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Journal of Asset Management

, Volume 9, Issue 1, pp 2–21 | Cite as

Best-practice pension fund governance

  • Gordon L ClarkEmail author
  • Roger Urwin
Paper

Abstract

Good governance by institutional asset owners makes a significant incremental difference to value creation as measured by their long-term risk-adjusted rate of return. Drawing upon best-practice case studies, it is argued that the principles of good governance can be summarised by organisational coherence, including an institution's clarity of mission and its capacities; people, including who is involved in the investment process, their skills and responsibilities; and process, including how investment decision-making is managed and implemented. Using the case studies to develop the principles and practice of good governance, there are a number of lessons to be learnt from our exemplars whatever the nature, scope and location of the institution — summarised through a set of 12 findings about global best-practice with implications for large and small institutions. Implications are also drawn for the design and management of sovereign funds, which are increasingly important for national welfare in global financial markets. In conclusion, we see the challenge of governance as having two facets: to facilitate adaptation to the functional imperatives of operating in global markets given the heritage of an institution and, over the long-term, to undertake reforms such that institutional form and structure are consistent with the principles developed herein.

Keywords

governance best-practice pension funds investment management 

Notes

Acknowledgements

The authors wish to thank the funds and institutions that participated in the study recognising that most requested anonymity and, as such, cannot be formally identified. The authors also wish to thank their colleagues at both institutions including Emiko Caerlewy-Smith, Tessa Hebb, Lisa Hagerman, John Marshall, and Dorothee Franzen (at Oxford) and Michael Orszag, Carole Judd and Lloyd Raynor (at Watson Wyatt). Keith Ambachtsheer, Charles Ellis, Adam Dixon, and Ashby Monk made useful comments on a previous draft. Research on pension fund governance at Oxford has been supported by the National Association of Pension Funds (United Kingdom), the Lupina Foundation (Toronto), and the Rockefeller and Ford foundations. None of the above should be held responsible for any comments or opinions expressed herein, especially any misapprehension of the lessons to be drawn from particular instances of best-practice value-creating investing.

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Copyright information

© Palgrave Macmillan Ltd 2008

Authors and Affiliations

  1. 1.Oxford University Centre for the EnvironmentOxfordUK

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