Can fund managers avoid the wrath of regulators in their portfolios?

Following the financial crisis of 2008, we have seen extreme monetary policy intervention in markets as authorities have sought to counter global deflationary pressures and weak growth. While we expect this to continue (and potentially to become even more extreme and intrusive as the years go on), a new wave of state intervention in the corporate sector is also on the rise.

There are a number of potential causes of authorities’ ever greater interest in corporate life:

  • A cultural shift towards increased corporate scrutiny and accountability to the public
  • Politicians’ desire to find scapegoats (for example in the banking sector)
  • Weak government finances and the need to raise revenues
  • The low-growth backdrop, and the focus on protecting/favouring domestic companies
  • The wish to prevent a repeat of previous misdemeanours

One way to demonstrate the scope of state intervention in the private sector is to look at some of the largest corporate fines over recent years. With these fines likely to be detrimental to shareholder wealth, they are of considerable interest to investors and our global sector analysts.

We think it is necessary to be wary of sectors which are politically sensitive at times of election or hung parliaments since politicians are prone to try and score points by attacking unpopular industries. Additionally, we watch out for local bias, as regulators and governments typically favour local incumbents over foreign competitors.

Matt Brown – Newton, a BNY Mellon company

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