Asset owners could work together to forge a greater focus on long-term investments, according to the CIO for the Government of Singapore Investment Corporation (GIC).
In a new research paper, the sovereign wealth fund’s chief investment officer said he was keen for long-term partnerships with external managers.
However, he expressed concern that other investors' time horizon did not match GIC’s.
Lim Chow Kiat, group CIO for GIC, said that the sovereign investor was limited in the number of truly long-term investments it can make by other investors’ and external managers’ short-term horizons.
Writing in the white paper ‘Perspectives On The Long Term: Building a Stronger Foundation for Tomorrow’*, released earlier this month, Lim said: “The minimum time horizon for (GIC’s) performance measurement is five years. We work hard to prepare expectations for potential return paths. This is to avoid surprises and allow our investors to act in a long-term manner.”
He added that GIC would like to adopt the same approach with more of its external fund managers, including by granting longer-term lockups in return for better performance and more favourable terms
However, Lim said that GIC had been hampered by the fact that most other investors did not have similar time horizons: “Their need and desire to have redemption liquidity make it difficult for us to structure long-term mandates. This is an area where long-term asset owners could work together.”
In theory, long-termism should give investors a big edge, he said. However, he had discovered the reality was that even investors with explicit long-term mandates have found it difficult to put long-termism into practice.
“In our experience, the organisation’s entire ‘ecosystem’ must have a long-term mindset for it to work,” Lim said. “From clients to employees, from front office to back office, and from internal investors to external managers, we try to ensure that long-termism permeates our practices.”
A lack of transparency and attribution analysis also plagued their ability to invest more for the long term. Lim said that in some cases, fund managers’ reluctance to provide ongoing process visibility also poses a problem, since long-term lockups required GIC to regularly validate performance.
“When two investors produce the same outcome, it tells us little about who has done a better job,” Lim explained. “We ask what role process and luck played in the outcome. We also ask how much risk, and what sort of risk, was incurred.
“We believe you can only control the process; the outcome is simply a consequence of that process.”
GIC was estimated to have $320 billion of assets under management at the end of 2014, according to the Sovereign Wealth Fund Institute.
*Published as part of Focusing Capital on the Long Term - an initiative for advancing practical actions to focus business and markets on the long term, founded by the Canada Pension Plan Investment Board and McKinsey & Company.