Largest investors need governance change

Governance and culture considerations among the largest 100 asset owners need to be improved according to the Willis Towers Watson Thinking Ahead Institute second Asset Owner 100 study.

According to the report the purpose, mission and vision of these funds needs re-setting, which suggests strategy and culture should change. Funds, it says, have to build a more coherent view of their core stakeholders and their needs.

It also points out that while the relative strength of asset owners compared with asset managers is set to rise – through building bigger teams with stronger leadership and streamlining of governance including delegation, partners and process – the operating model, including strengthened governance and leadership, remains a challenge.

These largest 100 asset owners account for 35 per cent of total asset owner capital with combined assets of $19 trillion.

The top 20 funds account for $10.5 trillion or more than half of the largest 100.

The report also makes the point that asset owners are “too important to fail in their mission. They carry a massive burden for the wealth and well-being of billions”.

As a result, the report says, they have no real choice but to take seriously their financial stakes and real world responsibilities and to lead from the front and address the big issues.

However only a small portion of the 100 largest asset owners were identified as being universal owners. The Thinking Ahead Institute uses a definition of universal ownership set out by Roger Urwin in a 2011 Rotman International Pensions Management Journal, Pension funds as universal owners, which says “for universal owners, overall economic performance will influence the future value of their portfolios more than the performance of individual companies or sectors. This suggests that universal owners will support the goals of sustainable growth and well-functioning financial markets. A universal owner will also view these goals holistically and seek ways to reduce the company level externalities that produce economy-wide efficiency losses”.

The top five universal owners listed in the report were Government Pension Investment Fund Japan, Government Pension Fund Norway, ABP, CalPERS and PGGM.

In the Asset Owner 100 study, the TAG says; “We see universal owners as well-placed to play a more influential role in safeguarding the financial system and contributing positively to some of the big societal issues, including climate change and other environmental issues”.

For the full list of the largest 100 asset owners click here