As challenges facing investment committees become more complex, it's more vital than ever to focus on governance to improve the odds of achieving desired outcomes, according to new research from Willis Towers Watson's Thinking Ahead Institute.
The paper, "Going from good to great," establishes best-practices for investment committees to follow, outlining 10 building blocks that committees can use, including retaining a strategic focus, establishing disciplined oversight, having an effective chairman and creating a strong culture.
For more organizations with greater resources, the institute suggests adopting a total portfolio approach, which is used to "introduce more dynamism" into committees, according to the paper. Such an approach starts with identifying investment goals and creates competition for capital among all investment opportunities, rather than filling asset class buckets.
"Large asset owners are using advanced best-practice governance to unlock the complexities of modern investment, notably when dealing with ESG considerations, and employing TPA helps the integrated thinking required," said Roger Urwin, co-founder of the not-for-profit Thinking Ahead Institute, in a news release. "We believe that (the COVID-19) crisis will accelerate the adoption of TPA and, in time, it will become one of the defining innovations of this period."
Areas where committees can make the biggest gains include:
Getting the right people on the investment committee "bus," especially in the areas of competency, teamwork and accountability.
Exploiting opportunities for improved efficiency and collective intelligence, notably: extending the chair role; building investment committee teamwork; pinpointing its comparative advantages; restyling the investment committee process; and developing a richer culture.
Applying more innovative thinking to future challenges.
The crisis, Mr. Urwin noted, presents opportunities such as exercising more innovative thinking and practice when conducting investment committee meetings, and applying more innovative thinking to future challenges.
"Could investment committees and boards set their sights higher? Absolutely they could," Mr. Urwin said. "The stakes are too high for them not to take this path. And these current pressurized circumstances make such steps attractive right now."
