IN BRIEF

Long-term institutional investing, as practiced by the leading sovereign wealth funds, enjoys large strategic advantages and a decisive tactical edge over investing with a shorter time horizon:

  • A long-term strategy allows for fundamental themes to fully develop.
  • By taking positions with high potential payoffs despite possibly uncertain timing, the strategy both shapes the future and profits from it.
  • Paradoxically perhaps, the long view, coupled with ample resources, can exploit tactical opportunities created by short-term investors under pressure to liquidate holdings due to margin calls and liquidity demands.
  • More broadly, a long-term strategy stands to benefit from mispricings arising from errors in evaluation and elevated risk aversion.
  • Finally, long-term investors’ ability to absorb the liquidity risk inherent in unlisted and illiquid assets can generate a premium return.

These advantages have rarely mattered more than now in a capital market environment of low yields, mounting volatility, unexciting global economic growth and subpar investment returns—nor have they diverged more from the prevailing transaction-oriented mentality. Yet today, as much as ever, long-term investors can (and should) access the full range of long-term non-public assets—value-added real estate, infrastructure, private equity and private debt—to diversify their holdings, mute the volatility of the public markets and earn steady and favorable risk-adjusted returns. Indeed, the contrast between transactional markets and the breadth of opportunity open to long-term strategies suggests that investors across the entire institutional spectrum—pension plans, insurers and endowments as well as sovereign wealth funds—should give the approach serious consideration.

 

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