divyesh hindocha

Mercer Investment Consulting is a part of Mercer Human Resource Consulting Limited. Mercer Human Resource Consulting Limited is authorised and regulated by the Financial Services Authority and is a member of the General Insurance Standards CouncilRegistered in England No. 984275 Registered Office: Telford House, 14 Tothill Street, London SW1H 9NB

27 February 2007

Presentation to AIMSE Consultants ConferenceFiduciary Management

Divyesh Hindocha

Mercer Investment Consulting is a part of Mercer Human Resource Consulting Limited. Mercer Human Resource Consulting Limited is authorised and regulated by the Financial Services Authority.Registered in England No. 984275 Registered Office: 1 Tower Place West, Tower Place, London, EC3R 5BU

Mercer Investment Consulting 2

Content

Key drivers

Is it a good idea?

Hedgehogs or foxes?


How Are Things Different Now?

Old New

Investment Strategy Setting

Equity versus bond

No market view expressed

Long term mindset

Limited regulation

More asset classes

Incorporate alternatives

Capture use of Investment Bank product

Capture market view

Shorter time frame

More regulation

Investment Managers Capacity not an issue

Limited implementation options

Capacity an issue

Time specific opportunities

Multiple implementation options

Complexity


Fiduciary Decision Making The case for the prosecution

Trustees not fully equipped (skills, resources etc) => sub-optimal decision making

Call for more expertise to be brought to bear

“…their understanding of probability and their efficiency in processing information…”

“…it can’t be assumed that they share common and consistent techniques for solving investment related problems…” Oxford University


Driver to Fiduciary Management

ComplexityShort-comings

of current approach

+Fiduciary

ManagementFiduciary

Management=

“Lets leave it to the experts”


Emperors New Clothes


Neither Fish Nor Fowl


Hedgehog or Fox


History

Increasing Diversity

Fiduciary Management

Insurance

Asset Management(Balanced)

Asset Management(Specialist)

Asset Management+

Investment Banks


Two Models…

Ability Based Diversity Based

Trustee and Advisors

Provider A

Provider B

Provider C

Provider D

Trustee

Fiduciary Management

Providers


The Importance of Diverse Thinking

“You must know the big ideas and the big disciplines and use them routinely – all of them and not just a few. Most people are trained on one model…. and try to solve all problems in one way… this is a dumb way of handling problems”

Charlie Munger

“The logic of diversity provides individuals with the diversity of perspectives, heuristics, and interpretations to solve hard problems better than smart individuals”

“Research shows foxes – people with little knowledge of a lot of topics – make better predictions over time than hedgehogs – people who know one big thing”

Michael Mauboussin

“The diversity triumphs ability theorem: a randomly selected collection of problem solvers outperforms a collection of best individual problem solvers”

Scott Page


Case for the Defence

Greater diversity enhances quality of decisions

Decision making aligned with responsibility to members and core investment beliefs

Lower cost?


Questions

Need is greatest at smaller end but fiduciary management offering appears to be targeted at larger end

What happens if experience is disappointing?

Is there a proven successful model which fiduciary management is trying to replicate?

Monitoring success

Mercer Investment Consulting is a part of Mercer Human Resource Consulting Limited. Mercer Human Resource Consulting Limited is authorised and regulated by the Financial Services Authority and is a member of the General Insurance Standards CouncilRegistered in England No. 984275 Registered Office: Telford House, 14 Tothill Street, London SW1H 9NB

divyesh hindocha

Documents

fiduciary management

investment banks

logic of diversity

diversity of perspectives

defence greater diversity

asset classes

advisors provider

hard problems