Measurement, Governance and Long-term Investing

The report examines the tension between long-term investment goals and the short-term nature of current measurement and governance frameworks. It argues that traditional metrics often misstate risks and that frequent reporting can induce pro-cyclical, short-term behavior. The authors recommend that governing bodies commit to long-term horizons, use a limited set of directionally correct metrics, and establish professional boards and stable teams to shelter investment strategies from short-term market volatility.

• Traditional measurement tools for long-term investments, such as internal rates of return (IRR) and cash-on-cash calculations, have significant drawbacks and often misstate market, illiquidity, and liability risks.
• The perceived low volatility and lack of correlation in illiquid assets are often an artifact of 'stale prices' rather than fundamental characteristics, which can lead investors to underestimate portfolio risk.
• Excessively frequent measurement and reporting of long-term assets can be counterproductive, introducing a short-term orientation that may lead to 'panic selling' or 'trend-chasing' during market volatility.
• Effective governance is essential to supplement imperfect metrics; the most successful long-term investors use professional boards that set broad policy and shelter the organization from pro-cyclical pressures.
• There is a significant performance gap in private equity based on the type of investor, with endowments substantially outperforming corporate and public pension funds.
• Regulatory requirements, such as mark-to-market rules and solvency ratios, often impose short-term measurements on long-horizon investments, potentially forcing pro-cyclical behavior.
• Long-term investment is critical for society as it provides patient capital for innovative projects and infrastructure, with a noted infrastructure funding shortfall in Africa estimated as high as US$ 45 billion per year.
• To succeed, long-term investors should focus on a limited number of metrics that are 'directionally correct' rather than attempting precise but short-lived quantifications.
• Staff compensation for long-term investors should be structured to reward long-term decision-making, potentially using rolling three- to five-year horizons or clawback mechanisms to avoid rewarding short-term 'quick hits'.

APA

World Economic Forum (2012). Measurement, Governance and Long-term Investing. http://www3.weforum.org/docs/WEF_IV_MeasurementGovernanceLongtermInvesting_Report_2012.pdf

Chicago

World Economic Forum. Measurement, Governance and Long-term Investing. 2012. http://www3.weforum.org/docs/WEF_IV_MeasurementGovernanceLongtermInvesting_Report_2012.pdf.

Wikipedia

{{cite report |author=World Economic Forum |title=Measurement, Governance and Long-term Investing |date=March 2012 |url=http://www3.weforum.org/docs/WEF_IV_MeasurementGovernanceLongtermInvesting_Report_2012.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{worldeconomicforum2012measurement, author = {{World Economic Forum}}, title = {{Measurement, Governance and Long-term Investing}}, institution = {World Economic Forum}, year = {2012}, month = mar, url = {http://www3.weforum.org/docs/WEF_IV_MeasurementGovernanceLongtermInvesting_Report_2012.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }