Dec 11 2019

Institutional Investment Mandates: Anchors for Long-term Performance

Asset owners--the cornerstones of the investment ecosystem--often have very long-term investment goals, such as funding liabilities, building an endowment for perpetuity or providing for subsequent generations. For some of these asset owners, especially pension and retirement funds, these goals reflect the long-term needs of individual plan members who rely on these institutions to safeguard and build the savings which they will rely on down the road.

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Ensuring assets are managed in line with these long-term horizons is critical to achieving these goals. This presents a challenge, however, because assets are often managed by asset managers, distinct from the asset owners, and they may have different time horizons, incentives, and goals.

Among the most important elements in ensuring that institutional investor partnerships fulfill long-term objectives are the investment management contracts between asset owners and asset managers, the “mandates.” The terms and conditions embodied in these mandates constitute a mutual mechanism to align the asset managers’ behaviors with the asset owners’ objectives. These contracts define the relationships between asset owners and asset managers and play a crucial role in ensuring the success of these relationships over time.

Shaping these mandates with provisions specifically oriented towards long-term goals can help build stable, lasting investment partnerships and, if designed properly, improve long-term performance. Hear from some of our Members on the importance of a long-term oriented mandate:

Canada Pension Plan Investment Board

Ontario Teachers' Pension Plan

Click here to read the first edition of Institutional Investment Mandates: Anchors for Long-term Performance (December 2017).

Keywords: Incentive Alignment