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This study provides the first long-run analysis of the skill of active Australian equity fund managers based on trades inferred from a market-wide database of monthly portfolio holdings over the period 1994-2009. In addition to confirming previous findings that skill exists amongst active Australian managers using a more comprehensive sample, we also deepen the understanding of this skill in two ways. First, we sharpen the identification of skill by categorizing trades. We find that alpha is concentrated in trades that are more likely to involve informed trading rather than portfolio rebalancing. Second, we investigate skill across manager types. Alpha for growthoriented managers is found to stem from selection skill, while that for value managers appears more related to characteristic exposure. We also find stronger evidence of skill amongst boutique firms relative to more institutionalized managers.

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The literature on investment horizon is reviewed in order to enhance the understanding of potential influences on long-term investing by institutional investors. Investment horizon reflects an interconnected web of influences related to an investor's circumstances, the design of the investing environment, and the choices that are made by key decision makers. Twelve such influences are identified and discussed. A characterization of investment horizon is offered based around two indicators: discretion over trading and how investment decisions are made, specifically the extent to which they are based on expected near-term price changes versus drivers of long-term value and returns. An overview of the debate over short-term versus long-term investing is also presented. The contents of this paper reflect the views of the author and do not represent the official views or policies of the Centre for International Finance and Regulation or any of its Consortium members. Information may be incomplete and should not be relied upon without seeking prior professional advice. The Centre for International Finance and Regulation and its Consortium members exclude all liability arising directly or indirectly from use or reliance on the information contained in this publication. The Future Fund's involvement in this first paper of the research project is limited to providing guidance and feedback on the text. The contents of this paper in no way represent the official views or policies of the Future Fund. Acknowledgements: The author would like to thank Stephen Gilmore, Will Hetherton and Nigel Wilkin-Smith who provided guidance and feedback on behalf of the Future Fund. Appreciation is also extended to David Gallagher from CIFR, Damian Lillicrap from QSuper as well as Joe Chung, David Iverson and Neil Williams from the New Zealand Superannuation Fund for providing a sanity check through volunteering their feedback.