With strategic asset allocation in place, the next challenge is to choose best of breed" active fund managers who can add excess return.

How to achieve this objective amongst the multinational's many country pension funds is proving an interesting challenge. So let us look at some of the approaches.

Leave it to the local board

I see fewer multinationals opting for this approach, given the scarcity of local resources and skills, because of the danger that local fund manager appointments will be based more on existing (corporate) relationships. Nor may the manager have the breadth of skill necessary to compete internationally. Critically, this approach is unlikely to bring consistency or enhancement benefits.

Use external consultants' recommendations

This is a a viable route if a multinational feels it does not have the skills to make the selection itself. But there are possible drawbacks. First, the consultant may not cover the asset class in question (local equity or bond managers, for example), but tend to focus mainly on international asset classes. Second, it is difficult for the consultant to understand fully the local board's instinctive attitude towards risk and reward. Finally, I would want to see greater "ownership" at the local level in making the decision, so that the local board does not have an excuse to opt out if things go wrong.

Headquarters develops a "buy list"

This is a good way to achieve the "best of breed" objective, especially for global or regional mandates. It also gives the local subsidiary ownership, as it must select the manager with which it feels most comfortable. One difficulty is how to handle the purely local mandates, which depends on whether the multinational has sufficient resources at the centre to do it country by country.

Headquarters manages the whole process and makes the recommendation

This is a again a viable approach, especially if local board members are involved in the team to ensure adequate local responsibility. Headquarters brings to bear disciplines, process and skills, both for international and local mandates, but the ultimate decision remains local. But adequate central resources are a prerequisite.

No route is easy or straightforward, but it behoves a multinational to commit the necessary time and resources to such a critical activity.

Nevill Brooke is an adviser to international pension schemes"