', as were those based in North America.

I'm just posting the section from the scheme's manager Robeco which handles the PE policy for them. The scheme itself has a separate list of points.

Robeco:

The key lessons learnt investing the Environment Agency mandate are as follows:

1) Most private equity funds find it easier to comply with negative screening (exclusion of certain industry sectors, such as tobacco and fur) than accepting the Responsible Entrepreneurship Strategy, which requires more efforts.

2) The acceptance of the Responsible Entrepreneurship Strategy is best in the Emerging Markets, followed by Western Europe and North America. The good reception in the Emerging Markets is caused by the fact that private equity funds in this region have experience dealing with sustainability-conscious investors, such as NGOs that have their own sustainability requirements. Especially in North America, hesitance with respect to the legal implications of accepting the Responsible Entrepreneurship Strategy is an important reason for not working with Robeco in this field.

3) The acceptance of the Responsible Entrepreneurship Strategy is better with smaller funds (growth capital funds, small buyout funds) than with larger funds (large buyout funds). Large funds apparently are less open to changing their current investment process than smaller funds that typically have a somewhat more flexible (less institutionalized) approach.

4) In order to convince private equity funds to accept the Responsible Entrepreneurship Strategy, a proactive approach needs to be taken, in which the value that this strategy can bring in terms of reducing risks and taking opportunities deriving from social and environmental trends needs to be explained on a very concrete and operational level.

5) The Responsible Entrepreneurship Strategy should be positioned as a practical tool to assist private equity funds in managing their portfolio companies better, rather than as a checklist that needs to be complied with and for this reason is merely an administrative burden.

6) The requirement to implement the Responsible Entrepreneurship Strategy somewhat limits the universe of investment opportunities. Whether this has a negative impact on returns in the end remains unproven.

7) The clean tech private equity market has over the past few years changed from a cottage industry to one of the next waves (after IT and Life Sciences) of venture capital investing. This is evidenced by the growth in the number and the quality of available private equity funds in this investment area.

8) It takes time to build a diversified clean tech private equity portfolio. That is, during the beginning of the mandate, clean tech private equity funds were nearly all North American based. Today, Western Europe and Asia are catching up. The consequence is that only a few years into the mandate the target geographical allocation will be reached.

9) On the co-investment side, the Environment Agency has a notice period of 10 working days to review an investment opportunity. Given the ambitious timelines of these deals, this can be challenging from a logistical point of view.

Framing and social security reform

I'm steadily getting through The New Financial Order, which is proving to be an even better read than I had expected. I've just finished a chapter with the snappy title 'The science of psychology applied to risk management', however it is really about the importance of framing when making policy. No surprise to see Kahneman and Tversky feature quite a bit. Here's a quick snippet from towards the end of the chapter:

"The inventive use of framing, as illustrated by the history of US Social Security, is not one of manipulation. Rather, it consists of setting things up right for our society, putting things in the right boxes in terms of our underlying mental structures, to guarantee the long-term stability of our arrangements. In the case of social security, the proper psychological framing done in the 1930s created a substantive claim of right that survives to this day. These aspects of the framing of insurance and social insurance have worked in the past to encourage public acceptance of some important risk management institutions. Looking to the future, we must again be inventive with framing."

I'd recommend spending 10 minutes reading this chapter to anyone involved in policy work.

It also made me think about how much damage is done when there are sharp policy reverses in respect of social insurance. Not only do we lose out financially, but our understanding of the world is radically altered too. It's one of the reasons why I think the Tories did far more damage in the 80s than they have realised. They changed the rules of the game.

Interview with UNPRI chair

There's an interview with Donald MacDonald, chair of the UN Principles for Responsible Investment and member trustee on the BT pension fund (and ex-CWU officer), on the SHARE website here. I've just pulled out the union-specific questions below.

3) The international trade union movement has come out in support of PRI, and developed a guidance note to assist trustees in implementing them. As a member-nominated trustee yourself, how do you view the role of the labour movement relative to the PRI?

