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A ‘Secret Sauce’ to Institutional Investment Revealed!

I was surprised the other day when somebody asked me what I thought the ‘secret sauce’ was for a successful pension or sovereign fund. And then something happened that surprised me even more: I actually knew the answer. In fact, it’s really quite obvious…

Somebody asked me the other day what I thought the ‘secret sauce’ was for a successful pension or sovereign fund. My initial reaction was to say that the question was asking for a bit of a ‘reductio ad absurdum’. But, if I’m honest, I actually quite liked the mental gymnastics of picking a single factor that could make or break a fund over the long term.

And here’s what surprised me even more: I actually know the answer. In fact, it’s really quite obvious...it just took someone asking me a simple question for it to come to mind.

But before I tell you what it is, take a guess. What do you think the lynchpin of a successful public pension or sovereign fund is? If your answer is different from mine, please email me (or comment below). I’d be curious to hear it.

So anyway, if you ask what the single most important factor in the success of a public pension fund or sovereign fund is, I’d have to say it’s...

...the Board nomination procedures!

Ummm, say whuh?

I’m being serious. If you go and look at the nomination procedures of the best pension and sovereign funds in the world, I can almost guarantee that you’ll find a set of well-articulated requirements detailing the skills and competencies that individuals must have to gain acceptance to the Board (let alone be nominated). In other words, the best funds have the best and brightest investment and business minds on their Boards of Directors.

Are you a bit let down by this? A bit too boring, eh? You wanted something with a bit of pizzazz; something like 'high salaries' or 'direct investment capabilities 'or 'Silicon-Valley-grade-data-architecture'. It’s a fair point. But who do you think’s going to make the resourcing decisions for all those snazzy things? Who’s going to give the management a long enough leash to get on with their jobs all the while having the capability to hold them accountable? The savvy Board, that’s who. And how do you get a savvy Board? You make darn well sure that stakeholders can’t stick just anybody on there, which requires a strongly-worded nomination procedure.

Listen, this is a tough business. Investing is as complex as it is dynamic. So public funds should have – have to have – people at the helm that can make resourcing and strategic decisions in full recognition of the real challenges and constraints to achieving long-term objectives. It’s really quite simple.

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