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Impact Investing

IPE special report May 2018

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Watson’s Urwin calls for two-tier trustees

UK - Pension funds should have a two-tier trustee system, where “prudent experts” call the shots, says Roger Urwin, global head of investment consulting at Watson Wyatt.

Urwin told the IFM conference in Geneva: “At the moment trustees boards often do everything as one group. They act together and take investment decisions.”

He based his observations on a study carried out by his firm which has outlined a “much more effective model”.

He told IPE on the sidelines that according to the model, trustee board should stick to several “high level issues” and delegate responsibilities to an investment committee - hence creating a two-tier system.

“The Myners principles say a third of trustees should be prudent experts. We are saying `let’s get hold of these people and put them in committees’,” he explained.

Urwin pointed out that some pension funds have two-tier systems in place, which can lead to “quite a lot of overlap”. Watson’s model would tackle overlaps by envisaging the creation of trustees with financial competence.

The composition of the investment committee, which Urwin says should be small, is “a major point” and very critical to success.

Such a model has not proved popular, because trustee tend to be keen on making investment decisions, Urwin said, adding that trustees not involved in the financial committees would retain a supervisory role.

“They would still have a major influence on the bigger picture decision. But by and large leaving more responsibility for, let’s say, choosing managers,” he told IPE.

Trustee boards where no prudent experts are available should consider an external expert. External experts could also be recruited by trustee boards where there is a committee.

A similar model is in place in the US and, Urwin argued, could be implemented in the UK as well.

“Some funds could do it straight away and some funds would probably work a little bit slower because they do not have the resources.”

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