Investment strategy: The investment sub-committee
The investment-sub commitee will play a key role in determining the strategy employed by a fund to generate returns on its assets
The trustee board can delegate certain powers to sub-committees. The most common is the investment sub-committee, but others can cover administration, a defined contribution scheme, individual cases requiring trustee attention and risk management.
The investment sub-committee usually consists of between three and eight people and is responsible for setting the scheme’s investment policy (although not all schemes use investment sub-committees).
The investment committee monitors investments at least quarterly and makes recommendations to the trustee board for approval, such as investigating new approaches to investment and new asset classes. It meets investment managers and reviews the literature they circulate, and also reviews and appoints investment advisers.
Some sub-committees have ‘delegated powers’ to make decisions without formal approval from the full trustee board. Normally this does not extend to making major changes to strategy or hiring (or firing) investment managers. However, the sub-committee would do the preparatory work of building a shortlist, interviewing managers and deciding on a first choice to recommend to the full trustee board.
Tips for investment sub-committee trustees
◆ Talk to your investment adviser about the pros and cons of the investments you hold and the level of perceived risk in each case.
◆ Ask them to evaluate the additional or reduced level of risk when recommending changes in your scheme’s investment strategy.
◆ Ask them to explain any areas you do not fully understand.
Statement of Investment Principles (SIP)
The SIP should include your policy on:
◆ Choosing investments and why a particular strategy has been adopted.
◆ Broad asset allocations within which the scheme is expected to operate and the balance between different kinds of investment.
◆ Risk, including how risk is to be measured and managed, and the expected return on investments.
◆ How performance will be measured, ie the benchmark against which fund managers will be assessed.
◆ Realising investments.
◆ The extent, if at all, you take account of social, environmental or ethical considerations when taking investment decisions.
◆ Using the rights (including voting rights) attached to investments if you have them.
You will need to review the SIP regularly – at least every three years and whenever there has been a significant change in investment policy. When you revise the SIP, you will need to take advice and consult with the employer in the same way as when the SIP was initially drawn up.