Asset Owners, Investment Management, and Commitment: An Organizational Framework

Abstract

This article focuses on asset owners, such as pension funds, and their models of investment management and describes the choice between insourcing, outsourcing, and re-intermediation. Drawing on the principal-agent problem and emphasizing the challenges facing asset owners when attempting to realize value from asset managers, the authors identify the dimensions of the management “problem.” Implications are drawn for the management practices of asset owners and the implementation of investment strategy combining in-house capabilities with external relationships. The authors also identify a set of metrics of performance that is consistent with superior long-term investment performance metrics to a range of asset owners, large and small.

TOPICS: Retirement, manager selection, performance measurement, pension funds