UK - The majority of pension scheme trustees take at least three months to reach a decision regarding a new asset class, a survey by Aon Hewitt has found.
The consultancy called for a “more responsive” governance structure to allow for swifter decisions to be made by trustee boards, revealing that 15% of respondents took more than a year to invest in new assets.
Zuhair Mohammed, chief executive of delegated consulting services at Aon Hewitt, said the recent trend toward a more diversified investment approach required “confidence and conviction” to avoid delays in implementing a new strategy.
However, he conceded that even if trustees acted quickly, there were other hurdles to overcome.
“Even if trustee boards act decisively, the heightened risk aversion of fund management houses and credit teams at investment banks is, in many instances, further delaying time-to-market, as legal contracts take longer to conclude,” he said.
The majority of trustees, 77%, said any decision to invest in a new asset class would take at least three months, with Mohammed saying that a more responsive governance was needed if returns were to be guaranteed.
Richard Butcher of Pitmans Trustees said infrequent meetings of trustee boards was one of the main reasons decisions took a number of months to reach and that, once a matter had been raised and several reports into the new asset class commissioned, nine months to a year had often passed.
“The cause of that is that they are not meeting frequently enough, they don’t have a mechanism to make a quick investment decision,” the managing director added.
Butcher said costs often dictated the frequency of meetings and recommended putting frameworks in place for any eventuality.
“What trustee boards need to do is make sure they have in place sufficient delegated powers to allow investment decisions to be made quickly,” he said, adding that it would not even need to be as formal as the delegated model offered by some consultancies.
“It could simply be if the scheme achieves a certain funding level, or this happens to investments, we authorise somebody to call trustees and ask if they want to take risk off the table.”
Mohammed echoed Butcher’s sentiment, arguing that a delegated consulting model could allow for decisions within days rather than months, minimising cost and seizing on time-sensitive issues.
“This may not be the right solution for all, but we would urge schemes to find a solution that combines informed decision making and agile execution,” he added.