The correlation between good governance and investment performance...
Reviewing the governance
Often trustees will gradually increase the level of delegation over time as they become more comfortable with the fiduciary arrangement, and many providers are flexible enough to offer this change in delegation over time. By creating a transparent and well-structured governance framework, trustees retain control and ultimate responsibility for the operation of the pension scheme. Working through the sort of governance framework we outline below should help to ensure clear accountability and requires that all roles and responsibilities are clearly documented from the outset. In this context, the owner has full responsibility for each decision/activity, and where necessary is supported by an advisor for this action. An overseer takes responsibility, where appropriate, for monitoring the actions of the owner of the decisions. A blank copy of this framework is provided at the end of the guide for trustees to populate in line with their pension scheme's current arrangements.
What is the value of good governance?
Central to fiduciary management is the principle of improving the governance of pension schemes. There has been a great deal of research around whether a ‘good governance premium' exists for pension schemes. It is difficult to objectively measure governance quality to assess this premium. Indeed, many studies rely on self-assessment techniques. However, qualitative approaches seek to estimate the following common themes:
-- The expertise of the trustee board
-- The time and resources available
-- The decision-making processes
One such study identified a positive correlation between good governance and investment performance, estimating that pension schemes with good standards of governance added 1-2% per annum in investment performance.1
1 Ambachtsheer K, Capelle R, & Lum H (2006), Pension fund governance today:
