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Geoffrey Rubin, Senior Managing Director and One Fund Strategist at CPP Investments, has long been a passionate advocate for long-term investing. On the latest episode of Chartered Alternative Investment Analyst (CAIA)’s Capital Decanted podcast, Rubin and Sarah Williamson, CEO of FCLTGlobal*, join hosts John Bowman and Christie Hamilton to discuss the “siren song” of short-termism, the organizational culture needed to support long-term investing, and why long-termism is about more than just holding investments over extended periods.
The following has been edited for clarity and brevity.
You’ve got a succinct and pragmatic way of defining long-termism. Can you share it?
Geoffrey Rubin: We’re of the view that an investor’s horizon is the length of time that they can stay committed to a strategy despite adverse but foreseeable investment outcomes or changes in their organizational circumstances.
That kind of horizon is going to depend on a number of internal and external factors. We know as risk takers, not every strategy is going to perform exactly as hoped. But if it’s performing within reasonable bounds of expectations, do you face challenges in your ability to stay in that strategy? Investors with truly long horizons can avoid getting “stopped out” of otherwise sound strategies that are incurring short-term volatility.
I’ve heard you distinguish between the verb and the noun, long-term investing versus long-term investments. What do you mean by that?
Geoffrey Rubin: There are certain investments with characteristics typically considered long-term, such as investments that look to accumulate value over time. I think those investments can be important to long-term investment strategy, but not exclusively so.
When we did our work on long-horizon investing, we started by asking ‘how can we introduce more long-horizon investments into our portfolio?’ We ended by asking, ‘how can we act as a more effective long-horizon investor?’ Real long-horizon investing can be applied both to long-horizon investments and to investments without those characteristics. We believe that the hold period or investment horizon is not as significant a factor in being a long-horizon investor as the ability to maintain a strategy that can endure and adapt across different market cycles.
That depends on a lot of things. At the top of the list is the quality and substance of governance. We look at the nature of funding and the liability structure. Performance evaluation, including the horizon over which performance is assessed in comparison with peers, can also have a big impact, along with the rigour of the ex-ante investment thesis. The better job you do in setting up your strategy in advance, with very clear understanding of the drawdowns or poor outcomes you might face over time, the better you can steel yourself for when volatility inevitably arrives.
One thing we realized is we have the inherent opportunity to be a long-horizon investor, an opportunity greater than that of many other investors. But we have to do a lot of things in order to convert on that possibility.
What are the benefits of building that long-term philosophy of investing?
Geoffrey Rubin: Two examples come to mind. One is the quality of our partnerships with external firms. Maintaining a long horizon and a commitment to strategies means you can more effectively commit to your partners, elevating those relationships from purely transactional to more strategic. That’s been a big driver of our performance over time, these heightened long-term relationships and the advantaged deal flow and exposure we have from them.
The second is the success of our global offices and investment portfolio. The success of the teams and the presence they have in those marketplaces would be radically different without a long-horizon commitment to those markets.
What are some of the governance pillars and philosophy processes that you would recommend for creating proper long-term thinking?
Geoffrey Rubin: You want deeply present governance that’s focused on the elements and drivers of your chosen strategy, and that understands and appreciates how that strategy might play out over time. There’s always going to be risk, but you can equip your governance with a better understanding of what it’s going to look and feel like.
Organizations in which the board and management are jointly accountable and responsible for the entirety of the investment portfolio can effectively stay on top of the longer-term considerations of the strategy. A governance construct in which the board approves a longer-term strategic asset allocation and management is responsible just for shorter-term performance against that policy portfolio, or a benchmark, can undermine management’s focus on the longer horizon and ability to invest in those ways.
We benefit from a terrific legislative construct here, but not all organizations do. Everything we’re talking about is reasonably aspirational for many institutions to stretch their horizons over time, but it might not be possible given the governance constructs. Worse than being a short-horizon investor is convincing yourself you are a long-horizon investor when you’re not. You’ll pursue strategies that rely upon that consistency and, if that commitment is not there, get stopped out at exactly the wrong time. Stretch the horizon, work really hard to do so, but at the end of the day, make sure your strategies are tuned to the horizon you actually have.
One of the great myths is that long-termism is blind buy and hold. How does long-termism co-exist with the ability of your investment team and board to shift and take advantage of structural changes at those inflection points?
