Major new research projects look at role of asset owners in short-termism

A newly published study of Dutch investors’ share holding periods and a major research project commissioned by the Generation Foundation show how the role of institutional investors in market short-termism is starting to be looked at in greater detail.

Dutch corporate governance network Eumedion has just released the results of a study it commissioned – finding that the largest Dutch institutional investors hold most of their shares in domestic listed companies for a long period.

This coincides with the launch of a project looking at practical solutions for countering short-termism that has been initiated by the Generation Foundation, the philanthropic arm of the Generation fund management business co-founded by former US Vice President Al Gore.

Eumedion has found that more than 80% of investor portfolios is held for five years or more and at least 55% of the investments are allocated to holdings of at least 10 years. Its research was conducted by Tilburg University.

The asset owners scrutinized were civil service fund giant ABP, health sector fund Pensioenfonds Zorg en Welzijn (PFZW), engineering industry fund PME and the railways fund Spoorwegpensioenfonds. Asset managers involved were Robeco and Teslin Capital Management.

Eumedion has 70 Dutch and foreign members with a combined assets under management of more than €1trn.

The study – The Duration and Turnover of Dutch Equity Ownership: A Case Study of Dutch Institutional Investors – is by Frans de Roon and Alfred Slager.It covered 2003-2012 and Eumedion says it contradicts the received opinion that institutional investors are short-term investors. “On average,” Eumedion says, “a Dutch equity was kept in the portfolio for roughly three and a half years.”

“To date, not much is known about how long equity ownership lasts, what determines its length, and what factors drive changes in ownership,” write de Roon and Slager. “Financial economists have largely ignored duration of equity ownership, although it is a recurring theme in public debate.” Their study explicitly builds on the work of the UK’s Kay Review into equity markets and short-termism.

Eumedion said it was “striking” that holding periods have not decreased since the beginning of the financial crisis in late 2007.

Meanwhile, the Generation project will focus on the potential role of loyalty rewards, or “L-shares”, for shareholders in combatting short-termism. It will be conducted by consulting firm Mercer and Canadian law firm Stikeman Elliot.

“With the launch of this project, we are looking to dig deeper into the various proposed solutions to short-termism and determine the possible role that loyalty and related instruments could play,” said Jane Ambachtsheer, Mercer’s Global Head of Responsible Investment.

It follows the foundation’s white paper earlier this year, which proposed loyalty shares as one of five key actions to boost sustainable capitalism. To express interest in participating, go to this link or email. The findings will be discussed at a summer 2013 event and a subsequent report.