Page 10 - IrishPensions Spring Edition

Irish Pensions Magazine Spring 2013 10
‘The idea of reckless prudence ……….. also
applies to investment strategy. Legislation does
not require trustees to only invest in gilts.’ Michael
O’Higgins, Chairman, The Pension Regulator -
Professional Pension Show 2012
Public pension funds ‘have not been monitoring
managers well and have not kept an eye on the
asset classes their money is in’. Edmund Truell,
Chairman, London Pensions Fund Authority –
Financial Times,
It just keeps getting easier for trustees – doesn’t it?
Even for full time professionals, the sheer size,
dynamism, and unscientific nature of investment
markets makes understanding and negotiating them
a pretty precarious process. What chance so for
trustees, the vast majority of whom already have
demanding full time responsibilities elsewhere, and
who all too often find themselves wrestling with
voluminous investment information and advice?
The reality for many trustees is that investment of the
schemes assets is an area of ongoing difficulty despite
their own best efforts and the services of professional
advisors and managers.
An elephant in the room?
One leading pension practitioner in Dublin recently
described many trustees as ‘sleepwalking’ in to major
difficulties due to a lack of proper governance. As the
outlook for pension adequacy is increasingly bleak,
are disappointed members simply going to walk
off into the sunset and live an angry and frustrated
retirement? Who or what will be the target of any
reaction?
In such a potentially hostile environment, how well are
trustees really equipped to:
• Understand both investment consultants and
managers
• Have a constructive dialogue with them
• Monitor and supervise them
• Mitigate increasing risks of investment related
litigation
Understandably, there are many advocating greater
prudence and diligence amongst trustees in the
investment process. However, sweeping statements
that there is little competence on the one hand, or
total competence on the other, are unhelpful. More
likely, there are different competency levels from one
scheme to another, but particularly different levels
within different groups. For many, existing structures
are not adequate to enable constructive dialogue or
discharging obligations as they would prefer. And the
individual nature of the problems makes addressing
them more difficult.
The problems often start with just not having enough
time and spread from there. Ironically, this can be a
greater problem for senior executives involved in the
scheme. For example, how often do trustees go to an
investment meeting not having been able to read the
information provided and prepare their own response?
What could it mean if processes to challenge or clarify
advice given were scrutinised at some stage down the
line and appeared ineffective? Is there potential risk
of a bigger problem in the making?
Rather than advocating higher standards and then
hoping for a response, are there more effective ways to
provide relevant support mechanisms that will achieve
that outcome, as well as a better balance between the
demanding realities of a trustee’s workplace, and their
aspirations and obligations for the scheme?
Trustees and Investments
by James Meenan
Analysis