LR: Sarah Williamson and Keith Ambachtscher
For asset owners to maintain a long-term investment perspective, it is important not only to align their own investment teams with their objectives, but also to align their boards of directors and external asset managers.
Otherwise, the Fiduciary Investor Symposium heard, pension investors may find themselves struggling in the market. Short-termism is becoming more prevalent.
Mario Therrien, head of investment funds and external management at the Corporation for Investment and Savings of Quebec (CDPQ), said it’s easy to state long-term investment goals in a letter of intent, but the hard part is making sure managers stay on track over the long term.
CDPQ is one of Canada’s Maple Eight pension funds, with assets under management of C$434 billion (US$315 billion).
“We try to outline everything: investment policy, risk tolerance, benchmarks, post-investment situation. [in our mandate]”But how do you do that? How do you make it happen?” Therrien said.
“Also, as an asset allocator, [we need to decide] What is our tolerance for pain? Especially over the last 15 years, we’ve seen some very good teams underperform the market.
“And we forget why we invested in the first place. [with these managers]”Under what circumstances were they supposed to add value or subtract value? Our role when we go before the investment committee is to make sure everyone around the table understands what this means.”
CFA Institute CEO Margaret Franklin said the total portfolio approach is also an important tool for advancing a long-term vision “in the broadest, most philosophical sense.”
“What I call ‘systems thinking’ is manifested in a total portfolio approach that brings all the pieces together, rather than the heuristics and embedded systems developed 30 years ago. This is the intersection between technology, modern portfolio theory, and CAPM. [capital asset pricing model]we have been able to deploy them efficiently and cost-effectively,” she said.
“These systems were designed to address problems from the last 30 years, so now, 60 years later, in a much more complex world with no playbook, we need new ways of thinking about these problems.
“I think it’s [TPA] It enables innovation, it enables purpose, and necessarily has to take a long-term view, but also recognises the importance of the short-term.”
Sarah Williamson, CEO of FCLTGlobal, said the difference between long-term and short-term investors is that the former think about future disruptive forces and don’t make the false assumption that “the future will be like the past.” FCLTGlobal describes itself as a nonprofit whose mission is to focus capital on the long term to support a sustainable economy.
“Our shorthand for thinking about this is [long-term investing view] “Those are the five Ds of disruption,” she said: deleveraging, demographics, decarbonization, deglobalization and digitalization.
If you want to assess whether an asset owner is a long-term organization, there are questions worth asking, she said, such as whether the asset owner is formally insulated from political cycles, whether senior staff are accountable for the fund’s overall multi-year performance, whether they engage with portfolio companies on long-term issues and whether they use internal costs for key unpriced externalities like carbon.
Asset owners also need to articulate their investment methods in a more understandable way to the public, which could encourage longer-term practices, said Keith Ambaktskhia, a pioneer of the Canadian pension model and executive in residence at the University of Toronto’s Rotman School of Management.
He said organisations should use a toolkit such as the Integrated Reporting Model, which helps to concisely articulate key aspects of an organisation’s purpose, governance, business model, results and strategy (particularly in that order).
“There are a lot of half-baked sentences about this and that … it goes on and on,” he said.
“I think what we need to do and put into practice is a way to demystify how to actually invest.”
