Australian super funds can gain an extra 100-200bps of return by overhauling their investment committees, Roger Urwin, global head of investment strategy at Towers Watsons has urged.
Speaking at his firm’s annual ideas exchange in Sydney to an audience packed with chief investment officers, he described the change in governance since the GFC as incremental and said braver steps were needed.
A key theme was that was the need for transformation. Referring to the GFC, he said: “The pace of change has been so phenomenal that incremental change is not enough.”
The problem was a lack of dynamism in investment committees, with too many seeking consensus before acting. He called for action on a two thirds majority instead.
“Boards tend to plod along and there is a lot of inertia, there is not a bias to action. There is a culture that has grown up that needs to be challenged. The models we have, have not been prodded enough.”
Part of the change involved removing under-performing members of the committee and replacing them with skilled professionals.
“You need to get the wrong people off the bus. If you cannot change the people, change the people,” he said.
He advised boards to be subject to performance reviews to be able to achieve what he described as “institutional maturity”.
One way to do this was through board members signing up to a set of investment beliefs. He said that the Calpers board had done this and that it had dramatically improved dialogue between the executive and the board.
Such a move, he believed, would make the institutional funds more accountable.
“By and large asset owners do not have that pressure that corporations have to change under pressure,” he said. Adding that, the goal from transformation was “asset owners moving from good to great”.