P&R wants shake-up in how our millions are invested

At the end of last year the States’ investment funds were valued at £3,335m.

The superannuation pension fund held the highest amount, with a valuation of £1,607m.

The three funds which come under the responsibility of Employment & Social Security totalled £885m.

Under the new approach there would be more emphasis on experts managing the funds, instead of deputies who may not have an extensive background in finance.

In a joint policy letter from Policy & Resources and Employment & Social Security, it is suggested that a States’ Investment Board should be set up.

This would be a specialist sub-committee of P&R and it would bring the management of all the funds into one place.

The policy letter notes that there are risks, which are considered inherent, in the current system.

‘Difficulties in ensuring adequate levels of investment expertise and sophistication of pension fund trustees have been common areas of concern in the UK for some time.

‘Regrettably, such shortcomings only become fully apparent when something goes wrong, at which point misunderstandings of risk and/or return inherent in various investment strategies are often uncovered.

‘These same issues could arise for the States where investment committees are resourced from political members.

‘Members with sufficient investment and governance expertise and experience are not always available and political terms do not align with the funds’ investment horizons.’

The proposed SIB would comprise of an external chairman, at least two suitably qualified external members, and the States Treasurer.

The external appointments would cover fixed terms of up to four years, with a maximum of three terms.

The intention is that the appointments would span political terms in order to ensure a degree of continuity which is not provided under the existing arrangements.

Currently there are more than 30 managers employed to look after the various funds, covering a wide array of investment types and with highly complex strategies.

The report outlines that this creates significant challenges for deputies, who sometimes have ‘limited investment experience and available time to properly gain sufficient understanding of the proposals to make informed decisions’.

Inconsistent investment strategies are said to have developed over States investments, which threatens to undermine long-term results.

It is envisaged that the SIB will be accountable to P&R through several mechanisms.

These include an annual investment report, a member of P&R may attend the board meetings, and P&R will have the power to appoint, monitor and remove independent members.

A number of potential efficiencies are anticipated from having a single experienced management board negotiating fees and costs across a much larger pool for investments.

For example, the reduction in investment manager fees should represent a saving of an estimated £1.6m.

The States is due to debate the policy letter in the next few months.