Tuesday, October 24, 2006


Pensions, Foreign Owners and the Power of the Investor


In response to "Retirement for Three Hundred People", a colleague wrote the following. I publish it here because it is (a) thought-provoking and (b) reminds us that global integration of capital is here to stay.

<< The interesting thing will be the cross-border wealth transfer. As we in the US begin to liquidate investments after retirement, there will be an upsurge in demand from India and China, where the general level of wealth is rising rapidly and the population is growing. Combine that with a probable higher marginal propensity to save and you will see more and more US companies taken over by Chinese and Indian companies. >>

What happens in one country necessarily influences what occurs elsewhere. Migration of capital across borders is a snap in an era of lightning speed information transmission, consolidation of global exchanges and continued deregulation of financial rules.

In the spirit of this notion about one global marketplace, a 2006 book entitled The New Capitalists: How Citizen Investors Are Reshaping the Corporate Agenda makes a compelling case for the power of the institutional investor. Authors Stephen Davis, Jon Lukomnik and David Pitt-Watson chronicle "milestones in the owner revolution", in the United States and abroad. While they concede that shares alone do not guarantee a particular outcome, the trend is unmistakable. Investor clout is on the rise.

Consider these examples.

1. "In 2002 three U.S. state pension funds took steps to squeeze conflicts and misalignments out of the investment chain. The 'Investment Protection Principles' commit funds to require money managers to report on conflicts, how they pay their portfolio managers, and what they do to act as real owners of citizen capital."

2. "In October 2004 a group of big European funds founded the Enhanced Analytics Initiative (EAI), which commits each member to steer 5 percent of broker commission fees to stock research firms that analyze extra-financial factors affecting corporations."

3. "Coalitions of funds are forming within and across national frontiers to address overlooked long-term investment risks. Forums in the United Kingdom, North America, Australia, and New Zealand now focus on climate change as a portfolio issue."

Spending and saving patterns around the world influence what goes on in corporate boardrooms. Regardless of your view about nationalism versus globalization, one fact is undeniable.

Investors reign supreme.
posted by Susan Mangiero at 10/24/2006 02:21:00 AM