The Investment Committee Guide to Prudence by Jonathan J. Woolverton

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JJ's investment career spans more than five decades. He has been the chief investment strategist for a pension plan sponsor, a managing director and senior consultant within a global investment planning consultant firm, and a managing director and chief operating officer of an investment management organization. Over his career, JJ has attended well over a thousand investment committee meetings as a plan sponsor, a consultant, and a money manager. In the majority of these meetings, he has found that committee members lack three things: in-depth investment expertise to effectively carry out their fiduciary responsibilities, the necessary time allocation to administer and manage the investment program in the best interests of the beneficiaries, and the ability to develop an efficient monitoring system to hold all service providers accountable for the products and services they provide.

This book outlines the steps to be taken in establishing investment policy; formulating asset mix strategy; creating an appropriate investment management structure; undertaking investment manager searches; and highlighting the conflicts of interest, biases, and self-interests of the various service providers.

This book is designed to assist members of investment committees in their role as fiduciaries/trustees/administrators.

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In any treatise on the topic of investment committees, interested parties would be inundated with the following terms: prudence, due diligence, care, skill, transparency, duty, loyalty, and, more rarely, common sense. While all of these terms are important, they are used sparingly throughout this book in favor of the fundamental concept underpinning them—that is, prudence. It dominates everything else. If investment committee members get prudence right, everything will fall into place. Prudence is not judged by investment results alone, many of which are beyond the full control of the investment committee—rather, it is judged by the process by how the investment committee members made their decisions and conducted their oversight of the fund assets. The prime responsibility of the investment committee is to look after the interests of the plan beneficiaries. Of course, that is the easy part. The hard part is how to do this. Investment committee members are responsible for determining the road map and are the driving force that spans the period from the plan design stage to fulfilling the obligations undertaken by the plan sponsor.

I won’t say that the majority of investment committees are dysfunctional; however, I also can’t say that the majority are functional. My observations are not because the members of most investment committees are not the brightest, are not highly educated, do not have the best intentions, do not prioritize the best interests of the plan beneficiaries, or do not have impressive experience or credentials—although experience is too often insufficiently related to the fiduciary investment field. They typically have these qualities. However, the four main detriments to a well-functioning investment committee are a lack of:

1. relevant background and experience in dealing with the complex nature of the financial markets and their interactions with the finances and security of the plan;

2. understanding regarding the multiplicity of investment products and vehicles available;

3. in-depth knowledge of the various service providers that operate within the pension and investment environments and their motivations; and,

4. time to successfully, effectively, and efficiently design and implement investment policy.

As a result, there is often a significant disconnect between policy, strategy, and implementation. To improve the performance of the investment committee, any gaps must be closed.

About the Author:Jonathan J. Woolverton, CFA, has spent his whole career in the investment field—over fifty years. After graduating from university in Pennsylvania, he moved to Toronto, Canada, where he began his career in the investment department of an insurance company. In his role as investment officer he was responsible for formulating investment strategy and overseeing all investments within the equity and fixed-income divisions. JJ later joined Ontario Hydro as their chief investment strategist where all pension funds were managed internally.

JJ left the money management business to become an investment planning consultant. He was a founding partner and managing director of Frank Russell Canada. He moved back to the money management side as the managing director and chief operating officer of Guardian Capital Inc. JJ graduated from Westminster College with a BBA and achieved his Chartered Financial Analyst certification. JJ has published numerous articles on the pension and investment industries and has been the keynote speaker at many conferences and seminars.

WEBSITE: http://www.jjwoolverton.com

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