Corporate governance of asset managers
For many pension funds, there’s often another aspect of corporate governance to consider.
Not only do they need to look at whether they are managing their duties as institutional investors responsibly, they also need to ensure that the investment managers they pick are managing their businesses correctly. Mercer provides such a service, that looks at the systems put in place to ensure an investment firm is not running unnecessary operational risks or using poor processes and controls. Ben Gunnee, European director of Mercer Sentinel Group, said: „The business really took off post-Madoff; we had a lot more clients approach us for our services. „When the Mercer goes into to review a company, it looks at how the business is structured from the top level down, paying particular attention at who owns the firm and who controls it. „We look to see if the company has the right board and if there are the right operating committees to run a business in an effective manner.“ This includes ensuring front and back office are properly segregated. Gunnee said he tends to spend more time looking at the boutique investment firms and hedge funds. „These firms are peceived to be more risky from a corporate governance perspective.“
Gunnee said most firms are happy to have him take a closer look at their business. „They see it as free management consultancy.“
There are two classic mistakes made by smaller firms. The owner of the firm often has 100% control of the company and needs to have more individual representatives on the board.
The other classic problem is inadequate spend on infrastructure.
„They struggle with getting the necessary systems in place. But it’s possible to outsource the middle and back functions in a very cost effective manner.“