IRELAND - The introduction of key performance indicators (KPI), to measure consultants' manager evaluation and monitoring processes, could be a useful tool for trustees as basing investment decisions on performance data alone is a "flawed" process, experts have warned.

Speaking at the Irish Association of Pension Funds (IAPF) Investment Conference, Angela Docherty, senior corporate investment council for Unilever - which operates 81 pension funds valued at €19.5bn - suggested the introduction of key performance indicators (KPI) for consultants could be a "useful" tool for trustees in their governance process.

She pointed out in reality 80% of the success of pension fund investment is the strategy and 20% is the implementation, and suggested more time should be spent by consultants educating trustees, to improve the quality of the trustee board's work.

In addition, Docherty claimed: "Cutting and pasting advice needs to be changed, It should be customised, with consultants really asking what the individual scheme wants, and not just jumping on the latest investment bandwagon."

In her presentation, she admitted it is difficult to measure the work of consultants, but suggested there could be some KPI which could be useful for trustees, such as the quality of manager research and the robustness of its asset and liability management (ALM) model.

"Ultimately, the consultant has to invest some time in knowing the client, rather than simply saying 'it is a UK or Irish pension fund so this is the answer'. It's trying to make sure the right issues are decided by the trustees, and sometimes persuading trustees to make changes in a more timely manner," Docherty added.

Meanwhile, Steve Delo, president of the Pensions Management Institute (PMI), said in theory trustees should use consultants to monitor and develop a beta investment strategy, while investment managers focus on achieving alpha.

However, Delo claimed in reality the model works in reverse, as consultants tend to dissect the alpha strategy, and managers focus on beta, which can lead to trustees becoming "seduced by the allure of past performance".

In addition, he pointed out consultants' reliance on performance data when assessing a manager is "flawed" as it covers a "multitude of sins", and further warned analysing data from a short period - less than seven years - could lead to trustees making bad decisions based on "spurious" conclusions, as the data doesn't tell them anything about the future.

Instead, Delo claimed trustees should ensure consultants are ignoring performance data and focusing on the actual activities of the manager, as if a consultant is placing too much focus on short-term performance, trustees have "no idea what the outcome will be".

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