Irish Pensions Magazine Autumn 2013
16
but not an asset allocation role.
3. The delegation of authority - Outsourced
Investing
The key driver of step-change in this industry began in
the 1980s. Very large funds in Holland and then in UK
that were managing key investment decisions with in-
house staff made a governance breakthrough. They
took the entire implementation of investment policy
off the trustees’ table. Once they had done this for
their own, they began selling the service – Fiduciary
Management – to other, typically smaller, pension
funds. This is the Fiduciary Management approach.
Then consultants made a breakthrough of their own.
They turned their investment consulting relationships
into investment management services. Rather than
overseeing investment management provided by
professional managers on behalf of the trustees,
the consultants became the high-level investment
manager. They leveraged their skill in assessing
investment managers to decide upon and implement
suitable mixes of managers for trustees. Some have
built platforms designed to provide smaller schemes
with affordable access to best-in-class investment
management. These services are known by various
names including Implemented Consulting and
Delegated Consulting.
Just as consultants extended their services towards
investment management, some investment managers,
not to be left behind, have extended their services
in the opposite direction – towards full investment
solutions for trustees. Many of them self-style such
offerings as Fiduciary Management although in some
cases they do not include the full fiduciary service that
traditional in-house managers originally developed.
All the methods that combine investment policy
decisions with investment consulting or manager
selection and investment management are best
referred to collectively as Outsourced Investing.
Outsourced Investing offers trustees of pension
schemes, either defined benefit or defined contribution,
a potentially significant enhancement to their
investment governance. While outsourcing may not
be right for all, it is difficult to argue that any fund over
€15 million should not at least examine it carefully as
a way to proceed.
What is available today
Trustees need to be to be familiar with the specific
Outsourced Investment offerings available to them.
Although it is a relatively new development, we have
identified at least eight providers of Outsourced
Investing in Ireland and are aware of others who
would provide the service if they saw an opportunity
and others who are considering providing it.
Thinking about your scheme
Trustees need to consider the different governance
models outlined above and assess their implications
for the good governance of their own scheme.
What will constitute good investment governance will
vary from scheme to scheme, depending principally
on:
• The scale of the scheme
• The experience and skills readily available to
the trustees and the independence of those
skills
• Specific service and choice requirements (in
defined contribution plans)
• Funding issues (in defined benefit cases)
Regardless of the specific issues in any case, however,
formulating the right governance model for investments
requires trustees to allocate responsibility, authority
and accountability for each of the key phases of the
investment process among:
• The trustees themselves
• Investment staff
• Investment consultants
• Actuarial consultants
• Investment Managers
Achieving rigour and full rationality in such an exercise
is difficult. When it is done however, it will enable the
trustees to assess which investment governance
model works best for them.
The author, Ronan Smith, is a founder and principal of
Verus Advisory Limited, which provides independent
consulting on investment governance and oversight of
outsourced investing for Pension funds.
Article Author
Ronan Smith
Director
Verus Advisory Limited
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