In January and February this year, interviews were carried out, on behalf of the City Capital Markets Committee, with eighteen of the largest fund managers in the United Kingdom, in an attempt to examine how large UK equity portfolios are managed and to assess the implications for quoted companies. The survey was carried out in response to the concerns expressed by a number of industrial and commercial companies that fund managers' attitudes are too short term, leading to a tendency for the stock market to undervalue some companies, especially those investing heavily in research and development, therefore making such companies vulnerable to takeover. The survey included independent managers, insurance companies, pension funds, and merchant banks. The managers in the survey group handled UK equities totalling £63.7 billion-around 20% of the UK equity market. This article sets out the main findings. Among the main points are:
- Pressures on fund managers to achieve good performance have increased in recent years, particularly regarding unit and investment trusts and the outside management of pension funds. This has led to more intensive management of portfolios.
- But it is not clear that fund managers are necessarily taking a more short-term view of the prospects for companies. A number of managers try to beat the index by looking for shares which are undervalued relative to the fundamental strengths of the company.
- There seems to be a strong predisposition on the part of a number of fund managers to support the incumbent management of a target company in a contested bid.