'Long-Termism' As The Dominant Investment Paradigm: Making It A Reality

“...I am becoming more optimistic that a movement towards long-termism is afoot, one that is pulling in corporations and institutional investors and that has the  potential to get enough traction to change behavior...”.

THERESA WHITMARSH,WASHINGTON STATE INVESTMENT BOARD

 

Movement Towards Long-Termism?

The quote above is from the Guest Editorial in the just-released Fall 2014 edition of the Rotman   International Journal of Pension Management (RIJPM). Author Theresa Whitmarsh, Executive Director of the $100B WSIB, offers three reasons for her optimism that a movement towards long-termism is afoot:

1. The widely-recognized need to restore trust in the modern business economy, especially in its financial sector.
2. The growing recognition that capitalism must be inclusive to be sustainable (i.e., must benefit ‘the many’, not just ‘the few’).
3. The growing recognition of the threat of carbon emission-induced climate-change to sustainable wealth-creation in the 21st Century.

Further, she points out, there is increasing evidence that these concerns are leading to concrete initiatives to lengthen the time horizon in which investment decisions are made, and in which the success of these decisions are evaluated. These initiatives coalesce around three themes:

1. Movement by institutional investors towards disintermediation through direct ownership of private assets.
2. Movement towards more concentrated portfolios of publicly-traded equities by institutional investors, leading to greater influence over  corporate behavior.

3. More effective collaboration strategies between and among institutional investors and investee corporations with the goal to shift both investment and corporate decision-making into longer timeframes.