Run the investment bureau like a business
Design, evaluate and re-design
Pension funds appoint executive investment bureaus to prepare decision documents, to implement strategy, and to monitor the execution of outsourced investment activities. They find themselves serving one big client and face lot of must-do’s from regulators. It is tempting to let the agenda be primarily driven by feedback from the regulator and the board.
We argue that, in the quest to further professionalize the organisation, this is not the best approach from an operational risk and return perspective, where implementation risk is always around the corner. For example mandate definitions that are not in line with the expectations on strategy level, poorly implemented FX hedging policy, or unclarity around mandate discretion.
Therefore we suggest to run the investment bureau like a business, thus taking a pro-active role in providing safer pensions for plan participants.
Finding out who you are, and why
When you run your own business or you manage a business unit within a company, knowing yourself, knowing your target market and the combination of these in a value proposition are quintessential to commercial existence.
Pension funds often have defined several aspects of their identity, but they are owned by the board and often not very specific. Thinking and communicating about, and agreeing on, the bureau’s own identity can help setting expectations for the stakeholders and within the investment bureau. This clarity will result in more efficient collaboration and better relationships with stakeholders.
- Values define who you are and what you stand for as an organization.
- Purpose statement defines the ‘why’ of your business. Apart from monetary aspects, why do you go to the office in the morning?
- Your vision states where you see your organization in 5 years from now. What are things that you have accomplished by then?
- A mission statement is a mantra of what you do today to realize the vision statement in the future.
Strategy, implementation and execution
To accomplish the vision a clear strategy needs to be defined. For a pension fund the first things that comes to mind when thinking of strategy are asset allocation and the risk attitude and tolerance. In our experience it can be risky to limit business strategy to just an investment strategy statement. Investment bureaus can challenge themselves to think broader about business strategy.
Implementing a business strategy is about finding the right resources, talent and service providers like fiduciary managers and asset managers, lining them up, and giving them mandates to execute your strategy.
Why is execution of strategy so difficult in practice?
Executing a business strategy can be challenging. Think of multiple layers of management or outsourced investment activities introducing risk of miscommunication and confusion in understanding the strategy. We all know the game ‘Chinese whispers’ where the last player’s story significantly differs from the initial story.
Research shows that the fundamentals of good execution of corporate strategy starts with clarifying decision rights and making sure information flows where it needs to go. The correct business structures and motivational aspects often become obvious and follow naturally
Evaluation for successful implementation and execution
Facing the challenges of strategy execution comes down to asking yourself simple questions:
- What is the goal and why?
- Who does what?
- How does information flow?
These evaluating questions are simple but yet powerful because they are rarely asked. Team members are supposed to know this, yet they don’t. Making evaluation part of your business processes is a tool for a continuous improvement cycle: design, evaluate, re-design.
Our services can take on many forms like due diligence, second opinions, reviews, or coaching. But truly helping our clients always comes down to clarifying and understanding what the first person in the long line of stakeholders was saying. This is how we make sure your goals are met.