In our 2018 global pension study, about 50% of all interviewees indicated that the maturity of their investment operations is not aligned with their investment portfolio risks and expected investment outcomes. As some of the world's largest asset owners and investors, government and higher education retirement plans have become increasingly complex as they continue to expand portfolios, asset classes and managers, and bring management in-house.
Investment operations are often fragmented. Data, technology solutions and capabilities, and reporting are disconnected, and integration across asset classes and portfolios is often lacking. Gaps may be due to rapidly evolving investment compliance requirements, increased reporting requirements, shifting toward more active implementation styles and launching separately managed accounts and direct investments. In addition, market volatility over the past year, along with an accelerating focus on long-term sustainability, underscores the need for comprehensive and timely data analysis, leading to enhanced decision-making.
Operating with insufficient investment resiliency is a risky approach, especially in an age of increased public scrutiny and given growing governance and fiduciary expectations. Leaders must ask themselves: Are we sufficiently focused on investment operations-related strategic and operational risks? And, if the answer is no: How do those gaps impact investment risks and outcomes, today and tomorrow?
Recently, several leading government and higher education retirement plans have joined global peers in transforming their investment operations to increase resilience and transparency. There is a growing effort to enhance front-, middle- and back-office capabilities, improving data and technology solutions across traditional or real asset classes. Additionally, we are witnessing an increase in reviewing and tightening the governance of investment managers or asset servicing relationships and interactions.
Carrying unnecessary risks to investment operations, leading to potential limitations on investment decision-making, seems counterintuitive in a volatile and lower-return future. Leaders should align and transform investment operations maturity and resilience while adequately focusing on investment operations risks.