Investing for the Long Term

Ashby Monk

According to an article by Tom Arnold on, the global economic crisis pushed many Gulf SWFs into a defensive position. They slowed down their rate of investing and became wary of deploying any capital at all. As I have noted several times, many turned inward, changing their investment focus so as to shore up struggling domestic economies and avoid the global uncertainty. While nobody can fault these countries for using their SWFs in times of crisis (so long as that was their purpose), by pulling back they may have missed a unique opportunity to secure future cash flows at a much reduced price. Not all SWFs missed this chance…

Landon Thomas reports in today’s New York Times that Norway (and in particular Kristin Halvorsen) bucked the trend completely, allocating a larger portion of its SWF’s assets to equities in the midst of the economic downturn:

“As investors the world over sold in a panic, she bucked the tide, authorizing Norway’s $300 billion sovereign wealth fund to ramp up its stock buying program by $60 billion — or about 23 percent of Norway ’s economic output.”

This decision reflects: 1) the genius of Norway and 2) the true nature of the institution that is a SWF.

In my view, SWFs should judge their success over time horizons that are much longer than other financial institutions; at least 5 years or more. So, they are the best placed investors (in the world) to snap up “deals” in the global downturn. They simply don’t have pressing liabilities today, tomorrow or even this year, meaning that they can take on illiquid positions or take a long-term bet on the stock market. I also happen to know that the Canada Pension Plan Investment Board (while not really a SWF) took a similar view as Norway. Due to the fact that the CPPIB’s liabilities won’t come due for another decade, it increased its risk as the markets fell (while remaining within its risk budget). In markets where investors are liquidating positions so as to meet capital requirements, SWFs can look beyond the short or even medium term economic turmoil and think about investments five or even ten years out. This is the genius of a truly long-term investor: they smooth out economic and financial volatility.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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