Want to Improve your Portfolio? Look to Big Business, says Towers Watson

(January 28, 2014) — Pension funds and other large investors should look to the corporate sector for lessons on adapting portfolio strategies over the long term, consulting firm Towers Watson has said.

Investors are not always aware of the need for change, which can occur due to complexity, sustainability, and market positioning, the company said.

“We believe that the world is entering a period of significant change in world economies, politics, and capital markets that will fundamentally affect the landscape in which asset owners compete,” said Roger Urwin, global head of investment content at Towers Watson. “Those asset owners whose decision making has become more flexible and efficient at handling uncertainty and ambiguity will be more adept at exploiting the potential opportunities available.”

Examples of this flexibility can be found in the most successful areas of the corporate sectors, Urwin said, as external market conditions regularly drive companies to re-assess their strategy and re-focus their activities due to a variety of reasons.

“Asset owners are facing the same pressures to adapt to a changing environment,” Urwin said. He cited examples where investment portfolios deemed well suited to today’s conditions were unlikely to be suitable in future.

Investors that have a focus on sustainability can ensure they have adaptive mechanisms in place to avoid any impairment to their long-term mission, according to Urwin.

“Asset owners are increasingly grappling with fresh demands on their governance and decision-making structures to meet their long-term performance goals,” he said. “Organisational change is a useful mechanism by which asset owners can respond to these demands and improve their chances of success in achieving these goals.”

Urwin said some pensions had begun to grapple with their governance structures, while others were being left behind on the issue creating a “best and the rest” scenario.

“While the jury is out on exactly how much value can be added from good internal governance, the case that governance is the principal enabler of good performance is unarguable.”