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Improving Pension Fund Governance

How are pension funds plans improving their fund governance? A recent study offers some insight into what they’re doing this year and planning to do.

A report by financial services company State Street examines the governance of more than 400 pension funds. More than 90% said they planned to upgrade at least one aspect of their fund governance this year.

So what are they planning to do? Adustments in several areas are on the agenda for many participating plans regarding:

  • balance of responsibilities between board and management: 50%

  • process for recruiting new board members: 44%

  • incentive models: 42%

They also plan to increase several functions and ways of conducting themselves:

  • training and education opportunities for board members: 45%

  • detail or frequency of reporting to the board: 41%

  • transparency to members about governance and investment performance: 41%

  • autonomy of the investment function: 37%

The study identified some respondents that plan to take action in at least four areas of governance, and says that they have especially strong prospects of success in achieving strong outcomes for members and managing risk exposure through the following:

  • expecting to eliminate deficits faster than the rest of the industry;

  • greater use of shifting into alternative asset classes;

  • targeting investments; and

  • placing a higher priority on managing risk than do others in the industry.

State Street argues that “leading pension funds may be able to enhance long-term outcomes for their members by upgrading their risk management capabilities and governance frameworks to support potentially value-added investment opportunities including allocations to more complex assets.”

“Strong governance is key to pension funds executing on their strategies and realizing the outcomes required by members,” says State Street.