Although ERISA vests primary responsibility for managing pension assets in the sponsoring corporation, 60 per cent of the companies surveyed by the author’s organization delegate key policy decisions to investment managers.
Delegating operating authority, however, does not dispose of responsibility. Sponsors cannot avoid becoming involved in the great debate between traditional concepts of investment management and modern capital market theory—whether to diversify broadly or to concentrate on selected investments, whether to minimize portfolio turnover as a largely unnecessary cost or to accept it as necessary to the pursuit of significant opportunity, whether to change portfolio volatility over the market cycle or to hold it constant—in sum, whether to manage reward or to manage risk.
The techniques of modern capital theory make it possible to obtain highly predictable investment results given the investment environment. Managers and clients should be using these techniques to tailor pension portfolios to such presumably basic client considerations as the size of the company, the size of the plan, the percentage of plan participants now working, the benefit formula and the average age and length of service of the plan participants.
The management of employee benefit funds demands competence in the area of general management—the development of realistic long-term objectives and the careful articulation of investment policies that can serve as a basis for continuing, responsible communication between money manager and client.