UK – An academic study supported by the National Association of Pension Funds has found that trustees have no common understanding of the principles of investment theory and practice (Updates to include further comment).

It found they are prone to the same “cognitive anomalies” as the rest of the population.

“Put simply, trustees do not share a common understanding of the most important (albeit abstract) principles underpinning modern investment theory and practice,” the Oxford University researchers write.

The comments come in the 32-page ‘Pension fund trustee competence: decision-making in problems relevant to investment practice’ by Gordon L. Clark, Emiko Caerlewy-Smith and John C. Marshall.

They add their findings about trustees’ decision-making were “troubling” as the range of their solutions to problems was far greater than anticipated.

“It is clear, based on our experimental strategy, that pension fund trustees are prone to the cognitive anomalies and biases that researchers in psychology have attributed to the population at large,” state the Oxford University researchers.

They tested 40 trustees of defined benefit pension funds, sourced via the NAPF, alongside 80 Oxford undergraduates as a reference point.

“As expected, pension fund decision-making was shown to be less than ideal… trustees are nothing like the super-human calculating machines” of economic theory, the academics write. They add that trustees do not use the available data in an efficient manner to test solutions to problems.

“If indicative of the nature and range of trustee decision-making, these results have important implications for the coherence of collective decision-making and the role of fund advisors and service providers,” the authors state.

Professor Clark said: “The NAPF does not endorse the views expressed in the paper nor does it represent official NAPF policy.

“The views expressed in the paper are, as indicated in the paper, solely the responsibility of the authors. The paper is based on data collected and should not be construed as representing the entire universe of trustees or average trustee competence.”