Geoffrey Rubin: We need to be thoughtful about the evidence we’re getting on strategies, acknowledging that conditions change and strategies forged in the best possible beliefs and assumptions might, over time, start to genuinely degrade. The ability to adjust our strategies and portfolios for those emerging conditions doesn’t run counter to being a long-horizon investor.
When we talk about things like tactically shifting the portfolio, having a long horizon is vital to the success of those kinds of strategies. The organization that is going to lose its commitment to tactical strategies in the face of some bad downturns would be cautioned against getting into them in the first place, because those are exactly the types of strategies that can show significant volatility over shorter periods, even if we believe there is a longer-term advantage.
*FCLTGlobal is a non-profit organization that develops research and tools that encourage long-term investing. It was founded in 2013, as a joint initiative of CPP Investments and McKinsey & Company. John Graham, President and CEO of CPP Investments, is the current chair of the organization.
With valuations to future earnings stretched, a strong showing will be needed to keep the rally going.
Article
May 16, 2024
Geoffrey Rubin, Senior Managing Director and One Fund Strategist at CPP Investments, has long been a passionate advocate for long-term investing. On the latest episode of Chartered Alternative Investment Analyst (CAIA)’s Capital Decanted podcast, Rubin and Sarah Williamson, CEO of FCLTGlobal*, join hosts John Bowman and Christie Hamilton to discuss the “siren song” of short-termism, the organizational culture needed to support long-term investing, and why long-termism is about more than just holding investments over extended periods. The following has been edited for clarity and brevity. You’ve got a succinct and pragmatic way of defining long-termism. Can you share it? Geoffrey Rubin: We’re of the view that an investor’s horizon is the length of time that they can stay committed to a strategy despite adverse but foreseeable investment outcomes or changes in their organizational circumstances. That kind of horizon is going to depend on a number of internal and external factors. We know as risk takers, not every strategy is going to perform exactly as hoped. But if it’s performing within reasonable bounds of expectations, do you face challenges in your ability to stay in that strategy? Investors with truly long horizons can avoid getting “stopped out” of otherwise sound strategies that are incurring short-term volatility. I’ve heard you distinguish between the verb and the noun, long-term investing versus long-term investments. What do you mean by that? Geoffrey Rubin: There are certain investments with characteristics typically considered long-term, such as investments that look to accumulate value over time. I think those investments can be important to long-term investment strategy, but not exclusively so. When we did our work on long-horizon investing, we started by asking ‘how can we introduce more long-horizon investments into our portfolio?’ We ended by asking, ‘how can we act as a more effective long-horizon investor?’ Real long-horizon investing can be applied both to long-horizon investments and to investments without those characteristics. We believe that the hold period or investment horizon is not as significant a factor in being a long-horizon investor as the ability to maintain a strategy that can endure and adapt across different market cycles. That depends on a lot of things. At the top of the list is the quality and substance of governance. We look at the nature of funding and the liability structure. Performance evaluation, including the horizon over which performance is assessed in comparison with peers, can also have a big impact, along with the rigour of the ex-ante investment thesis. The better job you do in setting up your strategy in advance, with very clear understanding of the drawdowns or poor outcomes you might face over time, the better you can steel yourself for when volatility inevitably arrives. One thing we realized is we have the inherent opportunity to be a long-horizon investor, an opportunity greater than that of many other investors. But we have to do a lot of things in order to convert on that possibility. What are the benefits of building that long-term philosophy of investing? Geoffrey Rubin: Two examples come to mind. One is the quality of our partnerships with external firms. Maintaining a long horizon and a commitment to strategies means you can more effectively commit to your partners, elevating those relationships from purely transactional to more strategic. That’s been a big driver of our performance over time, these heightened long-term relationships and the advantaged deal flow and exposure we have from them. The second is the success of our global offices and investment portfolio. The success of the teams and the presence they have in those marketplaces would be radically different without a long-horizon commitment to those markets. What are some of the governance pillars and philosophy processes that you would recommend for creating proper long-term thinking? Geoffrey Rubin: You want deeply present governance that’s focused on the elements and drivers of your chosen strategy, and that understands and appreciates how that strategy