EUROPE - Antoine de Salins, chief executive of FRR, France's national pension reserve fund, has urged institutional investors to lobby for greater macro-financial stability, as he warned greater incidence of extreme "tail events" could otherwise leave long-term investing "dead".

Speaking at the Mercer European Investment Forum in Paris yesterday, de Salins said: "There is a bigger question around the future of long-term investing. Are tail risks part of the system in the modern world? Because if they are, that's a major blow to long-term investing. If they are, long-term investing is dead."

De Salins recognised that institutions had put a lot of "political capital" into their strategic asset allocations, but argued governance structures have to be able to support the capacity to take long-term equity and liquidity risk premia when times get tough. And that is not always easy, he added: "It has meant that this crisis has been the source of much discussion for us, as well as stress."

Nick Sykes, European director of consulting at Mercer, noted that there is a tendency to "default to the short-term" at every level when it comes to managing companies and investments.

"Company management would rather focus on deal-making than investing in assets; and shareholders focus on price movements rather than the sources of long-term value creation," said Sykes.

Philippe Désfosses, chief executive of the French supplementary pension fund for civil servants, ERAFP, conceded that pension funds had to shoulder some of the blame for the recent impact of the crisis on investments.

"If your trust can't take drawdowns, it's difficult to be a long-term investor," he said. "And we can't go on worrying when a manager has some tracking error against his benchmark for six months."

De Salins suggested that tactical asset allocation could be of some help, but stated its goals have to be clearly defined.

"The goal of our TAA overlay was not clear: was it to add alpha or was it to protect us in a crisis? We have tried to solve this governance problem by asking our board for a wide corridor for our benchmark portfolio, but also by creating a committee consisting of our board and some external experts to manage our TAA on a quarterly basis and take an active view on short-term risks," he added.