Research

Future Fund and Willis Towers Watson 2017 Asset Owner Study

Smart leadership, sound followership

June 26, 2017

International best-practice is a principle driving high standards at Future Fund and all the participants in this study. A comparison of practices across leading funds with reference to benchmarks can help validate the high standards targeted and achieved by these funds. It can also reveal opportunities for idea sharing, development and challenge. It became clear to us through this study that these funds were meeting their goals and accountabilities to stakeholders through stronger internal resources and smarter application.

basis for selecting participants

The study participants view the challenges of meeting investment goals as greater than ever, given the volatile and uncertain outlook in capital markets. They are clear about the necessity to adapt to fast-changing, complex and often ambiguous landscapes. The qualities of self-awareness and adaptability are seen as critical.

The study produced a number of sound ideas to follow in support of international best practice, notably: improved cognitive diversity; better sustainability; improved board-executive engagement; strengthened risk management through better understanding of the ecosystem; and better balance in the mix of internal and external intellectual property (IP).

Most valuable areas

These funds are emerging as smart leaders of the whole asset owner industry. We think they are creating followership opportunities in which other funds can develop sound practices consistent with these leadership exemplars. In essence, smart leadership; sound followership. The peer group comprised 15 leading organisations, selected for their strong governance, significant size and thoughtful international perspectives. Of the selected peer group, 11 have pension liabilities to meet and four are sovereign wealth funds. Together the group represents around $4 trillion of influential capital.

We have divided our commentary into eight areas which arose during the study. The findings are drawn from a combination of interviews, a detailed online survey of the peer group, publicly available information, and opinions recorded at a symposium day held in London for the participants. We have supplemented this with insights into their sourcing and investment models and their governance approach.

Benefit from moving to best practice

The investment challenge facing asset owners in the current environment is well-documented. The difficulty of achieving the requisite investment returns within acceptable risk bounds was readily recognised by the participants. In this context, the pursuit of best practice standards represents a realisation that this level of dedication and skill is required to fulfil institutional missions and meet stakeholder expectations. It has led many funds to look for innovative solutions, and the areas described in this study represent some of the avenues that we suggest merit most attention. The graphic above, 'Most valuable areas to improve', provides a participant perspective on the areas of most potential value. Participants were also polled on the expected benefit of moving from current to best practice. The average response was of the order of 1% per annum, which echoes our long-held belief that the potential value to be unlocked here is vast.