Irish Pensions Magazine Spring 2014
16
Analysis
Taking The Sting out of Investment Jargon - How well
are you and your colleagues equipped?
by James Meenan
M
any contend a scheme’s investment portfolio
is the murkiest responsibility for many trustees
and others involved in the pension process. As we
all know, the volume, layout and terminology of
investment information can be a minefield. Subsequent
opportunities to listen to explanations are often
unproductive, and do not bring the clarity many seek in
order to constructively engage with investment advisors
or managers.
The challenge of understanding experts is not
necessarily an intellectual challenge, but more often a
procedural one. Why are demonstrably intelligent and
well intentioned trustees so often concerned about
the quality of their interaction with both advisors and
managers. Why do so many have reservations about
their confidence and competence? Is this the basis for
good governance?
TouseAmerican football parlance, there is a case for both
the defence and offence. A number of commentaries
in the wake of the recent Element Six judgement
emphasise the importance of good record keeping
and documenting of processes, should there ever be
retrospective scrutiny of the trustees actions. However,
there is also a growing body of opinion in academia (1)
and elsewhere that good investment governance can
materially improve the prospects of a good investment
outcome. But good investment governance is a non-
starter without proper understanding.
Without getting in to academic discourse, a book called
The Wisdom of Crowds by James Surowiecki contends
that smaller groups are more likely to deliver a better
outcome if there is cognitive diversity, independence
and decentralisation within the group rather than
depending on a small number of experts. ‘But if you
can assemble a diverse group of people who possess
varying degrees of knowledge and insight, you’re better
off entrusting it with major decisions rather than leaving
them in the hands of one or two people, no matter how
smart those people are.’(P31)
‘One of the consistent findings from decades of small-
group research is that group deliberations are more
successful when they have a clear agenda and when
leaders take an active role in making sure that everyone
gets a chance to speak.’(P182) I have little doubt that
some will contest this view. However, whether you
agree with Surowiecki’s contention or not, few will
dispute that fuller participation is optimal. Otherwise,
some participants are not meeting responsibilities and,
in occupying a place at the table, potentially preventing
others who could make a valuable contribution from
doing so.
The issues for trustees often relate to inadequate:
• Time
• Understanding
• Confidence
• Independence
• Process
• Control
• Reassurance
Only a very lucky small minority appear to be able
to discharge their responsibilities unhindered by
inadequate time. It would appear that, for very many,
inadequate time makes accumulating the prerequisite
knowledge a worrying problem. Without knowledge,
how can there be confidence to constructively challenge
professionals? However, the other meaning of the
word confidence is also relevant. Often, many will just
not ask basic questions in a group environment. The
investment world is frequently bedevilled by needless
complexity, verbosity and assumptions. A confidential
forumwhere basic, purportedly silly, questions are asked
and answered can give a very positive momentum to
proper dialogue - with minimal time allocation.
Muchof thesolutioncouldbe found inbetterpreparation
and structure around the investment meeting process.
A process or structure to plan investment meetings by
preparing an agreed agenda and briefing all participants
in advance will give greater focus and relevance to
discussions. More importantly however, it will give
trustees control over the content, sequence and pace
of the information exchange. It should also provide de
facto documentation of the investment monitoring and
supervising. When trustee’s questions and issues are
answered and understood, reassurance accumulates.
Each scheme has its own unique features and issues,
as does each individual within the trustee group. Each
will have varying degrees of knowledge and comfort
in the investment dialogue. As stated above, various
assumptions can be made in the investment space.
For many, there is a concern that the apparent level
of preparation and understanding on the part of the
