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Building strong foundations: Investment beliefs

Governance – going from good to great

Investments
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July 12, 2017

Having a strong set of investment beliefs, commanding organisation wide support and informing all investment decision making is one of the core attributes of best-practice investors.

Good governance is a key factor that distinguishes the world’s very successful asset owner funds.

Our latest thought leadership series, Building Strong Foundations, starts with a paper on investment beliefs, looking at 'going from good to great'.

All investors have implicit beliefs. If they engage in active management they are usually doing so from the standpoint that markets are in some way inefficient and can therefore be outperformed. If their manager selection decisions are based, even in part, on past performance, they are saying something about the persistence of investment performance.

Or, if they spend time and effort strengthening their organisation using the 12 traits identified in a watershed work on investment governance by Roger Urwin and Oxford University’s Professor Gordon Clark, this is because they believe (as we do) that better governance leads to better performance.

This paper explains why investment beliefs matter, how they are decided and how they can be used effectively, by incorporating three core characteristics:

  • Aligned – they should be signed up to by all decision makers and key stakeholders
  • Actioned – portfolio decisions should correspond to them
  • Accurate – over time, outcomes should follow from them.

The paper also includes a case study demonstrating the value of governance, using a defined contribution pension fund where the sensitive issues were discussed and consensus reached, creating a sense of ownership for new core investment beliefs adopted by the Board.

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