Research to examine how reporting metrics 'undermine' value
UK – The impact of reporting metrics on long-term investing are to be examined by a new panel launched as part of the UK government's response to last year's Kay review.
The steering panel – comprising academics as well as asset managers, including the chief investment officer of Aberdeen Asset Management Anne Richards and Hermes Fund Managers chief executive Saker Nusseibeh – will examine whether the predominance of certain reporting metrics could "undermine the creation of long-term value", according to the Department for Business Innovation and Skills (BIS).
The research project – currently out to tender, with bids closing on 8 July – will examine both the metrics and models used by investors to measure long-term performance of equity investments, an area highlighted by John Kay's review surrounding the problems of long-term investing in the UK.
It will further examine the importance of such metrics in assessing company fundamentals, how short-term market volatility impacts the existing metrics and whether these models can be "misunderstood, manipulated or misapplied".
BIS further stressed in its tender document the research should examine whether a company's emphasis on maximising certain metrics could harm long-term value.
Selected researchers will be asked to work with the project's steering panel, consisting of Nusseibeh, Richards, JP Morgan Asset Management managing director Anne Marden and the Bank of England's head of markets, sectors and interlinkages division, Sarah Breedon.
Academics John Thanassoulis of Oxford University's depart of economics and Alexander Ljungqvist of New York University's Stern Business School will also sit on the panel.
The department said it expected the resulting report to be finalised by next April.
Secretary of state for business Vince Cable previously told a parliamentary committee that the industry should invest in research to develop the best risk metrics for long-term reporting.
He said at the time: "We don't see this as the government's job. This is the industry's job – it is their own reputations at stake."
However, one of the key recommendations in Kay's report was that government should launch an independent review of metrics to "highlight their uses and limitations".