I’ve just returned to California after spending last week at Institutional Investor’s Global Government Funds Roundtable in London. The conference was great, as there were 97 (!) representatives of sovereign funds there talking about long-term investing, benchmarks, risk management, governance and a variety of other things that (to the bewilderment of my friends) I get fired up about. Anyway, I can’t really get into too much detail on what transpired, as these events are all off-the-record affairs. Notwithstanding, I’m still on solid ethical ground to simply share with you some of the key lessons I took away from this trip.
Of particular interest to me was the way in which sovereign funds are beginning to think creatively about how they can better take advantage of their endowments. Indeed, almost all the investors in the room had two innate competitive advantages over the rest of the marketplace: scale and time. Given these endowments, it’s perhaps not surprising that much of the event was focused on how a SWF could develop and execute a long-term strategy that truly leveraged these two advantages to the maximum.
First, I was interested to listen to conversations on how one should even define a long-term investor. There were many conceptualizations, but the one that resonated most with me was to say, rather simply, that long-term investing meant never being forced to sell something. You could sell it if the market made it worth your while, but you wouldn't have to.
Next, I enjoyed the talking about the mechanisms that SWFs have at their disposal to take advantage of their endowments. Some argued that sovereign funds should be sellers of insurance to the market; that they should provide liquidity where illiquidity is a problem; and that they should be contrarian and counter-cyclical in their strategies (i.e., not invest much in good times and invest a lot in bad times).
The other argument that really resonated for me was that being a long-term investor required owning actual stuff (i.e., stocks of companies, buildings, bridges) rather than stakes in funds. It was suggested that the widespread trend towards short-termism began just as the trend towards intermediation and over-diversification began to take hold a few decades ago. I agree.
Anyway, all credit to Scott Kalb and the II team for putting on an awesome event. It was well worth the trip to London.