Achieving Investment Excellence

CHAPTER 6Organizing the Investment Function

Key Take Aways

Putting thought into the design of the investment function and organization pays off. In 2004, Keith Ambachtsheer¹ analyzed the investment organizations of Harvard Management Company (HMC) and Ontario Teachers' Pension Plan Board (OTPP), both organizations renowned for their innovative investment policies and strong returns. HMC, which manages Harvard University's endowment, worth $37 billion in June 2017,² has surpassed the university's total return target and its internal benchmark, realizing an annualized rate of return of more than 10% over the previous 20 years. The Canadian pension fund OTPP, with $175.6 billion in assets at the end of 2016, realized an average annual rate of return of 10.1% since its inception in 1989,³ generating $19 billion more than its market benchmarks—almost one-quarter of the fund's growth. Ambachtsheer⁴ concluded that the success of these funds has key elements in common: a legal foundation that clarifies stakeholders' interests and minimizes the potential for agency conflicts, and a governance process that crystallizes the organizations' mission and is based on an understanding of the critical elements needed to achieve it. This gives both funds clear mandates and a well-thought-out governance process, two keys to success.

In a broader setting, public pension funds benefit from low ...