'Organic Finance': The Incentives in Our Investment Products

Abstract

The increasing complexity and de-localization of finance has allowed for an obfuscation of fees and costs that asset managers charge to asset owners. This obfuscation has, in turn, led to a distortion in the underlying incentives that asset owners set for the capitalist system. In this chapter, we argue that this distortion is driving an increasingly short-term and disconnected financial world. We also argue that a more professional and engaged community of asset owners that can truly understand the ingredients and incentives in financial products is needed. In making our case, we draw parallels to the food industry, which has also seen a revolt against complex and de-localized food products. As people begin to understand the ingredients in their food, and the consequences for their own health, they consume food products differently – often preferring organic foods. Similarly, as investors begin to understand the fees and costs in their investment products, and the consequences for their and the capitalist system’s health, they are beginning to invest differently – preferring efficient and transparent products rooted in the real economy. We call this phenomenon ‘organic finance’, and it serves as this chapter’s key conceptual contribution.

Keywords: Institutional Investment, Economic Geography, Asset Management Transparency, Financial Capitalism, Geography of Finance, Financial Product Fees, Real Economy Investment, Investor Professionalization, Asset Owners