Disengagement and investment short-termism: a contextual study of UK pension funds

Accounting

Speaker:Anna Tilba, Newcastle University
Date: Wednesday 23 October 2013
Time: 14.00 - 15.30
Location: Kolade Teaching Room, Building One

Further details

This paper explains investment short-term and disengagement through complexity of ownership in the behaviour of pension funds vis-à-vis investee corporations by examining the contextual factors that shape pension fund’s investment practices. The research question is: what shapes pension fund ownership behaviour? More specifically, why majority of pension funds are disengaged and short-term? The analysis is based on thirty-five in-depth, semi-structured interviews with pension fund trustees, executives, investment officers and financial intermediaries; documentary analysis; and observations of four fund investment meetings. We develop a framework of related contextual drivers that shape pension fund investment and ownership behaviour, detailing how two primary drivers act as the core influences, alongside four secondary drivers associated with the broad socio-economic context. We show how changes in the context of pension funds (e.g. recession, unstable markets, deficits) and pension fund ownership (i.e. complexity) are contributing to short-term behaviours by pension fund managers, which is inconsistent with the long-term orientation of pension fund owners. Our findings challenge the perspective that institutional investors behave as principals. Finally, the paper has significant policy implications that advocate managerial accountability, offering a more realistic assessment of institutional investors’ willingness and ability to act as ‘engaged owners’.