AustralianSuper’s aspiration to move 30 per cent of its assets inhouse has prompted a review of its governance environment to ensure it can accommodate those internal investments.

The fund attributes about 86 per cent of its risk to portfolio strategy, investment operations, strategy and asset allocation, according to head of investment operations, Peter Curtis, and so that is where the focus of investments should be.

AustralianSuper has been working with other large funds internationally to garner ideas and measure best practice, and has drawn on work done by the Global Projects Centre at Stanford University in measuring the investment processes of large institutional investors.

That centre has revealed a triangle of activities which, from least to most important, are: network, communication, delegation and segregation, deliberate process for mandates, smart asset allocation, risk taking culture, operational and financial risk management, organisational capability, high quality people, and good governance.

“Unless you have it all underpinned by good governance, the rest won’t work as well as it could,” Curtis says. “Our governance process makes sure our decision-making is focused.”

UK-based Angela Docherty, director at Wilson Associates and former head of investments at Unilever, agrees with Curtis and says governing bodies also need to fully understand what they are delegating and what power goes with that to implement.

“The value-add from manager selection is very small but funds spend too much time on that; trustees need to spend more time on strategy,” she says.

“The key to effectiveness is clarification of purpose: who owns what functions. Bringing in more expertise is key for the future.”

Speaking on the same panel she says using only member or employer-elected trustees means there will be an insufficient knowledge base for making complex investment decisions on the boards of funds.

“They need to bring in more professionals who spend their lives on pension management. One particular thing that needs to change is the speed at which decisions are made – you can miss opportunities,” she says. “The governance budget has not changed as the complexity of investments has increased. Financial innovation has raised the bar for trustee knowledge and understanding.”

Day 2 newsletter from CMSF 2013
Day 1 newsletter from CMSF 2013

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