We welcome the support of the global labour movement – and the worker capital it represents. This support is clearly very important: Trade unions have an obligation, through their member-nominated trustees, to deliver best value pensions but also to exercise active ownership. The relationship between capital and labour has evolved considerably in the pensions sector, and a very collaborative approach now exists. It is very important that workers and their representatives are actively involved in the good management of their pension schemes. We invite trade union pension schemes to take part in the good work of the PRI.

4) Do you think that PRI is a useful tool for member-nominated trustees to raise issues of importance to workers and their trade unions related to the investment of workers capital?

Clearly, PRI provides a useful framework for trustees: there is a commonality of interest here. Consider the universal ownership issue: the health of workers’ pension funds depends on healthy economies, avoidance of wars, the secure production of foodstuff, access to clean water, etc. There is a circular relationship between investments and the globe: if the world is unhealthy, our pensions are unhealthy. Trade unions have a very unique role in this respect: Trade union members are the beneficiaries of pension funds but also supply the labour that manufacture goods and provide services.

The PRI can be used as a vehicle for corporate engagement in many areas of interest to the labour movement, such as supply chain issues, gender, labour rights, etc. PRI signatories, in turn, need to be aware of their responsibilities in areas of key concern to workers, such as labour rights, health and safety, child labour etc.

5) PRI’s lack of explicit reference to authoritative international standards of corporate behaviour (ILO, OECD) is frequently mentioned as a drawback in trade union circles. How do you respond?

The ILO and OECD instruments are of a different nature: they are, by nature, inter-governmental organizations mandated to set standards that are enforceable through legal action. PRI is different: it is an investor-led initiative. Members are motivated by the proper exercise of fiduciary responsibility, by the belief that ESG risks can be material, and can impact the long-term returns for members’ beneficiaries.

To be effective and raise standards in the capital markets, you have to be pragmatic. PRI pushes for the integration of ESG considerations in investment decision-making. Given the wide range of extra financial issues out there, this process has to be generalized and indicative to be valuable for asset owners. The Principles are clearly aspirational, but underpinned by a clear assessment process.

Local authority pension funds press M&S

Here's LAPFF's latest release:

Local authority pension funds have told Marks & Spencer that they do not support the company’s decision to appoint Sir Stuart Rose as executive chairman.

In a response to the company’s recent letter to shareholders, the Local Authority Pension Fund Forum has stated that it does not believe that the company has provided sufficient justification for a significant breach of the Combined Code. In a letter to the current M&S chair Lord Burns, the Forum states that whilst investors might tolerate a temporary combination of the roles of chair and chief executive, it is not convinced that the company has provided grounds for a breach of best practice that will last three years. It has also queried why Sir Stuart cannot remain as chief executive whilst the company continues to plan for succession.

The Forum also says that the announcement that Sir Stuart Rose will face annual re-election, whilst welcome in ordinary circumstances, may personalise the governance issue in an unhelpful way. The Forum says it believes that this will frustrate investors who wish to maintain the focus on the importance of good governance and may result in a damaging vote at the company’s AGM in July.

Cllr Ian Greenwood, chair of the Forum, said: “This is about risk, not box-ticking. The recommendation that there should not be a concentration of power at the head of a company is in the Combined Code because of previous governance failures. In addition there is a significant risk for investors that the decision to breach a key principle will send a message to the market as a whole. As such, welcome as the company’s recent letter is, it does not provide sufficient justification for us to support the proposed approach. We want the focus to remain on the importance of good governance, rather than turning into a personal referendum on Sir Stuart Rose. We are therefore exploring alternative routes to addressing our concerns.”

The Combined Code states:

• “The roles of chairman and chief executive should not be exercised by the same individual.” (A.2.1)
• “A chief executive should not go on to be chairman of the same company.” (A.2.2)

Tories getting smarter?

Have a look at pages 12 to 14 of this Conservative Party policy document that appeared last month. It promotes the revitalisation of the HSE's CHaSPI (an index for measuring companies' health and safety performance) and it recommends that the disclosure amendment to the Pensions Act requiring pension funds to disclose their policy on SRI and voting should be reviewed, and strengthened:

This review would be conducted with a view to further strengthening the reform by incorporating an annual reporting requirement for Pension Schemes detailing what action has been taken in support of the SIP.

