86 per cent of institutional investors say they share blame for crisis: NSFM/AQ/RI survey

More than 90% of institutional investors questioned in a unique survey of market participants believe financial markets are now threatened by increased ‘moral hazard’ – the belief that banks and other investors will take excessive risks based on implicit government guarantees – following the credit crisis bailouts than they did before it, and that fixing this must be a priority to ensure the sustainable functioning of markets. However, just under a third of these same investors (28%) are pessimistic that the right lessons from the crisis have been learnt to avoid future market blowouts. And 80.5% said the response of regulators has so far fallen short of what is needed to fix the system. The survey, titled: Credit Crisis: Business as usual for institutional investors? was carried out by the Network for Sustainable Financial Markets (NSFM), an international on-line network of senior financial market professionals and academics, AQ Research the investment research and data group, and Responsible-investor.com. It was answered under guarantee of anonymity by 208 investment professionals, the majority (49.4%) frommainstream asset management firms, while 32.6% responded from sustainable investment specialists. The results were evaluated for bias between the views of mainstream and sustainability-driven managers, but there was no discernible difference in opinions. It is one of the first times that institutional investors, who some critics – including Lord Myners, UK Financial Services Secretary – believe contributed to the market crisis as absentee owners of banks and corporations, have had their say on the economic crisis and the current major political/regulatory debate topics. Asked if Myners was right and institutional investors should share some blame for the financial crisis, institutional investors were highly self-critical: 86.1% said they should. Of these, 68.2% said they had thought this since the beginning of the crisis, while 17.9% said they had disagreed but changed their minds as the crisis unfolded. Just over 10% said they disagreed. As a result, 40.3% of respondents thought that the crisis had been good for increasing sustainability factors in investment, while 8% thought it had been very good, 27.9% thought it had been
neutral, 6% bad, 2% very bad and 15.9% said they couldn’t tell yet.
On the subject of banking bonuses, a surprising one third of the responding investors (33.3%) said they believed financial services remuneration should be subject to a ‘total salary and bonus cap’, although the remaining 66.7% disagreed. Proposals for ‘post remuneration clawbacks’ in the event of firm/bank losses enjoyed much greater support with 75.3% in favour and 24.7% against. Bonuses paid over multi-year / -timeframes / deferral were also keenly supported by 90.8%, with just 9.2% against.
Significantly, 73.4% of respondents said guaranteed bonuses – a subject of intense debate at last month’s G20 Summit in Pittsburgh – should be banned (26.6%
disagreed). More than three quarters (76.4%) said golden parachutes should also be banned (23.6% disagreed). Opinions were split, however, on the recentlyrehashed proposal of introducing a global Tobin tax on financial transactions as a potential curb on excess banking/financial market risk. Of the respondents, 44.3% said they thought it was a reasonable idea, but imperfect, although they thought similar top-down, global taxes should be explored.
Just under a third of investors (32.8%) said Tobin was “a terrible idea” and that top-down, global, Tobin-type taxes never work. Just over 20% said Tobin was an excellent idea, which could dampen speculation and fund the shift to environmental sustainability.
Link to full survey results
Link to NSFM
Link to AQ Research
William Russel-Smith of AQ Research will be presenting the results of the “Credit Crisis: Business as usual for institutional investors?” survey at The Future of ESG Integration conference on 11 November in Amsterdam.