The Value of Long Term Strategic Investing

I learned many things from my 29 years helping to manage the general account investments for conservative insurance companies.   One of the most important is the value of long term strategic investing.

We managed many different accounts backing different types of insurance products including life insurance, annuities, and guaranteed investment contracts.  Each account backing a different insurance product had its own investment policy statement highlighting the portfolio policies, procedures and parameters (“the “PPP”, as we called it).  The focus of the PPP was to develop a long term investment strategy appropriate to the characteristics of the liability that would perform well over a long term horizon.  This does not mean that short term “tactical” positioning was not used - it was; just as a smaller and more limited component of the overall strategy.

This approach served the company well.   In fact, the best performing account invariably was the investment account backing a closed block of life insurance products. Granted, it might be because of the record long bull market in bonds and that segment’s focus on long duration fixed income assets, but it still demonstrates the value of long term strategic investing.

The account was broadly diversified amongst many asset types including government bonds, corporate bonds, private placement bonds, commercial mortgages, real estate, and common stock.  As much as we would have liked to fiddle with the strategy to extract some extra return from tactical positioning, there were regulatory restrictions limiting changes in the strategy without prior regulatory approval.  Consequently, the PPP was never changed during my tenure there and it kept behavioral biases from slipping in to potentially disrupt the return flow.

Additionally, it also limited “bad” investment decisions from creeping into the mix since strict investment guidelines and underwriting standards limited the potential flaws that “active” management could foster.  More on this topic in my blog post next week where I discuss the long-running debate on active versus passive management!