Playing the long game:
One of the most seismic financial trends over the past decade has been the rapid growth of global pension and superannuation funds, estimated to be worth $54 trillion. Australia’s alone are worth over $2 trillion with expectations that it will reach around $10 trillion in the next 15 years. Taken together, this is an enormous amount of money available for investments that generate long-term value. Despite this growth, the broader business community is driven to focus on short-term measures and reporting cycles.
There has been no shortage of commentary on why this may be – the media, investors, the internet and the structure of executive remuneration packages are the most prominent.
To be fair, it is not an affliction unique to executives. Politicians are also sensitive to the accusation of having become overly focused on the short-term political cycle in preference to long-term planning.
Ultimately, successfully inculcating a philosophy of ‘long-termism’ throughout the senior levels of business is a factor of two things:
- Orienting perspectives externally
- Prioritising long-term decisions
It is easy to say that executives should think longer-term. It is just as easy for executives to say that if investors want them to think long-term, then they should not reward them primarily for thinking short-term.
Although there are signs of change, the fact is that many superannuation funds still ‘subcontract their fund management on the basis of short-term performance’ – completely at odds with the objectives of the workers from whom the funds are collected.
If a business is successful in instilling a longer perspective in both their organisations and their investors, then there is still the challenge of acting and making decisions that look beyond the immediate and account for fundamental trends. Simply stated, how can a business achieve movement prior to problems becoming evident? This is the job of leadership, translating deep insights about market movements to overcome internal complacency and inertia to achieve action.
It is difficult to think of an industry that has more to gain from the growth of long-term investment funds than the primary industries. Their value is almost entirely a factor of strategic positioning and pay-offs from decisions made years, and often decades, ago – large capital projects are the epitome of real options investing. The favoured home for these funds has traditionally been in bonds or infrastructure but Australian regional properties have already felt the benefits of foreign sovereign wealth funds boosting asset values.