Speaking at Towers Watson's Ideas Exchange in Melbourne yesterday, Mr Ford said every level of the institutional value chain needs to change – starting with superannuation funds.
“The industry's supposed to be generating total returns [while] managing actual downside risk,” he said.
“[But] 90 per cent of our resources are on the other side – we're not doing the things that our end clients really need us to do,” Mr Ford said.
Because they set the investment mandates, superannuation boards and their investment committees are in a unique position to change the short-term, 'relative-return' mindset of the sector, Mr Ford said.
“One of the important things that boards can do is they can think really hard about the assets they set, the resources they have, how competitive they are and how they want the rest of the chain to look,” he said.
For years the investment industry has been dominated by the bottom end of the value chain – that is, the asset managers, according to Mr Ford.
“The trend that we're seeing on a global basis is for the people at the top end of the chain to start taking control and driving innovation to the bottom end of the chain,” he said.
This means setting investment mandates based upon member outcomes rather than a relative return, Mr Ford said.
Similarly, chief investment officers (CIOs) need to understand that their job is not about picking managers and making asset allocation decisions; rather, it is about managing risk, he said.
“We need to discard some of the legacy thinking about what the [CIO] job [entails],” Mr Ford said.
“The job's not picking managers; the job's getting great investment opportunities in the portfolio."
Fund managers themselves must also reduce their focus on relative returns, Mr Ford said.
“Relative return mandates are not asset management. There needs to be much greater focus on simply just finding new investment ideas,” he said.
And consultants like Towers Watson don't get off scot-free, said Mr Ford – they need to change too.
“If we're not creating competitive advantage we're just creating cost. We're in the same boat [as the rest of the industry],” he said.
