Is the long view the answer to today’s epidemic of “instantaneous”?

OECD Observer Business brief

Photographer: Bernard Fougères

If any word sums up today’s world, it’s definitely “instantaneous.” News spreads at the speed of light. Content is interpreted in mere seconds. Forecasts proliferate at a frenzied pace. But all this has a drawback: volatility increases. In such a context, it’s vital to take a step back. And it soon becomes clear, maintains the Caisse de dépôt et placement du Québec, that a long-term view is more relevant than ever.

Obviously the world has changed. It is unstable, instantaneous and profoundly interrelated. On the financial markets, the result is fluctuations that are ever sharper and more rapid. This environment increases the nervousness of investment managers, who often chase short-term performance to meet their clients’ expectations. In doing so, they buy and sell on rumour, a practice that accentuates volatility. The one feeds off the other, creating a vicious circle.

In this context, the Caisse has decided to focus on the fundamental aspect of its mandate: the long term. It manages the assets of 29 pension and insurance funds, which by definition have long-term obligations. It must meet their needs while contributing to economic development. The concept of sustainability is critical to its mission. It is therefore necessary – and relevant – to measure its investment horizon in terms of years – three, five, 10 or even more – rather than on a quarterly or semi-annual basis.

Intrinsic value rather than financial smoke and mirrors
To apply this vision, the Caisse bases its investment strategy on a central element: intrinsic value. Above all, it targets assets whose value is directly related to the real economy. This principle means investing in:

• companies that offer useful services or manufacture everyday objects;

• infrastructure that facilitates economic activity; and

• buildings where people live, work or shop.

For such investments to be profitable they must be based on stringent criteria and strong convictions. Research is therefore of vital importance – economic and financial research, of course, but also multidisciplinary research based on operational and industry expertise. The objective is to select well-conceived projects and well-managed businesses, not necessarily those that are part of an index but those that are the best positioned. That is why the Caisse has begun adding specialists from various fields to its team – engineers, geologists, telecom and transport experts, and so on –, to further enhance its expertise.

Solid partners: a necessary complement to internal expertise
Even so, the Caisse is well aware that no one can be an authority on everything, especially in markets far from home turf. It plans to increase its investments in emerging markets and therefore needs complementary expertise. To that end, it forms partnerships with solid and locally, well-established companies.

This strategy has already proved itself splendidly in Brazil, where a partnership with Ancar, a real estate company, has enabled a Caisse subsidiary to become a major player in the local shopping centre industry. To ensure success and foster mutual understanding, partners with common interests need to be identified.

An approach with several advantages
Focusing on the long-term is impossible without short-term costs. Between the time when an investor commits to an infrastructure project and the time when it reaps the benefits, many years may go by. The same is true of an investment in the growth of a business. Such a strategy requires vision, patience and courage.

But the advantages are also undeniable. Companies gain solid financial partners they can rely on over the long term. Regions gain investors that sustain their economy with developmental projects. And investors with a long-term view, like the Caisse, also stand to gain because they obtain access to major transactions and they can take the time to allow acquired assets to reach their full value. It’s a winning strategy for all stakeholders.


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©OECD Observer No 295, Q2 2013

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Economic data

GDP growth: +0.6% Q3 2017 year-on-year
Consumer price inflation: 2.4% Nov 2017 annual
Trade: +4.3% exp, +4.3% imp, Q3 2017
Unemployment: 5.6% Nov 2017
Last update: 16 Jan 2018


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