Improving Pension Plan Governance
Taking action on governance is one of the keys by which pension funds address concerns over regulations, increasing risk and a complex market. So argues Scott Fitzgerald of State Street in a recent column that appeared in Institutional Investor.
So widespread is this response, says State Street, that 92% of the pension funds in a recent study it conducted plan to improve at least one of the ways in which they manage risk and to change plan governance in order to support investment opportunities that could increase fund value.
The following long-term strategies are common to governance leaders, says Fitzgerald.
Understanding that Governance Upgrades Are Worthwhile. State Street says the governance leaders they identified plan to take at least some of the following steps in the next 12 months:
- increasing education and training opportunities;
- making investment functions more autonomous;
- revising incentive models; and
Eliminating Deficits Quickly.
- improving boards by changing recruitment, better balancing their duties with those of management, bolstering transparency and increasing reporting to them.
Fitzgerald writes that governance leaders place a high priority on eliminating defined benefit deficits, as well as adapting the way they invest in order to better manage funding and balance assets and liabilities.Investing in Board-Level Talent.
State Street says their fiduciaries are highly literate about investments and have superior understanding of risks with which the funds contend.Increasing Exposure to Alternative Assets and ESG Investing.
Fitzgerald says governance leaders are more likely to increase exposure to alternative asset classes and to pursue environment, social and governance (ESG) investing.Better Managing Risk.
Governance leaders are more likely, argues Fitzgerald, to set priorities among a broad range of risks and to possess the skills that will better enable them to do so.Investing in Talent to Maximize Value.
Governance leaders are more likely to boost the plan’s ability to manage risk and investments, and to seek outside experts’ assistance.