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Watson Wyatt urges funds to put governance first

UK - Half of UK pension funds governance arrangements do not match investment strategies, consultants Watson Wyatt found in a new survey. It urged pension funds to address this issue to avoid "destruction of value".

NAPF chairman Robin Ellison is less concerned about the findings of the survey. "I am not sure the survey tells us anything we did not know already, that is that we could always do with a bit more advice, but we have to balance the cost of that with other competing demands for resources," he told IPE.

"There is no doubt that pension funds usually benefit immensely from having good investment consultants, and UK investment consultants have an outstanding reputation," he added.

In the survey, Watson Wyatt found that among those with unaligned governance and investment arrangements the significant majority of the pension funds seem over ambitious and a minority are "apparently using over-simple investment structures".

"Investment has evolved so quickly that governance arrangements have not kept up with its complexity," Paul Deane-Williams, senior investment consultant at Watson Wyatt, explained to IPE.

"This issue has to be addressed and it is often forgotten that governance should be dealt with first, before the investment strategy - not the other way around," he said.

Deane-Williams said pension funds should for example look towards increased delegation of some of the parts of investment strategies to expert advisers. He thinks that the recent trend to set up more investment committees within pension funds is a "positive development".

"Trustees who are very strong on governance should not necessarily have to worry too much about day to day investment management tasks," he suggests.

In the survey Watson Wyatt looked at a range of pension funds representing £100bn in assets. Trustees were asked to determine their governance capabilities. The answers were then matched to their investment strategies.

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