editor, IR Magazine
investors deal with short-term pressures
Jan 25, 2019
New guide helps
investors susceptible to short-term pressures
Asset owners with a long-term time horizon are not immune to
short-term pressures, according to a new publication from FCLT Global.
30-page publication – ‘Balancing act: managing risk across multiple
time horizons’ – addresses the challenge of managing multiple-horizon
portfolios such as pension plans, sovereign wealth funds and
endowments, by outlining why such management is important.
report builds on the findings uncovered at
conference last May, where more than150 business leaders –
including Unilever CEO Paul Polman, McKinsey CEO Dominic Barton and
BlackRock CEO Larry Fink – discussed how investors can focus more on
the long term.
group issued four practical action points designed to recalibrate
public markets toward a longer-term focus. They are:
in capital allocation decisions
risks against clients’ and companies’ objectives
incentives for long-term shareholders.
Parker, communications associate at FCLT Global, tells IR Magazine
that the top-line message of FCLT Global’s new report is that
short and long-term risks often get muddled or are contradictory.
report proposes new approaches for investors to think about megatrends
like climate change and demographic shifts, and how they affect the
success or risk of their fund. It also comes with a range of practical
tools investors can use and a risk conversation guide.
the paper we set out different ways [an investor] can measure the risk
[of a fund] at the outset while also tracking back and monitoring [the
fund’s] performance against a clearly defined purpose statement for
the fund or risk-appetite statement,’ Parker explains.
‘This way everybody involved knows what the investor’s appetite for
risk is in the short and long term. This way [people aren’t] surprised
when they start to see some intermittent drawdown from interim loss
even though the investor is on track for its long-term goal.’
Elsewhere in the report, FCLT Global looks at the behavioral
tendencies of investors, focusing on how they manage, assess and
understand the risk profile of a fund. It concentrates on how these
factors are communicated from the managerial level to the trustee
level and where things get lost along the way. It also highlights how
a better understanding of these issues can be developed in its
Parker states: ‘The guide lays out a list of questions a manager might
encounter from his or her board of directors and [tips on] how to
answer them in ways that are fact and number-based so the trustees can
really understand the appetite for risk over the long term. This way
they are not thrown off course along the way.’
Given FCLT Global’s mission to encourage a longer-term focus in
business and investment decision-making, Sarah Williamson, chief
executive officer, notes that improving multi-horizon risk management
is critical to extending investment time frames.
‘It’s an effective method for boards and executives to deliver value
to their beneficiaries,’ she concludes.
Global was created in 2013 by Mark Wiseman, CEO of Canada Pension Plan
Investment Board, and Dominic Barton, CEO of McKinsey, who had both
observed undue short-term pressure on the investors and CEOs with whom
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