Asset Owners That Show Awareness, Enquiry and Adaptability Have Best Chance to Succeed
Self-awareness, an understanding of peers’ practices, and adaptability are central to the evolutionary success experienced by the world’s leading asset owners, according to new research by leading global advisory, broking and solutions company Willis Towers Watson and sponsored by the Australian sovereign wealth fund, Future Fund.
The paper, “Smart Leadership. Sound Followership”, seeks to benchmark and compare practices across 15 world-leading asset owners, chosen from across the North American, EMEA and Asia Pacific regions and based on their global reputation, strong governance, significant size and thoughtful, outward-looking perspectives. It was produced by the Investment Organisational Effectiveness team at Willis Towers Watson, a group that works with asset owners across the world with a focus on ensuring processes, practices and resources are optimised and fully aligned, to give investors the best possible chance of attaining their investment objectives.
Jayne Bok, Head of Investments, Asia at Willis Towers Watson said: “This new research study highlights a working example of collaboration between like-minded asset owners, and allows us to learn about the characteristics needed for asset owners to evolve successfully. It also provides followership opportunities for large and well-resourced Asian asset owners, who are generally keen to learn more about what the world’s influential and sophisticated asset owners are doing, and compare them with their practices. Smaller Asian asset owners may consider some of the best practices for their investment committee to follow, for example, strategic focus, delegation, and effective management and oversight.”
Jayne Bok continued: “With the uncertain and often volatile outlook in capital markets playing on the minds of asset owners in recent years, we have seen a plethora of investment strategy innovations undertaken by the investment community. These have sought to maximise and optimise outcomes through, for example, new approaches to risk diversification. However, there is a growing recognition by those at the forefront of industry thinking that an ability to adapt to a fast-changing landscape is critical, and that this is best achieved by sharing and implementing best-practice.
“Funds which are able to demonstrate more effective decisions through improved cognitive diversity and board-executive engagement, combined with better sustainability and risk management, are the ones emerging as leaders at the vanguard of the global asset owner industry.”
Key findings of the paper include:
The importance of diversity— research is revealing that biases in investment decision-making settings are more numerous and deeply embedded than investors readily recognise. Using diversity effectively can help in reducing the impact of biases.
Sustainability and long-horizon investing are currently too shallow— sustainability is a critically important emergent subject, yet opportunities are being missed in the overlapping areas of sustainability, ESG, stewardship and long-horizon investing.
Boards are having trouble being strategic—boards seem strong in interpreting their fund’s mandates and in ensuring executive accountability, but less so in their development of a strategic dialogue with their executive. This is work in progress, revealing an opportunity for organisations to improve.
Risk management is key as the business landscape is changing—to manage risks there is merit in scenario analysis. Studying the investment ecosystem, not just the markets, is critical to anticipate some transformational changes ahead.
Funds are evolving their mix of internal and external intellectual property—there can be a better grasp of how to optimise the value chain, including the nature of external strategic relationships. Technology and increased sophistication make network opportunities across funds potentially more valuable than ever.
“The overriding lesson from this study is that self-awareness and cognisance of peer groups have played an intrinsic role in the evolution taking place across the world’s leading asset owners,” said Jayne Bok. “We believe that this will only become more important into the future, particularly given the scarcity of investments that meet the current risk and return targets of many funds.”