A focus on putting capital to work for long-term wealth creation rather than short-term gains is experiencing a resurgence across the globe.
Pension funds want it. Money managers want it. Even a U.S. politician wants it.
Institutional investor sources say there has been a real push toward the long term, with both an increase in engagement with the corporate world to shed the short-term view and changes to ensure their own houses are in order.
These sources said companies and investors increasingly are disconnected: Companies are thinking about the next quarter's results, while institutional investors are looking at a far lengthier time horizon.
Recent moves stand out as bringing long-term focus of capital firmly back onto the agenda:
• Institutional investors and money managers have made changes to investment strategy targets, benchmarking and remuneration policies — both internally and for the companies in which they invest.
• The South Carolina Retirement System Investment Commission is developing a “100-year portfolio,” focusing beyond the current market environment to establish a target allocation that is driven by long-term risk and return expectations.
• U.S. Democratic candidate Hillary Clinton is calling for a move away from “quarterly capitalism” as part of her presidential campaign.
• The Investor Forum — a group of U.K. money managers, asset owners and company representatives — was established in October to promote long-term investment approaches.
• The U.K. government, also in October, announced the removal of mandatory quarterly reporting by companies. Legal & General Investment Management's CEO, Mark Zinkula, wrote to FTSE 350 companies in support of the change, stating that “(R)eporting which focuses on short-term performance is not necessarily conducive to building a sustainable business.”
• Martin Lipton, founding partner of law firm Wachtell, Lipton, Rosen & Katz, picked up Mr. Zinkula's letter. In a post on the Harvard Law School Forum on Corporate Governance and Financial Regulation, he called on the Securities and Exchange Commission to keep LGIM's observations in mind “in pursuing disclosure reform initiatives and otherwise acting to promote, rather than undermine, the ability of companies to pursue long-term strategies.”
• Another institutional investor, money manager, and industry-led initiative, Focusing Capital on the Long Term, was formed in December 2013, with the aim of encouraging members to take a longer view. Co-founded by the C$268.6 billion ($202.2 billion) Canada Pension Plan Investment Board, Toronto, and McKinsey & Co., members include Theresa Whitmarsh, executive director, at the $106.8 billion Washington State Investment Board, Olympia; and Euan Munro, CEO at Aviva Investments. Laurence D. Fink, chairman and CEO at BlackRock Inc., sits on the advisory board.