Jim O'Neill, renowned economist and chairman of Goldman Sachs Asset Management, has hit out at the ‘weird world of benchmarking’ in the asset management industry, arguing benchmarks should be adapted to the changing world and rise of the Bric nations.
O’Neill also commented that after 15 years as Goldmans’ chief economist the move into asset management two years ago had not been without its challenges.
Addressing an audience from the fund management industry, he said: ‘It has taken two years to understand the Swahili-like terminology in which most of you speak. I am finally getting my head around that. Within that time much of what I have been trying to lead some of our thinkers to do is to focus on the whole issue of the weird world of benchmarking for this remarkably changing world.
‘My view is that in fixed income investing and equity investing, even if you don’t realise it yet, internationally we are all going to gravitate away from market cap benchmarks, which seems particularly stupid in fixed income where the case for GDP weighted benchmarks is so obvious. And something closer to that is also going to be coming along in equities. I am a passionate believer in that and I have spent a lot of time creating research about that.’
O’Neill is also of the view that benchmarks should reflect the rising importance of the Brazil, Russia, India and China (Bric) nations to global GDP. He added that the investment case for the Brics, a term he and his colleagues at Goldman coined, remains as strong as ever.
The economist pointed to the fact that China's GDP increased by $1.3 trillion dollars alone last year to $7.3 trillion, while he also highlighted a $2.3 trillion increase across the GDP of the Bric nations altogether which he was keen to stress is the same size as Italy’s GDP, the eighth largest economy in the world.
'Even if as clearly evidence these countries are showing slower growth, unless they disappear off the planet the influence and contribution they are making continues to be huge. And in my opinion it remains quite easily the most fundamental opportunity not just for investors, but everyone,’ he said.
O’Neill, an ardent Manchester United fan and ‘Red Knight’ also hit out at the Bank of England’s quantitative easing strategy, commenting in jest: ‘I could certainly think of a damn sight more useful version of QE than the one the Bank of England have done so far, in that I would finally be able to get the financing for the Red Knights to buy Manchester United because that would be a much more worthy cause than what they have done so far.’
Although he was reasonably negative about his team’s recent initial public offering, he was more positive on his team’s manager as a possible candidate for the leadership of the Bank of England, a role he has been linked to.
‘The Treasury opposition leader Ed Balls has been quoted in the media as saying, given the additional responsibilities the Bank of England are getting, only super humans should apply [for the governor role]. In that regard it seems to me Sir Alex Ferguson is one of the few people alive who would be capable of fulfilling these requirements,’ he said.