Good governance is perhaps easier to identify from a distance than it is to put in place. By the very nature of decisions, its benefits for pension funds are easier to assess with the benefit of hindsight.
Many years have passed since most pension funds effectively outsourced their strategic asset allocation through pooled balanced funds at a time when governance was a minor consideration.
Since the Myners report in the UK in 2001 awareness of the importance of good governance has come about. This awareness has been enhanced through academic studies, such as the groundbreaking 2007 work of Gordon Clark and Roger Urwin, which identified a governance premium.
Fast forward to 2015 and what have pension funds learned? As we see in this issue’s Special Report, there is greater recognition about the importance of scale. Many Dutch pension funds have sought to consolidate while even UK funds like Railpen no longer see themselves as large UK institutions at the top of their tree. They view themselves as middling-sized pension funds from a global perspective and make strategic decisions accordingly.
In 2009 many funds learned that ease of decision making is crucial. Many lost out on opportunities in areas like high-yield simply because they were not able to make decisions fast enough. For some, the solution has been to outsource to fiduciary managers; others, like the UK’s Railpen, have beefed up internal resources.
A key experience in the Netherlands in recent years has been transition as funds have consolidated or have adapted their benefit structure. Our case study of the ABN Amro Dutch pension fund’s transition to collective defined contribution in this report highlights the importance of project management and effective communication with all parties, as well as the role of executive management.
Lastly, behemoths like California’s $300bn CalPERS have sought to change in their own way too. Like Railpen, CalPERS appointed Towers Watson’s Roger Urwin to advise it on its investment beliefs structure; now it has decided to re-evaluate those tenets at a time when it is also seeking to reduce its number of external managers.