For social security institutions that have an investment mandate, legislation, policy or decree may establish the general direction of the investment policy and prescribe the types of allowed investment instruments. Any legal or regulatory restriction is documented and incorporated into the social security institution’s investment mission and strategy or appropriately communicated to external investment managers.
The investment process is framed by reference to a risk budget aligned to the investment.
Investment decisions take into account the nature of the liabilities of the social security institution. In particular, investment strategy reflects the level, timing and nature of liability cash flows and the predictability of such future payment obligations.
This part of the guidelines refers to the processes that the investing institution must put into place to meet governance requirements and ultimately meet its investment objectives. These processes apply whether the investment itself is carried out by an internal investment unit or an external manager.
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 board and management have a fiduciary duty in administering and managing the funds of the social security institution.
Investment functions will be undertaken by different bodies or institutions. In order for the governance process to be effective, the roles and responsibilities of each body and how these interact will be clearly defined and communicated.
It is important that the way the bodies responsible for the investment process are set up and interact ensures that the investment governance process can be carried out effectively and in line with objectives.
The bodies and their roles and responsibilities need to be defined clearly. How the bodies work together and interact is also important to ensure coordination in the duties undertaken and that governance objectives are ultimately met.
The investment mission and supporting goals are clearly defined and have commitment from the relevant stakeholders.
Strong investment beliefs that command institution-wide support, are aligned with objectives and inform all investment decision-making, are agreed and documented.
Investment is essentially about making judgements and decisions in the present, typically with reference to the past, to cope with or exploit an uncertain future. Investors do this by using their underlying beliefs about how the world works. The quality of those underlying beliefs is a major determinant of success in investment.
