Global Agenda Council on Long-term Investing 2012-2013
The World Economic Forum defines long-term investing as “investing with the expectation of holding an asset for an indefinite period of time by an investor with the capability to do so”. Long-term investors are less concerned about interim changes in asset prices, but rather focus on long-term income growth and/or long-term capital appreciation both in the initial evaluation and continued assessment of their investments. In essence, it is investment carried out over years, and sometimes decades or generations, by institutions such as endowments and foundations, family offices, insurance companies, pension funds and sovereign wealth funds.
Long-term investing has attracted renewed attention in recent years in light of the global economic crisis. Discussion has focused on the potential of long-term investors to help stabilize financial markets, influence corporate managers and fund important long-term projects such as infrastructure. Yet, the capacity of long-term investors and their ability to play these critical economic roles has diminished.
The global financial crisis has prompted most long-term investors to rethink how much capital they can devote to long-term investing. While the crisis has not generally undermined their belief in the benefits of long-term investing, it has led many long-term investors to reassess the impact of their liability profile, risk appetite and decision-making process on their ability to invest long-term. Moreover, since the crisis, long-term investors have increasingly had to address the regulatory environment in which they operate and the impact this has on their decisions.
- Just under half of the world’s professionally managed assets – about US$ 27 trillion out of US$ 65 trillion – are owned by long-term institutional asset holders. Of these, US$ 15 trillion are short-term assets. Additional constraints mean that only US$ 6.5 trillion are available as long-term capital.
- The global infrastructure gap (the difference between investment needs and actual spending) is estimated at about US$ 1 trillion (1.25% of global GDP).
“Having a long horizon accentuates the importance of governance models, and long-term investors can play a critical role in fostering leading governance practices, both within their own institutions and for the companies that they invest in.”
Mark Wiseman, Executive Vice-President, Investments, Canada Pension Plan Investment Board
During the forthcoming term, the Council plans to focus on measures to overcome governance- and policy-related constraints facing long-term investors. In particular, it will look at shortfalls between supply of long-term capital and demand. Additional areas of work will include an examination of how long-term investors could engage more successfully with governments and corporations; sustainable investment; and how to match availability and demand for capital, particularly in the area of infrastructure, for example.
The Council believes that there is real potential for long-term investors to work more closely with governments to create enabling mechanisms that would allow both parties to collaborate more effectively in the future. Areas for joint action could include, for example, finding ways to reconcile government needs to achieve public policy imperatives with the needs of investors to maximize risk-adjusted returns.
Research Analyst: Ethan Huntington, Senior Associate, Global Agenda Councils, email@example.com
Council Manager: Irwin Mendelssohn, Head of Institutional Investors, firstname.lastname@example.org
Forum Lead: Michael Drexler, Senior Director, Head of Investors Industries, email@example.com
Document archive for all the issues you are interested in
- The Challenges of Long-term Investing
- The Infrastructure Imperative: A Case for Development and Investment Returns
- Increasing Social Investment Returns
- Economic and Social Investment Opportunities in Colombia
- Investments in Critical Infrastructure: The Road Ahead
- Rethinking Global Financial Reforms: The European Perspective
- Redesigning Financial Regulation