The keynote address at today’s CBOE Risk Management Conference featured Leo de Bever, Ph.D. who recently retired as CEO of Alberta Investment Management Corporation which is one of Canada’s largest institutional investment managers. His speech was a discussion titled Investing for the Long Run: An Opportunity Worth Seizing.
The address began with noting that institutional investors needing to focus on the long term because they own over half of global equities and they have access to capital for decades which means they can think long term since there is no concern with respect to short term capital outflows. Being Canadian he followed these thoughts with a speed skating analogy (which I liked). He said you do not approach a 10K speed skating race as ten 1K races.
Some of the highlights of de Bever’s address –
Long term investors should be planning on much stronger economic growth than forecasts suggest. Specifically, GDP numbers understate the benefits of digital change. Poor forecasts are amplified by accelerating technological change. He notes that GDP was not created to measure prosperity, but that is what we do.
One of the issues with this is commercialization of new technology is creating attractive long-term investment opportunities. He notes that many sectors of the economy, not just technology, are going to benefit from advances in technology. He even uses a refinery as an example of a plant that could be more efficient and smaller based on advances of technology. What is ironic is that the adoption of new ideas and products is generally slow. I personally liked the statement that those executing a business plan tend to stick with what works and that junior employees are reluctant to challenge strategies that work for their superiors.
One negative short-term effect of rapid technological change is slow employment growth which depresses demand growth. He also noted that the cycle of investment can be disrupted through technological innovation as well.
Fiscal policy plans to increase public and private investments in social infrastructure may be attractive to long-term investors. It was also noted that many opportunities exist between industries or entities that have different views of a similar industry. One of the examples he used was the water industry and the future use(s) of water. For example the water that is used in oil and gas extraction may be cleaned and used for irrigation. He noted that many municipal water management entities are responsible for managing the use of water and sewage and not to focus on water conservation.
The takeaway is that investors should put their minds behind taking a longer term perspective with respect to where to apply capital. The result could be a better and more profitable future, we just need to apply a longer term perspective.