Regenerative Capital Markets
Why stock markets reward short-term thinking—and how to redesign them for long-horizon value creation.
The 60-Second Version
Capital markets are built for short-term thinking.
Quarterly earnings calls. Daily stock prices. Annual bonuses tied to this year's performance. CEOs who invest in 10-year projects get punished by investors who want returns next quarter. The system systematically discourages long-term value creation.
This isn't a bug—it's structural. Markets are governed by short, volatile cycles: quarterly earnings, sentiment swings, regulatory turnover, redemption windows. These cycles compress investment horizons regardless of what's actually best for the company or society.
Regenerative Capital Markets is a framework for redesigning market structures to enable long-horizon corporate value creation—without sacrificing the benefits of capital markets.
The Short-Termism Trap
Traditional capital markets compress investment horizons through multiple mechanisms:
Quarterly Earnings Pressure
Public companies report every 90 days. Miss one quarter's expectations and stock drops 20%. CEOs learn to prioritise quarterly results over decade-long investments. R&D gets cut to hit numbers. Maintenance is deferred. Long-term projects die.
Sentiment Volatility
Markets react to news cycles, not fundamentals. A tweet can move billions in market cap. Companies managing for long-term value are punished for not playing the sentiment game. Executives spend time on investor relations, not value creation.
Executive Incentives
CEO tenure averages 5 years. Compensation tied to stock price. A CEO who invests in a 15-year payoff project won't be around to benefit—but will be punished now for lower short-term results.
Investor Redemption Cycles
Mutual fund and hedge fund managers face quarterly performance evaluation. Underperform one quarter, investors redeem. Even long-term focused managers must show short-term results to retain capital.
The result: Companies that could create enormous long-term value—pharmaceutical research, infrastructure, clean energy, fundamental science—are systematically underfunded. Capital flows to quick returns, not durable value.
Temporal Market Misalignment
The paper formalises this problem as Temporal Market Misalignment—when capital cycles don't match value creation cycles:
| Value Creation | Required Horizon | Market Horizon | Misalignment |
|---|---|---|---|
| Drug Development | 10-15 years | 90-day quarters | 40-60× too short |
| Infrastructure | 20-50 years | 3-5 year investor cycles | 5-15× too short |
| Clean Energy Transition | 20-30 years | Annual performance | 20-30× too short |
| Brand Building | 10-20 years | Quarterly earnings | 40-80× too short |
| Employee Development | 5-10 years | Annual cost cutting | 5-10× too short |
The Core Insight
When markets impose 90-day cycles on 10-year value creation, the mismatch isn't 10% or 20%—it's often 4,000%. This isn't a minor inefficiency; it's a fundamental structural failure that prevents entire categories of value creation.
Regenerative Capital Markets Framework
The paper proposes four structural interventions to create temporal alignment:
1. Cycle-Aligned Reporting
Replace quarterly earnings obsession with reporting cadences that match value creation cycles. A biotech company working on 15-year drug development should report on milestones, not 90-day financial snapshots. Match the reporting rhythm to the value creation rhythm.
2. Long-Horizon Capital Pools
Create investment vehicles with redemption structures matching investment horizons. If you invest in a 20-year infrastructure fund, you can't redeem monthly. This removes the pressure that forces fund managers to chase short-term performance.
3. Mission-Cycle Incentives
Restructure executive compensation to vest over value creation timelines. A CEO working on a 10-year transformation should have 10-year incentives. Make it financially rational for leaders to think in decades, not quarters.
4. Algorithmic Temporal Governance
Use rules-based systems to protect long-term investments from short-term pressures. "This R&D budget cannot be cut to meet quarterly targets"—enforced by governance structure, not managerial willpower.
The Key Shift
Traditional approaches ask: "How do we convince investors to be patient?" RCM asks: "How do we redesign market structures so patience is rational?" The goal isn't to change human nature—it's to change the incentive architecture.
The Decoupling-Alignment Framework
RCM applies the same Δ (decoupling) and Λ (alignment) operators from Alignment Capital theory:
Decoupling from Fragility
- Insulate from quarterly earnings pressure
- Protect from sentiment volatility
- Shield from redemption cycles
- Buffer from regulatory turnover
Alignment with Value Creation
- Match reporting to development milestones
- Align incentives with project timelines
- Sync redemption with asset lifetimes
- Harmonise governance with mission cycles
Common Questions
Aren't markets supposed to be efficient at allocating capital?
Markets are efficient at processing current information into prices. But they're structurally bad at valuing long-horizon value creation—that's not inefficiency, it's a design limitation. RCM doesn't claim markets are broken; it argues they're optimised for something other than long-term value creation.
Don't patient investors already exist?
Yes—Warren Buffett, sovereign wealth funds, family offices. But they're exceptions in a system that rewards short-termism. RCM asks how to make long-horizon investing the default, not a niche strategy requiring unusual discipline.
Won't companies abuse long-horizon structures to avoid accountability?
This is a real concern. RCM includes accountability mechanisms—milestone-based reporting, transparent governance, objective metrics. The goal is to replace arbitrary quarterly pressure with meaningful long-horizon accountability. "Not held accountable every 90 days" doesn't mean "not held accountable."
How does this relate to ESG investing?
ESG tries to incorporate long-term factors into short-term decision frameworks. RCM argues that's backwards—if you want long-term thinking, you need long-term structures, not short-term structures with long-term inputs. ESG operates within the temporal misalignment; RCM tries to fix it.
Related Explainers
Read the Full Paper
Explore the complete formalisation including DAF operators, temporal governance, and case studies.
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Interactive models of temporal market alignment and decoupling operators.
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