All professions are conspiracies against the laity, said George Bernard

Shaw, who was, it turns out, something of a one-man conspiracy himself against various wives, parents, mistresses and friends. His personal morality aside, he had a point there. Professions tend to be unforthcoming about the way they corporately conduct themselves. Unless prodded hard, preferably with a big regulatory or legal-jeopardy stick, they will carry on doing things they’ve always done, even if their behaviour is inimical to their clients. In our world, the investment world, one of the key sets of ‘professionals’ is the people who staff investment management companies.

I don’t know how many of you ever get to visit the City.

Investment International’s offices are just round the corner from Liverpool Street, so I work every day in the area. There are, to put it mildly, very few people wandering round in shabby suits. The bankers, lawyers and, crucially for us, investment managers look exceedingly well fed.

Why, though?

How come managing money gets you so very well remunerated?

All the research that’s been done into the issue shows that active fund managers – the ones who pick stocks for you if you invest in their funds – don’t add any value to the portfolios they control.

No value.

Nada.

On average, as I report on page 14, active investment funds consistently underperform the stock market, year on year. The very few that outperform (only about 30 per cent in any given year) don’t do so consistently and are found to have slipped back to average underperformance within a short time.

So how come they are paid so much? One could go further: how come they are employed at all? They cost much more than passive index-tracking funds, and perform worse. Are we the laity and they the profession in GBS’s formulation? There is relatively little deliberate wrongdoing, just a stubborn resistance to the evidence which has now accumulated over several decades. Perhaps the reason why professions look like conspiracies is to do with inertia and conservatism, not anything actually nefarious.

But what about the out-and-out crooks? You won’t need reminding that the offshore world is replete with them. Tim Hyam takes a look at some of the more prominent scams of recent years and finds out how you can protect yourself against the boiler-rooms, ramping merchants and general villains out there.

Finally, as a pleasant, virtuous tonic for this suspicion and gloom, Jacqui Canham, an experienced fund management journalist, looks at out-and-out ethical investment funds and asks whether they are really ethical, and whether they perform anywhere near as well as their naughty, non-exclusionary counterparts.

James Featherstone
Editor
jfeatherstone@ccplcemail.co.uk