P3.1 “Alexa, implement our investment strategy.”


Tuesday, Jan 26
|    mins
If only implementing investment decisions was as simple as barking an order at a smart speaker. Instead, many UK pension scheme trustees get bogged down in multiple, onerous operational matters that can consume valuable board meetings.

Common issues include:

  • Decisions agreed at the previous meeting that have not been progressed
  • The investment strategy seems to be drifting off course, causing the scheme to make large – and potentially costly – changes to get back on track
  • Opportunities might be missed as roles and responsibilities are unclear

Frustrating? Yes. But it is also a waste of trustees’ precious time that is better spent focusing on the big strategic decisions that make a real difference. For example, an agenda item that could have decided whether the long-term objective should be buy-out or self-sufficiency is often instead devoted to minor asset allocation tweaking.

Some schemes have been advised that the only way to solve these problems is to overhaul their governance structure and/or fundamentally change their implementation approach – this need not be the case.

As we will explain in this pillar, even small refinements to a scheme’s governance and investment arrangements can deliver timely and efficient implementation – without giving up control of strategy or operational oversight.

Decisions that trustees have already taken can and should be automated. This allows key metrics, such as the expected return, level of investment risk and liquidity, to be consistently aligned with the scheme’s objectives, without the need for constant – and distracting – intervention by trustees.

Wherever possible, implementation and operational tasks should be delegated to specialists and/or committees, who can then report back to the board if or when anything substantial needs to be tackled – and be held accountable.

It is important to be strict about how much time you devote to investment matters as the vast majority of meeting time should be used on strategic issues: funding targets, timescales and risk limits. This is where you can add real value.

If those tasked with implementation are given clear quantitative guidelines that are aligned to the scheme’s objectives, you will be able to monitor how asset strategy is executed, without getting bogged down in operational detail.

While this can feel uncomfortable at first, it can quickly increase a board’s efficiency and effectiveness. And ultimately, you should find – in some ways at least – it gives you more, rather than less control.

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