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investors search for blueprint to counter short-termism

October 2006

A 'blueprint' for long-term investment is to be produced by the end of the year in an attempt to move businesses and investors away from a preoccupation with short-term monetary goals.

The Marathon Club, an international group of trustees and senior executives in the institutional investment sector, issued a consultation paper earlier this year and has received responses from investment institutions in Australia, North America and the UK.

Now it is drawing up practical guidance for trustees of pension funds, trusts and foundations on what a long-term investment mandate should include. 'The idea is to incorporate the industry's best ideas into an effective blueprint for the wider development and implementation of long-term mandates,' it said.

The club argues that the current investor 'fixation' with quarterly performance reviews encourages companies to focus on short term profits rather than growth over five to ten years. This has a knock-on effect, influencing managers' attitudes to corporate responsibility, which generally benefits companies as part of medium or long-term strategy.

The blueprint is likely to propose trustees reduce their reliance on quarterly earnings as this encourages a short-term view even if an investment contract is long term. It will say trustees should also be more willing to challenge fund managers when investment decisions are made. However, it recognizes this will require many trustees to acquire more expertise than at present.

Peter Scales, chairman of the Marathon Club and chief executive of the London Pension Fund Authority, said response to the consultation had suggested 'broad support' for the principle that institutional investors should concentrate on long-term goals.

Support came recently in the US from the Business Roundtable Institute for Corporate Ethics, which has the backing of 160 CEOs, and the CFA Institute, comprising 80,000 analysts and fund managers. Both bodies jointly condemned the current 'obsession with short-term results', urging companies to stop issuing quarterly earnings guidance altogether.

see also editorial, page twelve




Further Information
http://www.marathonclub.co.uk
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