Critical ESG Themes for 2015 Are asset managers sufficiently long-term focused for asset owners? Universal ownership applying inclusive and integrated long-term finance Goal of securing fair outcomes for all stakeholders over time Framework and strategy that integrates long-term extra-financial opportunities Long horizon investing carries opportunities and responsibilities Every long-term investor is also a short-term investor The long-term investing opportunities need to be realised through technical and cultural excellence Long-term mandates for asset managers Design and experience has evolved This mandate has a track record of considerable success Roger Urwin Global Head of Investment Content 1 April 2015 © 2010 Towers Watson. All rights reserved. Long-horizon investment Opportunity for long-horizon investors to do better than short-horizon investors Investment strategies Access to certain systematic investment factors which exploit the mispricing of assets Exploiting mean reversion effects (ie the tendency of asset prices to move around an average value over time) in securities prices Earning an illiquidity premium Improving corporate wealth creation through investee - company engagement Investment processes Long-term investing requires technical and cultural attributes Fees, costs and incentives must be integrated Measurement, benchmarks and KPIs all contribute towerswatson.com 2 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. Long-term mandates Performance guidelines Fee basis Guidelines/monitoring Compare with target of CPI+6% pa over rolling periods of five years, on total return and income return 80% (say) of the fee is on a fixed basis supporting the core elements of the mandate (securing the manager’s capacity) Guidelines specify incorporation of sustainability considerations in process (ESG, other longer term risks) Consider also: • Target risk relative to benchmarks • Target performance relative to World Index 20% (say) of fee is budgeted to come from performance versus targets over rolling five years (supporting profit and comp) Meeting/monitoring focus: • Valuation metrics • Turnover • Longer-term risks and performance • Skill and process review towerswatson.com 34 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. Roger Urwin Roger assumed the new post of Global Head of Investment Content in July 2008 after acting as the Global Head of the investment practice from 1995 to 2008. Roger joined Towers Watson (then Watson Wyatt) in 1989 to start the firm's investment consulting practice and under his leadership the practice grew to a global team of 500. His prior career involved heading the Mercer investment practice and leading the business development and quantitative investment functions at Gartmore Investment Management. Roger’s current role includes work for some of the firm's major investment clients both in the UK and internationally. He is also involved with the Towers Watson thought Leadership Group (Thinking Ahead Group). He is the author of a number of papers on asset allocation policy, manager selection and governance. He is on the Board of the CFA and an Advisory Director to MSCI Inc. Roger has a degree in Mathematics from Oxford University and a Masters in Applied Statistics also from Oxford. He qualified as a Fellow of the Institute of Actuaries in 1983. towerswatson.com 13 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
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