Pension funds around the world are striving to improve their efficiency across all aspects of their operation – administration, services to members and investments. The establishment of effective decision making processes is an essential part of the search for improved efficiency. In this paper we look at the steps, which can be taken to improve investment efficiency in particular looking at:
§ asset allocation
§ manager structure and
§ the risk/reward trade off.
Various studies have shown that the way pension funds arrive at and implement investment decisions could have a significant cost. In their recent book "The New Excellence Paradigm", Ambachtsheer and Ezra estimate that performance shortfall – the gap between policy and implementation – was costing pension funds worldwide a colossal $60 billion a year.
Our own studies suggest that this shortfall arises from organisational inefficiencies and the way in which decisions are taken. Often there is a mismatch between a fund's objectives and the strategy it adopts which I then compounded by the implementation and monitoring of that strategy.
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