might play out over time. There’s always going to be risk, but you can equip your governance with a better understanding of what it’s going to look and feel like. Organizations in which the board and management are jointly accountable and responsible for the entirety of the investment portfolio can effectively stay on top of the longer-term considerations of the strategy. A governance construct in which the board approves a longer-term strategic asset allocation and management is responsible just for shorter-term performance against that policy portfolio, or a benchmark, can undermine management’s focus on the longer horizon and ability to invest in those ways. We benefit from a terrific legislative construct here, but not all organizations do. Everything we’re talking about is reasonably aspirational for many institutions to stretch their horizons over time, but it might not be possible given the governance constructs. Worse than being a short-horizon investor is convincing yourself you are a long-horizon investor when you’re not. You’ll pursue strategies that rely upon that consistency and, if that commitment is not there, get stopped out at exactly the wrong time. Stretch the horizon, work really hard to do so, but at the end of the day, make sure your strategies are tuned to the horizon you actually have. One of the great myths is that long-termism is blind buy and hold. How does long-termism co-exist with the ability of your investment team and board to shift and take advantage of structural changes at those inflection points? Geoffrey Rubin: We need to be thoughtful about the evidence we’re getting on strategies, acknowledging that conditions change and strategies forged in the best possible beliefs and assumptions might, over time, start to genuinely degrade. The ability to adjust our strategies and portfolios for those emerging conditions doesn’t run counter to being a long-horizon investor. When we talk about things like tactically shifting the portfolio, having a long horizon is vital to the success of those kinds of strategies. The organization that is going to lose its commitment to tactical strategies in the face of some bad downturns would be cautioned against getting into them in the first place, because those are exactly the types of strategies that can show significant volatility over shorter periods, even if we believe there is a longer-term advantage. *FCLTGlobal is a non-profit organization that develops research and tools that encourage long-term investing. It was founded in 2013, as a joint initiative of CPP Investments and McKinsey & Company. John Graham, President and CEO of CPP Investments, is the current chair of the organization. Listen to the full podcast: https://caia.org/capital-decanted-podcast https://podcasters.spotify.com/pod/show/capital-decanted https://podcasts.apple.com/us/podcast/capital-decanted/id1705230352 https://open.spotify.com/show/3EMsZH498pqoWWrNQs8AVH Thanks for subscribing to CPP Investments Sign up for our latest news, insights, reports and other information about CPP Investments Email address * Please enter valid email id Job title Select Job Title Associate Analyst Consultant advisor Manager/supervisor Government official/regulator General manager/director Board director Chairman/board member VP/SVP/EVP President Partner/Owner/Entrepreneur Parent/guardian C-level other Chief Human Resources Officer Chief Marketing Officer Chief Financial Officer Chief Sustainability Officer Chief Digital Officer Chief Technology Officer Chief Operating Officer Educator/professor Student Editor/reporter Other Organization How did you hear about CPP Investments? 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Next Subscribe Thanks for subscribing to CPP Investments Sign up for our latest news, insights, reports and other information about CPP Investments Email address * Please enter valid email id Job title Select Job Title Associate Analyst Consultant advisor Manager/supervisor Government official/regulator General manager/director Board director Chairman/board member VP/SVP/EVP President Partner/Owner/Entrepreneur Parent/guardian C-level other Chief Human Resources Officer Chief Marketing Officer Chief Financial Officer Chief Sustainability Officer Chief Digital Officer Chief Technology Officer Chief Operating Officer Educator/professor Student Editor/reporter Other Organization How did you hear about CPP Investments? Select Source CPP Investments alumni CPP Investments employee or board member CPP Investments portfolio company Online search (e.g. Google) Social media Other What news would you like to receive? * News and updates from CPP Investments Latest news from the Insights Institute Consent * By checking here, you are subscribing to receive our newsletters and other similar types of insights and reports by email, and permit CPP Investments to use cookies and similar technologies to analyze your interactions with our emails. Unsubscribe at any time by clicking the link in the newsletter’s footer. Visit our Privacy Policy for more information. Questions or concerns? Contact us. Please fill in required fields An error has occurred. Please try again later. Now’s the time for firms to adopt global sustainability standards Richard Manley, CPP Investments' chief sustainability officer, reflects in a new Financial Times article. 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