David Walsh gives it the Long Handle

It’s not every day you get called an “oaf” and an “imbecile” in the pages of the Sunday Times, but it happened to me today.  What’s more, these Bunteresque insults don’t derive from just any old hack: their author is none other than David Walsh, the sports journalist who did more than any other to skewer Lance Armstrong, despite years of intimidation and abuse from that unpleasant bully and cheat.  For this reason I’m a great admirer of Walsh’s, so I follow him on Twitter, which is how and where I incurred his wrath.  Towards the end of the Masters last week, when it was clear that the winner would be either Australia’s Adam Scott or Argentina’s Angel Cabrera, we had this brief exchange (he tweeted, I responded directly to him):

David Walsh ‏@DavidWalshST

Scott or Cabrera? I am barracking for Scott. You can travel from one end of the golf world to the other, not find one with bad word for AS.

 Matthew Bailey ‏@DabberMatt

@DavidWalshST Here's a bad word for AS: "bottler".

My tweet was a reference to Scott’s disastrous collapse at the end of last year’s Open Championship, when he bogied each of the last four holes to lose by a single shot.  Having watched many sporting events over many years, I struggle to think of a better example of "bottling".  Of course, some comparable cases exist: sticking to golf (which, with its reliance on precision and repetition and its long pauses between shots for self-doubt to fester and swell, perhaps lends itself to the phenomenon more than any other sport), we have Doug Sanders missing a short putt to win the Open in 1970, only to go into a play-off and lose to Jack Nicklaus, and we have Scott’s fellow Australian Greg Norman going into the final round of the Masters in 1996 with a six-shot lead only to shoot 78 and lose by a humiliating five shots to Nick Faldo.  Sanders’ name became a byword for a failure of nerve, and Greg Norman’s conversion from Great White Shark to Great White Flag regularly puts him at the top of lists of “sport’s greatest chokers”.  But I can’t think of anyone who was so far ahead so close to the end of his event and blew it as badly as Adam Scott did.  Three ahead with four to play, then four bogies: that, dear reader, is bottling in its purest form.

However, Walsh quoted my tweet in his article today, and described me as “a man with the sensitivity of an oaf and the timing of an imbecile”. 

Was this fair?  Well, let’s think about his comment on timing.  Last weekend Adam Scott was in contention to win one of golf’s major championships for the first time since his meltdown at last year’s Open.  It seems to me difficult to think of a better time to mention what happened the last time he was in the same situation.  In fact, isn’t it the single most relevant thing you could say?  (And wasn’t everyone thinking the same thing?)  So it is hard to see what is “imbecilic” about the timing.

Besides, my tweet obviously wasn’t really aimed at Adam Scott.  It was aimed at David Walsh’s irrelevant fawning.  At a time of high sporting tension, the climax of a great contest between two tremendous competitors, it just seemed silly to start talking about how everyone thinks one of them is such a lovely chap.  To see how silly, imagine if Walsh had instead tweeted “I am barracking for Scott.  You can travel from one end of the golf world to the other, and everyone thinks Cabrera is a miserable git.”  Scott thoroughly deserved his win, and I was glad to see it happen, but not because he’s Mr Popular: it’s because he put in the best performance when the pressure was on.  The fact that he utterly failed to do that last time arguably makes it an even better effort.  It certainly doesn’t mean that it is “imbecilic” to mention what happened back then: quite the reverse.

But what about the first half of Walsh’s broadside, according to which I have “the sensitivity of an oaf”?  Sensitivity?  What is he talking about? Well, perhaps there is some guidance in his own article. 

In discussing last year’s Open, Walsh quotes Scott’s absurd statement that on three of the fateful holes “. . . I had putts that were all makeable.  If one drops, I get in a playoff, two drop and I win.  I missed all three.  Another day, they drop” – as if what happened were some sort of statistical anomaly, rather than the cataclysmic taking of gas it so obviously was.  If Walsh has any qualms about Scott’s analysis – and as a journalist perhaps he should have – he keeps them to himself.

Later in the same article, Walsh recounts his gentle confrontation with Scott on the subject of the forthcoming ban on the use of his very long, very silly broomhandle putter.  Firstly, Walsh meekly opposes its use on the basis that it “just looks wrong”, misrepresenting the real objection, which is that tucking one of those pendulous monstrosities under your chin has nothing to do with golf.  As Mike Davis of the USGA puts it, “[t]hroughout the 600-year history of golf, the essence of playing the game has been to grip the club with the hands and swing it freely at the ball”.  More specifically, the objection is that “anchoring” the longer putter to a part of the body other than the hands helps those who get the wobbles when on the green.  Rory McIlroy, for example, wrote: “Fully agree with the anchoring ban. Better image for the game of golf, skill and nerves are all part of the game”.  Similarly, Tiger Woods has said “the art of putting is swinging the club and controlling nerves.”  In an article that starts out discussing the strength of a particular player’s nerve,  and which goes on to make an issue of the same player’s use of the broomhandle putter, a failure to connect the two seems to me an extraordinary omission.  But instead Walsh simply parrots Scott’s whining that it took him a long time to learn how to use the long putter, and making him change is just, well, not fair.

