Two ways to help secure member outcomes

How high a priority should investment governance be? How much time and money should be put into improving it? The starting point comes from two areas.

When you consider risk and return together, it is rarely the simplest solution that is the most efficient

More effective investment decision-making

This means having the right people, doing the right things at the right time and in the right way.

These aspects can all generate value. A trustee board with the right skills and knowledge improves its chance of making the right call when faced with difficult decisions.

Doing the right thing at the right time – focusing on what is important, rather than what is urgent – further improves the odds. And doing things in the right way, via best practice, offers a better chance of creating good outcomes.

Constructing more efficient portfolios via a more complex toolkit

For any given investment goal, there will be a range of solutions, from simple to complex. When you consider risk and return together, it is rarely the simplest solution that is the most efficient.

Building diverse portfolios increases complexity. Increased complexity can result in improved risk-adjusted returns: a ‘complexity premium’.

Trustees should take care to make small improvements to their investment governance capability. For example, increasing the complexity and thus expecting higher returns is a risk.

Another potential risk are knee-jerk reactions during a period of underperformance. Both of these risks can be mitigated at the design stage of any investment governance process.

Putting investment governance into practice will be dependent on many factors that are specific to a trustee board.

But the basic principles should be the same. What is the benefit, risk and cost of such an investment, and how does it lead to better outcomes for the members?

Robert Gardner is co-founder of consultancy Redington