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Achieving Investment Excellence: A Practical Guide for Trustees of Pension Funds, Endowments and Foundations

Achieving Investment Excellence: A Practical Guide for Trustees of Pension Funds, Endowments and Foundations

Kees G. Koedijk, Alfred Slager, Jaap van Dam

ISBN: 978-1-119-43772-7

Jan 2019

320 pages


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Crucial methods, tactics and tools for successful pension fund management

Achieving Investment Excellence offers trustees and asset managers a comprehensive handbook for improving the quality of their investments. With a stated goal of substantially and sustainably improving annual returns, this book clarifies and demystifies important concepts surrounding trustee duties and responsibilities, investment strategies, analysis, evaluation and much more.

Low interest rates are making the high cost of future pension payouts fraught with tension, even as the time and knowledge required to manage these funds appropriately increases — it is no wonder that pensions are increasingly seen as a financial liability. Now more than ever, it is critical that trustees understand exactly what contributes to investment success — and what detracts from it. This book details the roles, the tools and the strategies that make pension funds pay off.

  • Understand the role of pension funds and the fiduciary duty of trustees
  • Learn the tools and kills you need to build profound and lasting investment excellence
  • Analyse, diagnose and improve investment quality of funds using concrete tools and instruments
  • Study illustrative examples that demonstrate critical implementation and execution advice

Packed with expert insight, crucial tools and real-life examples, this book is an important resource for those tasked with governing these. Achieving Investment Excellence provides the expert insight, clear guidance and key wisdom you need to manage these funds successfully.

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About the Authors




Levels of Excellence: Assessing and Improving your Practice

How to use the Book

Chapters of the Book

Part I Pension Funds: Understanding the Role, Shaping the Mission

1 The Role of Pension Funds, and the Role of Boards

1.1 The Role of Pension Funds

1.2 The Pension Triangle

1.3 Duties of Trustees

1.3.1 Responsibility as a Fiduciary

1.3.2 Responsibilities as a Board Member

1.3.3 Responsibilities as a Shareholder

1.3.4 Balancing the Three Roles

1.4 Understanding and Managing your Stakeholders

Case Study – GEPF

2 Defining Purpose, Mission, Vision and Goals

2.1 The Functions of a Pension Fund

2.2 Purpose

2.3 Mission

2.4 Values

2.5 Vision

2.6 Strategic Goals

Part II Designing the Process

3 Grasping the Investment Essentials

3.1 Investment Goals

3.2 Understanding Return Concepts

3.2.1 Return

3.2.2 Expectations

3.3 Understanding Risk Concepts

3.3.1 Risk is not Volatility

3.3.2 Risk Premium

3.3.3 Getting Risk Measures Right

3.3.4 Risk is about Behavior

3.4 Steering your Portfolio

3.4.1 Benchmarks

3.4.2 Diversification

3.4.3 Conventional vs Alternative Assets

3.4.4 Active vs Passive Investing

3.4.5 Responsible Investing

3.4.6 Motives or Mission

3.4.7 Instruments

Case Study – PFZW

4 Investment Beliefs as Guiding Tools

4.1 Why Investment Beliefs Matter

4.2 Basics of an Investment Belief

4.3 Developing a Set of Investment Beliefs

4.3 When, if ever, is the Time to Change Investment Beliefs?

4.4 How (not) to use Investment Beliefs

Case Study – NZSF

5 Designing the Investment Management Process

5.1 The Investment Process

5.2 Setting Objectives: Aligning Goals and Risk Appetite

5.3 Formulating Expectations

5.4 Portfolio Construction

5.5 Implementation and Monitoring

5.6 The Investment Policy Statement

6 Organizing the Investment Function

Model 1: Traditional Asset Allocation Model

Model 2: Endowment Model

Model 3: Factor Allocation Model

Model 4: Opportunity Cost or Reference Portfolio Model

Model 5: Dual Strategic/Operational Benchmark Model

Model 6: Risk Parity Model

6.1 Developing your own Investment Approach

Case Study – GPFG

Part III Implementing the Investments

7 Implementing the Investment Strategy

7.1 Organizing the Implementation

7.2 The Rationale for Managing Costs

7.3 Selection of Managers

7.4 Active vs Passive management

7.5 Internal vs External Management

7.6 Relationship with Suppliers

7.7 Bridging the Implementation Gap

Case Study – ATP

8 Building the Investment Portfolio

8.1 The Board’s Role in Portfolio Construction

8.1.1 What is a Good Investment Portfolio?

8.2 Capital Market Assumptions

8.2.1 Diversification

8.2.2 Rebalancing

Case Study – OTPP

9 Monitoring and feedback

9.1 Monitoring

9.2 What to look for in Monitoring

9.3 When does a Board move from Monitoring to Evaluation?

9.4 Evaluation

Part IV Organizing the Board

10 Becoming an Effective Board

10.1 Responsibilities of the Board

10.2 Board Composition

10.3 What is Expected from Board Members?

10.4 Appointing New Board Members

10.5 Governance Budget of the Board

10.6 Board Decision-Making Culture

10.7 Supporting the Board: Executive Office and Staff

10.8 Ingredients of an Effective Board

Case Study – CalPERS

11 Establishing the Investment Committee

11.1 Roles and Responsibilities

11.2 Members of the Investment Committee

11.3 Forming an Effective Investment Committee

11.3.1 The Role of the Chairman of the Investment Committee

11.4 A Model for an Effective Investment Committee Meeting

12 Managing the Investment Management Organization

12.1 The Roles of the Investment Management Organization

12.2 Functions and Typical Evolution of the IMO

12.3 Issues in Dealing with an Investment Organization

12.4 The Service Level Agreement

12.5 Monitoring and Evaluating the IMO

Case Study  Future Fund

Part V Learning, Adapting and Improving

13 Learning to Decide and Take Advice

13.1 Psychology of Decision Making: Biases, Preferences and Habits

13.2 Group Processes on the Right Track

13.3 Learning to Take Complex Decisions

13.3.1 Using Expert Opinions

13.3.2 The Investment Consultant

13.3.3 Challenges and Dilemma’s in Taking Advice

13.4 Decision Making under Pressure

14 Achieving Investment Excellence

14.1 The Five Activities Driving towards Excellence

14.2 The Learning Board and the Characteristics of the Levels of Excellence

14.3 Levels of Excellence and the Board Learning Perspective

14.4 The Board’s Journey towards Achieving Excellence

14.5 Enduring Investment Excellence

Self-Reflection Questions