Skeoch pours cold water on hopes of ending City's short-term culture HOPES for a swift end to the City's culture of short-termism have been dealt a blow by the head of one of the UK's largest institutional investors. Keith Skeoch, chief executive of Standard Life Investments (SLI), said the "toxic" effects of inflation-targeting meant long-term investors such as pension funds and insurance companies were being forced to take shorter-term views in an attempt to deliver returns. In a speech to the North East Chamber of Commerce in Middlesbrough last night, Skeoch said it was difficult to develop investment processes and portfolios that "bridge the gap" between the length of time that institutions need to invest for and the periods for which predictable returns are available. While pension funds often need to invest for periods of more than 20 years, he said SLI research suggested the "sweet spot" for delivering superior returns is between two and five years. Skeoch praised the recent Kay Report, which concluded that a lack of trust and over-reliance on bonuses have created a short-termist culture in financial markets, and said it contained a number of good proposals. In his report for Business Secretary Vince Cable, Professor John Kay - a former member of the Scottish Government's Council of Economic Advisers - said the financial sector is too heavily geared towards instant rewards for traders instead of long-term investments. According to the Office for National Statistics, City windfalls accounted for 36 per cent of the £37 billion of total bonuses paid out last year, even though just 4 per cent of total employees work in the finance and insurance industry. Kay's report, delivered in July, also questioned why executives needed to be paid bonuses at all, saying they were relatively unusual until the 1980s, and said the trend encouraged "bad long-term decisions." The UK Shareholders" Association (UKSA) has criticised Cable for failing to take Kay's recommendations into account when drawing up a consultation on executive pay. Kay had argued that bonuses should be paid in shares, held at least until the executive has retired. "Despite the importance of these proposals, new reporting regulations have been prepared which ignore them," the UKSA said, calling for the draft regulations to be taken back to the drawing board. Skeoch said this year's "shareholder spring" shows investors are starting to take action. Firms including Aviva, Trinity Mirror and William Hill, faced a backlash from shareholders over their executive pay plans. He added: "If implemented, many of Professor Kay's proposals will give governance another nudge in the right direction on its continuing evolutionary journey." However, Skeoch said he believed that bankers" bonuses were "the symptom rather than the cause" of the problems facing the financial system, and questioned whether the drive for lower inflation was creating more risk. The UK government has set a target of 2 per cent for inflation as measured by the consumer prices index. The rate fell to 2.5 per cent in August, from 2.6 per cent the previous month. Skeoch said: "If inflation-targeting is successful, one of the main benefits is a low and stable interest environment, which... should lower the price for credit and increase demand for it."