The usual caveats apply - this is only a policy document, it might be just hot air - but it does raise the prospect of the Tories actually looking more actively supportive of responsible investment and shareholder engagement than Labour. In addition I can't believe that the Tories got there by themselves, they must have been talking to some people in the SRI world (there's only a handful of people in the investor community who have properly thought about CHaSPI in my opinion). That's not a bad thing in itself of course, and I really wish we could get CHaSPI properly up and running so any help must be positive even if it comes from the Dark Side.

But it does signify that the SRI community thinks the Tories are worth talking to/assisting with policy development. I'm afraid it may be another sign of which way the wind is blowing.

Unions as shareholder representatives

There's an interesting piece by Don Young on the role of unions in the capital markets here. Below is a short excerpt. Don's book is also worth a read.

Currently, many union members are also members of pension funds and many more have savings and mortgages. In this regard, it is possible to cast the unions as the representatives of more real shareholders than any other institutions. By 'real shareholders' we mean those who are the ultimate stakeholders in the economy and the actual owners of savings and pensions. The finance industry are agents and intermediaries, but have arrogantly and inaccurately assumed the roles of owners and shareholders. Let us say it again - they are not, they are agents of the real capital owners, who for a complex of reasons, get little or no say in what happens to their money unless they are very rich.

These real owners, the millions of small savers and pension fund members need a strong voice and don't have one. This is a void into which the unions could migrate, if they are intelligent about it.

Ruth Lea's wrong answers

Ruth Lea, former head of policy at the Institute of Directors, has an article on Comment Is Free today about the credit crunch. Basically it is, as you might expect, a call for restraint in dealing with current market turmoil. It trots out the same line advanced by The Economist recently that we should be wary of over-reacting and killing off innovation and entrepreneurialism in financial markets.

Although there is a nugget of truth in here - I do think financial innovation has the potential to be a very good thing for working people if it helps share risk - both articles read like unthinking narratives. There is no acknowledgement that regulation can actually create new markets, or play a positive role in solving probelms. Instead regulation is posed as stifling innovation.

In addition I don't think the Comment Is Free piece is right to apparently place equal blame for Northern Rock's failure on the bank's board and the FSA. She's right to say that Hector Sants has admitted that the regulator could have done much better, but did she miss the bit where he said that even if they had been more on the ball it still might have made no difference. In my opinion suggesting equal blame takes you down the road of expecting regulators to pre-empt problems at companies that even their own boards don't spot.

But the bit in Ruth Lea's article that really had me shaking my head is this:

Inevitably, the combination of banking bailouts and chief executives walking away with generous payoffs, leads to calls for more regulations. But, in Britain at least, this should be resisted. We have regulations aplenty. More regulation risks damaging innovation and entrepreneurial activity that are vital to the success of the City of London, a vital part of the British economy.

Instead boards of financial institutions must focus on the long-term prosperity of their businesses and ensure that remuneration packages for key employees balance short-term, performance-related reward with longer term business objectives. These are corporate governance issues that should be left to boards and shareholders.

As is probably pretty clear, I'm not big on ideological approaches to policy, and I think this has often been a big failing of the Left. But the Right can fall for illusory ideological answers to problems too. And one theoretical fallacy they seem to repeatedly fall for is the idea that shareholders act like owners, and as such are best placed to resolve governance failings.

Shareholders ought to act like owners, because it is in their financial self-interest to do so, but most typically don't. I think this is partly because they aren't investing their own money, and maybe also because a key group of 'shareholders' - the fund managers - are culturally desensitised to high pay (because it is so prevalent in their world). These guys (and they are normally guys) are principally traders, not owners. A handful of managers try and play the ownership role properly, but they are easily outnumbered by those who don't.

The result is that although there is a lot of sound and fury about executive pay each AGM season, actually very few companies face serious opposition. The most recent stats I have found are for the 2006 proxy season, when the average vote against a remuneration report was... 4%. I can't see how we can avoid concluding that 'shareholders' are quite happy with executive pay as it stands. Shareholder votes on exec pay are principally an exercise in rubber-stamping decisions already taken by management. Therefore expecting shareholders to address the pay-outs related to sub-prime failings seems a bit of a forlorn hope (though notably some investors outside the UK are having a go).

