IRELAND - Pensions experts have claimed that a lack of focus on governance strategy had as much to do with the recent lower funding levels of Irish pension schemes as investment strategy.
Speaking at the IMN UK & Irish Pension and Investing Summit in Dublin, Michael Curtin, senior investment consultant at Mercer Investment Consulting, suggested that trustees could have improved scheme performance had they looked at governance processes to find ways of identifying and mitigating risks.
Curtin said: "The reason [Irish] schemes have funding levels of 60% is as much about governance as investment strategy. If we step back from strategy and look at governance we might see schemes with more diversification. We are talking to our clients about scheme-specific benchmarks. It's about minimising the concentration of risk in an area such as Irish equities."
Fiona Daly, managing director of Rubicon Consulting, also noted that many Irish pension funds are still invested in managed fund-type instruments, which performed particularly badly in 2008. She questioned whether there is an element of 'group thinking' by trustees as well as asked how this can be changed.
Stephanie Condra, investment consultant at Invesco, suggested one possible solution might be for investment managers to consider offering a different range of managed funds such as high risk and low risk funds, or provide schemes with more sector and style-specific investment funds.
In contrast, Ronan Smith, director of Ronan Smith Independent Consulting Limited, argued Irish pension funds consist primarily of quite small trusts and argued they need simple investment management funds, "which is why managed funds exist".
He warned any solution to try and replace these "will have to be a one-stop-shop, a simple way for trustees to buy into it". Smith also agreed that the decision-making process should be "free of peer consciousness as it is the most destructive thing".
He argued that when a fund looks at what other schemes are doing then "that's when you find they are not making proper investment decisions". Smith also admitted he did not know how the Irish pensions industry might avoid 'peer consciousness', though he said one possible solution might be for trustees to set up an investment sub-committee and delegate decisions to speed up the process.
Curtin added one other option is for pension funds to outsource the investment management process into the "rapidly growing" fiduciary management space, although he admitted there can be conflicts of interest for consultants on the issue of advising a scheme and taking on the fiduciary management.
But he said: "You need to think about whether the conflicts still make it a better option for the scheme than not doing it. Most funds are hoping the markets will bail them out eventually, and they are also negotiating changes to employer and employee funding and to the benefit structures. But the holes are so big it's not going to be that easy," he added.
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