Coalition led by Canada’s CPPIB unveils new white paper on how to promote long-term investing

The coalition is also backed by PGGM, BlackRock and the New Zealand Superannuation Fund

A coalition of nine prominent institutional investors led by the C$239bn (€176bn) Canadian Pension Plan Investment Board (CPPIB) has unveiled a white paper outlining five measures that investors can take to promote long-termism in capital markets. The impetus for the project was an article published in January 2014 entitled “Focusing Capital on the Long Term.” In the article, Dominic Barton of McKinsey & Company and Mark Wiseman of the CPPIB argue that in order to prevent global financial crises like that of 2008, investors must do more to promote long-termism. “If asset owners adopt investment strategies aimed at maximising long-term results, then other key players – asset managers, corporate boards and company executives – will likely follow suit,” write Barton and Wiseman. After the article appeared in the Harvard Business Review, the CPPIB invited other big investors to help it suggest ways to implement Barton and Wiseman’s call for long-termism.
The result: A white paper authored by 24 investment professionals from some of the world’s best-known institutional investors. Beyond the CPPIB, they include the Ontario Teachers’ Pension Plan (OTPP), BlackRock, Caisse de dépôt et placement du Québec (Caisse de dépôt), the New Zealand Superannuation Fund, the Capital Group, Singapore state investor GIC, PGGM and the Washington State Investment Board.

The paper lists five measures that institutional investors can take to advance long-termism. They are:

1. Articulate investment beliefs and set up a compass to navigate short-term turbulence;
2. Establish a risk framework that clarifies one’s ability to take risk and accept uncertainty;3. Select or create benchmarks focussed on long-term value creation;
4. Evaluate internal and external managers with an emphasis on long-term performance;
5. and define investment mandates not just as a legal contract but one that aligns the asset manager’s actions with the asset owner’s long-term goals.

The paper states that while investors can take these actions immediately to promote long-termism, policymakers must support their efforts. “For example, given the volatility of capital markets, rigid annual mark-to-market requirements for pension plan assets and liabilities can hinder optimal management of the fund for the long term,” it says.
The paper further calls for governance structures at institutional investors that support long-termism. “Such structures should ensure effective oversight of the investment process through sufficiently qualified boards with relevant experience, possibly including members who represent beneficiaries, and should provide the board and management the freedom to act in the long-term interest of the beneficiaries.”
As an example of an ideal structure, the paper mentions the governance at Canada’s ten biggest pension funds, including the CPPIB, the OTPP and Caisse de dépôt. “Their governance and practices are often cited as a major competitive advantage allowing them to invest for the long term.”
Link to FCLT white paper