04 November 2014

IPE: Pension funds split over meaning, duration of long-termism

Pension funds regard themselves as long-term investors but disagree on what factors should define the ideal time horizon.

One-quarter of respondents said 3-5 years constituted a ‘long-term’ view, while nearly 78% of respondents considered themselves to be long-term investors. Only one respondent rejected the label outright.

One UK pension investor pointed to the need for a long-term approach based on long-term liabilities, while an Austrian pension fund argued that it was important to take a generational view – at least when managing the assets of beneficiaries up until 45. There was less agreement among the 36 European respondents, managing nearly €290bn in combined assets, as to what constitutes ‘long term’ when investing in public market assets.

More than one-third of pension investors said taking a 7-10 year view was long term, whereas nearly 14% believed the better definition was considering investments over the course of a business cycle. One-quarter of funds said a 3-5 year time horizon was adequate, and 17% argued in favour of a generational view, spanning 15-25 years.

A UK corporate fund questioned whether the idea of long-term investing in public markets was compatible. “The idea that long-term investment should be public market inherently seems to be at odds with long-term investing,” it said. “Public markets are driven by short-term liquidity and mark-to-market ideology, which is anathema to long-term investing, which is about long-term, sustainable cash flows.” Despite this, nearly half of respondents did not see a problem in finding external public market asset managers “willing and able” to invest for the long term, and only 9% rejected the notion out of hand. One-quarter of respondents said asset managers could be found, but only for certain asset classes. When asked which factors prevented long-term investing, 24% cited the regulatory environment and 21% the maturity of their liabilities. Only 20% said the asset management industry’s unwillingness or skill was at fault.

Full article on IPE (subscription required)

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