City: Inside the Great Expectation Machine
2nd Edition

Myth & Reality in Institutional Investment & the Stock Market

By Tony Golding
Financial Times / Pearson Education
January 2003
ISBN: 0-273-66104-3
270 Pages, 6 1/4" x 9 1/4"
$38.50 paper original

The landscape of our financial system is dominated by institutional investment. The funds move markets when they act, and corporate empires can rise, fall or change hands on the tide of institutional opinion and the flow of equity. Today, in many ways, these institutions are the City, such is their influence over the whole financial process. They are at the heart of the expectation machine; the Capital of capital. These all-powerful financial players cast a long shadow over the worlds of investment, corporate and venture finance, and yet City outsiders - from private investors to company directors - many of whose expectations and fortunes are tied to the flow of equity, know little about them. They may glimpse parts of the process through the, frequently distorted, lens of the press; they may find their activities and fortunes affected by the movements of institutional players, but rarely do they understand the subtle and complex relationships that drive behaviour of the City.

It is remarkable, in view of the power wielded by the big investment institutions, how little has been written about them, especially from an analytical rather than anecdotal standpoint. The financial world, and the business world it drives, need a better understanding of the City and the behaviour of equity - the "visible" part of what the City does. In The City; Inside the Great Expectations Machine , Investment Analyst Tony Golding takes you inside the equity market and explains its structure, dynamics and behaviour. An easy-to-read, comprehensive analysis of the big investment institutions who dominate the stock market, with key insights into their impact on the City, industry and the private investor. This book will explain how the institutions achieved their ascendancy, acquire their funds, invest those funds and significantly influence other City activities and the corporate world in the process. The book will trace the flow of funds through the City and offer valuable insights into how fund managers behave, what drives their performance, the pressures they are under and the effects of their actions on the investment and corporate worlds. The behaviour of the investment institutions - pension funds, insurance companies, unit trusts, investment trusts - touches, in one way or another, the great majority of those living in the UK. To an extent that few outside the City appreciate, they dominate the London stock market, both in terms of ownership and activity.

This text examines the way these institutions work, how fund managers invest and the implications of their investment behaviour. Institutional investors own 75 per cent of the shares quoted in the UK. In no other major economy - including the USA, where the institutional control is a much more modest 55 per cent - do the investment instituions exert such a grip on the corporate sector. It is not uncommon for large and medium-sized British companies to have 80 or 90 per cent institutional ownership. Share-prices are determined by the fund managers working in a small number of large institutions. The nostalgic idea that price setting in the stock market is the result of a multitude of individual decisions is, this text argues, a dangerous illusion. The book provides information about the investment institutions around which the stock market revolves, arguing that their perceptions and their actions determine the level of share-prices and much else besides, such as the success or failure of a takeover bid. It asks: what motivates fund managers and how do they make their decisions?; How do companies communicate with their institutional shareholders, especially in regard to the task of managing expectations? What companies do fund managers like or dislike, and why? And to what extent do they rely on the investment analysts employed by the investment banks for information and advice?

Author Tony Golding After graduating from Cambridge anbd the University of Sussex, where he gained a doctorate in industrial economics, Tony spent several years with an international electronics company. He entered the City in 1974 and spent 24 years there, starting as an investment analyst with a small, research-based firm of stockbrokers. In 1978 he joined Flemings, the London-based investment bank, becoming a director and head of research in the asset management division. Before the Big Bang in 1986 he took responsibility for setting up the research and sales functions in Fleming's newly extablished securities operation. In 1989 he moved over to investment banking, where he specialized in the generation and marketing of acquisition and equity-financing ideas in several industry sectors, both in the UK and internationally. He left in 1998 to write this book. Many people in the City can lay claim to an in-depth knowledge of one or other of institutional investment or securities or investment banking, but very few have first-hand experience of working at director level in all three. In writing this book, Tony has drawn extensively on the all-round perspective that his varied career has given him.

"In his new book, Tony Golding provides insights into the fund management industry which unline Mathew Goldsmith's view of large companies running small-cap funds". Fundstrategy, January 2001 "In this eloquent and intelligent book, Tony Golding shows why institutions behave the way they do, and how a knowledge of their priorities can help you." Shares, January 2001 "Former investment banker Tony Golding perfectly captures the psychology (of the City) in his recent book where he explains how investment institutions and analysts over-identify companies with their chief executives and then make exorbitant demands on them" John Plender, columnist, Financial Times "Tony Golding has done us all a service by lifting the lid on one of the best kept secrets around, which is how the City really works. No investor can fail to profit from reading this insider's account of what drives brokers, fund managers and investment bankers to behave the way they do." Jonathan Davis, Investment columnist, The Independent "Fascinating 'anatomy' of the City, explaining to private investors how fund managers reach decisions, and why an understanding of their mindset is crucial to successful private investment." Investors Chronicle

"Golding explains the ground rules with the clarity of an informed and observant insider, and few serious investors will not learn something from this book." Financial News "I wish I'd read this book before we went public rather than after. Understanding the dynamics of the City and the interplay between the various parties is very important and this book explains these relationships very well". Dr.Tony Milbourn, Managing Director, TTP Communications plc "A highly entertaining and particularly insightful read about what investment bankers, fund managers and investment analysts really do and what motivates them. To be highly recommended for all students of the City and an essential text for any MBA course in finance." Richard Taffler, Professor of Accounting and Finance, Cranfield School of Management

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