Monday, 19 February 2007


Last year saw several interesting developments in the discussion about short-termism in the financial markets. This is a long-standing criticism of institutional investors and those that work for them but still hasn;'t really been settled one way or the other.

Recent reports have been put out by the CFA and Business Roundtable, the British TUC and the Marathon Club (their site seems to be down at present).

The last group is probably the most interesting as it is made up of pension fund themselves. The initiative is an attempt to develop long-term investment strategies for funds. The Club issued a consultation on possible 'long-term long only' (LTLO) strategies which drew some interesting reponses, for example a critical but thoughtful reply from Hermes.

Interestingly although many in the industry seem to find accusations of short-termism to be heresy (I think this stems from an ideological commitment to the efficiency of markets) some participants are quite open about the short-term pressures they are under and how this can affect decision-making. Chris Cheetam's piece in this collection of essays is a good example.

I think another major problem is the way trustees react to underperformance. There is an overwhelming desire to try and 'manage' the problem whereas the best strategy may just be to do nothing (accept performance is cyclical and/or mean-reverting and wait for the upswing).

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