The concept of 'the long-run' as an investment horizon can elicit wildly different responses. To some it is the only relevant horizon over which carefully considered rational decisionmaking should be calibrated; for others, it is a nefarious concept consisting simply of a series of short-runs, and moreover, is typically only appealed to by investment managers as a shelter after a period of poor performance. The venerable late financial and economic historian Peter Bernstein declared, "the long-run as an investment destination is and always has been an impenetrable mystery" 1.

For our purposes, a treatment of 'the long-run' is further complicated by the material differences in investor types seeking to preserve and grow capital over this (perhaps somewhat abstract) time horizon. While pension funds, insurers, endowments and sovereign wealth funds (SWFs) are frequently grouped together under the banner 'strategic investors', a closer inspection reveals a striking degree of heterogeneity, both across and within these groups2. Take the global pension fund community as a case in point (Figure 1). Japan, with the world's second-largest stock of assets under management, stands at one end of the risk spectrum with 98% of assets in defined benefit schemes, mostly held on behalf of the public sector, with the highest (relative) exposure to bonds and lowest weighting to non-traditional asset holdings. At the other end, Australia and the US are characterized by largely defined contribution and private sector schemes, and the highest allocations to both equity and alternative assets. Meanwhile SWFs are typically classified under four broad categories: i.) macro-stabilization funds, ii.) national savings funds, iii.) pension reserve funds and iv.) reserve investment funds. Yet some SWFs have multiple objectives (typically savings and stabilization-based), while some countries have multiple SWFs each with a different objective. A stabilization-based SWF in a small open commodity-exporting economy with large short-term external liabilities will clearly have a different objective function (i.e. that of volatility-smoothing, in the spirit of Friedman's Permanent Income Hypothesis) vis-à-vis intergenerational savings-based sovereign wealth funds with no contingent cash calls, a high pain tolerance and distant starting liabilities.

David Fuller's view If you represent one of the investment institutions mentioned in the headline above, I think you will find this report informative.

And for the rest of us, here is a statistic to ponder: Brad Jones says that sovereigns now hold "more than US$10 trillion in foreign exchange reserves, well in excess of standard reserve adequacy requirements in many cases."

He publishes a graph showing these reserves since 1999, when they were less than US$2 trillion. They have increased every year except for 2008 when a tiny decline occurred. An accompanying pie chart shows that a staggering 63.4% of these reserves are now held by Asia Pacific countries, compared to 2.5% by North America.