Good governance could strengthen your portfolio
We believe that having a strong governance framework is crucial to long-term success and resilience through adversity.
Challenges facing institutional investors
What is good portfolio governance?
Optimising your investment portfolio to access opportunities and mitigate risks is only one part of achieving your long-term objectives. Ensuring you have a robust operational structure and processes in place is essential to your organisation’s ability to navigate good times and bad.
Having a strong governance framework can help streamline your decision-making and potentially give you an important advantage when investing. This means delegating tasks to experienced, specialist teams either internally or externally, whilst maintaining clear reporting lines, forming the base from which you can build out your strategy and portfolio.
Good governance should help you:
- Set an optimal investment strategy that takes into account the unique factors affecting your organisation.
- Stay on top of market movements that affect portfolio allocations and react accordingly.
- Monitor interest rate and inflation risks that can erode long-term investment returns.
- Identify operational dangers, such as trade errors and liquidity traps, with the aim of reducing these risks.
What we call a “governance advantage” helps you remain confident about how your investment portfolio will behave, even in the toughest market conditions.
A governance advantage helps our clients’ access timely information, respond quickly, and make effective decisions. This allows them to manage risk and pursue emerging opportunities. Good governance underpins everything we do.
President, Investments and Retirement
Taking control of your portfolio
Over the past 15 years we have seen how strong investment governance can improve outcomes and keep you focused on your objectives, no matter the market conditions.
Global events such as the financial crisis of 2007-09, or the COVID-19 pandemic, offer great examples of how a robust governance framework can help you navigate the most difficult periods. Knowing how to react before things happen gives confidence in the long-term resilience of your portfolio.
Better governance is about giving you control over your investment portfolio and strategy. We have identified some key factors that can influence the strength of your investment governance.
Key steps for a good governance investment process
A blueprint for resilience
The "Governance Advantage" in practice
The pandemic reminded us all that financial markets are very much out of our control. If you had already addressed the question of governance within your organisation, you had one less thing to worry about. We cannot control what global markets do, but we can control our reactions and the decisions we make. This is the essence of the “Governance Advantage”. Investors who were well prepared for the pandemic had:
- Adopted diversified strategies
- Established operational structures that clearly defined and allocated tasks
- Effective risk management policies and processes in place
- In some cases, employed dynamic asset allocation strategies to capture opportunities and mitigate risks.
By addressing these and the other areas outlined in this article, you can access timely information, make effective decisions, and respond more quickly than peers who may not have as robust structures in place.
In good times and in bad
Having a "Governance Advantage" in more conventional times is useful too. A robust framework assigns important operational tasks, such as rebalancing, to professionals who are best placed to execute them.
It can also smooth out changes at an asset class or manager level and help manage costs more effectively across a portfolio. This gives you more time to identify new opportunities and innovate to make progress towards your objectives, through executing new investment strategies and ideas through high-quality asset managers that have been researched by experienced professionals.
All of this is critical in helping you prepare for what the future may bring.
Strengthening your processes
By splitting governance tasks into strategic priorities and ongoing activities, you can clearly see and decide where time is most usefully spent – and how best to execute your fiduciary duty. You may want to employ or enhance internal teams or outsource functions to external providers to help you focus on other areas.
There is no single answer on how to create a robust governance framework, nor should you feel pushed into an off-the-shelf solution. Depending on your organisation’s size, scale, maturity and internal expertise, you will need a specific structure to reflect your needs.
No one can predict the future path of global markets or economies, or what external factors may influence them. This means it's essential for you to have the right structures and processes in place to manage risk, make better decisions, keep your objectives on track and optimise your outcomes.
Before accessing this website you must read and accept the following terms and legal notices.
You are about to enter a website intended for sophisticated institutional investors based in Hong Kong and the information contained herein is only intended for investors who are Institutional or Corporate Professional Investors as defined in the Securities and Futures Ordinance, Cap 571 Laws of Hong Kong and the Securities and Futures (Professional Investors) Rules. Any person unable to accept these terms and conditions should not proceed any further.
In Hong Kong, Mercers Outsourced Chief Investment Officer, Delegated Solutions and other Investment Services delivered through Mercer Funds are delivered by Mercer Investments (HK) Limited (“MIHK”). MIHK is authorized by the Securities and Futures Commission to undertake Type-1 (dealing in securities), Type-4 (advising on securities) and Type-9 (asset management) regulated activities in Hong Kong subject to the limitations set forth at https://apps.sfc.hk/publicregWeb/corp/ALR969/details. MIHK is registered with the Mandatory Provident Fund Schemes Authority as a principal intermediary. MIHK is registered in Korea with the Financial Services Commission as a Cross-Border Discretionary Investment Management business and as a Cross-Border Investment Advisory business.
Information about Mercer strategies and solutions is provided for informational purposes only and does not constitute, and should not be construed as, an offer to sell, or a solicitation of an offer to buy, any securities, or an offer, invitation or solicitation of any specific products or the investment management services of Mercer, or an offer or invitation to enter into any portfolio management mandate with Mercer. None of the content on Mercer.Com should be considered as advice. No actions should be taken based on this content without first obtaining professional advice. Mercer makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss. Past performance does not guarantee future results. The value of investments can go down as well as up, so you could get back less than you invest.
Mercer reserves the right to suspend or withdraw access to any page(s) included on this Website without notice at any time and accepts no liability if, for any reason, these pages are unavailable at any time or for any period. The solutions, products and services described in these pages are not available in all jurisdictions.