Pension Trustees 'Lack Understanding Of Modern Investment Principles'

by Phillip Morton, Investors Offshore.com

15 June 2005

A new study supported by the UK's National Association of Pensions funds has found that many pension fund trustees have little understanding of modern investment theory and practice, a conclusion that the academic researchers described as "troubling".

The study, entitled 'Pension fund trustee competence: decision-making in problems relevant to investment practice,’ and undertaken by Gordon L. Clark, Emiko Caerlewy-Smith and John C. Marshall of Oxford University, concluded that pension fund decision-making was shown to be "less than ideal," and found that trustees are "nothing like the super-human calculating machines” of economic theory.

“It is clear, based on our experimental strategy, that pension fund trustees are prone to the cognitive anomalies and biases that researchers in psychology have attributed to the population at large,” stated the researchers, who tested 40 trustees of defined benefit pension funds against a control group of 80 Oxford undergraduates.

“If indicative of the nature and range of trustee decision-making, these results have important implications for the coherence of collective decision-making and the role of fund advisors and service providers,” the report added.

However, Professor Clark stressed that the results are not endorsed by the NAPF, nor do they reflect the association's policy.

“The views expressed in the paper are, as indicated in the paper, solely the responsibility of the authors. The paper is based on data collected and should not be construed as representing the entire universe of trustees or average trustee competence," he explained.

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