New recommendations to strengthen the relationship between pension funds and investment managers have been made in a report by a steering group created by the Investment Association (IA) and the Pensions and Lifetime Savings Association (PLSA) .
The report made several recommendations for each stage of the relationship between investment managers and asset owners, from the appointment process to the ongoing monitoring of established relationships, to help deliver better returns to savers.
It also aimed to address issues such as unclear management expectations, focus on short-term performance, and insufficient consideration of management results that risk undermining long-term sustainable growth. .
The report, Investment Relationships for Sustainable Value Creation: Alignment Between Asset Owners and Investment Managerscalled for greater clarity and articulation of stewardship expectations in the manager appointment process and for investment consultants to be clearer on how they support stewardship integration.
He also recommended that a “governance charter” setting out mutual expectations on promoting long-term sustainable value be established.
The group said this charter should cover mutual expectations for promoting sustainable value through performance reviews, ongoing dialogue, responsibilities to the market and management of systemic risks, culture and governance, and the continued alignment of management policies.
He also called for agreement on a monitoring framework between asset owners and investment managers that aligns the performance review cycle, investment and management objectives and key performance indicators. .
PTL Managing Director and Co-Chair of the Steering Group, Richard Butcher, said, “Stewardship is key to creating long-term value. Pension plan administrators and other long-term investors will fail to meet their ESG, climate and sustainability goals if they do not manage well.
“And they can’t be passive about it. The market has different goals than long-term investors, especially in its time horizon. Despite this, it is really difficult to make good stewardship work consistently throughout the investment chain.
“The recommendations we have set out in our document are designed to make the process easier and more robust – but their success depends on the support of all links in the investment chain. Together, they and we can build relationships more sustainable investment options for the benefit of savers across the country.”
Archie Struthers, PTL’s independent investment management expert and co-chair of the steering group, added: “Asset owners and investment managers are facing unprecedented challenges to help the economy move to net zero. Genuine collaboration, with a clear focus on sustainable value, will be essential to address these challenges in the future.
Also commenting on the report, Tumelo CEO Georgia Stewart said, “This is good progress, but we can’t stop there. The next piece of the puzzle to put in place is to build engagement between trustees and the participants whose retirement savings they care for.
“Member engagement should be like an ongoing conversation. It should be a back-and-forth flow of information. This is critical for trustees to accurately represent member preferences to fund managers. assets.
“The technology now exists for pension plan trustees and administrators to share with their members news and information about voting matters about the companies owned by their pension plan. The same technology can also capture member preferences on how asset managers should vote on their behalf.
“This is the next step in building a retirement and investment ecosystem that truly works for everyday people.
“These recommendations help focus on practical steps that can be taken at each stage of the relationship, from pre-appointment to ongoing monitoring. Our goal with this report is to affect an intervention, as the end-to-end investment process can be significantly improved by all parties leaning to work more effectively with each other on an ongoing basis, to the benefit of our collective beneficiaries.
The report follows the Asset Management Task Force tasked with AI and PLSA to bring the pension and investment industries together towards a common goal: to embed stewardship into the relationship between asset owners and investment managers.
IA and PLSA established the Joint Steering Group in 2021, which focused on finding solutions on how the relationship between asset owners and investment managers could be governed d in a way that promotes a long-term orientation and aligns management expectations.