A strong governance framework can help institutional investors better position for success in 2021
Today, more than ever, resilience is the name of the game: robust portfolios are the focus of investors, mindful of an increasingly unpredictable and volatile geopolitical age and of the possibility of future pandemics after COVID has been contained. Governance is a topic that is often overlooked by busy investors as it can seem less exciting than asset allocation or manager selection exercises. But, for us, governance underpins everything we do as an investment partner. We have learnt over the years, while advising our clients, that good investment governance has the potential to give them the advantage of being better prepared. What we call a “Governance Advantage” helps our clients remain confident about their investments – even in the toughest market conditions – and rest assured that their portfolio is in expert hands.
Looking back over 2020, we were reminded – sometimes brutally – that financial markets are very much out of our control. No one will easily forget how markets fell and soared, while we tried to get a handle on our rapidly changing professional and personal lives. However, for investors who had already addressed the question of governance within their organisations, they had one less thing to worry about. Clearly, they could not control what global markets were doing - but they could control their reactions to them.
In this case, the “Governance Advantage” meant they had already adopted more diversified strategies and established operational structures that clearly defined and allocated tasks, both of which helped them weather the storm. Having a robust governance structure in place allowed our clients to manage risk as markets swirled around them. Those who had assigned dynamic asset allocation duties to us could even capture opportunities as they emerged.
These clients could access timely information, make effective decisions and respond more quickly than peers who were trying to do everything themselves. We believe the Governance Advantage is having the right people doing the right things at the right time automatically. Not only is it good for your portfolio oversight and management, but it also gives you a further benefit of letting you focus on the day job, or what other matter may need your attention.
While this example is of an extreme situation, having a “Governance Advantage” in more conventional times is useful too. A robust framework assigns important operational tasks, such as rebalancing, to professionals who are best placed to execute them. It can also smooth out changes at an asset class or manager level and help manage costs more effectively across a portfolio. Thanks to this smoother, experienced hands-on approach to implementation, our clients are also some of the first to execute new investment strategies and ideas through high-quality managers that have been researched by our experienced teams. All of this is critical in helping our clients to be prepared for what the future may bring and stay on course to meet their ultimate investment objectives.
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