New research conducted by Willis Towers Watson and sponsored by the Future Fund has examined institutional investors' attitudes about short-term thinking.
The Smart Leadership: Sound Followership report found that almost two-thirds of asset owners surveyed believe short-termism detracts between 0.34 per cent and 0.66 per cent from annual investment returns.
Twenty-nine per cent of investors believe short-term thinking costs institutional investors between 0.67 per cent and 1 per cent a year, and 6 per cent believe the cost is more than 100 basis points.
The report examined the measures institutional investors are taking to eliminate a short-term mindset from their decision-making.
"Some participants have designed their decision processes and delegations structures to try to limit having to act in the face of short-term pressures," the report found.
"This kind of design could insulate an executive team from compromised decision making and maintain an uninterrupted focus on long-horizon issues.
"Other funds, conversely, clearly see short-term market drawdowns as significant opportunities with implications for the management of liquidity and the option value in cash."
There is often a "clear tension" between liability-driven investment framing (fuelled by liability hedging and mark-to-market elements) and long-term thinking, acknowledged the report.
"The ability of liability-aware funds to look beyond short-term measures will in part dictate their success in capturing the potential benefits aﬀorded to long-term thinking," said the report.
While eliminating short-termism will be "very hard to achieve in practice", the rewards on offer (namely, the improved returns) "make a strong case for concerted efforts to be applied".
AMP appoints new group general counsel
Australian Unity hires former ANZ Wealth exec
First State Super announces new CEO
Corporate governance and advocacy in China
The shifting LIC landscape
The perils of chasing niche infrastructure