For social security institutions that have an investment mandate, legislation, policy or decree establishes the general direction of the investment policy and prescribes the types of allowed investment instruments. Furthermore, in order to maximize the long-term rate of return on reserves and at the same time mitigate investment risks, the range of instruments allowed for investments is sufficiently diversified. The board has the technical expertise to decide on the merits and risks of an investment proposal, using security and profitability as the main basis for an investment undertaking. Legislation, policy or decree establishes the legal liability of the board for fraudulent investments.
- The external authority may establish standards to evaluate the investment performance of the fund.
- Performance reports submitted by the board to the external authority should be externally validated.
- The external authority may also establish a protection and legal defence programme for whistleblowers.
- Public access to reports should be considered.
Section B.5 provides guidelines for: (a) institutions with internal investment units; (b) institutions with external fund managers; and (c) institutions with representation on the boards of companies in which they have significant asset holdings. Corresponding suggestions on structures and mechanisms are given to facilitate the application of the guidelines.
The ISSA Guidelines on Investment of Social Security Funds provides guidance on a progressive process of governance that starts with establishing the various structures involved in the investment process, through defining their roles and how they interact, to processes to be set up to ensure that governance objectives are met.
- The role of the board in the investment decision-making process should be clear and unambiguous.
- There should be an external authority that has the mandate to take legal action against, or exercise judicial authority over, the members of the board for fraudulent investments.