OPINION by Lars Dijkstra: Why I want to SHIFT TO
Academic research teaches us that there is a significant positive difference in performance between asset managers who do, and those who don’t invest in their own products
Lars Dijkstra, Chief Investment Officer of Kempen Capital Mangement and head of the editorial board invites you to SHIFT TO and explaines why he does it.
“Time is of the essence,” “time is money,” and “time flies when you’re having fun”: We are fascinated with the concept of time. And the less we think we have of it, the more carefully we guard it.
However, sometimes it is worth taking time – making time – for something that is so important it shifts the way you look at the world.
Thus we invite you to take a short investment of your time here at the SHIFT TO newsroom, where you can read about the latest thought and practice in long term investing. And of course, share your views.
I will make a start with mine.
Unfortunately, companies and investors all too often receive greater ‘rewards’ for short-term results, than for pursuing a long-term vision that can produce enduring and sustainable benefits. According to research by McKinsey, 84% of directors of listed companies around the world feel pressured to meet financial targets within two years. In addition, 78% of the CEOs put off investments in the face of shareholder resistance.
In the media there is growing attention on the topic of long term investing. And although swapping theories is always a good thing, I think that it is time that we talk action too. Who is doing what, and where and how can we help each other to make things happen? Three important actors are needed: the companies (the ‘assets’), the providers of equity (the ‘asset owners’) and the asset managers. Together we can make a difference, provided that all three parties think and act with a long-term focus.
What should we do?
What are the essential steps? In an article written together with the Chief Investment Officers of 13 prominent Dutch institutional parties, with invested assets of more than EUR 700 billion, we have identified the following changes as key to encouraging long term behaviour:
1. Closer alignment of performance targets with long term goals of pension liabilities.
2. More long term engagement with companies on ESG
3. More alignment of incentive structures with long term goals
4. Less frequent and more qualitative reporting
As CIO of a boutique asset manager with its roots in small caps, I want to particularly stress the importance of dialogue with the companies that we invest in. I believe in engagement, which means: not just exclude but improve. For us it helps to break the circle of short-termism and bring back the focus on long term goals. This means that for a truly engaged shareholder, it is impossible to have hundreds of different companies in their portfolio.
Next, a long term view requires a change in culture for asset managers. At KCM we have been realising this change for the last ten years. It entails investing in the same funds as our clients do: we eat our own cooking, have skin in the game. Also a large part of our equity capital is invested in our own flagship funds. Academic research teaches us that there is a significant positive difference in performance between asset managers who do, and those who don’t invest in their own products.
Last but certainly not least, for a successful long term approach, you need complete alignment of interest between client and asset manager when it comes to goals, horizon and governance. When in doubt stop, because you just know that the client will leave the first time results are a bit disappointing.
This long term road may not be the easiest to travel - not for companies, not for asset owners or asset managers. However, together the journey can be easier and more interesting. And I for one am sure that the road will lead to a better future for all of us.