Performance.
Results Overview
Performance scores were based on up to 44 questions across seven components that were common to all, and two (member services and funded status) that were only applicable for some organisations. Components were re-weighted to accommodate what was not applicable, so that each individual fund was scored out of 100. The overall average score was 63, down one from 64 last year and the third highest scoring factor after governance and responsible investing. Individual fund scores ranged from 19 to 100.
Disclosures were generally comprehensive for the current year and at the total fund or investment option level. In contrast, reporting on longer time periods and asset class results were more often minimal or missing although more funds were observed disclosing intermediate (i.e. three to seven years) performance figures.
The components with the highest scores continued to include asset mix and portfolio composition and risk policy and measures. Similarly, the lowest scores were seen for asset class returns and value added and benchmark disclosures.
The Canadian and American funds now lead the way, with an average country score of 89 for the performance factor. All country rankings and scores were as follows.
Average score
Highest score
Performance questions asked
Overall Results Performance.
Year-on-Year Comparison
Performance Ranking
1.Canada
United States
3.Australia
4.Sweden
5.Japan
6.The Netherlands
7.Finland
Norway
9.South Africa
10.Denmark
11.Switzerland
12.Brazil
13.Chile
13.United Kingdom
15.Mexico
“However beautiful the strategy, you should occasionally look at the results.”
Sir Winston Churchill
Performance.
The assessment of performance disclosures included 44 questions organized across the components outlined below.
Annual reports usually contained much of the information to be analysed. Some funds, and especially DC funds, also had extensive reporting on their websites. Occasionally, some disclosures were found in other documents such as: listings of investment holdings and external managers; investment policy statements; and risk policy statements.
The performance factor was assessed by looking at the following criteria:
1. Total fund (or investment option) and asset class returns and value added (25% of the performance factor score)
Generating adequate investment returns is fundamental to the success of all pension plans. Asset mix is the biggest driver of long-term returns. Most funds also implement active management programs, aiming to add value over passive public market implementation. The review of return and value-added disclosures covered timelines reported for total fund and asset class results: 1-year; intermediate (any of 3 to 7-year); long-term (10 years or more); and current (e.g. monthly, quarterly).
2. Clarity and quality of return and benchmark disclosures (17% of the performance factor score)
Evaluating returns and value added is difficult unless you understand the basis for the calculations and the composition of the benchmarks used. Important considerations include: Are returns gross or net of investment costs? Are asset class benchmarks appropriate and comparable?
3. Asset mix and portfolio composition disclosures (15% of the performance factor score)
Investment performance is driven by asset class exposures, implementation, and holdings of specific investments. Disclosures related to these portfolio factors enhance understanding of performance. Disclosures focused on included: current asset mix and trend; exposures and concentration by market, geography, holding, and manager; and implementation details within asset classes.
4. Explanation of risk management policies and specific risk disclosures (5% of the performance factor score)
Investment rewards and risk go hand in hand. Risk is unavoidable. But sound risk management policies and practices help organisations prepare for and manage adverse events. The disclosures of actual risk levels were evaluated (eg value at risk, liquidity, credit quality, foreign exchange exposure).
5. Explanation of key results and outlook (9% of the performance factor score)
Commentary on the economic and market conditions experienced adds color and depth to the understanding of results achieved. The analysis also looked for a ‘looking ahead’ discussion of economic and market conditions and possible implications.
6. Member service goals, plans and service level reporting (20% of the performance factor score when applicable)
The investment function was included within the mandate of all pension funds reviewed, but for some, the member service function was the responsibility of another organisation that was not reviewed. Where member service was part of the mandate, analysis was on disclosures relating to: goals, plans and progress; actual service levels achieved (eg call answer times, website features and service transaction volumes) and reporting of customer satisfaction, customer effort and net promoter scores.
7. Funded status disclosure discussion of assumptions and risks (9% of the performance factor score when applicable)
Some of the funds reviewed managed defined benefit assets and had responsibility for both sides of the pension balance sheet – assets and liabilities. For these funds we assessed disclosures related to funded status including disclosure and discussion of key assumptions and risks.