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27 February 2007

27 February 2007. Presentation to AIMSE Consultants Conference Fiduciary Management Divyesh Hindocha. Mercer Investment Consulting is a part of Mercer Human Resource Consulting Limited. Mercer Human Resource Consulting Limited is authorised and regulated by the Financial Services Authority.

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27 February 2007

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  1. 27 February 2007 Presentation to AIMSE Consultants ConferenceFiduciary ManagementDivyesh Hindocha Mercer Investment Consulting is a part of Mercer Human Resource Consulting Limited. Mercer Human Resource Consulting Limited is authorised and regulated by the Financial Services Authority. Registered in England No. 984275 Registered Office: 1 Tower Place West, Tower Place, London, EC3R 5BU

  2. Content • Key drivers • Is it a good idea? • Hedgehogs or foxes?

  3. Complexity How Are Things Different Now?

  4. Fiduciary Decision Making The case for the prosecution • Trustees not fully equipped (skills, resources etc) => sub-optimal decision making • Call for more expertise to be brought to bear “…their understanding of probability and their efficiency in processing information…” “…it can’t be assumed that they share common and consistent techniques for solving investment related problems…” Oxford University

  5. Short-comings of current approach Fiduciary Management Complexity + = Driver to Fiduciary Management “Lets leave it to the experts”

  6. Emperors New Clothes

  7. Neither Fish Nor Fowl

  8. Hedgehog or Fox

  9. Insurance Asset Management(Balanced) Asset Management(Specialist) Asset Management+Investment Banks Fiduciary Management History Increasing Diversity

  10. Trustee and Advisors Trustee Fiduciary Management Provider A Provider B Provider C Provider D Providers Two Models… Ability Based Diversity Based

  11. The Importance of Diverse Thinking “You must know the big ideas and the big disciplines and use them routinely – all of them and not just a few. Most people are trained on one model…. and try to solve all problems in one way… this is a dumb way of handling problems” Charlie Munger “The logic of diversity provides individuals with the diversity of perspectives, heuristics, and interpretations to solve hard problems better than smart individuals” “Research shows foxes – people with little knowledge of a lot of topics – make better predictions over time than hedgehogs – people who know one big thing” Michael Mauboussin “The diversity triumphs ability theorem: a randomly selected collection of problem solvers outperforms a collection of best individual problem solvers” Scott Page

  12. Case for the Defence • Greater diversity enhances quality of decisions • Decision making aligned with responsibility to members and core investment beliefs • Lower cost?

  13. Questions • Need is greatest at smaller end but fiduciary management offering appears to be targeted at larger end • What happens if experience is disappointing? • Is there a proven successful model which fiduciary management is trying to replicate? • Monitoring success

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