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GPIF CIO calls for less focus on short term, admits no easy answer

Institutional investors continue to focus on the short term despite demanding a long-term focus from their money managers and the companies in which they invest, said the chief investment officer of the world's largest pension fund.

Speaking Tuesday at the Principles for Responsible Investment annual conference in Berlin, Hiromichi Mizuno, CIO and executive managing director at the $1.3 trillion Government Pension Investment Fund, Tokyo, said while investors are aware of the "common interest to get rid of short-termism (in) the investment chain … the question is how we can do it."

He said investors question money managers on how they are evaluated and how remuneration is set in relation to long-term performance, so the asset manager has to govern their own team to reflect the long-term perspective of the asset owner.

But in reality, "we review the asset managers too frequently," and investors do not give managers long-term commitments.

While investors will ask a money manager not to have a short-term mindset when managing assets, investors continue to produce quarterly reports., he added.

"So short-termism is actually not only at company level, at the asset management level, but also (at the) asset owner level." Mr. Mizuno said some investors will disclose their positions on a daily basis. "I really don't think that is sending the right message. (However,) for asset owners to reduce the frequency of the report is very challenging, as people think it is going backward in terms of transparency."

Mr. Mizuno suggested an end to quarterly reporting, remarking that such a move may have the "ultimate impact" on the investment chain.

When asked to outline the biggest challenge for the fund this year and next, Mr. Mizuno said one relates to realizing it is "not only asset owners, asset managers who consist of that investment chain," and as such GPIF is engaging with index providers and others to "make the investment chain more sustainable."

The second challenge is around performance. With assets measured by benchmarks and against short-term returns, "we need to change it to really enforce our alignment between the investment team and ESG initiatives," he said.

Tycho Sneyers, managing partner at LGT Capital Partners, also commenting on the same panel, called on U.S.-based investors to impress the importance of environmental, social and governance factors on their managers. "We see it very clearly in alternative assets, the U.S. managers are lagging — I would ask for all the U.S.-based asset owners (to) please push your U.S. managers to take ESG seriously." He said since the U.S. is the largest economy and capital markets, "if we want to make progress, the U.S. has to do its part."