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PRI in Person: Long-term versus short-term debate 'divisive'

The long-term versus short-term debate, which has occupied financial markets across the world post-crisis, is divisive, responsible investors have been told.

Speaking at the recent ‘PRI in Person’ event in Cape Town, South Africa, Erika Karp, founder and chief executive at US-based Cornerstone Capital, said: “The problem is the use of language in a kind of judgemental and in a potentially divisive way. There is nothing inherently wrong with short-term [investing] if the systemic risk is managed reasonably well and there is transparency.

“The language of sustainability – whether it is SRI, sustainable investment, the double or triple bottom line, impact investing, values-based investing – they all are good, […] and the opposite is implied to be bad. This is where it gets divisive.

“So this needs not to be about an ideology, it needs to be about pragmatism. It doesn’t need to be about values, it needs to be about creating value. So any debate like long-termism or short-termism, […] to some degree, could be a waste of time.”

Other speakers on the panel acknowledged that the debate was a question of difference – that long-term investors rightfully co-exist with investors whose model is short term.

However, Sandy Frucher, vice-chairman of Nasdaq, said a long-term view was a better way to gain asset appreciation than a short-term perspective.

Thabo Khojane, managing director Africa Client Group at Investec Asset Management in South Africa, said that, for an investment manager, time horizon was primarily a function of the client’s mandate.

It comes down to what an investor thinks about risk.

He said: “If it is important for clients to have a benchmark against an index or against a peer group, and the way they think about risk is in terms of volatility or tracking error, then the horizon will be slightly shorter, typically a rolling 12-month or three-year horizon.

“However, if the client is for an absolute outcome, a benchmark against cash and against inflation, and the way they think about risk is not in terms of volatility or tracking error but in terms of capital cost, then typically the mandate will give you a much longer horizon.”

He added: “The reality is that, the longer the horizon, the more time an investment manager has, the easier it is and the more likely it is that he will be able to deploy his skills and meet the requirements of the client.

“Clearly, a longer-term horizon makes it easier to make money.”

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