If I was being cynical I could read this as a case of advancing a reasonable-sounding 'solution' that it is known won't have any meaningful impact. However it's probably much more simple - an ideological belief in how the company-shareholder relationship should work, that overlooks real-life practice.

PPF news

If you were to take seriously all the blah (and cartoons!) that appears in the financial trade press, you might be tempted to believe that the Government's sole role in pensions is to muck things up. Everything would be just fine if it wasn't for the Government sticking its nose in is the steady drumbeat message.

Funnily enough though, I don't recall much effort on the part of the self-regulating industry to sort out the problem of what happens to underfunded pension schemes when the employer goes belly up. Unions, and a few other enlightened campaigners, argues for years for the establishment of (if I remember right) what used to be called a central discontinuance fund. Labour did something about it - they set up the Pension Protection Fund, and as the story below from Professional Pensions shows it is starting to play a very effective role in ensuring that people who contributed for years towards their pension get a decent retirement income.

PPF protection extends to 41 schemes
Jonathan Stapleton

MORE than 12,100 people are now receiving Pension Protection Fund compensation or will receive it in the future, the lifeboat fund says.

The PPF – which has just celebrated its third anniversary – said, as at March 31 this year, 41 pension schemes whose sponsoring employers have gone bust had transferred into the fund after completing the assessment period.

This means that the PPF is paying out £1.4m a month in compensation to those members who have already retired.

PPF chief executive Partha Dasgupta said: "We believe this announcement clearly demonstrates that we are doing what we were set up to do in April 2005.

"As we mark our third year of operations, we are not only providing compensation to an increasing number of people – but we are also sending out a message to the 12 million people still in final salary schemes that they can be confident of our protection now and in the future."

The PPF said that, of the 59 schemes that have completed the PPF assessment period so far, 41 have transferred in, 12 were rescued by a new employer that agreed to support the scheme and six did not enter because they could pay more than PPF levels of compensation and have proceeded to buy out instead.

Of the 12,131 members in the lifeboat fund, 3525 are already receiving compensation, and 8606 will receive payments when they retire.

A further 225 schemes, with a total of 118,000 members, are presently in the assessment process.

It's a shame that the industry collectively forgets that it was doing nothing to address this problem before the Government stepped in. Incredibly, some of those who had done nothing to solve this problem then started making a lot of noise about the - entirely legitimate - campaign to restore the pensions of those whose schemes tanked prior to the PPF. Labour hadn't done enough they argued. But again the Government acted - it introduced the Financial Assistance Scheme.

If I take my red rose-tinted specs off I can see that Labour's record on pensions is not without blemishes. However on the specific issue of protecting pensions where employers have become insolvent it has a very good story to tell.

Quick plugs

Some random plugs before I get my blogroll up to date. Change To Win Investment Group has just started a blog which you can access here. They have also set up a scetion dedicated to their engagement with banks over sub-prime failures here. One day the UK unions are going to be this good, I know it!

Separately I can't recommend highly enough the IUF's Private Equity Buyout Watch. Top notch labour movement analysis of private equity that doesn't fall back on 'fat cat' cliches. Definitely worth keeping an eye on.

Turning to the SRI world, I've recently stumbled across this blog which covers that bit of the investment market. Coincidentally they've got a brief comment on Predictably Irrational.

Also well worth a plug if I havent done it before is the Responsible Investor site, run by a journo mate of mine. It's a must read if you are interested in responsible investment.

Books and beats

Well, I finished The Logic Of Life, and I suppose my overall impression was 'not bad'. I quite enjoyed the Undercover Economist, but I was less impressed by this one. I guess it's primarily about asserting rational choice as a (the?) major force in human history and society. This comes at a time when behavioural economics is on the rise and challenging (successfully or otherwise) economic assumptions about rationality.

I think Harford does quite a good job at arguing back against the behavioural approach (though this isn't a stated objective). He makes the point early on that much of the research that suggests we make 'irrational' decisions comes from labatory experiments utilising more abstract ideas. However when we are in the real world (or in our comfort zone as Harford puts it) we are more likely to act rationally. Experience makes us more able to make the rational choice. We can 'learn' better choices.

