Donald Trump’s possible return to the White House would undoubtedly set back sustainability efforts, but the bigger problem is that his view of geopolitics is “one that anybody who runs capital wouldn’t want him to have”, according to Anthony Scaramucci.
Family offices are set to manage more than $5.4 trillion come 2030 – but how (and where) they manage it will change, with more and more “becoming institutionalised”, adopting independent governance structures and heading overseas.
What poor investment governance really costs members
It’s a common refrain that a bad investment or manager might lose you basis points, but bad investment governance is what really costs you. A new report from Frontier Advisors and KPMG goes some way to quantifying just how much, with 68 per cent of asset owners polled believing that poor governance can see a return penalty of more than one per cent per annum – adding up to $500,000 over the working life of a super fund member.
On the flipside, 62 per cent believe good investment governance can see benefit of 0.5. per cent or more of additional investment return over time.
“Good investment governance is paramount as it safeguards stakeholder interests, promotes market stability, ensures long-term sustainability, enhances performance and facilitates regulatory compliance,” said Sarah Cornelius, head of investment governance at Frontier Advisors.
“By adhering to principles of transparency, accountability and integrity, asset owners can built trust, attract capital (or new members in the case of super funds) and also attract top talent and foster innovation – all of which creates long-term value for stakeholders.”
But there is a growing sense among those polled that traditional models of investment governance may no longer be sufficient for navigating future challenges produced by increasingly globalised markets as well as an evolving landscape of technology, ESG and climate factors.
“Governance practices which have served us well in the past may not be as suitable for the future environment,” said KPMG consulting partner Platon Chris. “Traditionally, investment governance structures have been rigid and hierarchical. With the current, and likely future environment being more volatile, investment governance models will need to exhibit the ability to be nimble and adapt, and avoid group-think through recognising the need for diversity in decision making.”
More than a third of asset owners surveyed also said they needed to examine their investment portfolios through “too many lenses” – including return, risk, peers, regulatory benchmarks and ESG, among others – while one third also said that there is too much focus on the short-term, and that long-term maximum benefit “may not be the sum of a series of short-term time periods”.
Nearly 70 per cent of respondents said that the current investment governance landscape was better than 10 years ago, but 92 per cent said it had become increasingly complex over the last decade.
Proper oversight of internal asset management was identified as one of the key governance challenges for large super funds, while unlisted assets are adding to investment management complexity and creating “unique valuation challenges” for asset owners during business-as-usual conditions and through periods of market volatility.
“Organisations need to assess what they need to focus on and where shortfalls exist,” Cornelius said. “Internal asset management requires robust oversight, review and challenge. Proper oversight is a crucial component, and the focus of the oversight should not only be on the investment teams themselves, but also on the investment models they use to driver their investment decisions.”
