AUSTRALIA - The world's leading institutional investors, including six pension funds, have been used as a model to develop best practices for all funds.
The research, titled Best-Practice Investment Management: Lessons for Asset Owners, identifies the impact of improving governance from bad to good as worth 100 to 200 basis points per annum.
For a $1bn fund, the impact of achieving good governance is worth $10m to $20m per year.
The research found the leading funds success was built on their strengths in dealing with the five big challenges of investing. These were identified as risk management; focusing on the appropriate time horizon; innovative capabilities; clarity of mission; and effective management of external fund managers and other agents.
The research involved case studies on ten funds across the world, hand-picked for their exceptional reputation and strong sustained performance.
The group comprised six pension funds, two endowments and two sovereign funds, located in North America, Europe and Asia-Pacific.
The best practices focused on areas such as mission, investment beliefs, manager line-up and board selection and competence.
Andy Grimes, investment consultant at Watson Wyatt Australia, said: "The potential return advantage should be a strong motivator among institutional funds to improve governance and then align it with investment strategy.
"However, it is clear that for many funds the 'governance gap' - insufficient governance for the complexity of investment strategy pursued - is widening due to lack of focus on these core attributes, coinciding with the greater complexity of prime investment opportunities."
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