The Kay Review on Long-Horizon Investing: A Guide for the Perplexed

Abstract

The final report of the Kay Review of UK Equity Markets and Long-Term Decision-Making was published in July 2012. It offers a view on the causes and consequences of the global financial crisis and what might be done to reform the structure and performance of the British investment management industry. This article explains the significance of the Kay Review, its sponsor, and the nature and scope of its recommendations. In the main, I am enthusiastic about its agenda, even if I am surprised by some of the report’s assumptions and suppositions. At one level, the report declares open season on the investment management industry; at another level, it is only half the story. Where the Kay Review might have looked closely at both sides of the market, it chose to focus on asset managers rather than asset holders, yet the latter group also bears some responsibility for short-termism. The key recommendations, aimed at applying a stronger conception of fiduciary duty to investment managers, will have little impact if asset holders are not effective clients of the global financial services industry. The British government’s response to the final report of the Kay Review was lukewarm, deferring on its recommendations on fiduciary duty.

Keywords: Fiduciary Duty, Kay Review, Long-Termism, Pension Fund, Short-Termism