The Investment Committee Guide to Prudence
Increasing the Odds of Success When Fulfilling Your Fiduciary Responsibilities in the Administration of Pension/Investment Assets
by Jonathan J. Woolverton, CFA
JJ's investment career spans more than five decades. He has been the chief investment strategist for a pension plan sponsor, a managing director and senior consultant within a global investment planning consultant firm, and a managing director and chief operating officer of an investment management organization. Over his career, JJ has attended well over a thousand investment committee meetings as a plan sponsor, a consultant, and a money manager. In the majority of these meetings, he has found that committee members lack three things: in-depth investment expertise to effectively carry out their fiduciary responsibilities, the necessary time allocation to administer and manage the investment program in the best interests of the beneficiaries, and the ability to develop an efficient monitoring system to hold all service providers accountable for the products and services they provide.
This book outlines the steps to be taken in establishing investment policy; formulating asset mix strategy; creating an appropriate investment management structure; undertaking investment manager searches; and highlighting the conflicts of interest, biases, and self-interests of the various service providers.
This book is designed to assist members of investment committees in their role as fiduciaries/trustees/administrators.
EXCERPT (Exclusive Excerpt):
One of the primary responsibilities of the plan sponsor in its legal role as administrator of fund assets is to create a foundation outlining the mission, beliefs, processes, and procedures for the effective and efficient implementation of an investment program. Typically, responsibility for implementing this investment program is delegated to an executive- or management-level investment committee. However, the plan sponsor is responsible for setting the goals and objectives of the investment program, based on the plan type and its characteristics.
Key issues the plan sponsor must address include:
• within the mission statement, determining the appropriate risk tolerance and appetite of the investment fund in light of the plan’s liabilities;
• outlining specific investment beliefs (e.g., active management vs. passive/index tracking);
• determining the requirements and roles of all service providers responsible for administering and managing fund activities;
• creating an investment committee with qualified members to implement investment policy;
• setting investment goals and objectives;
• formulating longer-term asset mix policy;
• selecting and approving money managers and establishing their mandates and performance standards;
• creating various ongoing maintenance policies;
• monitoring and evaluating ongoing fund activities against stated goals and objectives to learn from past results and maximize the odds of future success;
• designing effective reporting processes and formats to communicate transparently and clearly with the governing body and the plan members; and,
• most importantly, operating in the best interests of the plan beneficiaries.
The importance of the role of the plan sponsor cannot be emphasized enough. The decisions made at this level can significantly add to or subtract from pension and investment assets. On the one hand, if the plan sponsor makes the wrong decisions (or fails to make the decisions it should), these decisions could erode the investment fund’s longer-term rate of return by knocking off a percentage or two per annum in total performance. This could increase the long-term cost of delivering a targeted level of retirement benefits by up to 25%, reduce the amounts of benefits to the same degree, or result in greater risk than the fund and risk bearer(s) may be able to tolerate when the worst happens.
The outcome can have three major consequences:
1. plan beneficiaries are negatively affected, as future benefits may have to be lower than promised, targeted, or hoped for;
2. the plan sponsor is less able to attract and motivate key personnel; and,
3. for a corporate plan sponsor, the overall business or activity can be placed at a competitive disadvantage if significant capital has to be channeled to the pension or investment fund rather than being reinvested back into the main lines of business.
AUTHOR Bio and Links:
Jonathan J. Woolverton, CFA, has spent his whole career in the investment field—over fifty years. After graduating from university in Pennsylvania, he moved to Toronto, Canada, where he began his career in the investment department of an insurance company. In his role as investment officer he was responsible for formulating investment strategy and overseeing all investments within the equity and fixed-income divisions. JJ later joined Ontario Hydro as their chief investment strategist where all pension funds were managed internally.
JJ left the money management business to become an investment planning consultant. He was a founding partner and managing director of Frank Russell Canada. He moved back to the money management side as the managing director and chief operating officer of Guardian Capital Inc. JJ graduated from Westminster College with a BBA and achieved his Chartered Financial Analyst certification. JJ has published numerous articles on the pension and investment industries and has been the keynote speaker at many conferences and seminars.
CONNECT WITH Jonathan J. Woolverton
WEBSITE - Jonathan J. Woolverton, CFA – Author Website (jjwoolverton.com)
PURCHASE LINKS: THE INVESTMENT COMMITTEE GUIDE TO PRUDENCE
AMAZON.COM - https://amazon.com/dp/0228861594
AMAZON.CA - https://amazon.ca/dp/0228861594
AMAZON KINDLE - https://amazon.com/dp/B09PGSP1Q9
SMASHWORDS - https://www.smashwords.com/books/view/1124083
GIVEAWAY INFORMATION and RAFFLECOPTER CODE
Jonathan J. Woolverton, CFA will be awarding a $15 Amazon or B/N GC to a randomly drawn winner via rafflecopter during the tour.