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Investment trends

How evolving your governance can unlock stronger results 

With increasing uncertainty and market complexity putting decision makers under mounting pressure, governance can shine through as a tool for potentially gaining a competitive edge.

Balancing investor risks, returns and reputational requirements has become an increasingly complex challenge for asset owners. Those responsible are all too often under pressure to make the right decisions with less time than they need to do so. 

Many organizations underestimate the true value of a strong investment governance framework and culture, but in an environment where uncertainty is becoming the norm, not the exception, there is a growing awareness of and concern around the risks that non-financial factors, like governance, pose to overall portfolio performance. 

Findings from this year’s Large Asset Owner Barometer showed that complexity in governance is seen by many investors as the primary barrier to agile and efficient decision-making.  The percentage of respondents citing governance as a significant or highly significant threat to AUM increased from 36% in 2024 to 49% in 2025[1].

Why good governance is key

What is good portfolio governance?

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 organization.
  • 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 premium” helps you remain confident about how your investment portfolio will behave, even in the toughest market conditions.

Good governance: the hidden lever behind investment success

Explore how evolving your governance can unlock stronger results.
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A governance premium 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.
Michael Dempsey    

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, the COVID-19 pandemic, and the market volatility experienced in 2025 all offer great examples of how a robust governance framework can help you navigate the most difficult periods.

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

The first step is to be clear on what you are trying to achieve. Expressing this clearly will help you build a governance structure that steers in this direction.

Once you know your desired end destination, you can begin planning the journey. Your investment strategy should reflect your objective(s) with appropriate levels of diversification and complexity.

You may want to ask yourself questions such as “how much will you do in house and how much will you outsource?”, “will you liaise directly with asset managers or will you employ third party specialists?” and “how will you maintain effective oversight of your providers?”.

Understanding how different strategies, asset classes and markets interact with each other will help you construct an effective and diversified portfolio.

Asset allocation is one of the most important decisions an investor makes. A thorough assessment of risks is critical to constructing a portfolio that seeks to meet your objectives, while also being positioned to capitalize on opportunities and mitigate unforeseen risks in a timely manner.

Researching and selecting asset managers is a specialist skillset requiring significant resources. Even the world’s largest sovereign wealth funds rely wholly or partly on specialist research providers. Operational due diligence is also a specialist skillset which again almost all institutional investors tend to outsource to specialist providers.

Setting clear policies on rebalancing your portfolio to a set asset allocation plan will help manage inflows and outflows, and help you to keep a disciplined, long-term approach through difficult times.

Having a clear plan, established processes and reliable reporting lines will help meet any regulatory requirements, ensuring transparency and accountability.

Efficient and effective oversight requires clear reporting lines and regular, clear and direct communications with asset managers and other providers. This will help you identify, understand and manage risks as and when they emerge.

Perhaps the most resource intensive activities in the investment process are monitoring of portfolios and managers and reporting to all stakeholders on all activities. It's critical to have the appropriate resources and infrastructure to do this effectively, otherwise stakeholders will not feel confidence in the investment process.
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  • Implementation and OCIO

    We can help you define, develop and implement your investment strategy by addressing areas such as governance, risk, sustainability and diversification. We flex our services to suit your needs and help you achieve your investment goals.

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  • Managing investment risk

    Our Mercer Sentinel team can help you conduct due diligence and mitigate operational risks across your portfolios and strategies. We assess asset managers, custodians and other service providers to help you deliver on your governance objectives.

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[1] All responses are sourced from the Large Asset Owner Barometer survey conducted between October 1, 2024, and January 15, 2025. Responses were provided by 74 respondents. Large asset owners are defined as each having approximately USD $2 billion or more in assets under ownership and include pension funds, insurers, not-for-profits (endowments, foundations, charities), wealth managers and sovereign wealth funds. The research includes the views of respondents from more than 16 countries. It is important to note that the respondents did not receive any form of compensation. It is important to recognize that this information is subject to inherent limitations and uncertainties. Results may not capture all relevant factors or market conditions. These results should not be construed as personalized investment advice. This should not be construed as investment advise or solicitation of any financial instrument(s)/vehicle(s).