2020 was a great example of living in a VUCA (volatile, uncertain, complex and ambiguous) world. At times like this it is important for trustees to strike a balance between doing the right thing and doing the thing right.

“Trustees are now facing increasing pressure to make good judgements and quick decisions that work even harder and better in the best interests of their members,” says Nimisha Bhawan, head of investment advisory at Alexander Forbes.

”To maximise the effectiveness of a decision-making process that helps build a resilient investment strategy, trustees will need to balance a number of long-term objectives, including risk and reward, with taking appropriate actions at the right time,” comments Bhawan.


Bhawan offers the following pointers to help improve trustees’ understanding of how resilient strategies are being shaped amidst the developments within the investment space.


Good governance


  1. The fund’s DNA

It is important that trustees achieve a balance between reacting to current or unexpected environments and remembering the unchangeable “DNA” of their fund.


  1. Constituting the board and sub-committees

You need:

  • a strong chairperson
  • a diverse range of skills and backgrounds
  • ongoing training and development
  • flexibility for employer and member-elected trustees to perform their fiduciary duties separate from their primary responsibilities of employment


  1. Investment strategy design
  • Formulate the trustees’ investment beliefs and philosophy
  • Develop clear investment objectives, tying beliefs with investment objectives
  • Build in resilience to secure long-term endurance


  1. Decision-making process

To maximise the effectiveness of your decision-making process, think about the minimum number of decisions your committee needs to make and which decisions can be delegated.


Linking pre-retirement and in-retirement


  1. Retirement approach

As members approach retirement, the focus shifts to understanding how to translate the accumulated amounts saved into a meaningful amount to survive on during a member’s retirement years. This thinking requires members approaching retirement to be invested in a pre-retirement portfolio that has an adequate link to their intended choice of income at retirement. When it comes to providing the right pre-retirement portfolio for one’s members, a one-size-fits-all approach will often fail. This means that trustees must spend much more time considering what the appropriate pre-retirement strategy should be.


  1. Setting a default annuity strategy

This requires trustees to understand what their membership do at retirement:

  • How much do members take in cash?
  • What type of annuity do they typically buy?

The asset allocation that will best match each type of annuity is quite different.


Understanding and tracking your position

  1. Projections in today’s money

If members could see what their projected monthly retirement income would be in Rands and cents based on their savings position if they were to retire today, they may just have more of an appreciation of whether it will be enough or not. Even better, it may just prompt members to be more engaged around what actions need to be taken to get on track towards achieving their retirement goals.


  1. Reporting and monitoring

Trustees need to monitor the performance of their underlying investments and the performance relative to the objectives of the fund and each specific portfolio. Reporting and monitoring should always be a sense check. If the investment strategy is not delivering the expected results or is not meeting the objectives initially set out, there needs to be a feedback loop where the objectives are reviewed, and the investment strategy tweaked.


  1.  Understanding the liquidity of investments, the level of diversification and the risks the chosen asset managers are taking

Are asset managers taking rewarded or unrewarded risks? An additional new element to monitor are the ESG factors in investment portfolios and measuring the impact of the fund’s investments in society and on the environment.


A resilient and enduring investment strategy requires that trustees have conviction in the philosophy, processes and people they have used to put together the fund’s investment strategy. When faced with volatile market periods, especially those classified as “market shocks”, it does pay to contemplate why an investment strategy was set the way it was and then understand if changes are necessary.


“The key elements are to start with knowing your goals and objectives, having a clearly defined investment process and strategy, regardless of how much you delegate or retain in house. Measure the outcomes and gauge the effectiveness of your chosen strategy and don’t forget to reassess and adapt when something is not working – the essential feedback loop,” concludes Bhawan.



Categories: Alexander Forbes.