S2 | Episode 1: Long-termism: The Greatest Asset in Asset Management with Sarah Williamson and Geoff Rubin
Sep 30, 2024
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In this engaging discussion, Sarah Williamson, CEO of FCLT Global, and Geoff Rubin, Senior Managing Director at CPP Investments, dive deep into the art of long-term investing. They tackle the emotional complexities that tempt investors away from long-term strategies and emphasize the transformative power of sustainable value creation. Listeners will find illuminating insights on how to combat short-term pressures and the importance of solid governance in embracing long-termism. With a focus on collaboration and innovative practices, this conversation showcases the future of asset management.
Long-term investing requires a mindset shift that aligns organizational culture and policies to withstand market fluctuations.
Strong governance frameworks are essential for maintaining focus on long-term investment strategies amidst short-term pressures.
Compensation structures must reward long-term performance metrics to cultivate a sustainable investment mentality among professionals.
Investors need to foster a culture of patience and resilience to resist the lure of short-term decision-making influenced by market volatility.
Deep dives
Understanding Long-term Investing
The concept of long-term investing is often misinterpreted in the finance world, leading to misconceptions about its application. Long-term investing is not merely defined by the time frame of an investment but encompasses a mindset that emphasizes commitment to a strategy despite market fluctuations. It's essential to align organizational structures, policies, and cultural attitudes to foster an environment that promotes patience and fortitude during downturns. Without this alignment, even organizations with long-term asset classes may succumb to short-term pressures, undermining their investment philosophy.
The Importance of Governance
Strong governance frameworks are crucial for maintaining a long-term investment strategy, acting as a stabilizing force against the pressures of short-term thinking. Effective governance involves having experienced and knowledgeable trustees who understand investment dynamics and can withstand market volatility. Additionally, there should be clear roles and responsibilities, allowing investment professionals to make decisions without undue influence from transient political or peer pressures. When governance is robust, it provides the support needed to navigate the inherent challenges of a long-horizon approach.
Compensation Structures That Encourage Long-term Thinking
Compensation should be structured to reinforce long-term goals rather than incentivize short-term performance. By linking compensation to longer performance metrics, organizations can cultivate a mindset that values enduring investment strategies. This may include rewarding portfolio managers based on multi-year rolling returns or ensuring that business development teams are incentivized according to the long-term results for clients. Aligning these compensation schemes fosters an environment where employees prioritize sustainable performance over immediate gains.
The Role of Investor Mindset
The mindset of investors plays a decisive role in the adoption of long-term investing principles. Investors must recognize their psychological tendencies that may lead to short-term decision-making and implicitly challenge the status quo. A culture of patience and resilience needs to be cultivated among investment teams, enabling them to resist the temptation to react hastily to market volatility. A strong collaborative environment where investment decisions are collectively made can help maintain focus on long-term objectives.
Evaluating Performance Through the Long-term Lens
Performance evaluation should prioritize long-term outcomes, ideally reflecting an investment duration that aligns with the strategic goals of the organization. Instead of focusing solely on short-term performance metrics, organizations should assess investments over five or more years to evaluate true performance. This approach helps to mitigate the psychological pressure from quarterly results and encourages a broader view of value creation. By consistently using long-term performance metrics, organizations can reinforce their commitment to strategies aligned with sustainable growth.
Building Effective Investment Partnerships
Creating long-term partnerships with asset managers can enhance the investment process and drive better returns. These partnerships should be built on trust, communication, and mutual understanding of long-term goals. Engagement with managers goes beyond superficial interactions and requires deep conversations about investment philosophies and strategies. The stronger these relationships, the more likely both parties can focus effectively on long-term value creation without succumbing to market pressures.
Leveraging Governance for Long-term Benefits
Robust governance structures are fundamental to fostering a long-term investment strategy within organizations. This includes transparency in decision-making and ensuring that boards are not only aware of but actively supportive of long-term strategies. A clear separation of duties within governance helps to mitigate any conflicts of interest and allows for focused discussions that are aligned with long-term goals. Strengthening the link between governance and investment outcomes promotes resilience against short-term market fluctuations.
Considerations on External Factors
External factors, such as regulatory changes and market dynamics, can significantly impact long-term investing strategies. Investors need to be aware of these influences and how they may alter the landscape of their investments. External pressures, such as fees and performance evaluations, should be managed strategically to maintain a focus on long-term outcomes. By being proactive in addressing these external factors, investors can better position themselves to pursue enduring success in the face of inevitable market changes.
No investor claims to be short-term but in the face of the seductive siren call of the emotionally volatile markets, even the most disciplined of investors buckles at the knees. The apparatus and systems in which we work---governance, investment policy, benchmarks, asset allocation frameworks, compensation systems along with the behavioral spiral that haunts us all in times of market trauma tend to perpetuate herd mentality. With the help of some of the best minds on the subject, we work to define long term investing more precisely, explore the virtues of a multi-cycle horizon, and warn of the common pitfalls that so easily break our convictions.
Introduction (0:48)
Halftime (50:00)
Guests (55:50)
Guests:
Geoff Rubin, Senior Managing Director and One Fund Strategist at CPP Investments
Sarah Williamson, Chief Executive Officer, FCLT Global
