The Death of Long-Term Investing
Long horizon investments decreasing.
BY Caroline Cakebread | March 31, 2011
A big fallout from the financial crisis could just be the demise of long-term investing as pension funds seek to derisk. According to the World Economic Forum, this has left a massive investment gap in areas like infrastructure and innovation. This article in Institutional Investor explores the issue further – it’s an interesting topic for pension investors. Is the pension industry truly losing their long-term focus in the face of market and regulatory challenges? The article is below.
Experts at the World Economic Forum see long-term investing in a downward trend. According to an analysis, prepared by the World Economic Forum in collaboration with Oliver Wyman, investors only allocated 25 percent (US$ 6.5 trillion) of the world’s professionally managed assets of $65 trillion to long-term investments, with the potential of decreasing even further.
“The crisis has exposed key constraints that some of these long term investors face when executing long-term investment strategies,” says Max von Bismarck, Director and Head of Investors at the World Economic Forum USA and forum-author of the report.
Before the economic crisis, many funds underestimated their liabilities under stress, such as university endowment funds, that led to a liquidity crisis. Investors lost faith in holding assets for a long time and shy away from long term investing in an effort of derisking their portfolios.
The report states that the ability to make long-term investments in areas such as infrastructure, innovation and the transition to a low-carbon economy is diminishing, leaving behind a massive financial gap. According to von Bismarck, global infrastructure projects need up to $3 trillion per year and green investing requires $500 billion by 2020 to significantly reduce global warming. Read the full article.