Knowledge cannot be trustee-d
Never assume your client knows what you are talking about. Alas, many fund management or advisory organisations operate assuming a base level of client knowledge is met or exceeded when often it could not be further from the truth.
If investment or economics is not your day job, your exposure to the subject will be selective, patchy and very ‘media based’. There is no substitute for genuine investment industry experience. Even a trustee of a pension fund investing multiple millions will only switch onto investment matters sporadically and inconsistently, fitting it in around his day job. A trustee will often build up knowledge in periodic short bursts, only to lose it again in the gap before the next burst – rather like a game of snakes and ladders.
For this reason, much reporting by investment managers can fly over the heads of the investor – even the basic stuff. I once dealt with the trustees of a prestigious pension scheme. This trustee board took its fiduciary responsibilities extremely seriously, meeting regularly with carefully structured agendas. Much of this rigorous governance was due to the dogged professionalism of the chairman of the trustee board, who was known as ‘Sir Derek’.
Sir Derek ran his meetings strictly to time with no slack for discussions to go ‘off piste’. He believed it essential to ‘keep a close eye’ on the scheme’s investment managers and, for this reason, insisted on representatives of the fund manager attending two meetings a year. This had been the case throughout Sir Derek’s chairmanship, which at that point had lasted almost 20 years (he must have been one of the longest standing trustees in the country).
The fund manager – who we will call Phantom Asset Management – was rather in awe of the chairman and submitted a comprehensive written report well in advance of each meeting. At the meeting itself, Phantom’s representatives (never less than two people, sometimes more) would give a detailed presentation on top down macro-economic themes through to the house’s investment strategy before drilling down into the rationale behind stock selection and asset allocation decisions.
All impressive stuff and the trustees would nod in acknowledgment of key points, the most vigorous nodding always came from Sir Derek. Unfortunately, due to Sir Derek’s military agenda management, there was rarely time for much questioning.
Then, at one meeting, something unexpected happened. Only one presenter from Phantom turned up and, lacking the usual wealth of material, she finished early. She suggested it was a good opportunity to answer any burning questions the trustees might be harbouring. Sir Derek was visibly excited at this prospect – 10 free minutes in the agenda to ask questions – and was bursting to get in first.
“Well, there is something that I have been wondering for some time,” said Sir Derek, puffing himself up.
“Yes?” said the presenter, readying herself for a question of mind blowing technicality.
“I’ve always wanted to know,” asked Sir Derek, “what is an equity?”
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