INTERVIEW with Keith Ambachtsheer
'The horizon is long (term): Let’s get moving'
Long term investing has been the subject of much debate over the past several years – and while there’s lukewarm agreement that it may be the best and only way forward, action hasn’t always been forthcoming. How to move beyond the fear of long-termism to successful action?
It’s the morning after the event ‘Focusing Capital on the Long Term: from talking to walking…’ co-hosted by McKinsey & Company and Kempen Capital Management when Lars Dijkstra poses the question to Keith Ambachtsheer, internationally-recognised thought leader in the area of institutional investing. The atmosphere in the boardroom of Kempen’s Amsterdam headquarters is one of palpable excitement.
“Did that really happen last night or was it just a dream?” asks Keith Ambachtsheer (who presented the academic perspective on FCLT based on his paper ‘The Case for Long-Termism’) of Paul Gerla and Lars Dijkstra, respectively CEO and CIO of Kempen Capital Management, over an early coffee.
The success of the event, attended by a large group representing the Netherlands’ most influential asset owners and asset managers, academics and policy-makers could be measured by the engagement level of the participants, and an element unusual in the normally sober landscape of Dutch investing: expressed emotion. Elation, excitement, resistance, hope, confusion. And just a touch of that most motivational of emotions, fear. “You could feel that in the room, too,” says Gerla.
It’s no surprise – long-termism is fraught with difficult choices. And the pressure on the industry to keep the long horizon in view, while dealing with the short-term realities of current pension payouts, requires a strong constitution. “The underlying theme for some people last night is this funding ratio,” says Dijkstra, referring to a key area of uncertainty - and therefore anxiety - in the shift to long term investing. “One of the participants talked about having to tell pensioners that their pension was cut; no one wants to have to do that,” he adds.
A bit of anxiety may be unavoidable at this crucial moment; but Ambachtsheer’s presentation of the night before had elevated the mood and enlivened the discussion of FCLT by bringing both historical context and models of real-life success into the room. First and foremost, the overarching importance of long-term thinking is related to human survival. It was only in making the difficult, long-term decisions about savings and investment (in the form of seeds, implements, and shelter at the time) that civilisation and culture could take root and flourish. “It was this shift towards ever longer time frames that made possible the eventual transformation of the subsistence societies of long ago to today’s far wealthier, more stable ones,” he writes in ‘The Case for Long-Termism’.
But that’s history. Even more encouraging is Ambachtsheer’s research into the success that innovative long-term investing practices and models have achieved over the past several decades. One example are the Australian superannuation (pension) schemes, which are now beginning to enable pensioners to transition their retirement savings in annuities, providing the assurance that if they live particularly long lives, they will continue to have a reasonably dependable income.
“That’s the global solution for the workplace pension plan,” says Ambachtsheer. “We need to get used to a two-part model, and begin to separate the pieces into the ‘sure part’ for payment assurance, and the ‘longer horizon’ part for generating the compounding returns that make pension affordable. If people shift their thinking in this direction, there is a smoother transition to FCLT.”
The shift to long-term investment is not just possible, not just essential - but profitable. However, making the shift requires both novel thinking and daring action. First, you’ve got to change your definition of risk.
“I noticed last night how often Canadian examples were mentioned; why is long term thinking so ingrained in Canada?” Dijkstra asks. It started, according to Ambachtsheer, with the Ontario Teachers’ Pension Plan (OTPP). Beyond adopting the (for then) forward-thinking long-term model - which includes a clear mission, good governance, integrated ESG concerns, and a Board representative of all stakeholders - there is an overarching reason for the success of the OTPP: boldness as well as humility.
“Teachers in Ontario can be retired a lot longer than they work, and they have a life expectancy higher than that of other professions; they needed to figure out how to fund that, how to create wealth with assets,” explains Ambachtsheer, “so OTPP’s management stepped outside normal pension investments.” OTPP bought Canada’s largest private commercial real estate firm, Cadillac Fairview, which is now “Consistently Delivering Predictable Income Over the Long Term” according to OTPP’s website.
This type of innovative approach is proof of concept: the shift to long-term investment is not just possible, not just essential - but profitable. However, says Ambachtsheer, making the shift requires both novel thinking and daring action. “First, you’ve got to change your definition of risk.”
And then a certain iconoclasm is needed. He offers a quote from Irish playwright George Bernard Shaw: “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends upon the unreasonable man.”
This article appeared in Kempen Insight - March 2016