They said to achieve its goals for members, the industry needed to encourage “productive” competition, remove or minimise agency costs, significantly reduce costs overall and maintain incentives for innovation. They predicted significant consolidation among super funds as well as managers but this was not likely to happen anytime soon because of vested interests. Paul Woolley presented at the workshop an update of a paper he wrote last year on the impact of momentum investing, which most managers incorporated into their styles and processes for business reasons.

He said that GMO survived the tech bubble, as a value investor, because about 30 per cent of its style was due to momentum. Without the contribution from momentum it would have lost all its business because most investors would not have had the patience to wait out the tech bubble. Woolley said that the momentum style tended to be more active than value, so most of the trades for GMO at the time were due to momentum and bore no relation to fair value.

Woolley’s paper explores two of the most prominent financial market anomalies: momentum and reversal. Momentum is the tendency for assets with good or bad recent performance to continue to outperform or underperform in the near future. Reversal concerns predictability based on longer performance history, whereby assets that have performed well over a long period tend to subsequently underperform.

Both momentum and reversal are difficult to explain within the standard asset-pricing paradigm of rational agents and frictionless markets. Most explanations are behavioural, assuming that agents react incorrectly to information signals. The Woolley paper argues that momentum and reversal can arise in markets where all agents are rational. The delegation of the management of portfolios to financial institutions, such as mutual funds and hedge funds exacerbates the problem.