Investment governance is a vital part of the Investor’s toolkit. Naturally, evidence of your approach to governance is something that both clients and the regulator look at. But good governance brings its own benefits too. It helps to balance risk and reward, it builds client engagement, and it can also add up to 1 - 2% p.a. to returns. Not to be sniffed at – especially in times of low growth.

So how do you establish good governance in your portfolios?

Set a clear purpose

Everything begins with purpose. What does success look like? How will you achieve it? Knowing this will help you set clear objectives to guide your strategic direction and help you develop the policies and processes which create transparency and consistency. From purpose comes priorities and the ability to put resources where they’ll have most impact. Think about balance too: maintain equilibrium between rigorous, challenged decision-making and retaining agility to meet short-term challenges and opportunities.

Make incremental improvements

Your to-do list should include regular actions to monitor and improve on governance, such as:

• assessing portfolio and manager performance
• assessing processes to identify improvement areas
• ongoing training
• personal development – reading, reflecting and learning from emerging governance practices, and encouraging others to do the same.

Evidencing your approach  

When it comes to assessing your overall process, think about:

• Independent oversight

Is there an investment committee? How is it made up – are there external members to challenge internal members? Is there genuine diversity of thought? An investment committee drawing on a wide range of backgrounds and experience can produce strong challenge, robust oversight and the opportunity to learn from elsewhere.

• Responsibilities

Who is responsible for what? What decisions need to come back to the investment committee? Are the right processes in place to allow decisions to happen quickly?

• Shared beliefs

Shared beliefs provide a framework for decision-making but they do need to be truly shared – everyone needs to buy-in. This supports consistency, allows the right things to be prioritised, and gives greater transparency.

• Understand fees

What is the role of each fund in the portfolio? A detailed assessment will bring a sense of future returns. Don’t forget to assess explicit asset management fees alongside other fees like trading costs.

It’s never set and forget

An Advisor’s work is never done. You have to continually review past performance, assess forward prospects, and look at things like managers' approach to voting and engagement on environmental, social and governance matters. It’s worth it though – getting governance right is a clear point of difference that brings both additional investment return and client trust and engagement.