Running an Investment Committee
What’s the structure and role of the investment committee? Sheldon MacDonald, deputy chief investment officer at Architas, provides insight into how the company’s own committee operates
Aside from the fact it’s a good discipline in general, in an era of increased regulatory scrutiny it is more important than ever to ensure you have a documented investment process. This principle applies regardless of whether you are a sole trader, a small partnership or part of a bigger national firm.
A well-documented process protects you if there is ever any question about the decisions you make as you can show you followed an established structure. It ensures that you follow principles which have been established in advance rather than just making ad hoc investment decisions.
An investment process and investment committee is key to ensuring that client investment outcomes can be met on a consistent basis.
Where possible an investment process should probably include some independent input. This person or people can act as a sounding board for ideas and help you make decisions for the right reasons and not due to any conflict you may have.
To the extent that the process involves more than one person adviser firms should be having regular investment committee meetings. These can take various forms, acting either as decision-making forums, or providing governance oversight to review decisions to ensure they are in line with policies and best practice. Either way, the committee should have clear terms of reference: these need not necessarily be lengthy or complicated, but should clearly set out the framework within which the committee operates, and the principles that should govern any decisions.
The committee may need to consider a wide variety of issues including the selection of funds, monitoring of performance and styles, as well as assessing levels of risk and volatility.
Structure of the committee
In terms of the structure and the nature of the committee you should think hard about the culture of your firm and try to reflect that in your process. Your culture should help guide what type of committee you want, whether you want decisions made by consensus or by majority vote, or if anyone has an ultimate veto on all decisions. If it is a decision-making committee you need a disciplined, regular timetable, but should also have flexibility to meet on an ad hoc basis to make quick decisions when needed.
If you are in a decentralised set up then it’s likely your committee will focus more on governance oversight, reviewing decisions made by individual advisers. If so you need to check decisions against the policy and ensure they would stand up to scrutiny.
Discipline in all things is important: make sure you have the meetings, prepare an agenda and keep minutes. As we all know in regulatory land if it’s not written down it didn’t happen.
How we run our committee
In our own investment process, we believe in the power of information so our process is designed to gather a wide range of data and commentary on a regular and disciplined basis. We take information from our own specialist analysts as well as independent economists and strategists. All this feeds into to our tactical asset allocation forum where we take that input, discuss, debate, challenge and take a decision on what way to go.
When it comes to fund selection we believe our analysts are the specialists. We empower them to go and seek out what we believe are the best funds in the market, but the ones they select need to go through a strict approval process where senior members of the investment team provide challenge and ensure objectivity and suitability of decisions for client portfolios.
We then entrust portfolio manages to take those asset allocation and fund selection decisions to develop and manage their portfolios as each manager is best placed to understand the needs of their clients and any restrictions in terms of the fund rules.
Our own investment committee then provides checks and oversight of all decisions. It does this by monitoring positions, performance, risks and debating any issues. While it can guide policy, it does not make day-to-day decisions but ensures decisions which have been made are in line with the governance rules we have put in place. The committee is independent in nature by having a majority of more non-investment team members.
We have a combination of a disciplined process but also provide scope for individual expression within this guided framework, which we think reflects our own business culture.
Visit the Architas website