The Illusion of Long-term Investing

Pension funds, endowments, and sovereign wealth funds manage capital with decades-long liabilities—but their investments tell a different story. This 2017 report reveals that even so-called "long-term" equity fund managers turn over their portfolios every 1.7 years on average—far more frequently than their strategies suggest. The result? A financial system where short-term trading masquerades as long-term investing, distorting price signals, misallocating capital, and leaving investors vulnerable to overlooked long-term risks.

This research exposes the deep misalignment between asset owners’ long-term liabilities and the short-term incentives of fund managers. It explores how high portfolio turnover—driven by quarterly earnings pressures, trading incentives, and market liquidity—erodes the very purpose of long-term investing. Instead of ensuring sustainable returns, the rapid-fire buying and selling of securities turns financial markets into a game of "hot potato"—where long-term risks, from climate transition to technological disruption, get ignored until it’s too late.

But if long-term investors are supposed to optimize returns over 15-30 years, why are they behaving like short-term traders? This report investigates the structural drivers of short-termism in finance, the hidden costs of excessive turnover, and what it will take to rebuild a financial system that truly values the long term.