The ‘cash for access’ scandal raises some uncomfortable issues for asset managers and investors alike. The Financial Times exposed the fact that  investment banks have admitted charging asset managers for access to senior corporate management.

This raises a number of questions – not least why, at a time when everyone is supposed to have equal access to information, people would pay for access to corporate management. Many fund managers complain executives in larger companies are studiously bland and over-PRed so discussions add little value. Some, such as Liontrust’s Jan Luthman go even further, arguing there is little point meeting company management at all since, if they provide any insight into their strategy not already known to the wider market, it is illegal according to insider trading rules.

“It is perhaps a naive hope that companies themselves would put an end to the practice by firing those investment banks that are taking advantage.”

The question is does this practice constitute insider information?  Well that of course would depend on the scope and nature of the information discussed.  Hedge funds have not always proved themselves overly scrupulous about this type of activity, which suggests long-term asset managers might be playing in a biased market resulting in short-term investors  getting insights long-term investors are not.   It also leads to questions over the role of investment banks in capital markets and control of the corporate relationship.

Thankfully asset managers are starting to realise it is a waste of money and are refusing to pay up.  Equity markets may have had a bounce but chief executives should still be clamoring for investors to buy their shares, particularly in the unloved mega-caps where this type of practice is predominantly focused.

This type of practice may lead investors to the smaller and mid-cap parts of the market where this type of practice is rarer and the influence of investment banks less pervasive. It is naive to hope that companies themselves would put an end to the practice by sacking those investment banks who are taking advantage.   If corporate executives are too arrogant to meet existing or potential shareholders except by pre-arranged and expensive meetings organised through an investment bank, it says little for their commitment to delivering shareholder value.