Investment organisations are not learning from their past experience when it comes to improving investment committee practices and governance, according to new research.
A new report from Willis Towers Watson’s Thinking Ahead Institute has ruled that improving investment committee practices is the best route to improving investment outcomes in an organisation.
Investment committees and their practices should be continually revised and updated, the paper noted, with current asset managers and owners not doing enough to make the processes “work better”.
Willis Towers Watson director of strategic advisory Rebecca Bannan commented investment committees have had a challenging year, but as noted by the report, the challenges ahead, including pressures on performance, managing complexity and increased regulatory influence are only set to grow larger.
“Our future is less certain and ensuring that investment committees are strong across dimensions of focus, quality, thinking and effectiveness has never been more critical for ensuring organisational and investment success,” Ms Bannan said.
“While we appear to be at the end of the beginning of the current crisis, taking stock of what worked well and what didn’t will ensure that ICs can stay the course through whatever turmoil the future might hold.”
The report suggested institutional investors should be looking to emulate the aircraft industry’s structured-learning environments, as it has learned from experience and errors to increase safety.
Roger Urwin, co-founder of the Thinking Ahead Institute said investment committees can provide for the financial safety of billions of people by “applying best-practice frameworks to their context”.
“In doing so they will be better placed to tackle the challenges that lie ahead such as systemic risks, performance pressures, complexity management, increased regulatory influence and the growing influences from multiple stakeholders,” Mr Urwin said.
The Thinking Ahead Institute has set out a best-practices checklist for investment committees to follow, in order to improve their outcomes.
For more well-resourced organisations it has recommended the adoption of the total portfolio approach (TPA) to introduce more dynamism and focus on goals in decisions.
“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,” Mr Urwin said.
“We believe that this crisis will accelerate the adoption of TPA and in time, it will become one of the defining innovations of this period.”
The paper has also recommended having other “building blocks” such as an effective chair, strong culture and strategic focus.
Hiring the right people for the investment committee is said to be “critical”, along with thinking outside of the box and allocating a strategic agenda for the big challenges of the future.
“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 pressurised circumstances make such steps attractive right now.”
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
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