BPM October 2010.indd - Benefits and Pensions Monitor

Governance is crucial to pension schemes,
and there are three key reasons to focus
on it now – return, responsibility, and
regulation.
The downturn has profoundly impaired many
funds, accentuating the need to optimize asset performance.
Of course, the onus of oversight remains
with trustees and only enhanced governance can
ensure they are equipped to shoulder this responsibility.
Moreover, governments across the globe are
preparing to introduce sweeping new regulations,
which will surely affect pension trustees.
The good news is that there are pragmatic and
commercially sustainable steps that every pension
fund can take to improve governance. Indeed, most
schemes already have more than 80 per cent of the
information they require to attain best practice. But,
it is the ineffi cient use of this information that leaves
many achieving 50 per cent of their potential. We
believe that a few small changes to the way schemes
collect, access, and utilize their investment data will
make a considerable difference to the level of governance
they can achieve.
These steps fall into three distinct categories:
◆ process
◆ oversight
◆ communication
Trustees and pension managers should pursue
each with equal tenacity and be aware that technology
has evolved to support them in doing so. In fact,
new and innovative tools can render each of the suggestions
below easily achievable.
Process
Managing Data
◆ Use technology to systemize the process of collecting,
consolidating, verifying, reconciling, and
reporting transactional data.
◆ Leverage the information you already have.
Monitoring And Checking
◆ Verify transactions through a process
of reconciling holdings, transactions,
income, and corporate actions with
fund managers and custodians.
◆ Implement an automated compliance
monitoring process that will
notify the appropriate people
when things go wrong.
Measuring And Com- Comparing
◆ Widen your analysis
beyond traditional
performance
measurement.
Instead, use
multiple litmus
tests
includ-
Benefits and Pensions Monitor – October 2010
ing risk, buy-and-hold, cost analysis, fund manager
delta scores, and custodial monitoring.
◆ Set peer groups and custom benchmarks with the
lowest possible co-variance.
Oversight
Access
◆ Flexible reporting and online tools bring brevity
to 90 per cent of reports and clarity to the 10 per
cent that demand additional information.
◆ Work with your asset managers to reduce the time lag
to information being made available for analysis.
Visibility
◆ Your asset managers hold all the data you need to
achieve genuine transparency. Simply ask for it.
◆ Pension schemes need to know exactly what
they are paying for. Demand full disclosure from
external suppliers of all spreads, both direct and
indirect, applied to your assets. Monitor these
factors on a regular basis.
Understanding
◆ Use multiple methods when testing for value.
Review results from transaction costs, risk, attribution,
scenario analysis, and manager delta scores
in conjunction with performance to create a more
Practical And Cost Effective Governance
complete picture, leading to better understanding.
◆ Work with professionals if internal resources are
not available; the fees will be justifi ed.
Communication
Expedite Information Delivery
◆ Avoid time-consuming report preparation –
use the web to deliver the relevant information
directly to the people who need it.
Enhance Reporting
◆ Automate and customize reports to fi t the needs
of your team.
◆ Too much data is counterproductive. Keep
information succinct and applicable.
Dialogue
◆ Communicate with internal and external
teams more frequently, using online
tools to share information.
It is important to remember that
governance is not an end unto itself.
This process will tackle long-held
industry bugbears, such as lack
of transparency and disclosure,
while addressing the
well-known problems
associated with traditional
client reporting,
such as accuracy,
timing, fl exibility,
and cost of
acquisition.
■
MARKET
MONITOR
By: Andrew
Caird
Andrew Caird is
managing director
at Summit Global
Investor Services
Ltd. (andrew.caird@
summit-gis.com)
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