LONG TERM INVESTING CHALLENGES
1. Most funds are still communicated and labelled as being suitable for all and investors can hardly differentiate between funds that are suitable for the long-term or those that have a short-term investment approach.
3. This poses a challenge for asset managers because they need to cope with sometimes extreme volatility of flows and forced to keep unnecessarily high levels of cash and invest only in the most liquid asset classes.
MANAGEMENT STRATEGIES
1. A fund‟s goal should be to manage an objective not a strategy or a single asset class as funds that are restricted by their investment strategies with a minimum or maximum allocation within an asset class are robbed of the ability to act more flexibly, especially in times of crisis.
2. Long-term vehicles should be developed to meet the investo's financial objectives rather than to adhere to a fixed strategy such as a fund limited to a country or industry. For example when servicing long-term financial needs especially in the space of retirement planning, should shift focus from benchmarks to investors' time and risk objectives in constructing retirement eligible products.
INVESTOR CENTRIC
1. Vehicles designed for the long-term should offer liquidity designed with the long-term investor in mind. This could be accomplished through various measures such as managed redemption programs, swing price mechanisms or limitation of redemption possibilities over certain time periods.
2. Vehicles classed as long-term must all have the equivalent levels of disclosure and should be designed for the long-term investor. For example, daily price publication or monthly fact sheets with benchmark performance indicators are arguably less relevant than periodic (say quarterly) reporting on the performance vs. objective.
3. There is a need to align investor and asset manager interests by ensuring the industry is properly incentivised to deliver retirement products of quality. Incentives for retirement savings products should be linked to the risk-return objectives within the investor timeframe (“objective fees”).
ISSUES FOR LONG TERM FUNDS
1. There is a large missing market for funds that are designed for long-term investors and are managed, measured and regulated in such a way that encourages them to maximise long-term absolute returns.
2. The managers of these “long term” funds should adopt longer term investment policies, trusting that they will be judged on longer and more appropriate holding periods and, not being exposed to excessive out- or inflows, and not exploit the opportunities in the capital market, also those with lower liquidity and longer payoffs. Moreover, they will be more inclined to actively engage with the companies they invest in and assess also the long term risks (environmental, social, etc.) of their investments.
3. The benefits of these “long-term” funds, both for investors and for the financing of the economy, might justify special fiscal treatment, with tax benefits for the unit holder increasing the longer the holding period.
CONCLUSION
1. Short-termism, especially in behaviour and regulation, is a major threat to sound practice, value added and stability overall.
2. Strengthen the duty to act in the best interest of the client, both at the production and at the distribution level, in order to re-build investor trust in the wider financial services sector and especially in the asset management industry.
3. Improve on the one hand the quality and transparency of the AM products and on the other the financial capabilities of advisors and investors so as to achieve the proper match between investors' needs/objectives/investment horizons and the fund‟s investment strategy and expected risk-adjusted results.
