TABLE 2
FROM:
Best-practice pension fund governance
Gordon L Clark and Roger Urwin
BACK TO ARTICLETable 2. Best-practice factors by type of fund
| Core best-practice factors | |
|---|---|
| Relevant to all funds, especially Type 1 and 2 funds | |
| Mission clarity | Clarity of the mission and the commitment of stakeholders to the mission statement |
| Effective focusing of time | Resourcing each element in the investment process with an appropriate budget considering impact and required capabilities |
| Leadership | Leadership, being evident at the board/investment committee level, with the key role being the investment committee Chairman |
| Strong beliefs | Strong investment beliefs commanding fund-wide support that align with goals and informs all investment decision-making |
| Risk budget framework | Frame the investment process by reference to a risk budget aligned to goals and incorporates an accurate view of alpha and beta |
| Fit-for-purpose manager line-up | The effective use of external managers, governed by clear mandates, aligned to goals, selected on fit for purpose criteria |
| Exceptional best-practice factors | |
| Relevant only to Type 3 funds | |
| Investment executive | The use of a highly investment-competent investment function tasked with clearly specified responsibilities, with clear accountabilities to the investment committee |
| Required competencies | Selection to the board and senior staff guided by: numeric skills, capacity for logical thinking, ability to think about risk in the probability domain |
| Effective compensation | Effective compensation practices used to build bench strength and align actions to the mission, different strategies working according to fund context |
| Competitive positioning | Frame the investment philosophy and process by reference to the institution's comparative advantages and disadvantages |
| Real-time decisions | Utilise decision-making systems that function in real time not calendar time |
| Learning organisation | Work to a learning culture which deliberately encourages change and challenges the commonplace assumptions of the industry |
