Post on 27-May-2015
Mercer Investment Consulting is a part of Mercer Human Resource Consulting Limited. Mercer Human Resource Consulting Limited is authorised and regulated by the Financial Services Authority and is a member of the General Insurance Standards CouncilRegistered in England No. 984275 Registered Office: Telford House, 14 Tothill Street, London SW1H 9NB
27 February 2007
Presentation to AIMSE Consultants ConferenceFiduciary Management
Divyesh Hindocha
Mercer Investment Consulting is a part of Mercer Human Resource Consulting Limited. Mercer Human Resource Consulting Limited is authorised and regulated by the Financial Services Authority.Registered in England No. 984275 Registered Office: 1 Tower Place West, Tower Place, London, EC3R 5BU
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Content
Key drivers
Is it a good idea?
Hedgehogs or foxes?
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How Are Things Different Now?
Old New
Investment Strategy Setting
Equity versus bond
No market view expressed
Long term mindset
Limited regulation
More asset classes
Incorporate alternatives
Capture use of Investment Bank product
Capture market view
Shorter time frame
More regulation
Investment Managers Capacity not an issue
Limited implementation options
Capacity an issue
Time specific opportunities
Multiple implementation options
Complexity
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Fiduciary Decision Making The case for the prosecution
Trustees not fully equipped (skills, resources etc) => sub-optimal decision making
Call for more expertise to be brought to bear
“…their understanding of probability and their efficiency in processing information…”
“…it can’t be assumed that they share common and consistent techniques for solving investment related problems…” Oxford University
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Driver to Fiduciary Management
ComplexityShort-comings
of current approach
+Fiduciary
ManagementFiduciary
Management=
“Lets leave it to the experts”
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Emperors New Clothes
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Neither Fish Nor Fowl
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Hedgehog or Fox
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History
Increasing Diversity
Fiduciary Management
Insurance
Asset Management(Balanced)
Asset Management(Specialist)
Asset Management+
Investment Banks
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Two Models…
Ability Based Diversity Based
Trustee and Advisors
Provider A
Provider B
Provider C
Provider D
Trustee
Fiduciary Management
Providers
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The Importance of Diverse Thinking
“You must know the big ideas and the big disciplines and use them routinely – all of them and not just a few. Most people are trained on one model…. and try to solve all problems in one way… this is a dumb way of handling problems”
Charlie Munger
“The logic of diversity provides individuals with the diversity of perspectives, heuristics, and interpretations to solve hard problems better than smart individuals”
“Research shows foxes – people with little knowledge of a lot of topics – make better predictions over time than hedgehogs – people who know one big thing”
Michael Mauboussin
“The diversity triumphs ability theorem: a randomly selected collection of problem solvers outperforms a collection of best individual problem solvers”
Scott Page
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Case for the Defence
Greater diversity enhances quality of decisions
Decision making aligned with responsibility to members and core investment beliefs
Lower cost?
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Questions
Need is greatest at smaller end but fiduciary management offering appears to be targeted at larger end
What happens if experience is disappointing?
Is there a proven successful model which fiduciary management is trying to replicate?
Monitoring success
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Mercer Investment Consulting is a part of Mercer Human Resource Consulting Limited. Mercer Human Resource Consulting Limited is authorised and regulated by the Financial Services Authority and is a member of the General Insurance Standards CouncilRegistered in England No. 984275 Registered Office: Telford House, 14 Tothill Street, London SW1H 9NB