The Death of Long-Term Investing

Long horizon investments decreasing.

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822465_focusA 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.

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Sad as the world becomes short-sighted. I tell a story of Grandpa in 1920 who told his wife, "Don't ever sell those stocks!" She replied, "What are stocks" as it was a very different age. "Just don't sell them", he said. So guess what the stocks were: banking, railroads, utilities, resources... with strong earnings and good dividends. "Widows & orphans" stocks we used to call them. Was grandpa wrong? Even through 1929 and onwards, keeping these through the 1940s, 1960s.... people feel grandpa was proven right. It has proven best over the past 10 years too. Rule #1: Own good stuff. Rule #2: keep it.

Contex Group Inc.