Institutional asset owners representing more than $700 billion have thrown their support behind an index designed to track companies with the potential to create long-term value.
The S&P Long-Term Value Creation (LTVC) Global Index, launched Thursday at the World Economic Forum in Davos, was developed by S&P Dow Jones Indices in collaboration with the Canada Pension Plan Investment Board (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,” said Mark Wiseman, president and CEO of CPPIB.
The index is comprised of companies with “a sustained history of financial quality” that have demonstrated “the ability to manage both current and future economic and governance opportunities and risks by focusing on a long-term strategy,” according to the release. It combines qualitative assessments of corporate governance effectiveness with quantitative metrics including returns on equity, balance sheet accruals ratios, and leverage ratios.
The creation of such an index was a key recommendation by an initiative CPPIB co-founded in 2013, called Focusing Capital on the Long Term. The project aims to develop “practical structures, metrics, and approaches for longer term behaviors in the investment and business worlds.”
“The S&P LTVC Global Index allows long-term investors to put their money where their mouth is, and we at CPPIB are doing just that,” said Wiseman.
Singapore’s GIC, Danish pension fund ATP, the New Zealand Superannuation Fund, Ontario Teachers’ Pension Plan, and Dutch pension PGGM also voiced support for the index following its launch. A number of them contributed to an initial $2 billion allocation to LTVC index-tracking funds.
“As an investor and a member of Focusing Capital on the Long Term, we firmly believe this index is the type of innovative solution we need to practically drive longer term behaviors among firms, leading to enhanced long-term returns for investors and savers,” said ATP CEO Carsten Stendevad.
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