Contents

Introduction
PART I: INVESTMENT BELIEFS: THE FUNDAMENTALS
Think Twice about Your Investment Philosophy
Uncovering Beliefs
Why Pension Investors and Asset Managers Differ
PART II: EXPLORING BELIEFS
Inefficiencies
Risk Premiums
Diversification
Investment Horizon
The Investment Process: Impact and Focus Decisions
Risk Management
Investment Style
Costs
Organization
Sustainability
PART III: EMBEDDING BELIEFS
How to Hit the Ground Running
(Re)engineering Your Own Beliefs
References

Part I begins by painting the big picture. Articulation of investment beliefs and an investment philosophy not only provides the right underpinnings for asset allocation, but is also an integral part of the governance of the investment organization. The pension fund has to balance different interests. Pensioners and regulators increasingly demand more clarity as the invested assets accumulate further. The investment organization on the other hand has to determine its added value,realizing that it is a pension investor, not an asset manager.

Part II presents a useful and readily applicable overview of what these investment beliefs are; we show how asset managers use them. We examine investment beliefs from the world’s leading fund managers, pension plans and endowment funds. These are the companies that appear on everybody’s short list when buying asset management services, and are viewed as excellent companies in the asset management industry. Together they provide a broad based and coherent picture of today’s state of the art views on asset management. The survey spans North American and European companies, where the world’s assets are concentrated. We then cluster these investment views and search for commonalities. We purge our analysis by asking ourselves: is this investment belief practically applicable,and does it make sense in light of the state of finance and investments today? Our analysis suggests that managers with well-developed investment beliefs tend to show better results. We analyze and identify which investments beliefs have a strong effect on performance. We then show how managers can use these investment beliefs to sharpen the competitive edge of their companies. With the three groups of investment beliefs we unearthed, we identify promising strategies for the future: capital markets strategy, organization skills strategy and society strategy. We present practical examples of how asset managers can use these strategies to their advantage.

Part III homes in on execution. We confront managers in the financial services industry with a thought-provoking question: are their asset management organizations really looking at the right things? Are their organizations attuned to a set of investment beliefs that can stand the test of time and argued debate? Do they also help direct the organization’s resources to exploit the investment opportunities they believe in? These questions are at the same time the reasons why asset management companies should have these explicit beliefs. They promote transparency in goals and implementation, benefiting investors, boards of trustees and the manager. We also provide a checklist for pension fund managers on what to do when their organizations have no explicitly defined investment beliefs, but are keen to develop them for future success.

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