Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013
John Redwood, Chairman, Evercore Pan Asset’s Investment Committee

9554

Trustee responsibilities

RELATED TOPICS​

Trustees of investment funds need proper asset allocation advice advice and back up, says John Redwood (pictured), Chairman of Evercore Pan-Asset’s Investment Committee…

Three of us at Evercore Pan-Asset have been trustees of investment funds. We try to look at investment problems from the Trustee’s viewpoint, as well as casting a professional eye over the investments. It has led us to worry about what a Trustee is expected to do.
 
Many Trustee Boards end up making the crucial asset allocation decisions. Larger funds tend to have several investment managers. They all ask for specific investment mandates which usually get them off the hook of having any responsibility for the overall asset mix of the fund and therefore for the ultimate performance. If their own performance is bad, there is often some reason based on the restrictions of their investment mandate. The Trustees get the advice of each of the managers on general matters as well as their individual investment decisions within their specified area, but they do not get formal advice on what the total fund should be doing. No individual manager is charged with saying the fund overall has put too much with equity managers, or has failed to have enough in property.
 
Sometimes the larger funds employ a consultant once in a while to give a single piece of advice on the overall asset allocation. That advice is often moulded by the brief the Trustees provide, and may be heavily influenced by where the fund is currently invested. It is not dynamic. Conditions may change fundamentally shortly after it has been written. If a fund took advice in the spring of 2007 it would have been given a very different view of the world and the future to one provided two years later after the collapse of markets.
 
As we have often said, the main influence on performance of a fund is the asset allocation. A fund with a large exposure to emerging market equity over the last decade would have produced great returns. A fund with a large holding of UK gilts would have produced a good return. A fund with substantial holdings in advanced country shares would have performed poorly. Even if the fund had a manager who had outperformed the equity indices, the results would still have been bad because the index performance was weak. This points to the need to concentrate on asset allocation, to spend more of the available investment management and advisory budget on the Big Picture decisions that make the difference.
 
I do not think it is fair to expect Trustees to make these large decisions unaided. Nor indeed in an increasingly litigious and professional world is it wise. Trustees need proper advice and back up when signing off the asset allocation, given its importance to fund returns. Meeting say three times a year may not allow Trustees to make decisions when they should. If a Credit Crunch occurs over the summer holidays, or a Euro collapse comes for Christmas, this may not coincide with Trustee meetings.
 
For these three good reasons we are offering various specialist advisory services so Pension and Charitable Trustees can have access to well informed advice on asset allocation, and can keep it under review whatever the date. We can offer an Advisory service, where we provide written and oral advice on the tactical and strategic asset allocation best for the fund. We can provide such advice and implement it in a cost effective way as a fund managers. We can be one of several fund managers, running a balancing fund. This means we can use the portfolio we manage to make larger changes for the total fund without disturbing the other specialist managers. If we and the Trustees think the total fund should be more in cash we could put the whole balancing fund into cash. If we with the Trustees think the total fund is under represented in emerging market equity we can adjust this through the balancing fund.
 
Each of these three routes tackles the three main problems Trustees have. They need to take advice on the Big Picture to show they are doing their job professionally. They need to be watching and prepared to change whatever the date, if something important happens. They need to concentrate on the decisions that can make a big difference to performance.

Latest News

Irish domiciled funds surpassed EUR4.3 trillion AuM (Assets under Management) at end-March 2024, a 15..
New analysis by London-based Nickel Digital Asset Management reveals 38 listed companies with a combined..
Bloomberg has announced that for the first time, its proprietary Bloomberg Second Measure (BSM) transaction..

Related Articles

Global ESG Investing
On May 15 Florida’s Republican Governor Ron DeSantis signed legislation that furthers his ongoing campaign to oppose the role of climate change and ESG factors in state policymaking...
On May 15 Florida’s Republican Governor Ron DeSantis signed legislation that furthers his ongoing campaign to oppose the role of..
Trends
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100 million deals announced this month alone...
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100..
Different flavours
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led, multi-boutique global asset manager with over USD20 billion under management, recently undertook a survey with 204 UK investment professionals, seeking insights into their perceptions and attitudes towards boutique asset managers...
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led,..
UK map
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be worth billions of pounds in the coming years...
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by