Why fund managers should share the risk with their investors

Ideally, managers would have a stake in their funds. It might not necessarily lead to better performance, but it would surely make them pay a little more attention.

Bridge in Rome
Roman engineers had plenty of “skin in the game”
(Image credit: © Alamy)

Does it matter whether your fund manager owns part of the fund he manages? I think we would all say the answer to this is a very firm “yes”. I like the idea that managers are, as Moira O’Neill of Interactive Investor puts it, “eating their own cooking”. You clearly do too: an Interactive Investor survey shows that 70% of people said they would be more likely to invest in a fund if they knew its manager had “skin in the game”.

There is, as Patrick Hosking points out in The Times, not much in the way of hard evidence that this would actually lead to better performance. But it feels as if it should make a difference: if their money is as at risk as ours, then managers should surely pay a little more attention than if it is not (that’s the reason for obliging the CEOs of listed firms to hold shares). Roman engineers were obliged to sleep under the bridges they built, says Hosking: there’s a reason hundreds turned out to be resilient enough that they are still standing (and often still being used) after 2,000 years. There’s also some hope that if fund managers have to go through the processes we go through and get the (mostly shockingly awful) literature we get when we invest, they might break out of their stock-picking silos and put pressure on the wider firm to do better.

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.