Why capital allocation matters

Thursday 16 March 2017

As managers and owners of capital, it is unavoidable that our decisions influence capital allocation in the economy, so it is our responsibility to ensure that the consequences of those decisions are positive rather than negative for the efficiency of the economy and its long term growth prospects.

Generally this is not something investment managers spend a great deal of time talking about. That’s not surprising given that our clients, we suppose, are generally paying us to achieve their investment targets. A benefit for society as a whole, while welcome, isn’t really of interest to paying customers, or so we think.

But as we noted in the accompanying interview, talking about the influence of positive stewardship on companies and society is sometimes is a very useful way of engaging clients. And now that environmental, social and governance (ESG) investing is becoming more prominent, it’s becoming easier for asset managers to explain that by making sure companies act in a certain manner, they are also ensuring that clients get the best returns from their investments and those companies. As the capital allocation group has identified, if the investment profession itself doesn’t outline how it benefits both its customers and society, no one else will.