The International Forum of SWFs has published all the presentations from its recent meeting in Oslo, Norway. And, based on the content of these presentations, I now think the IFSWF is moving in a very positive direction.
In the past, I’ve argued that the Santiago Principles and the IFSWF, while laudable in their attempt to improve the operations of SWFs, served to shrink the time horizon of these organizations due to the incessant focus on short-term reporting and transparency. The IFSWF’s own 2011 member survey showed this to be true, which was (in my view at least) a real shame. Here we have a set of asset owners that are, in theory at least, the longest-term investors in the world; they are capable of doing some very interesting and constructive things to change the short-termism endemic in finance today. But, instead, the Santiago Principles assumed SWFs to be political threats rather than financial opportunities and so it pushed them into reporting patterns that could lead to short term investing.
But this may now be changing.
I was quite pleased to see that four of the main presentations at the recent IFSWF event were focused precisely on how SWFs can better take advantage of their long time horizon. Andrew Ang did a presentation on the benefits of formal rebalancing policies for long-term investors (e.g., buying low and selling high). Elroy Dimson had a nice presentation focused on investment strategy for long-term investors. Leslie Teo of the GIC presented on governance and its role in driving long-term investment strategies. Kenneth R. French presented on investing for the long term. In addition, there were a few other presentations that touched on this topic as well.
Here are a few of the key take-aways from this work:
- Rebalancing to fixed positions is critical for long-term investment strategies
- Long-term investing means being a very good short-term investor
- By taking a contrarian approach, long-term investors can acquire distressed assets at attractive prices (thereby harvesting the illiquidity premium in an efficient manner).
- Being a long-term investor requires considerable resources, strong governance and smart accountability structures.
- It’s important that long-term investors evaluate success over a long-term time horizon, as the time frame over which risk premia manifest can be very long as well.
- It’s important to understand what it is the clients (sponsors) want and need, which means it’s necessary to have candid and clear conversations about objectives and what is and is not feasible.
- It’s important to attract that right talent and then provide them with long-term oriented compensation.
Anyway, I think this new focus is quite a positive development for this organization. For the first time in a long time, I’m now excited to see how the IFSWF develops in the years ahead...
