Ray Martin looks at what options trustees will have to add value to investment management and strategic implementation decisions in a post-Covid world
It has been fascinating to see how pension schemes have reacted to the lockdown and adapted their governance arrangements. Being part of the governance structure of around ten pension schemes both in the public and private sector, either as a trustee or adviser, I have noticed that the meetings, now virtual, tend to be more focused, better governed, and with more respect for the agenda and the chair.
Having virtual meetings has been particularly difficult for the public sector schemes whose meetings often have to be open to the public, and now have to be broadcast over the web to comply. The schemes I have been involved with have all decided to have shorter, more frequent, virtual meetings during the lockdown, and I have seen investment governance meetings move onto a monthly basis, but much shorter, most being less than one hour.
However, while strategic decision making may have become timelier and more efficient, what the lockdown has highlighted, is that many trustees lack the skills and resources to implement those strategic decisions quickly and efficiently, at a time when agility can add significant value. This is an area which trustees may consider delegating in the future in order not to miss out on adding value.
Therefore, I believe one consequence of the Covid-19 lockdown is that trustees will look at their investment management delegations and re-consider what strategic implementation decisions they retain and which they delegate.
At one end of the scale there is the traditional advisory model where trustees retain all the decision making based on investment advice, and at the other end of the scale is where trustees retain only those fiduciary decisions they have to keep and delegate the rest to a fiduciary (or funding level) manager.
However, for those trustees who feel they have the skills and resources and want to keep more strategic implementation decisions there are other decision-making delegation models (see chart below) in between the two. For example, they may wish to delegate only their manager selection, or the implementation of their hedging strategy, or the management of their growth assets, or a combination.
At IC Select we do not believe there is one right answer for all trustee boards, and the first step is for trustees to together consider their skills, experience and resources and decide what strategic implementation decisions they are comfortable to retain and those which they feel appropriate to develop and then build their investment governance model around this. A likely outcome is that it is not just the smaller schemes that will decide that the trustee board does not have sufficient strategic implementation capabilities, but the larger schemes as well.
Good governance is vital for the future of pensions and trustees must honestly scrutinise where they have the capacity and capability to act efficiently and delegate areas where they lack resources or relevant expertise.
Ray Martin is director at IC Select
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