1 / 16

Institutional Investors and Long Term Investment

Institutional Investors and Long Term Investment. Juan Yermo Financial Affairs Division Directorate for Financial and Enterprise Affairs. Outline. What do we mean by long-term investing and why does it matter? What are the barriers to and trends in long-term investing?

mtheodore
Download Presentation

Institutional Investors and Long Term Investment

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Institutional Investors and Long Term Investment Juan Yermo Financial Affairs DivisionDirectorate for Financial and Enterprise Affairs

  2. Outline • What do we mean by long-term investing and why does it matter? • What are the barriers to and trends in long-term investing? • What are the potential policy solutions to promote long-term investing? • What is the OECD doing?

  3. I. Long Term Investment Strategies What does long-term investment mean and why does it matter? • “Patient” capital: • Long-term / illiquidity premia, lower turnover, less procyclical investment strategies  higher net returns, greater financial stability • “Engaged” capital: • Active voting policies  better corporate governance • “Productive” capital: • Support for infrastructure development, green growth initiatives, SME finance, etc  sustainable growth

  4. Long-term Investors

  5. Long-term Investments Source: World Economic Forum (2011)

  6. II. Trends & barriers in LT Investing:

  7. Shorter investment holding periods Holding periods in major stock markets Source: OECD (2010)

  8. Growing myopia over future income Short-termism indicator: shareholders discount future cashflows by an additional 6% - “x” parameter in Haldane and Davies (2011) Source: Haldane and Davies (2011)

  9. Trends in pension fund allocation • Declining equity allocations in some countries (e.g. UK, Netherlands) • Less than 1% of their assets in “unlisted” infrastructure, over 2% in hedge funds • Private equity mainly LBO-driven, little venture capital • Growing appeal of ETFs and other liquid investment vehicles

  10. III. Policies to Support LT Investment Reform Regulatory Framework for Institutional Investors • Build expertise – appoint more knowledgeable pension fund trustees • Forster collaborative strategies – pooling to allow for scale investments (share risk and knowledge)/ collaborate to share corporate governance oversight costs • Check prudential regulation – avoid unintended misalignments pushing institutional investors into a short-term focus • Supervisory oversight – investigate firms with high turnover etc.

  11. Policies to Support Long Term Investment Encourage Institutional Investors to be active shareholders • Regulatory support – check no barriers (take over issues etc.)/ practical help (electronic voting) or compulsion (disclose voting policies) / multiple voting rights? • Collaboration and professional services – e.g. ICGN/ PRI initiatives / proxy voting services • Guidance on behaviour expected – Stewardship codes • Supervisory guidance and accountability / disclosure over LTI

  12. Policies to Support Long Term Investment Government support for long-term investments • Supportive tax policy and policies to promote long-term investment – tax policy on debt vs. equity /FDI policies • Government issuance of long-term instruments – long-term inflation linked bonds/ longevity bonds? • Transparent environment for infrastructure – long-term policy (including on environment)/ data collection/ suitable investment vehicles (PPP)/ risk mitigation mechanisms

  13. Policies to Support Long Term Investment Financial education and consumer protection regulation • Appropriate financial consumer projection framework – transparency/ redress mechanisms • Tailored financial education and awareness strategies and programmes – explain benefits of long-term investing • Default mechanisms – life-cycle strategies

  14. IV. What is the OECD doing? Long-term Investment Project • The purpose of this project is to investigate ways to encourage and assist institutional investors (particularly pension funds and insurance companies) to act over longer-term periods. • Drawing on expertise across OECD (Directorate Financial Affairs / Corporate Governance/ Tax/ Environment etc.)

  15. OECD Long-Term Investment project • Monitoring LT Institutional Investors: GPS, GIS data collection • Research papers • Pension Funds and Investment in Infrastructure; • Pension Funds and Green Growth; • Life Insurance & Infrastructure Investment; • The Emerging Market perspective on Institutional Investment in Infrastructure; • Impact of Solvency Regulation and Accounting Standards on Life Insurers’ and Pension Funds’ Investment Strategies; • Institutional Investors and Corporate Governance. • Dissemination through a series of high-level meetings and conferences – bringing government representatives, regulatory community, investors together

  16. Further OECD information www.oecd.org/daf/pensions - private pensions webpage www.oecd.org/daf/fin/wp - OECD Working Paper series on Finance, Insurance and Private Pensions www.oecd.org/finance/lti - OECD long-term investment project webpage

More Related