In contrast when we are in a new and unusual situation we find it much harder to act rationally. Interestingly he uses the example of deciding how much to save for a pension. A similar point has been made by Joseph Stiglitz - what can you do about it when you have learnt that you didn't save enough for retirement?

He then goes on to apply the rational choice perspective to various different issues. The section on bosses' pay is interesting, and presents a fairly convincing argument both for why management pay is probably undeserved and why shareholders in companies with high pay may not bother to challenge it. I liked the comparison to splitting the bill at a meal. (He could have added the principal-agent problem of the investors not typically investing their own money).

I found the section on 'rational' racism particularly interesting/depressing. It describes how the impact of racism can become a vicious circle - if black kids don't see an advantage in education (because employers don't take them on anyway) they won't bother, and in turn that will reinforce employer prejudices about the educational standards of black kids. There's also some interesting stuff about how neighbourhoods end up very segregated because of a relatively mild preference to not live in an area where people of your ethic group are a small minority. This actually looked familiar to me - I think Paul Ormerod covered similar ground in Why Most Things Fail.

Sometimes I think he overplays it. At one point he asserts in passing that obesity in wealthy societies might be a 'rational' response to the ease of getting food, and time required to undertake exercise. Maybe, and maybe it's much more complicated than that. Why are some people obese and others not? Is it just because those people who are obese are responsing to different incentives - or are other factors at play?

And its little examples like this that bother me about the book. They remind me that as seductive as rational choice is as a perspective for explaining what is going on it has its limitations. Though I finished the book more convinced by some ideas (the stuff about unreliable political regimes and their impact on economies can surely be applied to places like Zimbabwe) I didn't find it anything like as illuminating as I thought I would.

Anyway with that book out of the way I'm now splitting my time between Robert Shiller's New Financial Order and a book about lying.

On the music front I've downloaded some great stuff recently. On the recommendation of my mate Kenny I bought Arvo Part's Fratres, which is moody modern classical music and really rather good. Off on a different tangent I also got Diary Of An Afro Warrior by Benga which is what I believe the yoof call dubstep. It's a lot more interesting than a lot of music from that genre, and nice and spooky in places.

Finally, a bit more of an oldie, I've also been listening to Modus Operandi by Photek. I've never really jazzy drum & bass, and where this edges towards that sound I lose interest. The beats are also surprisingly slow in places (not a bad thing in itself). But where it's good it's very good - bleak and moody.

Fidelity hosts Tory business group again

Tory-supporting fund manager Fidelity has hosted another event for the Conservative Party's business liaison outfit the Enterprise Forum. check it out on their website:

Wednesday 5th March 2008
Philip Hammond MP - Shadow Chief Secretary to the Treasury
Business Breakfast
Kindly hosted by Fidelity Investments

Robert Shiller on unions and democratizing finance

The quote below is from The New Financial Order. It makes a lot of sense to me.

Labor unions should have an important leadership role in democratizing finance. Sponsoring new risk management policies and procedures could be a life saver for their members, protecting them against a harsh outcome in the event of great income inequality, protecting them perhaps far better than any ongoing collective bargaining ever could. Unions are in a particularly good position to understand the risk management needs of their members, needs that are connected to their occupational niche and their personal circumstances. These unions could help design occupational insurance for their members and select labor income indexes that are particularly relevant to them. They could advocate home equity insurance policies for their members, with attention to the special needs of members - attention, for instance, to the risk that a plant closing in an isolated community could harm the home values there. They could advocate pension plans that invest in macro securities that serve to offset risks to occupational income fluctuations. They could also provide information about the specific needs of their members.

Proletarian prolixity

Hehehe... how about this for a bit of purple prose about the current 'crisis in capitalism'? From the Communist Party of Great Britain (Marxist-Leninist). Genius.

The suppurating sores of decaying capitalism have once again seeped through the thin cloth woven of propaganda which keeps them semi-obscured most of the time.

Pensions vs private equity again

From the Unite site:

Unite calls on government to act as 63,000 workers' pensions are threatened by private equity
03/04/2008

Unite, the UK’s largest union, has called on the government to legislate to protect pension schemes from raids by private equity style companies.

