Fiduciary management innovation. What does it look like?

January 24, 2018 Categories: Fiduciary Management, Multi-asset

Fiduciary Management innovation

Innovation continues to be a hot topic for fiduciary management. At Russell Investments, we understand that constant, rigorous innovation helps give our clients the highest likelihood of reaching their goals. That’s why we are so pleased to announce our recent award from Chief Investment Officer.


A note from Paul Wharton, Head of Fiduciary Management Clients, UK


Fiduciary Management innovationI am delighted to announce that Russell Investments remains a trailblazer in the fiduciary management space. Ahead of some of our well-respected industry peers, Chief Investment Officer have honoured us with the Investment Outsourcing Award for 2017. Today’s blog was written by my colleague Bryan Weeks, Head of Americas Institutional, and is a great sample of what we do and why it is a winning formula for our fiduciary clients.


Fiduciary management innovation. What does it look like?


Innovation. It continues to be a hot topic for all investors, including those following a fiduciary management approach. At Russell Investments, we understand that constant, rigorous innovation helps give our clients the highest likelihood of reaching their goals.

And that should be the focus — the reaching goals part. As in any industry, there’s the great temptation to innovate for the sake of the shiny new bauble — the attention-grabbing differentiator that gets the headlines and wins deals, but that, at the end of the day, may not give institutional investors any meaningful advantage.

In our role, we seek to identify the shiny new baubles and ensure we are not side-tracked by them, and instead we focus on our true fiduciary role, working for the best interests of investors, even when it comes to innovation.

Here are four fiduciary management innovations that we believe benefit our clients:

  1. 1. Dynamic portfolio management.

    Investing is largely about taking risks you expect to get paid for. This tradeoff varies over time and across asset classes. Periodically adjusting the portfolio in response to changes in the expected return-to-risk tradeoff isn’t market timing. It’s smart portfolio management. And now, here we are, nearing what we believe is the end of a legendary bull market. When we ask our clients about their single greatest concern it is typically this: Which risks do we take to get the returns we need while still protecting ourselves against an inevitable market correction? This is The Question. This is why we believe institutional clients should demand dynamic portfolio management—that moves at the same rate as market.

  2. 2. A total-portfolio perspective.

    Optimising individual asset class silos can lead to a suboptimal portfolio in aggregate. For example, a primary source of excess return for many active fixed-income managers is underweighting government bonds and overweighting credit. While this approach can be very effective for the specific asset-class silo, it can also mean an unintentional overweight to the equity factor at the total portfolio level. Why? Because we believe credit is often highly correlated with equity beta, particularly in market extremes. Asset managers that take a total-portfolio perspective can avoid these unintentional exposures and may find their portfolios to be more resilient during the unpredictable left-tail events.

  3. 3. A focus on efficient implementation.

    One basis point of certain savings is always more valuable than one basis point of potential return. With the right capabilities set, skilled portfolio managers can help make those savings more certain with ongoing implementation expertise, including currency management, execution and overlay services, and transition management. This approach can help reduce costs and thus increase the probability that an investment program achieves its objectives.

  4. 4. The human innovation

    When it comes to innovation, so much focus is on investable products. But when it comes to the success or failure of your investment arrangements, we believe the relationship between the client and the provider — what we might call the human element — is also vital. Although it’s not easy to quantify, don’t underestimate the importance of the human element in a pension scheme’s success. While investors often give their fiduciary management provider full discretion on the implementation of the investment arrangements, creating appropriate investment objectives to achieve a pension scheme’s long-term goals requires considerable discussion. This creates a relationship dependency. An innovative provider will take a proactive approach with clients, ensuring that they are enabled to take the right decisions at the appropriate time.

Innovation can be a good thing, and it must be a constant thing, because when it comes to asset management, every innovative strategy sows the seeds of its own destruction: Every inefficiency that a manager identifies is eventually erased simply by capitalising on that inefficiency.

So then, the best fiduciary management providers — even the ones who win innovation awards — need to constantly strive on your behalf. They need to work as true fiduciaries. They should be in the boat with you, the client. They should be accountable for their decisions. It should be simple to assess their failure or success against their stated goals.

This true fiduciary approach may be the ultimate innovation.


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2018 Global Market Outlook: Running with the bulls


Bryan Weeks, Head of Americas Institutional

Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.

The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

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