A solid assessment of the external and internal context in which the strategy will be developed is needed to provide a strong, common point-of-departure for the process and ensure that discussion between all relevant parties (the board and executives in particular) are sufficiently based on facts to be fruitful. It is also important to assess how the context may change in the short, medium and long term.
The context may vary widely for different types of asset owner – defined benefit schemes, defined contribution schemes, insurance firms, foundations, endowments, etc. – which face differing liabilities (e.g. long versus short), regulatory context, obligatory solvency/coverage ratios, asset and liability management, etc.
Topics to consider
External fundamentals assessment
Consider how these systemic developments (and others) will influence your portfolio in the short, medium, and long term, anticipate how stakeholders could react to these developments (e.g. beneficiaries/customers, employees, competitors, society at large) and consider how the impacts will vary by investment type e.g. asset class, geography, industry.
|SOCIAL TRENDS||TECHNOLOGICAL TRENDS||ECONOMIC TRENDS|
|ENVIRONMENTAL TRENDS||POLITICAL AND REGULATORY TRENDS||FURTHER CONSIDERATIONS|
It is also important to understand your organisation’s position in the market, and your internal capabilities.
|ORGANISATIONAL ASSESSMENT||PERSONAL INVESTMENT CONVICTIONS OF KEY PLAYERS|
Actions and roles
- Project lead ensures exhaustive list of:
- trends to be examined and sources to be checked;
- organisational assessment points available and gaps to be filled;
- stakeholders to interview on their personal investment convictions.
- Project team collect reports on macro trends, to project the impact of these trends on portfolios, and assess internal capabilities of the organisation to address these issues.
- Project sponsor holds initial meeting with the board, executives and project lead to assess current strategy, discuss systemic developments including potential influence on the risk/return profile and discuss further/future considerations.
- Project lead conducts interviews with board members/trustees and executives on their personal investment convictions.
- Project lead/team may engage (such as through surveys or focus groups) with wider stakeholders (such as beneficiaries/customers) to further identify inputs on external factors (including ESG) that may influence desired investment outcomes.
- Board may engage with wider stakeholders to develop their own personal investment convictions, and potentially ask wider stakeholders about theirs.
- Project sponsor holds additional workshops with the board/trustees, executives and project lead to present and share initial findings, and educate on relevant issues (such as responsible investment) if required.
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How to craft an investment strategy
Asset owner strategy guide: how to craft an investment strategy
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Step 1: Context