GLOBAL - Speakers at the IPE Real Estate Investor Forum in Amsterdam last week were split over the degree to which the quality of pension fund governance has affected investment performance during the current market downturn.
Peter Pereira Gray, managing director at the investment division of The Wellcome Trust, supposed that pension funds with better governance structures in place responded more timely and appropriately from the start of the market downturn.
"The events of 2007… should have caused boards, investment committees and pension fund trustees to reflect very seriously and very quickly about whether they have an appropriate allocation of assets going into the latter part of 2007 and 2008," he said.
"Those organisations that worked to defined quarterly committee cycles, for example, were not best placed to be able to take the avoiding action that I think was helpful, and those organisations that were able to react very quickly all had [good] governance structures in place."
Pereira Gray said the Wellcome Trust does not rely on tactical asset allocation strategies, rather all asset classes in which it invests compete with each other "all the time".
Its real estate allocation, for example, can range from 0% to 25% depending on the current state of different markets.
He said: "There is not the comfort of a strategic asset allocation that says we will have 10% in real estate and we will run the best real estate portfolio we can."
This flexibility allowed The Wellcome Trust to cut its equity weighting "by half" ahead of the current market lows.
"It can be done," Pereira Gray said. "We do have an unusually enlightened governance model."
But Richard Balfe, chairman at the Members of European Parliament Pension Fund, said it was unfair to blame losses incurred by pension funds necessarily on inferior governance provisions, especially because many trustees were following the advice of their investment consultants.
He said the trustees to the MEPs' pension fund were advised by their consultants to maintain their asset allocation strategy and not sell heavily out of their equity positions.
"Right the way through they advised the board that you should maintain your strategy," he said.
"You could say the board failed because it did not overturn its professional advisers."
Balfe explained that the trustees opted for as low an equity weighting as possible within the range advised by their consultants, but they did not breach this lower limit because "very highly paid professional advisers were coming in and saying: this is temporary… don't panic, don't sell when it's down, it can go back up again."
He continued by arguing: "This wasn't a bunch of trustees who went wild… they followed the broad advice, which in the past had always served them well."