Framework to assess investment funds’ long-termism proposed

Disclosures from funds that claim to long-term “fall far short”

A framework that investors can use to assess investment funds’ long-term orientation has been proposed by experts in a new paper that also argues that the disclosures currently provided by so-called ‘long-term’ funds are “insufficient”.

The paper has been co-authored by Rory Sullivan, Faty Dembele and Kajetan Czyz, from the Investment Leaders Group (ILG) ), in co-operation with the University of Cambridge Institute for Sustainability Leadership (CISL).

They propose an analytical framework that can be used by investors and their advisors to assess the long-term orientation of the investment funds that they are being offered.

They have applied it to a small group of funds, and their findings are that it “suggests that the disclosures being provided by funds that identify themselves as ‘long-term’ are insufficient to enable their current or potential clients to assess whether they are actually operating in a long-term fashion”.

Sullivan is Co-Founder and Director at Chronos Sustainability while Dembele, a former Sustainable and Impact Investing Research Analyst at Morgan Stanley, is Head of the Investment Leaders Group at Cambridge University. Czyz is Programme Director, Sustainable Finance.They write: “In practice, most investors – the exceptions are the largest institutions – have relatively little direct contact with their asset managers. They, and their advisors, tend to rely on the materials published by the investment manager in order to decide whether to not to invest in a particular fund.

“Therefore, improving the content and format of the disclosures provided by investment managers is key to enabling greater investments in funds oriented towards the longer term.”

“The disclosures being provided by funds that identify themselves as ‘long-term’ are insufficient”

A decision was made last year to build on earlier work to develop the Long-term Disclosure Framework for investors’ use. The intention is that the framework could also be used by asset managers when constructing long-term funds and when reporting on these funds’ characteristics.

The project has the backing of HSBC (both its asset management arm and its UK pension fund), State Street, PIMCO and others.