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Pension Funds
Friday, February 1, 2002
Fiduciary duty

Changes to pension fund regulations will place an explicit responsibility on trustees to define investment strategy and objectives for their funds in the form of an on-record investment philosophy statement.

This isn’t going to be easy given that most trustees accept their fiduciary duties as a part-time responsibility, often outside their normal areas of expertise.
Investment Solutions believes that what is important for trustees is to acknowledge both their limited expertise and the time constraints in approaching this task. Neil van Hees of Investment Solutions says, “Multi-management provides a perfect outsource option that will allow trustees to sleep better at night. When they have neither the time nor sufficient expertise to give it their all, delegation of the manager search responsibility may become the most prudent action.
“Ultimately, trustees will not be hung out to dry for the actual investment performance of the fund for which they hold their fiduciary post. However, they would be vulnerable if it could be proved that there were weaknesses in the process of selecting appropriate asset managers and investment mandates.”
As he points out, trustees have often taken too long to replace poorly performing managers and, when finally doing so, often install one who performs equally badly or worse. Even in cases where individual managers performed well over long periods, evidence has shown that funds dealing with a single investment house, no matter how talented the managers, were prone to volatile returns.
Multi-manager is a more efficient, clinical and ‘finger on the pulse’ service. It keeps in daily touch with asset managers and can pinpoint defining events such as:
• Manager staff defections;
• Restructuring within an asset management firm;
• Changes in style, process or benchmarks of a given asset manager, and growth or contraction, any of which can lead to a focus of attention on the business rather than client assets.

Investment Solutions employs the appropriate expertise to act as co-fiduciary to a board of trustees, providing a complementary, dedicated investment team of experts that effectively takes charge of the processes of research, monitoring, hiring and replacing of asset managers, and ensuring the selected asset managers’ compliance with the investment mandate and performance objectives.
According to Mr van Hees, a multi-manager monitors asset managers on a daily basis to ensure that the portfolios constructed reflect the best in class; that they will deliver robust long-term performance and that, when combined in a particular portfolio, will minimise a portfolio’s risk.
“A multi-manager seeks to diversify across styles by appointing at least two or even more managers per asset class, whose styles will be complementary. This reduces style specific risk and, therefore, the volatility of performance.
“It is not our role nor our philosophy to chop and change asset managers, but it is our key responsibility to deliver greater efficiency with the appropriate timing of review and replacement of asset managers when necessary.
“We have no ties to any asset management company, but have relationships with all of them. This enables us to carry out full due diligences and really get an in-depth understanding of an investment house.”
For further information visit: www.investmentsolutions.co.za

Copyright © Insurance Times and Investments® Vol:15.1 1st February, 2002
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