Baring Asset Management should be in party mood. The last remaining vestige of Barings Bank, the venerable merchant bank brought to its knees by Nick Leeson, is celebrating its 250th anniversary this year.
But Marino Valensise, chief investment officer, finds little to celebrate as he lambasts those he believes are setting a poor example in the post financial crisis world, from bankers to politicians and institutional investors.
Investment bankers’ bonuses may be easy targets, but Mr Valensise is keen to blame shareholders for letting bankers continue to take the lion’s share of the spoils.
“The shareholder is a disgrace,” he says. “[Banks] put the interests of their employees first and only what remains after that goes to the shareholders. Even after four years that has not changed. There should be a link. If the return for the shareholders is X then the bonuses cannot be more than Y. If the shareholder does not make any money, bonuses should be zero across the board.
“Investment banks live in the illusion that they can still produce a return on equity of 15 to 20 per cent. That will never happen ever again. This makes them quite average businesses if they get 10 per cent.”
One obvious criticism of this line of attack is that it is institutional investors such as Baring, now an affiliate of MassMutual, the Massachusetts Mutual Life Insurance Company, that will need to push for lasting change.
Mr Valensise argues Baring is playing its part but needs the support of others. “We are active and we are voting. The problem is linked to the fragmentation of the capital base. Is the investor in Goldman Sachs today more active in corporate governance terms than four years ago? There is more activity but who is in command? I don’t think the shareholder is yet in command,” he says.
Another potential criticism is that those in the asset management industry have been known to receive generous bonuses, so why would they stick their necks out to try to bring the bonus culture under control elsewhere? Again, Mr Valensise has a rapid response.
“Asset management firms are typically well managed firms that make a lot of money for shareholders. There is nothing wrong with bonuses in sharing the success. I think the investment banks have been applying another standard.”
His criticism extends to the UK government, which became the majority shareholder in two banks, Royal Bank of Scotland and Lloyds Banking Group, after bailing them out in the crisis, and has since taken a hands-off approach.
“The government tells us that we should not be absentee landlords. [They] are the biggest absentee landlords the world has ever seen, [they] do absolutely nothing. In terms of governance, I don’t see what is wrong with nominating a director or asking to be consulted on their remuneration policy.”
Baring itself is increasingly concentrating on two fields, emerging markets and asset allocation. On the latter front, its Dynamic Asset Allocation Fund, launched in 2007, already accounts for £4bn of its £30bn of assets, a success the house has sought to build on by launching a sister emerging market product.
Mr Valensise has hopes for further growth in the US, where he says investors have been slow to adopt the multi-asset class approach.
Unsurprisingly, he is also among the many waxing lyrical about the prospects for emerging markets in general. “We want to be investing in places where GDP per capita is going up but we also want to distribute our products to places where GDP per capita is going up,” he says. “They are not only consuming more but are saving more.”
The focus on emerging markets also has the handy side-effect of lessening Baring’s exposure to Europe, something Mr Valensise seems relieved about as he surveys the state of play in the eurozone.
Given that Germany has benefited from an artificially weak currency since the creation of the euro, allowing it to reap the benefits of an export boom, he believes Greece should simply ask Germany for a handout of tens of billions of euros, and threaten to leave the single currency if they do not get it.
Mr Valensise believes this would be forthcoming, but if it is not he believes Greece will not just default and leave the euro, but exit the European Union as well. “A lot of people now are more relaxed,” he says, reflecting current market conditions.
“I think they are wrong. If Greece goes out, you don’t know any more what you have got. For instance Deutsche Telekom bought the Greek operator. Have they written it down to zero? Who would buy these things until the situation is clearer. No foreigner would put a penny into Greece.”
He does not think this limbo can last.
“Nothing will happen for a while but I strongly believe that in the next two years Greece will reassess the situation. I do not think there is a chance for them to comply with the various obligations. If you have fiscal consolidation with no growth you are going nowhere.
“The only reason the Greeks stay is a fear that they will go bankrupt. Greece can get the Troika money in and then default, then try and protect banks and deposit holders with a makeshift loan. They will have to try to preserve as much wealth as possible for domestic purposes and screw the foreign investors as much as they can. They will probably have to leave the EU, they will make so many enemies. But they will have a future.”
And if that ultimately works for Greece, Mr Valensise believes Portugal would be tempted to emulate that approach, although he remains relaxed about the state of his native Italy “because of the financial wealth in the country”.
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