The investment structure and organization of the investing institution is consistent with the legislation, decree or official act of government which established the social security institution, the ISSA Guidelines on Good Governance, the ISSA Guidelines on Investment of Social Security Funds and industry best practice for investments.
The investing institution may be either the entity administering the social security institution or an entity established expressly for the purpose of investing the scheme’s funds.
Guideline code
INVEST_00700
Mechanism
Mechanism
- Governance should be separated into a governing function (the board, which sets the framework, monitors and controls) and an executive function (the management and/or investment committee, which makes the decisions within the given framework and implements or oversees implementation).
- The board, management, investment committee and stakeholders both inside and outside the institution must be able to match high-level objectives, such as maximizing beneficiary welfare, with an accepted operational goal, such as a target annual real rate of return, while allowing for liabilities and subject to agreed risk parameters.
- The board should keep its high-level responsibilities and delegate second-level responsibilities. Delegations should be clearly communicated with beliefs, constraints, performance measures and time horizons. The investing institution should have a detailed responsibilities matrix covering the board and board committees, such as the governance, audit, human resources and management committees.
- The board or management should appoint an investment committee which is responsible for developing the investment policy and the investment strategy which includes identification and management of risks, recommending the policy and strategy to the board or management, overseeing their implementation and evaluating their effectiveness.
- The investment committee should meet regularly and report its activities to the board and/or management.
- Selection to the board, management, investment committee and investment unit(s) should be guided by demonstrated numeric and analytical skills, capacity for logical thinking, and ability to think about risk and probability.
- The board, management, investment committee and investment unit(s) should recognize that the investment world is complex and rapidly changing, and the culture of the investing institution should encourage and support continual expansion of knowledge and open communication within and across all levels. Past decisions should be evaluated against actual outcomes so as to calibrate the decision-making process while allowing appropriately for noise and signal issues. The investing institution’s organization, policies and procedures should routinely be challenged by the board, management, investment committee and investment unit(s), and senior executive staff should be encouraged to innovate within the bounds of institutional capacity.
- A total rewards structure including compensation which generates an alignment of interests throughout the organization and builds a reserve of talented professionals should be adopted and regularly reviewed. The systems of “reward” should be explicitly linked to the mission and performance of the institution and the sense of common responsibility for its performance against objectives.
Structure
Structure
- The board should have a strong investment committee structure to deal efficiently with its whole agenda.
- An investment committee should exist which has a clear role to deal efficiently with significant investment issues.
- Leadership should be demonstrated by the board, management and investment committee.
- Effective compensation and staff appraisal practices should be used to align employee actions to the objectives of the investing institution.
- A learning culture which involves adapting to changing conditions and challenging orthodoxy should be encouraged at all levels of the organization.
- The governance structure of the investing institution should be sound and establish a clear and effective division of roles and responsibilities in order to facilitate accountability and the operational independence of the investing institution, allowing it to pursue its mission.
- The governance framework and objectives, as well as the manner in which the investing institution’s internal bodies are independent, should be publicly disclosed.
- The investing institution’s mission should be clearly defined and well specified, with the organization’s resources aligned according to the importance of each component of the mission.
- Each element in the investment process should be resourced with an appropriate budget of knowledge, skills and abilities.
- A highly investment-competent investment unit (or units) should exist and be tasked with clearly specified responsibilities and have accountabilities to the investment committee.
Title HTML
Guideline 5. Governance structure and organizational aspects of social security institutions
Type
Guideline_1
Weight
11