Governance remains one of the most important factors to successful pension fund management, said industry executives during a panel discussion Monday at Pensions & Investments' Global Future of Retirement conference in Washington.
“The board selection process needs to be at the top of the list,” stressed governance guru Keith P. Ambachtsheer, director emeritus, Rotman International Centre for Pension Management, University of Toronto, and president of KPA Advisory Services.
In a plan governance change to “tighten the nuts” that began four years ago, the £22 billion ($34 billion) Railways Pension Trustee Co., London, established a new investment committee structure that included members with more experience, CEO Chris Hitchen said.
At that time, the lower-return environment presented “a smoldering platform for us,” Mr. Hitchen said on the panel, because the pension fund's asset allocation was very diversified, expensive and designed for a high-return environment.
The committee's mission shifted focus toward implementing a risk/return framework and on return drivers, and that goal has to be constantly reinforced, Mr. Hitchen said.
“Communication is really a very, very important part of what we do,” Mr. Hitchen added.
The $154 billion New York City Retirement Systems is in the process of moving to “becoming one of the finest systems rather than not-ready-for-prime time and not optimal,” through a series of reforms, said Scott C. Evans, deputy comptroller-asset management and chief investment officer.
One of the biggest changes was the establishment of a common investment committee for all five of the city's public pension funds that meets a minimum of six times per year. Previously, the city's bureau of asset management had to arrange 54 separate investment committee meetings for each of the city's five pension systems, which have a total of 58 elected trustees.
One of the most helpful next steps for the pension funds might include formal investment education for board trustees, Mr. Evans said, adding that “open-mindedness and strategic thinking” from trustees pushes his staff to “think differently” about investments.
“Curiosity and skepticism” are the two most important traits of a good pension fund trustee, said Ari Jacobs, senior partner and global retirement solutions leader at Aon Hewitt Investment Consulting.
“You want someone who is engaged and challenging on the board,” Mr. Jacobs emphasized.
Japan's ¥139.8 trillion ($1.3 trillion) Government Pension Investment Fund, Tokyo, is in the process of reforming its governance structure to achieve the autonomy from government influences on managing the fund, said Sadayuki Horie, senior researcher, Nomura Research Institute.
The Japanese Parliament must approve the proposed changes, Mr. Horie said, adding that reforms already made to operations at GPIF “have made a difference.”
Autonomy, or “legitimacy,” and competency are two of the most critical attributes of a successful pension fund board, Mr. Ambachtsheer said.