Achieving Investment Excellence

CHAPTER 1The Role of Pension Funds, and the Role of Boards

Key Take Aways

In this chapter, we focus on the pension fund and its board of trustees. The primary role of the board is defining the goals of the pension fund, setting policy, organizing the investment process, and monitoring and adjusting choices in order to adapt to any changing circumstances. Boards can be a complex and diverse combination of lay people in the field of finance, as well as people with a professional background in finance or investing. The board is the key determinant of the success of a pension fund.

In a recent review of how boards have developed over time, Ambachtsheer¹ states that “while there is some evidence of improvement of pension organizations […], the finding is that the major concerns about how board members are selected and trained, about the effectiveness of board oversight processes, and about the ability to attract and retain key executive and professional skills remain. Much remains to be done to materially raise the effectiveness of the governance function in pension organizations.”

A malfunctioning board can have a considerable negative impact on the pension fund. The malfunction can have many causes, from failing to understand the crucial role of the board to appointees lacking the skills needed to be effective board members. This chapter outlines the very first step a board should ...