Investment considerations: paramount for trustees (Sponsored)

Sep 26, 2019

The defined contribution (DC) landscape in Ireland continues to evolve, and the myriad of considerations facing both employers and trustees is constantly changing. This is particularly true of the investment landscape for pensions.

By Ian Slattery, Investment Consultant, Zurich

Investment manager selection

While different pension arrangements have different priorities, some of the core tenets in relation to investments remain. It is vital to have a robust framework for selecting and monitoring an investment manager. There should be continuity between the selection stage and the subsequent ongoing monitoring stage. Some points to consider when selecting a manager include:

  • the investment manager’s financial strength;
  • how long they have been in business;
  • their process and philosophy;
  • culture of governance and risk mitigation;
  • transparent and regular communications; and
  • their performance track record.

Ongoing appraisal

Developing close working relationships between the key stakeholders in a pension scheme is important to the overall scheme governance, and this is, of course, relevant in respect to the management of the scheme investments. Managers should be positioned to respond appropriately and accordingly in relation to any issues, and the scheme trustees should have a procedure in place if such situations arise.

While it is prudent to regularly monitor the performance of an investment manager, it is equally important that prudence does not morph into hasty action, the result of which may be to the detriment of scheme members in the long term.

All managers, passive or active, have the potential to deliver short term under-performance, but this is not necessarily highly correlated with long term under-performance. There are a number of examples available whereby funds and investment managers have under-performed for a period of time – but ultimately have delivered superior risk adjusted returns for a long-term investor.

While this may be the exception rather than the rule, it is worth noting for trustees. The scenario whereby the trustees of a pension scheme effectively ‘sell low’ and ‘buy high‘ can have a serious impact on the pension scheme members.

The solution for trustees

It is not only the returns themselves that the trustees have a direct responsibility for, but the process and governance environment in which the returns are produced – namely the selection and monitoring of investment managers. Research shows that the majority of members will select the default investment strategy (DIS) and, with this in mind, the Pensions Authority recommends that ‘adequate time should be set aside to design the DIS’ and that ‘a suitable DIS will differ for all schemes’.

Zurich’s award winning DC investment strategy, Personalised GuidePath (PGP), has been developed with adherence to the Pensions Authority’s DC Codes of Governance.

By focusing on managing risk, accessible communication, and a flexible and personalised approach, PGP is a customisable strategy that is available to pension trustees in the Irish market.

The strategy encompasses key aspects of the investment journey, not just the fund choice, and is designed to be a DIS that reflects both the profile and needs of a scheme’s membership.

A number of the DC Codes of Governance are extremely relevant to this topic, and would include ‘investing scheme assets’, ‘risk management’, ‘member communication’ and ‘value for money’. It is worthwhile for all trustees to familiarise themselves with the codes and to know their responsibilities as stated by the Pensions Authority. Being aware of your obligations as either an employer or trustee will help protect not only you, but also your employees and pension scheme members. Zurich has operated in this area for well over 30 years, and are well placed to discuss many of the issues facing trustees.

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(This article is sponsored by Zurich.)