Challenging Industry Norms: The Shift from Short-Termism to Long-Term Performance (Video)

When the State Street Center for Applied Research released The Influential Investor: How Investor Behavior is Redefining Performance last year, it examined the forces that will shape the future of the investment industry. As part of its Challenging Industry Norms series that debates critical issues facing the investment industry, CFA Institute teamed up with State Street to take a closer look at whether misaligned interests are transforming the investment profession.

John Rogers, CFA, president and CEO of CFA Institute, and Suzanne Duncan, senior vice president and global head of research at State Street, kicked off the event with commentary that set the theme for the day.

Rogers predicted that market behavior has to shift away from bottom-line capitalism to embrace the notion of “fiduciary capitalism.” The future success of the markets requires additional focus on the needs of one’s clients. And with large asset owners — such as pension funds and endowments — gaining greater market prominence, they are less interested in market returns than the actual returns of their specific portfolios. This is especially important because of the multi-generational nature of these funds. The current asset owners must realize that investment risks taken today will actually be paid for by future owners of the funds.

For her part, Duncan provided an overview of key findings of State Street’s Influential Investor report. A theme common to both retail and institutional investors is the misalignment of their actions with their stated investment goals.

Duncan highlighted three areas of misalignment among industry participants:

• A perceived short-term focus of the market is helping to drive investors’ lack of trust today. Market concerns are leading to increasing amounts of cash holdings in many portfolios. Others are turning to direct private equity investments as a result of their lack of trust.
• Do investors possess the required knowledge to establish realistic return expectations? Overconfidence in one’s investment knowledge, especially among retail investors, is a contributing factor in the misalignment of actions and expectations.
• Do investors clearly understand the return they receive on the fees paid to investment managers? Increasingly complex investments further cloud the risk-return tradeoff.

Each of these concepts was discussed in greater detail in both the report and in the panel discussions that followed. Return to the Market Integrity Insights blog for additional commentary on this important topic.
 

Photo credit: @iStockphoto.com/Nikada