Johnson, who works for the Centre for Policy Studies – the think-tank founded by former Prime Minister Margaret Thatcher – wrote in a note on Monday 28 that the FCA’s report provided “robust, independent and damning evidence” that “skewers any justification that active fund management of listed assets is worth the candle”.
The FCA has been undertaking a market study into asset management and investment consulting since November 2015. Its interim report, published on November 18, found “limited price competition” on fees and worrying evidence of £109 billion of closet-tracking funds.
Johnson, known for his forthright views, wrote that active management is “underpinned by a web of meaningless terminology, pseudo-science and sales patter” and added: “For too long, active managers have been allowed to shelter behind their standard disclaimer concerning the long-term nature of investing. But the long term never arrives: it merely shuffles forward.”
He said this has “serious implications for the health of the country’s pension funds” with the UK’s defined-benefit, or final-salary schemes having the “weakest funding position in Europe”.
The IA, the trade body for UK fund managers, did not respond to request for comment in time for publication. In the wake of the FCA report it said it would “engage closely” with the regulator.
Johnson, who started his career at JP Morgan and later moved to the investment consultancy now known as Willis Towers Watson, has established himself as an influential voice in investment and pensions policy at the CPS over the past seven years. His conclusions and recommendations rarely offer comfort to the industry.
He worked for Conservative Central Office from 2006, and was secretary to the Economic Competitiveness Policy Group set up by David Cameron when opposition leader, and chaired by John Redwood and Simon Wolfson, chief executive of clothing retailer Next.
After moving to the CPS, in 2013 he proposed the pooling of the 101 sub-funds in the £250 billion Local Government Pension Scheme, as well as “emphasising investment in passive, not actively managed, funds”. He repeated that call again today.
Johnson’s proposals to create a “Lifetime ISA” to replace pensions bore fruit in George Osborne’s creation of similar accounts in March – though the then-Chancellor’s policy was less radical than Johnson had advocated.
And the proposal to force the local government scheme to go passive was initially taken forward by the Department for Communities and Local Government in 2014, only to be abandoned once the opposition of council pension managers – as opposed to fund managers – became clear.
Johnson said today that ministers should “resuscitate and implement” the proposals, adding that “the government is in no position to enforce similar proposals on private sector schemes, but, in light of the FCA’s report, many would consider it irresponsible for them not to follow DCLG’s lead.
“Millions of scheme members would benefit, and it would become apparent that we do not need 80% of the industry. The remaining 20% should focus on adding value in the unlisted asset arena that lacks the indices required by passive tracker funds to replicate investment performance: principally ‘alternative’ assets, property and emerging markets and smaller companies funds.”