A Primer for Investment Trustees

Presentation to the CFA Society of MinnesotaJune 23, 2011

Agenda

• Background• Genesis of the Primer• The Primer’s intended audience• Others who should be interested• Why are investment trustees important?• Key issues addressed by the Primer• How the book is organized and written• Top 10 questions trustees ought to ask• How to get the Primer

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Background• The Research Foundation of CFA Institute

– Non-profit organization affiliated with but separate from CFA Institute– Mission: Produce and distribute high-quality independent research to

the investment community focused on the practical application of investment finance

• The Research Foundation produces a number of products– Monographs/books– Literature reviews/occasional papers– Webinars– Conferences/workshops

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Genesis of the Primer

• Fund sponsors are an important segment of the investment community

– Yet from an educational perspective, they get little attention

• The body of educational literature available to fund sponsors is infinitesimal

– Know of any part of the Body of Knowledge associated with fund sponsors?

– Information is available related to some of the tools needed (e.g., performance measurement)

• Missing is a discussion of the role of the fund sponsor and how people can effectively act in that role

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The Primer’s Intended Audience

• Investment trustees (obviously)• Who is an investment trustee?

– Any person serving on a governing body charged with high-level supervision of investment assets

– Don’t have day-to-day responsibility for managing assets– Focus is on providing direction to the fund

• Hiring and evaluating top staff leadership• Setting investment policy• Monitoring performance relative to objectives

• Don’t need extensive investment experience to do the job well

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Others Who Should Be Interested?

• Basically, anyone who interacts with investment trustees– Staff persons working at funds– Investment managers– Consultants– ERISA lawyers– Custodians, actuaries, brokerage firms

• By understanding the issues faced by investment trustees, these groups can provide better services

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Why Are Trustees Important?

• Literally trillions of dollars and the well-being of millions of people are affected by the actions of trustees

• Trustees set the tone– Can’t guarantee strong performance but can create the

structure that incentivizes excellent decision-making– Bad trustees can certainly produce bad outcomes– Two extremes guaranteed to lead in the wrong direction

• The micro-managing trustee• The unengaged (or intimidated) trustee

• New trustees generally receive no training for their roles

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Key Issues Addressed

• Governance structure• Investment policy• Fund’s mission• Investment objectives• Risk tolerance• Investment assets• Performance evaluation• Ethics in investing

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How the Book is Organized and Written

• In form of a conversation with a new trustee• This trustee serves at a university that has DB and DC

retirement plans, an endowment fund and a foundation• Non-technical discussion• Important features

– Chapter “Takeaways”– Appropriate questions for a trustee to ask– Glossary of terms– Sample governance and investment policy statements

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Top 10 Questions A Trustee Ought to Ask

1. How is the governance of the fund organized, who are the key participants, and how do they relate to one another in terms of accountability and authority?

2. Are the trustees relatively involved as a group in terms of managing the staff or do they tend to be “hands off”?

3. May I have a copy of your investment policy statement?4. Who are the fund’s primary stakeholders and what are their interests?5. How do we define the liabilities for our fund and how do we assess its funded status?6. Do we have an established process for identifying, quantifying and managing investment

risk?7. Where the option is available, why don’t we passively manage our assets?8. What are the benchmarks used to evaluate our investment program? Are they fair and

appropriate?9. How are our investments performing? Do the results indicate that we are fulfilling the

fund’s mission and objectives?10. Do we have an code of conduct for trustees and staff?

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How to Get the Primer

• Hardcopy: $9.95 (at Amazon or CFA Institute)• PDF download: Free• E-books– Amazon ($0.99)– Apple (free)

• More information:– www.cfapubs.org/loi/rf

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