S&P Long-Term Value Creation Global Index ….. Activist investors have been receiving the lion’s share of the blame for the disturbing trend toward short-term thinking on Wall Street over the last few years. Given that activist investors like Carl Icahn and Bill Ackman are pressing firms to make changes to improve shareholder returns, that some (like Marty Lipton) claim are focused on the short- to medium-term rather than creating long-term value at the enterprise.
The good news for Lipton and others is that several very large institutional investors have gotten together to fight back against this worrisome trend of short-term thinking in the equity markets. Moreover, these major institutional investors announced this week that they planned to allocate $2 billion to a newly created equity index that focuses on long-term strategies.
The new index is called the S&P Long-Term Value Creation Global Index, and will include 246 companies that meet high standards for return-on-equity, leverage and other financial factors, as well as a score for corporate governance, at launch.
The other five tutes investing prior to the launch of the new long-term value index are Singapore fund GIC, Danish pension plan ATP, Dutch pension plan PGGM, the New Zealand Superannuation Fund and the Ontario (Canada) Teachers’ Pension Plan.
CPPIB CEO says new index will focus on long-term value
“We are trying to use the index to change corporate behavior,” noted Mark Wiseman, CEO of the Canada Pension Plan Investment Board, in a recent interview with the Wall Street Journal. Wiseman went on to argue that the financial markets today are overly focused on short-term results.
Wiseman also highlighted that the CPPIB was planning to invest close to $1 billion in the firms in the new index at launch.
He also expressed optimism that various retail products could be developed so that individual investors would be able to track the index. Finally, he noted CPPIB (which manages C$273 billion ($188.23 billion)) will switch funds from its passive stock-market investments into the S&P Long-Term Value Creation Global Index.
Below is the full press release:
DAVOS, Switzerland and TORONTO and NEW YORK, Jan. 21, 2016 /PRNewswire/ — As large institutional investors’ concern about the short-termism in the capital markets grow, S&P Dow Jones Indices (S&P DJI), one of the world’s leading index providers, launched today the S&P Long-Term Value Creation (LTVC) Global Index.
The S&P LTVC Global Index is designed to measure companies that have the potential to create long-term value based on sustainability criteria and financial quality. Canada Pension Plan Investment Board (CPPIB), a co-founder of the Focusing Capital on the Long Term (FCLT) initiative, worked collaboratively with S&P DJI to develop the Index.
The S&P LTVC Global Index is comprised of companies that have demonstrated the ability to manage both current and future economic and governance opportunities and risks by focusing on a long-term strategy. These companies must also have a sustained history of financial quality. Companies with these characteristics are more likely to maintain a competitive advantage and thereby sustain stakeholder value.
“Over the past few years, there has been an intensifying investor demand for a benchmark that captures companies that take a long-term approach in making business decisions,” says Alex Matturri, CEO of S&P Dow Jones Indices. “The launch of the S&P LTVC Global Index is a manifestation of the long-termism concept with an independent and transparent approach. We are proud to leverage our deep indexing knowledge to facilitate awareness and education for market participants.”
“We are proud of the role our investment teams played in the development of this innovative new index from S&P DJI, as part of CPPIB’s ongoing work to advance longer-term behaviours in capital markets today,” says Mark Wiseman, President and CEO CPPIB. “We believe this Index has the potential to act as a real catalyst to encourage a greater focus on factors that contribute to long-term value creation by both corporate management and investors, all to the ultimate benefit of individual savers and beneficiaries.”
The S&P LTVC Global Index is constructed by combining qualitative and quantitative measures into a single metric to determine the potential for long-term value addition. The Economic Dimension Scores provided by RobecoSAM are included in the qualitative assessment to gauge corporate governance effectiveness. The quantitative assessment consists of drivers of long-term investment returns – Return on Equity, Balance Sheet Accruals ratio and leverage ratio.
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