Unite officials met with Pensions Minister, Mike O’Brien to discuss the Pension Corporation takeover of the Telent company.

Unite, the UK’s largest trade union, believes the Pension Corporation that owns Telent and employs 2,000 UK workers, bought the telecom services company for £400 m to gain control of its’ £3bn pension plan and in addition, access to the assets of a further pension account worth £520m. The Pensions Regulator has expressed similar concerns.

Unite wants to see changes in the law to stop pension schemes being used as instruments of short term profit making for private investors.

Peter Skyte, Unite National Officer, said: "At our meeting with Pensions Minister Mike O’Brien yesterday, we pressed the government to take quick and decisive action to stop raids on pension schemes by companies seeking to make a fast buck for private investors at the expense of employees and pension scheme members.

"It’s clear that the key attraction for the Pension Corporation that bought the former Marconi company was its £520m pension back-up scheme. Pension schemes belong to the present and former workforce and must be used to protect their long term futures in retirement. They should not be used as a piggy bank to be raided for short term private gain.

"Mike O’Brien listened to our concerns and we welcome his assurance that the government is looking at long term legislation to safeguard pensions from such raids."

An optimistic computer model

I found this bit towards the end of the fifth chapter of The Logic Of Life encouraging. It's obviously based on game theory, and I'm sure you can pick holes in it, but it cheered me up today!

The computer randomly pairs up people each 'day' (actually, many times a second). The computer gives them a simple choice: act honestly or act corruptly. If both sides of the pair act corruptly, both enjoy a kickback; if only one acts corruptly and the other honestly, the crook will go to jail.

The magic of the computer model is seeing how quickly the artificial world can change. At first, it is populated by self-interested crooks, with a few honest citizens sprinkled among them. The few honest citizens don't respond to incentives; irrationally, if heart-warmingly, they will always act honest. The crooks do respond to incentives, being corrupt or honest depending on whether they think the other side will reciprocate. The chances of honesty being the best policy are quite small at first, and many days go by with corruption thick in the air and honest folk unable to stem the tide.

But when... crooks decide that even other crooks will decide to act honestly they will do the same. That fear of an outbreak of honesty can spring up suddenly as the result of a few random events, a few honest citizens clustered together creating the impression of a legal crackdown. After a long period of pure corruption, [the] model displays a change even more dramatic... suddenly, very quickly, everybody in the world decides to be honest. The moment the process starts it is impossible to stop: offering a corrupt deal becomes irrational and suddenly the world is full of crooks who have decided that honesty is the best policy. It is a self-fulfilling decision. The cascade of tiles on the computer screen changes colour abruptly as honesty breaks out everywhere.

[The] model is still a vast simplification, of course. But it does provide a hint at why some societies do seem to move from awful corruption to relative lawfulness very suddenly. The model confirms that the transitions can be dramatic; they can have tiny causes, or even no cause at all, just being the product of random events. Each rational individual decision changes the decisions of others, just as small stones rolling down a hill can build into a landslide. In life, as in the model, the collective output of such interactions may not resemble the typical individual's desires, even if it is a change for the better.

Book request

Can anyone recommend a simple introduction to Gramsci to me? Any suggestions much appreciated.

A fund manager's existential angst

This is excellent, everything about it. It tells you so much about financial services, especially the self-reinforcing guff! Not only the fact that a person making a decent living out of active fund management thinks it's built on a lie (that you can consistently out-perform), but the comments too. Another (older) fund manager says he agrees, but that he's been at the job for over twenty years. Then you get the arrogant young fund manager who says he KNOWS that you can out-perform because he has done it, and that if you don't agree you must be a failure. Or what about the guy saying have kids because then you won't think about it.

Genius all round!

Anywhere here it is:

Should I quit just because my work lacks purpose?
By Lucy Kellaway

Published: April 3 2008 03:00 | Last updated: April 3 2008 03:00

I am a fund manager in the UK. My job is great: flexible and well-paid. My problem is that I don't believe it is possible to outperform other fund managers with any consistency. I believe the industry is based on the lie that fund managers add value through skill, rather than luck - which makes it hard to keep motivated. Should I move - even though I can't think of anything else I want to do - or should I accept the idea that work is not meant to be meaningful?

