Roger Urwin is, arguably, the most influential asset consultant in the world. Once in a while we are graced with his presence in Australia and New Zealand. That happened last week, in Melbourne, and here are some of his words of wisdom: life is going to get more difficult.
Urwin actually started the investment consulting arm of what has become Willis Towers Watson about 30 years ago. He ran the investments side of the consulting firm for many years, set up a think tank called ‘Thinking Ahead Group’, and then, with Tim Hodgson, set up a self-funded ‘Thinking Ahead Institute’. He’s a thinking sort of guy.
At the annual ‘Ideas Exchange’ client conference for Willis Towers Watson, the firm hosted about 100 client fund executives and trustees and hangers on, such as journalists, at the Melbourne function centre attached to the home of the Australian Open tennis – the Rod Laver Arena. And it was tennis which provided a theme for the day’s discussion. Apparently, tennis is competitive. And, apparently, so is the investment management world.
Urwin said the rate of change was speeding up for investors. The level of complexity around investments was compounding at around 10 per cent a year, he said. He was able to attribute this to someone else, but you’d have to be a bit sceptical of such a finite number. And that increasing complexity was allied to technological developments growing at an even-faster pace, he said.
A consistent theme at the conference was the pace of change, especially technological change. And technology in general tends to be the most consistent concern when big super funds consider their future challenges. The conference this year was open to asset owners only – no fund managers.
Urwin said that the biggest high-level issues in the industry included:
. Greater influence by asset owners versus fund managers through their leadership presence
. The bigger impact from the evolutions of regulations – some good and some bad. “Some regulations misfire,” Urwin said
. Technology being the major influence both inside and outside an organisation over the next five-10 years, and
. Governance, which has improved significantly, is a job which is “only about half done”, he said.
Urwin tracks a cohort of very big funds, with which he is very familiar and which he regards as those that have world’s best practice procedures. There are 11 pension funds and four sovereign wealth funds in the group. The Future Fund is the only Australian one. He calls this cohort “universal owners”.
From his experience, he said, the boards which show the best practices and their various investment and other committees, have several things in common. They include:
. Strategic focus
. Effective management and oversight
. Competent and diligent committee members
. About five investment committee members is the ideal number
. Chairs who set direction and have the power to make a difference
. While the board should work as a unified force it needs to have cognitive diversity, and
. Boards and committees need grounded principles.
“I’m often asked ‘what is the best fund in the world?’,” he said. “But I can’t answer that question. Some funds are outstanding at certain things, and not as good as some others at other things.” For instance, Australia’s Future Fund was outstanding at adopting a ‘total portfolio’ approach to its investments. David Neal, a former head of Willis Towers Watson in Australia and the chief executive of the Future Fund, has described how the fund has a “one fund” mentality. Everything everyone does – not just the investment professionals – goes into the fund’s single purpose of a sustainable return for its shareholder, the Australian Government.
Another example was the second-largest fund in America, California’s teachers’ fund CalSTRS, which had the best “people model” embedded in its culture. They all thought as “one team”, he said, and had joint ownership of their external manager’s results. The Japanese GPIF, the largest fund in the world, with close to US$1.5 trillion under management, was the best at “stewardship” and had used its power to improve the corporate behaviour of big Japanese listed companies.
But what about smaller asset owners? Urwin believes the same principles can be applied to improve their performance. “There’s a trade-off with smaller funds,” he said. “They can be more agile and flexible.”
He said that sustainability was a slow-moving but unstoppable train in the investment industry. The second-biggest trend was the use of new technologies.
Greg Bright is publisher of Investor Strategy News (Australia)