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What Does Cognitive Bias Have to do With Investment Outsourcing? Russell Investments Canada Limited Institutional Market Research


News provided by

Russell Investments Canada Limited

Nov 19, 2014, 08:00 ET

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New white paper describes dual challenge of governance gap and cognitive biases facing smaller Canadian investment funds, suggests outsourced CIO strategies as potential mitigant

TORONTO, Nov. 19, 2014 /CNW/ - A recent white paper released by Russell Investments Canada Limited (Russell Canada) - To Err is Human: But Smaller Funds can Succeed by Mitigating Cognitive Bias! - describes the risk management challenges faced by many smaller Canadian pension plans. These plans are mired in outdated investing methods and susceptible to the impact of old-fashioned emotions on their desire to design a successful long-term investment approach for their constituents.

The report, authored by Bruce B. Curwood, director, investment strategy at Russell Canada, highlights a clear gap in resources and investment process between the Canadian "mega" plans (over $10 billion) and their smaller counterparts, which allows emotion to creep into the governance process of small- and mid-sized Canadian pension plans.

Curwood's premise is that smaller funds, which lack the economies of scale, need to be more deliberate in thinking about what may work best for their fund. They need to think outside the box and establish an investment framework to help ensure access to critical information to facilitate balanced thinking and overcome cognitive bias.

"The mega funds are already committed to this risk-managed approach, with often upwards of 20 specialists devoted to risk management alone. But how will smaller funds which lack scale and resources and perhaps even the will to change make that successful transformation?" says Curwood. By way of examples he goes on to describe the global financial crisis of 2008-2009 as a period in which larger Canadian plans were able to make significant enhancements to their risk management and governance processes while smaller plans simply weren't able to keep up.

Curwood offers guidance points to help smaller plans overcome these challenges, suggesting an Outsourced Chief Investment Office (OCIO) model as one way to address it. Russell Canada managing director of institutional Joe Gelly describes investment outsourcing as a way for small and mid-sized pension plans to partner with sophisticated investment managers. A reputable manager can provide access to the costly risk-management tools, research and staff to help implement an investment strategy or help the plan sponsor focus on larger elements of plan governance - such as asset mix, utilization of passive investment strategies and generally providing much needed scale to smaller plans.

"The OCIO model is a concept that has had strong awareness and acceptance in the U.S. and the U.K., but is still very much in its infancy in Canada. Each day, we see small and mid-size Canadian pension plans beginning to come to grips with the fact that today's markets require a more sophisticated and resource-intensive approach, which they may not be able to accomplish on their own. Through an outsourced investment model, there is less reliance on making emotional or irrational investment decisions. Decisions are set within an investment framework which aims to strategically achieve the best possible investment outcomes," said Gelly.

You can get a full copy of the study here .

About Russell Investments
Russell Investments (Russell) is a global asset manager and one of only a few firms that offers actively managed multi-asset portfolios and services that include advice, investments and implementation. Russell stands with institutional investors, financial advisors and individuals working with their advisors—using the firm's core capabilities that extend across capital market insights, manager research, portfolio construction, portfolio implementation and indexes to help each achieve their desired investment outcomes.

Russell has more than $307 billion Cdn in assets under management (as of 9/30/2014) and works with over 2,500 institutional clients, independent distribution partners and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell has $2.4 trillion in assets under advisement (as of 6/30/2013). It has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell traded more than $1.6 trillion in 2013 through its implementation services business. Russell also calculates approximately 700,000 benchmarks daily covering 98% of the investable market globally, including more than 80 countries and more than 10,000 securities. Approximately $5.2 trillion in assets are benchmarked (as of 12/31/2013) to the Russell Indexes, which have provided investors with 30 years of smarter beta.

Headquartered in Seattle, Washington, Russell operates globally, including through its offices in Seattle, New York, London, Paris, Amsterdam, Sydney, Melbourne, Auckland, Singapore, Seoul, Tokyo, Beijing, Toronto, Chicago, San Diego, Milwaukee and Edinburgh. For more information about how Russell helps to improve financial security for people, visit www.russell.com or follow @Russell_News.

Important Information
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Nothing in this publication is intended to constitute legal, tax securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This is a publication of Russell Investments Canada Limited and has been prepared solely for information purposes. It is made available on an "as is" basis. Russell Investments Canada Limited does not make any warranty or representation regarding the information.

Russell Investments and the Russell Investments logo are registered trademarks of Frank Russell Company, used under license by Russell Investments Canada Limited.

Russell Investments Canada Limited is a wholly owned subsidiary of Frank Russell Company and was established in 1985. Russell Investments Canada Limited and its affiliates, including Frank Russell Company, are collectively known as Russell Investments.

Copyright © Russell Investments Canada Limited 2014. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments.

Institutional-2014-11-17-0426. EXP. 11/2015

SOURCE: Russell Investments Canada Limited

Contacts: Tim Benedict, 212.702.7823; Beja Rodeck Communications, 905.885.5945; For real-time news updates, follow @Russell_News on Twitter.

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Russell Investments Canada Limited

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