Group: Is patience a virtue?
November 2014 (Magazine) | By
Over three-quarters of respondents polled for this month’s Focus Group
consider their fund to be a long-term investor.
the devil is in the detail. For one UK fund, long-term investing means
“engaging with the companies in which we invest to ensure that they
are taking decisions that protect their long-term earnings potential”.
Many relate their investment horizon to the duration of their
liabilities, which may or may not have a long horizon. One contrasts a
long-term “strategic orientation” with the variety of time horizons
taken across asset classes.
three respondents, it depends on what is meant by ‘long term’. “If
long term in your sense means more ‘illiquid’, then we’d disagree,”
said a UK corporate fund. “We prefer liquid investments which generate
income and income growth and liquid markets which offer us the
opportunity to recycle capital by realising intrinsic (fair) values
and reinvesting opportunistically.”
asked to pin down their assumptions, a quarter defined long-term
investing in public markets as taking a three to five-year view. A
third saw it as a seven to 10-year view. Only six were prepared to
take a “generational view” of 15 years or more. “A decade is a period
of time we consider as suitable to define long term,” said an Austrian
fund. “On one hand, not many investments have a longer lifetime and,
on the other, it matches with the liabilities based on our business
Fifteen respondents think the best advantage of long-term investing is
that it makes for a better match between assets and liabilities, while
14 think it is more likely to outperform, net of costs. Three
respondents think it has no advantage.
respondents said that they face no difficulties investing with a
long-term view. For the rest, regulation is considered the main
difficulty. A UK local government fund was candid: “Our investment
regulations are 20 years out of date. We have been promised a full
re-write for five years-plus, but the Department for Communities and
Local Government (CLG) has just tinkered. Rather than waste time with
consultations on active versus passive, CLG should address this.”
willingness of the asset management industry to meet the needs of
long-term investors was also cited as a problem. Sixteen funds have no
problem finding public-market asset managers that are willing and able
to invest for them long-term. A further seven find it more difficult,
with a Swedish fund highlighting that the “incentives of managers are
not always the same as ours”. One UK local authority fund said:
“Active managers seem to think that their title means that they have
can only find managers for certain classes or strategies. A UK fund
contrasted long-term investments in illiquid private markets with
public markets that 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”.
Three-quarters of those polled feel their fund has genuine
transparency into all the fees, charges and expenses it incurs through
active portfolio management. Eight funds feel the opposite; a UK fund
said “fund of funds arrangements are particularly opaque”. A Danish
fund added: “We have spent a lot of time getting insight, and have to
a large degree. However, some costs are not very transparent – like
indirect transaction cost.”
half of respondents see value in having a variety of investment
strategies with different time horizons in their fund’s portfolio.
“Multiple strategies – alpha and beta, internal/external, short
term/longer term – should give better results,” said a Danish fund. A
UK fund added: “If you are pursuing unconstrained equity risk-seeking
alpha from manager skill, then you need to have a range of styles or
investment strategies which would include highly concentrated low
turnover portfolios and larger momentum-driven high turnover managers.
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