Home ListingMarch 23, 2015

GIC: Investors Should Unite Against Short Termism

The Singaporean sovereign wealth fund wants investors to force managers to take a long-term view.

Reported by Featured Author

The CIO of one of the world’s largest asset pools has called on fellow institutional investors to help persuade asset managers of the benefit of extending their horizons.

In a paper published last week, GIC CIO Lim Chow Kiat said one of the major issues hampering the multi-billion dollar fund was many asset managers’ focus on short-term liquidity and performance. This stance, he said, was not being challenged enough by many of the world’s largest investors.

“The minimum time horizon for performance measurement is five years,” said Lim. “In addition, we work hard to prepare expectations for potential return paths. This is to avoid surprises and allow our investors to act in a long-term manner.”

“Unfortunately, we are often hampered by the fact that most other investors do not have a similar time horizon.” Lim Chow Kiat, GICLim said GIC would like to take the same approach with its external asset managers. It would like to offer them longer lock-ups that it expected would result in better performance (and better terms for the sovereign wealth fund).

“Unfortunately, we are often hampered by the fact that most other investors do not have a similar time horizon,” said Lim. “Their need and desire to have redemption liquidity make it difficult for us to structure long-term mandates.”

Lim said he wanted to work alongside fellow investors to try and change the mindset of many providers in the industry.

“This is an area where long-term asset owners could work together,” he said. “In some cases, the reluctance of external fund managers to provide ongoing process visibility also poses a problem, as long lock-ups require us to validate performance regularly.”

Lim went on to highlight potential issues for asset owners trying to elongate their view—and retain staff who may be swayed by attractive short-term incentives.

“While we believe that our total value proposition is superior, we must be careful not to stray too far from the typical employment package,” said the CIO. “This partly explains our practice of using multiple time periods to measure performance. Doing so also helps to ensure that process goals or interim targets are also met and reduces the likelihood of someone becoming too passive after a difficult start.”

In 2013, GIC reported that more than a quarter of its staff had been with the fund for more than 10 years.

Lim’s full paper can be found on GIC’s website.