Fund manager, male, 34

LUCY'S ANSWER

Looking for meaning in work is like looking for happiness. The more you look, the less you find.

You have been searching so hard that not only have you failed to find meaning, but you've found something more unsettling - a lie.

In some ways you are right: fund managers generally don't outperform consistently and luck often plays as much of a part as skill. On average they perform only averagely, and - once you subtract the huge fees - they perform sub-averagely.

If I were picking you as a friend, I'd like your honesty. It is particularly nice set against the brash, self-promoting comments that your peers have posted on the FT website. Yet you aren't applying to be my friend; you are asking for advice on your working life. In which case I advise you to drop this line of thought, as working at something that you believe to be a lie is too corroding.

The good news is that there is another, better, way of looking at your job. As my colleague Martin Wolf (journalist, male, 61) explains below, fund managers collectively contribute a good deal to the economy by making markets work more efficiently. I suggest you recite his comments to yourself 20 times a day until the message sticks.

At the same time, do some gentle spadework on other occupations. Talk to people you know who do other things and then compare their jobs with yours. You say your job is "great" - I bet most of them would not say the same.

The other thing that might help you now is fear. If the markets go on being quite so unrewarding you may soon find that your "great" job is not so safe as you think. The prospect of losing it may make you drop your existential doubts quite smartly.

YOUR ADVICE

Togetherness

The reason it is difficult to outperform markets consistently is that so many clever people are trying to do so. The result of these efforts is already in the prices at which you buy and sell. Since you can outperform the others only by exploiting opportunities they have failed to identify, the scale of the collective effort ensures you are likely to fail. But you are being rewarded handsomely for contributing to a socially useful result: a moderately efficient capital market.

Journalist, male, 61

Too right

I have been a fund manager for 27 years and I agree with you completely.

Fund manager, male, 50s

Honest John

If only the rest of the industry was as honest as you. Most active fund management is a swizz: a great big pile of marketing hype. Now that you have seen the light you should stay, enjoy the salary and write a blog about it. The world would be richer and you wouldn't be any the poorer.

Investor, male, 36

Quit now

Your question suggests you are a failure as a fund manager. As someone who has outperformed every year for 14 years I know your statement is false. If you can't find a way of changing your investment approach - this challenge should be motivation enough - you should get out.

Fund manager, male, 39

Procreate

I suggest you breed immediately. The increased financial pressure and the shortage of sleep will quickly assuage any regrets you have about lack of skill in your job. You can agonise over your life path when you become an empty nester.

Financier, male, 31

Fidelity attacks private equity boom, and so does Robert Peston

Not my favourite fund manager, obviously, but its global head of institutional rips apart the private equity industry's recent record in this piece in the FT. It's no holds barred stuff, I liked this bit:

Private equity as we have come to know it is all about debt – lock, stock and sinking barrel. There may have been better management and better incentive structures in the deals of recent years. But they really contribute nothing to the overall return when compared with the impact of the leverage in the capital structure.

He also refers to a paper by Citibank on the role of leverage in generating returns which sounds very interesting. And it makes it even more annoying that the Walker Review dropped the recommendation that PE firms should publish attribution analysis.

Private equity also took a pounding in Robert Peston's rather good Super Rich: The Greed Game which was on BBC2 last night. Speaker after speaker made the point that using cheap debt accounted for the lion's share of private equity's performance. The point was also repeatedly made that in the rise of securitisation, private equity and hedge funds asymetric risks developed, with investors on the losing side. Probably the most surprising thing of all was the consensus that the growing gap between the rich and rest of us was a significant political problem. But who is going to do something about it?

SEIU legal push on private equity funds backed by SWFs

The SEIU has introduced legislation in California that would ban Californian public employee pension funds from investing in private equity firms backed by sovereign wealth funds. Reasons include lack of transparency of the fund, risky leveraged debt used as the financial return strategy, little incentive to invest in local community infrastructure investment and the political concern for the motivation of these firms are some of the reasons for concern.

Hat-tip: Capital Matters