Skip to main content
main content, press tab to continue

Better governance and business relationships

360°Benefits I News

By Jérôme Franconville and Michael Valentine | August 26, 2021

Better governance means applying a structured process to all key investment decisions
Key findings up front:
  • Better governance means applying a structured process to all key investment decisions, for asset owners e.g. pension schemes and asset managers alike
  • This process needs to be based on a clear set of investment beliefs (about markets, ESG, manager skill etc) that apply to all relevant stakeholders.
  • Transparent communication and active dialogue between client and service provider can help to consolidate business relationships
  • Pension schemes may be able to save costs in this way, but long-term optimization of the services provided should be the main goal.

Swiss pension funds may currently be comforted by relatively strong funding levels as markets, boosted by loose monetary and fiscal policy and some healthy economic fundamentals, continue to deliver positive returns. However, the risk levels implicit in current equity, bond and property valuations are correspondingly stretched, so that thoughts naturally turn increasingly to down-side protection. Furthermore, with sustainable investing (ESG) now finally accepted as a significant source of financial risk (and opportunity) Trustees need a robust, decision-making framework in order to translate their multiple views into future-proof portfolios.

Our proprietary “360°Benefits I Governance Check”, depicted in the diagram below, is a wide-reaching framework that we use together with our pension fund clients to identify possible areas for improvement in their governance.

360°Benefits I Governance Check
The coloured tiles show the current level of governance in different areas, while the shading indicates where there is realistic potential for improvement (e.g. in Investment regarding ESG principles or general cost management).

Within the Investment “slice” we encourage clients to derive a clear set of beliefs in order to permit structured decision-making. These can cover, for example, views about:

  • Markets, such as the existence of risk premia e.g. illiquidity, equity, credit risk
  • Products, such as the existence of manager skill (“alpha”), and what to pay for it
  • Sustainability risks, and related opportunities, such as the impact of climate change, biodiversity loss, water scarcity, … on portfolio outcomes.

Armed with the resulting insights and a suitable investment strategy, ideally centered around a regular Asset-Liability Analysis (“ALM”)*, better governance becomes about developing coherent, mutually beneficial partnerships with service providers and other stakeholders. We have found from our discussions with clients that it is often well worth reviewing these arrangements.

Why review this relationship? The simple answer is that whatever was agreed more than a year or two ago, is probably no longer up to date. On the fees side, there has been downward pressure from increased competition, certainly in the more traditional and liquid asset classes. On the service side, providers have been able to significantly improve their offering by turning improvements in systems and computing power, for example into much more powerful online reporting tools. Of course, these gains require ongoing investment by the service providers, who are also subject to increasing regulatory burdens. Nevertheless, the bottom line is that, clients should be able to negotiate superior value for money, by maintaining an open, constructive dialogue with their manager / custodian.

But, this is a two-way dialogue in which the manager / custodian also stands to gain. If the service provider is able to apply sound governance practices, by welcoming and even initiating discussions with clients, then this is how long-lasting, trust-based partnerships emerge, to the benefit of all parties concerned. As for the asset owner, strong governance starts with establishing a set of beliefs and values that pervade the entire organization, define its culture and take a long-term, multi-stakeholder view.

As indicated earlier, the big new test, but also opportunity for any organization’s governance, lies in meeting the challenges presented by “ESG”. Although sustainable investing has is now well and truly become part of the mainstream, it hasn’t become any easier to deal with this complicated, ever evolving and highly subjective area. It can therefore only be managed effectively by applying better governance practices. All investment decision-makers, within the context of the governance framework mentioned above, might wish to start / progress their ESG stance by addressing and continually re-addressing the following questions at both organization as well as portfolio level:

  1. What does ESG mean to us?
  2. How do we address the corresponding risks and opportunities?
  3. Do we have the requisite resources (systems, expertise, time) to adequately address these issues going forward, including monitoring the results?

To conclude, in simplified terms, asset owners and service providers with better governance structures in place can turn change-related risks into significant opportunities.


* The key value of an ALM exercise lies in its long-term, multi-dimensional view that is used to reconcile and optimize both sides of a pension scheme’s balance sheet.


Head Investment Services (Schweiz)

Senior Investment Consultant

Related content tags, list of links Article
Contact us