To delegate or not to delegate – 5 key investment questions

18 February 2016

Each trustee board and scheme has different needs and objectives – there is no one size fits all solution to pension scheme governance and this is particularly true of investment governance. Having a clear understanding of your unique position and what is important to your scheme will allow you to set out your investment objectives. Once you have these objectives, you can consider the 5 questions below to determine what aspects, if any, you might consider delegating.

  1. Do you spend the most time on the most important investment issues?
  2. Are you able to make investment decisions quickly?
  3. Can you then implement those decisions quickly?
  4. Are you comfortable controlling all investment aspects of your scheme?
  5. Do you have the expertise to undertake all aspects of investment governance, from strategy to implementation?

We consider these 5 questions to be key indicators of good governance. If you have answered mostly no, then it may be that delegating some aspects of investment governance is appropriate. Even a single “no” may mean that your scheme could benefit from a review in a particular area. Having agreed this, the next consideration should be how you can implement good governance in the best way.

Volatile markets, combined with increasing regulatory attention and the complexity of the investment options available, has led an increasing number of trustees and sponsors to consider different investment governance models to achieve their objectives. In turn, we have seen increasing numbers of pension schemes adopting a delegated or implemented approach, also known as “fiduciary management”. 

Under these approaches, the trustees continue to make the key strategic investment decisions (e.g. what basis to target and by when) but the day to day implementation (e.g. how much to allocate to each asset class and which manager) is delegated to a third party. This is similar to how a Board of Directors would delegate business management to executives and business units within a company. Different levels of delegation are possible. For example, trustees may choose to delegate the management of all of the scheme’s assets relative to a suitable total scheme specific benchmark (known as a full mandate).  Alternatively trustees may choose to delegate a certain portion of the assets, say the management of a hedge fund or alternatives portfolio only (known as a partial mandate).

In conclusion, each trustee board and scheme has different objectives and capabilities – the key is to understand your unique objectives and then consider whether you have the right investment governance structure – and then ensure you implement the right governance in the right way. After all, if you don’t know where you are trying to get to, how will you know the best way to get there?

Hannah Carter
PwC | Investment Risk Management
Office: 0113 289 4662
Email: hannah.carter@uk.pwc.com

 

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