The long term investing is more rewarding than looking for short-term gains. These views were expressed by the speakers at an international seminar on "Long Term Investment in Equities & Pension Fund Management" organised by CFA Association of Pakistan (CFAAP).
The local affiliate of CFA Institute, in line with its efforts in promoting professional, educational and ethical standards of investment and research practitioners in Pakistan, at a hotel here on Saturday.
Najam Ali, Chairman, Mutual Fund Association of Pakistan rounded off the event, discussing the potential for growth of Pension Funds in Pakistan and the benefits of long term investment in equities.
He said "we have been in a bull market over the last five years so investing in any random stock would have yielded large real returns". But if one picked out a good company from a long-term investment horizon, the returns would have been staggering.
He said if someone bought shares in MCB, ICI and D.G. Khan Cement five years ago, they would have made cumulative capital gains of 900 percent, 1,649 percent and 1,849 percent respectively.
Stock markets, in developing economies especially, are seen as means of making quick money rather than as an avenue for deployment of savings for the long term. This short termism in equity investing has a negative affect on the probability and the extent of return for the investor. It also has implications for the stability and efficiency of the market itself. This was the topic of discussion of the presentation made by Dr Jacob Gray, Strategist, GMO, Australia. Dr Jacob has had a long illustrious career in academics, research and international fund management and his speech included various studies of international markets that highlighted the benefits of long term equity investment.
His speech touched upon the reasons of short termism approach adopted by participant of equity markets internationally. Case studies presented in the speech highlighted that long term investing is more rewarding than looking for short-term gains. In the end he suggested various steps that can be followed to develop a long-term approach to investment in stocks.
The Senior Management Director, Lazard Asset Management, Australia Robert Prugue's talk focused on Pension Fund Management. He presented the evolution of investment styles followed by pension funds internationally. He highlighted that pension funds internationally have moved from being just "return seekers" to being "excess return seekers".
He mentioned that internationally, as is the case in Pakistan now, pension funds were managed by employers, whose main focus was to earn a normal return and maintain a safe portfolio. However, over the years this approach has evolved to the excess return approach whereby pension funds have specific benchmark returns to meet.
This has led to the concept of outsourcing the management of pension funds to professional fund management companies that improve the returns for the pensioners. In the end Robert emphasised that Pakistani pension fund market should learn lessons from the international market and adopt the recognised best practices in the field.
The CFA Association of Pakistan is a member society of CFA Institute, USA. The society was set up in 2002 and has played a tremendous role in improving the professional and ethical standards in Pakistan's capital markets. At present CFAAP has over 90 members. All members of CFAAP and candidates in CFA programme are required to comply with a globally recognised code of ethics and standards of professional conduct.
At a recently held meeting in Zurich, Switzerland which was attended by society leaders from 132 societies based in 55 countries of the world, CFA Institute conferred upon CFA Association of Pakistan the first prize and award for innovation.
This award was won by CFAAP for its annual excellence awards programme for research analysts, brokerage houses and investment banking transactions. Of the four societies which won the awards in four different categories, CFAAP had the distinction of not only being the youngest society (set up only four years back) but also the only society outside of North America which won the award.
This is indeed a great honour for CFAAP and for Pakistan as a country as well and a true testimony of the hard work put in by the leadership of CFA Association of Pakistan.