In asset management, investment governance frameworks play a critical role in shaping risks and opportunities. With the risk and investment landscape for institutional assets becoming increasingly complex, asset and wealth management leaders need foresight, adaptability and a commitment to excellence.  This is also applicable to asset owners and investors in other sectors including not for profits, endowments/universities, government institutions, insurers and family offices.

Navigating the complexities of investment governance today and in the future combines data and responses from Frontier Advisors’ 2023 research into institutional asset managers’ perspectives of investment governance in Australia with KPMG’s local and global insights into the challenges and opportunities that lie ahead. 

This co-authored report shares how institutional asset owners and wealth managers can develop investment governance frameworks that not only mitigate investment risk, but also foster sustainable growth. 

Key challenges for asset owners and investors

Perspectives of asset owners surveyed on investment governance in Australia1

Top challenges identified
are to have a clear mission plan for investments that everyone understands and buys into

say poor investment governance frameworks may result in a more than 1% negative impact to investment returns on an annual basis

feel there is too much focus on the short term

say they need to examine their investment portfolios through too many lenses

agree that investment governance has become increasingly complex over the past decade

1. Based on the Frontier Advisors’ 2023 research.

Investment governance insights

Why is good governance in asset management important?

Making improvements to investment governance practices can lead to stronger investor protection, enhanced performance, greater market stability and long-term sustainability, and can help asset managers avoid costly fines and reputational damage.

What investment governance challenges will asset managers face in the future?

Asset managers face increasingly complex global markets, ESG pressures, regulatory changes, data security and privacy concerns, and the need to embrace agility, diversity and inclusion in decision-making and culture. Innovating and adapting investment governance capabilities to stay ahead of future challenges will be critical for sustainable growth.

What are the key behavioural ingredients for good governance frameworks?

Despite the importance of compliance and defendable processes, behaviours that add value will be more important when it comes to good governance in the future. Future investment governance frameworks will require the following key behavioural ingredients:

  • clarity of mission
  • commitment to mission
  • challenge and diversity
  • incentives
  • leadership, reflexivity and circularity.

Which investment governance practices should be avoided?

  • Avoid: excessive investment risk-taking.
    Prioritise: prudent risk management practices, diversified portfolios and rigorous risk assessment frameworks.
  • Avoid: delaying ESG integration.
    Prioritise: applying ESG factors across processes, investment risk assessments and business practices.
  • Avoid: opaque fee structures.
    Prioritise: simple and transparent fee structures and disclosures.
  • Avoid: a focus on short-term investment returns.
    Prioritise: a disciplined approach to creating long-term, sustainable value.
  • Avoid: establishing teams and decision making bodies that lack cognitive diversity.
    Prioritise: diversity and inclusion to drive innovation and decision-making.
  • Avoid: resisting new technologies in favour of legacy systems.
    Prioritise: technological advancements that create efficiencies and a competitive advantage.

What are the governance challenges for large super funds?

Common investment governance challenges for large institutional asset owners include:

  • organisational culture
  • proper oversight of internal asset management
  • focus on a collective outcome
  • unlisted asset valuations
  • accountability for outcomes.

What are the governance lessons for smaller fund managers?

Although many of the principles of good investment governance apply to asset managers of all sizes, key lessons for smaller asset managers include:

  • establishing and communicating clear beliefs and goals in relation to ESG and responsible investment
  • showing transparency and accountability through meticulous record-keeping and communication to foster trust amid growing public and stakeholder scrutiny
  • delivering more focused reporting and concentrating on key decisions in board meetings, to avoid information overload
  • achieving board diversity and maintaining board members’ skills to keep up with the evolving investment governance landscape
  • managing resources by using technology and research tools for due diligence and to monitor performance and market trends.

What are the key investment governance trends in international markets?

Internationally, asset owners are evolving their investment models by shifting from outsourced to hybrid or internalised models. This evolution requires an uplift in investment governance frameworks and presents challenges including ensuring appropriate oversight of internal teams and external providers, and regulator engagement.

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How will your investment governance framework address future challenges?

Learn more in our report: Navigating the complexities of investment governance – today and in the future.

Download report (PDF 2MB)

Contact KPMG’s investment governance specialists

To discuss how we can help you develop an investment governance framework for sustainable growth, contact us.

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