Is this what Walsh means by “sensitivity” – a sort of lame, uncritical deference?  It would seem surprising from the man who, almost alone among cycling journalists, was willing to take on the sociopathic Lance Armstrong.  But that is what we seem to get.  It is an interesting question why David Walsh thinks this is a desirable thing.  I, a mere oaf, have no idea.

Buttonwood on Bonus Caps

In a recent Economist, finance columnist “Buttonwood” asks why regulators are keen to apply bonus caps to the fund management (FM) industry (http://econ.st/XHVFhu).  Positing that this is due to an analogy with the banking sector, Buttonwood argues that such caps should not apply to FM because it does not pose systemic risks.  However, the idea that the explanation for bonus caps on fund managers might lie in a fear of systemic risk is an obvious straw man – as Buttonwood himself concedes, funds are not leveraged, and so are not connected to the financial system in the way banks are.   It is absurd to suggest that financial regulators might fail to spot this simple and fundamental difference.  (The same observation also renders entirely irrelevant Buttonwood’s other observation on banker pay, viz., that pay might best be controlled not through bonus caps but by increasing bank capital: since funds are not leveraged like banks the idea they could limit pay by “holding more capital” is, of course, nonsense.)

Buttonwood goes on to suggest that, as in banking, regulated bonuses will lead to higher salaries rather than a decline in overall compensation, “making it harder for firms to control costs in a downturn”.  But doesn’t every business have to face this problem?  And don’t most businesses face it simply by setting salaries appropriately, and without feeling pressure to pay their staff immense bonuses?  This argument can only make sense if you start from the presumption that very substantial compensation for fund managers (and bankers) is desirable and appropriate, even where the revenues they produce are not sustainable enough to ensure it can be paid for.

Buttonwood’s second suggested rationale for bonus caps is simply that “European politicians think fund managers are overpaid”.  If so, he suggests, domestic governments could simply “raise taxes on high earners”.  A flaw in this reasoning so obvious as to be scarcely worth mentioning is that, even in London, not all high earners are fund managers (or bankers), making this approach both crude and unfair.   Equally obviously, it would require the sort of coordination in tax policy that is impossible to imagine, meaning that there would of course be nothing to stop those who become subject to such taxes moving to another, more welcoming jurisdiction.  

However, on this occasion Buttonwood is alive to the weakness of his own argument, and has “a better answer”, namely, the application of market principles.  He suggests that “[n]o one is forced to give money to an active fund manager . . . [i]nvestors are at liberty to pick a passive fund . . . at much lower cost”.  However, he then undermines his own argument by pointing out, correctly, that “the evidence suggests that the average investor would be better off taking the cheaper option”.  This being so, why do investors continue to choose, “at liberty”,  a more expensive but inferior option?  Shouldn’t the market operate to correct this anomaly? 

Buttonwood is right to complain about the scandalous but longstanding practice, which the UK has at least attempted to address, of active managers quietly paying incentive fees to advisers and brokers.  While it is unclear how resisting the introduction of bonus caps would make any difference in this respect, there is an important point.  Generally, market principles fail to apply to the FM industry because it lacks true transparency and accountability.  It may, strictly speaking, be true to say investors are “at liberty” to pick one fund over another, but (for example) how many people really know where their pension savings are invested?  If they don’t know but want to find out, how easy is it for them to do so?  If they find out, and decide they want to change fund manager, how often are they able to do so, and what expenses are involved?  If they want to make an assessment of their fund manager’s competence, how many people possess the skills required to do so?   And how incentivised are they even to look into it, when the choice is often between managers who follow very similar investment strategies (often little more or less than tracking some index), and who anyway present information in unclear and not easily comparable ways? 

It is for all these reasons (among others) that the business of managing people’s savings requires appropriate regulation and oversight of a kind that has historically been lacking.  (Speaking of oversight, while pondering the relevance of the banking sector to that of the FM industry, Buttonwood might more usefully have asked where the fund managers were when the banks of which they were shareholders were building up such immense leverage and risk, and why none of those fund managers have been taken to task for that failure.)

The EU has been extremely clear, and the FM industry (through bodies including the CFA Institute, EuroFinuse, Efama and AILO) has equally clearly acknowledged, that the primary objective of the EU’s bonus cap (and other) proposals is in fact neither avoidance of systemic risk nor punishment of overpaid managers, but rather the protection of retail investors.  This having been made so clear, it is odd that Buttonwood should spend so much time and effort debating these two spurious “reasons”.  It is odder still that Buttonwood focuses solely on bonus caps when the proposed legislation (which includes not only UCITS V but also UCITS VI, MiFID II and PRIPs) addresses a wide range of important issues which he ignores entirely – including measures on (inter alia) disclosure, conduct of business and professionalism requirements, portfolio & risk management techniques, liquidity and the powers of national regulators.  

None of this should be taken to imply that bonus caps in FM would actually protect retail investors, nor that bonus caps are a good idea for any other reason.  But it does show that Buttonwood’s implication that regulators’ sole motivation is an unthinking desire to “give finance a kicking” should perhaps not be taken at face value.