This content is from: Opinion

New Research: Reconciling Transparency and Long-Term Investing

Because of their lack of liabilities, the community of sovereign funds could offer an antidote to the pervasive short-termism in financial markets today. So what's preventing that from happening? We examine the role of transparency in driving short termism...

I’ve just finished another working paper with my co-author Dr. Adam Dixon entitled “Reconciling Transparency and Long-Term Investing within Sovereign Funds”. In this paper, we evaluate the tension that exists between transparency and long-term investing, in particular as it relates to sovereign funds.


Because the almost exponential growth of sovereign funds these past few years could offer an antidote to the pervasive short-termism in financial markets today. The 60 or so SWFs in the world are qualitatively different from other institutional investors in that they have a single owner – the government sponsor – that (in theory) has a perpetual time horizon. 

And yet, these theoretically long-term investors are being pressured into behaving like the many short-term investors in the marketplace today, pushed by structural conditions that demand short-term performance in order to secure domestic and international legitimacy (e.g., the Santiago Principles).

So what’s our paper about?

Well, we make the argument that transparency and long-term investing are both positive for society. However, some forms of transparency may be counterproductive to long-term investing. And yet, rationing transparency can be dangerous, as it means the fund may be operating without society’s acquiescence, a fundamental concern in democratic states and a norm of contemporary financial markets.

In evaluating this tension, we offer a conceptual framework for thinking through different types of transparency pertaining to the investment process as a means of discussing and communicating acceptable and non-acceptable asymmetric information in relation to financial performance.

We hope you find it useful. Comments and critiques, as always, are welcome and indeed appreciated.

Download it here.

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