Fulfillment of fiduciary responsibilities requires more than understanding a portfolio’s components. To achieve consistent results and protect assets there must be a common understanding among all stakeholders of the objectives of the funds, the role and responsibility of each relevant party and the parameters within which the management of the funds will occur. Governance is the structure and process established to ensure this common understanding and provide oversight of implementation, asset management and distribution decisions.
Governance is the top priority for boards of directors and investment committees. It begins long before portfolio structuring and investment decisions. Good governance can enable sound and efficient decision-making; it promotes accountability and sustained focus on achieving desired goals. In addition, a comprehensive understanding of the challenges facing an organization and an investment portfolio can enable fiduciaries to appropriately balance the organization’s risk tolerance with its return objectives.
Governance focuses on five important areas:
- Priorities, scope and objectives
- Constraints and prohibitions
- Roles and responsibilities
- Delegation of authority
- Ongoing oversight
A strong governance process will define these areas and will outline the processes and controls required to ensure accountability.
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