Research by BETTER FINANCE, published in 2015 in BETTER FINANCE’s briefing paper on the Capital Markets Union (CMU) initiative, debunked the myth that individual investors are short-term oriented. Now a survey carried out by S&P Dow Jones Indices (SPDJI), one of the world’s largest index providers has provided another angle to the debate, indicating that institutional investors are those piling on the pressure to generate strong short-term results.
Whereas this is not a new trend, with 80% of the board members and senior executives interviewed feeling the pressure from institutional investors to demonstrate strong financial performance over a period of just two years or less, over 60% said pressure had increased over the past five years.
Although it couldn’t be further from the truth, individual investors run the risk of being side-lined and dismissed by the future architects of the CMU as being too short-termist. This mistaken notion needs to be rectified.
Individual investors, by their very nature, clearly have predominantly long-term goals such as putting money aside for retirement purposes or purchasing a home, making the allegation of short-termism bizarre at best.
A quick glance at some numbers immediately reveals that individual investors are not “short-termist”: for instance, 62% of financial savings by EU households’ are typically invested in long-term investment products such as pension funds, life insurance, shares and bonds.
What’s more is that when looking specifically at equity holdings – the long term financial asset by excellence – the average holding period by individual shareholders is much longer than that for “institutional” ones.
SPDJI urges institutional investors to embrace similar long-term investment horizons to ensure better corporate governance and thereby strengthening financial returns, increasing innovation and improving the sustainability of businesses, growth and jobs.
For this reason BETTER FINANCE, like the British economist John Kay, incessantly advocates for a more direct link between savers and the funds in which they are invested.
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