Managing an Investment Pool Using Best Practices: Discover Pavilion’s Fiduciary Primer

By Susan McDermott, CFA, Chief Investment Officer, Pavilion Advisory Group Inc.

Investment Committees face many challenges, from knowledge requirements, limited time and resources, the growing complexity of the investment landscape and heightened legislative risk. My colleagues and I have seen these challenges time and again after observing thousands of committee meetings over our decades of experience in the business.

This experience in working with Investment Committees led us to write a new book, Pavilion’s Fiduciary Primer: Best practices for managing an investment pool, which covers the guidelines, roles and responsibilities, and requirements to become an effective and engaged committee.

You can download the Fiduciary Primer for yourself, and dig into each brief chapter covering the “need-to-know” particulars and best practices of managing an investment pool. Here’s a glimpse of what you can expect:

Defining an Investment Fiduciary and Navigating Conflicts of Interest

When evaluating the success of an Investment Committee, it helps to, first, mutually determine with participants the purpose of the committee and review the regulatory responsibilities outlined by law.

These responsibilities are important. As my colleague Rich Marra writes, committees “are subject to high standards of ethical behavior because they act on behalf of participants and their beneficiaries in a retirement plan or sovereign wealth system or on behalf of donors in a not-for-profit or charitable organization.” When evaluating the effectiveness of a Committee, these responsibilities must be front and center.

In my own section, I define more specifically the individual roles and responsibilities across the Committee, and lay out the dynamics that keep meetings moving smoothly and efficiently. Going back to the meeting basics, such as time allocation, member preparation and training, agendas, and a periodic re-examination of current practices are just a few ways to make the most of every gathering.

[Committees] are subject to high standards of ethical behavior because they act on behalf of participants and their beneficiaries in a retirement plan or sovereign wealth system or on behalf of donors in a not-for-profit or charitable organization.

Once the responsibilities are established, understand that—despite best efforts—conflicts of interests, real or perceived, inevitably arise.

“Establishing an environment where ethical behavior is valued will go a long way in preventing unnecessary conflicts of interest,” writes Keith Mote, Managing Director of Pavilion Advisory Group.

Clear policies, outlined in the book, must be put into place at the onset to define the Committee’s processes to avoid these ethical dilemmas. The CFA Institute also outlines a number of requirements to uphold these processes and helps to set clear standards of excellence among all members.

Engaging In Investment Committee Best Practices

Further to ethical best practices, Investment Committees must develop and adhere to an investment policy statement (IPS) to clearly outline the objectives, guidelines and constraints to be followed while managing an investment portfolio. In the Fiduciary Primer, my colleague Kerry Elsass outlines the eight primary components of an IPS:

  • Scope and purpose statement;
  • Delegation of responsibilities;
  • Investment objectives;
  • Asset allocation;
  • Selection of investment managers;
  • Performance benchmarks;
  • Manager guidelines; and
  • Evaluation and review process.

Further on in the reading, my colleagues Casey Stevens and Cori Trautvetter outline in their own section recommendations for selecting and monitoring the right investment manager.
Developing an Investment Strategy

Establishing an environment where ethical behavior is valued will go a long way in preventing unnecessary conflicts of interest.

Once all of these building blocks are in place, we’ll walk you through, in detail, the development of your investment strategy, including the establishment of success factors.

“Objectives and goals should be determined based on needs of the organization in concert with
the market environment, in order to allow for more attainable results,” writes my colleague Antonio DiCosola. “Qualitative objectives, constraints, risk tolerance, liquidity profile and cash flow needs should be translated into quantitative figures wherever possible.”

His section outlines the details Investment Committees must consider for ongoing success. Finally, we conclude the book with a discussion of fee determination and the role an Outsourced Chief Investment Officer (OCIO) can play in augmenting an Investment Committee’s efforts.

 

>> Download the full Fiduciary Primer.